While it's easy enough to make a charitable donation to a Canadian charity, finding a way to deduct the contribution for U.S. income tax purposes is a much more complicated endeavor. The default rule prohibits any deduction­—a U.S. citizen or resident (referred to as U.S. individual in this article) may not claim a U.S. income tax charitable deduction for a donation to a foreign charity. But with some advance planning, a U.S. individual may be able to secure the desired U.S. income tax deduction in spite of the default rule. This article will examine the applicability of the U.S.-Canada Income Tax Treaty, which carves out an exception permitting deductibility if the U.S. individual has Canadian source income, and, it will discuss options for using a U.S. charity for indirect cross-border philanthropy for individuals who do not have Canadian source income.

The first roadblock that the U.S. individual must overcome on the road to deductibility is the same roadblock that applies to all taxpayers, regardless of whether their charitable giving is domestic or abroad. That is, to claim a charitable deduction, the taxpayer must generally itemize his or her deductions. With the exception of the special $300 deduction allowed for tax years 2020 and 2021 (which is doubled to $600 for joint filers for 2021), if an individual does not itemize, no charitable deduction will be allowed. In 2021, the standard deduction for a single individual is $12,550. For individuals who are married and filing jointly, the standard deduction is $25,100. A taxpayer whose itemized deductions do not exceed the applicable amount will claim the standard deduction, and the rest of the considerations in this article become moot.

Assuming that the U.S. individual intends to itemize their deductions, they must then turn to the U.S.-Canada Income Tax Treaty to determine what relief the Treaty provides to the default rule prohibiting deductions for foreign charitable contributions. While the Treaty does provide some relief, it is incredibly limited in scope. Under the Treaty, a U.S. individual may claim a U.S. income tax deduction for contributions made to a Canadian charity, but (1) the deduction may only be claimed against the individual's Canadian source income, and (2) the adjusted gross income (AGI) percentage limitations that apply to domestic giving must also be applied against the individual's Canadian source income. The Treaty then creates an exception to the exception, and suspends the AGI limitations for contributions to a college or university at which the U.S. individual or a member of his or her family is, or was, enrolled; even though the AGI limitations do not apply to this specific category of donations, these taxpayers must still have Canadian source income if they wish to claim a deduction for the donation to the Canadian university.