Charity cross-border tax: US donors, friends-of structures and grants that comply

Why your Canadian receipt does almost nothing for a US donor

Article XXI of the Canada-US tax treaty lets a US resident deduct a gift to a Canadian registered charity only against Canadian-source income — and most US donors have none, so the receipt you issue is worth zero on their 1040. The one carve-out worth knowing: gifts to a Canadian college or university that the donor or a family member attends or attended escape the cap. On top of that, the IRS presumes a Canadian charity is a private foundation rather than a public charity unless it demonstrates otherwise, which tightens the deduction limits for the rare donor who can use one at all. The US percentage limits still apply on top, computed against that Canadian-source income rather than total income.

So when a board asks whether US supporters can just give directly, the honest answer is: they can, and most will get no tax relief for it. Serious US fundraising runs through a US vehicle.

Friends-of organizations: how US money actually arrives

A friends-of organization is a US 501(c)(3) — typically named American Friends of your charity — that raises fully deductible gifts from US donors and grants the funds across the border. The structure holds only if the US board keeps genuine discretion: a friends-of that is bound to hand every dollar to you is a conduit, and the IRS can deny its donors' deductions. In practice that means its own directors, minuted grant approvals, and a written grant agreement behind each transfer.

On your side those grants are ordinary revenue — no Canadian withholding, no receipt to issue — reported on the T3010 with your other funding from outside Canada. US private foundations can also grant to you directly, but expect their counsel to request an equivalency determination or expenditure-responsibility terms first, so keep your governing documents, financial statements and recent T3010 filings ready to hand over.

Sending money south: qualifying disbursements, not conduits

A US 501(c)(3) is not a qualified donee, so your charity cannot simply gift it money — that is precisely the conduit behaviour CRA revokes registrations over. Since the 2022 Budget Implementation Act there are two compliant routes. The first is a qualifying disbursement to a grantee organization: a written agreement, a purpose that fits within your own charitable purposes, accountability tools scaled to the risk, and T3010 disclosure once grants to a single grantee pass $5,000 in a year. The second is running the work as your own activity through an intermediary agreement that keeps direction and control with your board — the older route, still the better fit when the US body is executing your program rather than its own. Either way, keep the grantee reports and agreements with your books — the T3010 line is only the surface of the file CRA can ask to see.

T3010 and Form 990: two public returns that must not contradict each other

A dual structure files on two calendars. The Canadian charity files its T3010 within six months of fiscal year-end; the US friends-of files a Form 990 by the fifteenth day of the fifth month, with the 990-EZ and the 990-N postcard available to smaller entities — the postcard at $50,000 or less in gross receipts. Both returns are public documents, and they describe the same grants from opposite ends. A 990 that shows a grant your T3010 never reports as revenue from outside Canada, or grant totals that drift apart on FX translation, is exactly the mismatch a reviewer or journalist notices first.

We keep the two filing calendars, the grant agreements and the currency translation on one desk, alongside the restricted-fund tracking covered on our nonprofit bookkeeping page and the treaty machinery at cross-border tax services. Boutique and cloud-first; the fee is fixed once we have seen both sides of the structure.

Source: CRA — Form T3010, Registered Charity Information Return.