Canadian residents that hold certain U.S. retirement plans may have \nan unusual tax savings opportunity when making charitable contributions.\n Where they meet the requirements they can make a distribution from \ntheir U.S. retirement plan without recognizing taxable income for either\n U.S. or Canadian tax purposes and get a charitable contribution \ndeduction for Canadian tax purposes. This is as close to \n\u201cdouble-dipping\u201d as most taxpayers may get.<\/p>\n\n\n\n
Qualified Charitable Contributions can be made from certain U.S. \nretirement plans to qualifying charitable organizations. These \ncontributions are made directly from the U.S. retirement plan to the \ncharitable organization. Any organization that qualifies to receive \ndeductible charitable contributions under U.S. tax law would generally \nqualify, including those formed in the U.S. and qualifying under IRC \nSec. 501(c)(3). The Canada-U.S. tax treaty expands qualifying \norganizations to those formed in Canada.<\/p>\n\n\n\n
The U.S. tax results of the Qualified Charitable Distributions are as\n might be expected. The amounts distributed by the retirement plan to \nthe charitable organization are neither U.S. taxable income nor are they\n deductible for U.S. tax purposes. Absent the qualified charitable \ndistribution rules, the income would be taxable to the beneficiary and \nthe contribution would be deductible. <\/p>\n\n\n\n
The advantage for U.S. tax purposes of the Qualified Charitable \nDistribution rules is that the beneficiary avoids recognition of taxable\n income under U.S. tax law and in return gives up the associated tax \ndeduction. Under the expanded standard deduction beginning in 2018 \n(US$24,000 for married taxpayers filing jointly), it will no longer be \nadvantageous to itemize their deductions. Using the Qualified Charitable\n Distribution, they get both. In addition, the distribution may also be \nclaimed as part of the required minimum distributions after age 70\u00bd.<\/p>\n\n\n\n
The big win here is for Canadian tax purposes. Because the Qualified \nCharitable Distribution is not taxable in the U.S., the tax treaty also \neliminates it from being taxable in Canada. However, unlike the U.S., \nthe distribution to a charitable organization can still be claimed as a \ndeduction for Canadian tax purposes. They get both the tax deduction and\n don\u2019t have to have pay tax on the amount distributed. Where the \ndistribution is made to a charitable organization in the U.S. or outside\n Canada, it will be subject to Canadian tax deduction limits of the \napplicable tax treaty. Distributions to Canadian charities would be \nsubject only to the limits under Canadian tax law.<\/p>\n\n\n\n
Individuals who have U.S. retirement plans, reside in Canada and want\n to make charitable contributions, can get a double win with Qualified \nCharitable Distributions.<\/p>\n\n\n\n