When the Canada Revenue Agency (CRA) started their investigation with Canadian charitable organizations, they reviewed each of the charitable organizations registered in Canada and removed quite a lot of them from the qualified charitable organizations list. In 2014 the CRA moved on to verifying foreign charitable organizations that qualified for the same tax-exemptions as domestic charities for any contributions made towards them and unfortunately this list has been decreased to zero qualifying foreign charities.
Until 2012, there were a significant number of qualifying organizations. In order to qualify as a ‘tax-exempt’ foreign charity in Canada (i.e. a charitable organization which can issue donation receipts) to individuals which can then be claimed on the individual’s personal tax return) the foreign charitable organization simply needed to receive a charitable donation from the Canadian federal government. This exemption would then last two years after the donation was made.
But due to the change in rules brought in by the Ottawa budget of 2012, from 2013 onwards these foreign charities needed to re-apply to the CRA and would be granted qualifying status only if they were involved with providing disaster relief, humanitarian aid, or with “activities in the national interest of Canada.”
Based on the new ruling, none of the foreign charities seem to qualify anymore. This has made it difficult for these organizations to obtain financial support from Canada; since many wealthy donors look forward to using the tax-exemptions provided by making these donations.
Although the CRA has clarified that it is reviewing these charities and may provide the qualifying status to some, only one charity (The Rhodes Trust – Public Purposes Fund out of the UK) is currently approved..
According to Mr. Mark Blumberg, a Toronto-based lawyer, “There’s no transparency about how groups get onto this list.” Plus, he said, the CRA does not reveal which government department provides the donations to these groups or the amounts of the donations. There is also no guideline for reporting how funds are allocated making it quite unclear how the qualifying charities are selected.
That being said, the CRA has indeed hardened the ruling for both domestic and foreign charitable organizations to qualify for tax-exempt status leading to very few foreign charities qualifying for this exemption.
Taxpayers are cautioned to verify the status of any organization they intend to contribute to since many charitable organizations have lost their qualifying status due to fraudulent practices of issuing donation receipts of higher values than the actual contributions received. Taxpayers should not be lured by promoters into any unacceptable tax measures, and may consider seeking the help of a tax professional if they encounter a questionable situation. We also encourage taxpayers to check the CRA database of qualified charitable organizations prior to making donations.
AG Tax LLP Can Help
Tax situations can be complicated, and complying with the tax regulations further stressful especially if there are possibilities of penalties for non-compliance.
If you have any tax-related queries or need assistance with tax planning or filing please contact AG Tax. Our tax professionals are highly-experienced with U.S. and Canadian tax laws and can provide you the right guidance to handle your tax situation.
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