Topics: What's New from the Charities Directorate of CRA, Canadian Charity Law, Receipting by Canadian Registered Charities
CRA has confirmed that the value of receipts issued by a few charities that were part of 'abusive charity gifting tax shelters' was over $7 Billion dollars and resulted in the reassessment by CRA of over 208,000 taxpayer returns. The height of the schemes was 48,000 participants in 2006 and that number has been reduced to less than 400 in 2014. We have written many times about these complicated schemes which promise for a certain cash donation you can obtain a much higher official donation receipt which will result in tax savings that are greater than your "investment".
Here is part of the email I received from the CRA:
As a result of its multi-year, multi-pronged effort in deterring this form of non-compliance, the CRA has seen a sharp decrease in taxpayers participating in gifting tax shelter schemes—from 48,000 participants in 2006 to less than 400 in 2014, or a decrease of 99% in participation in these schemes.
Gifting tax shelters are arrangements where a promoter represents that the donation tax credit or donation deduction arising from the gift made via the arrangement, will equal or exceed the investors net cost of participation in it. A gifting arrangement where the donor incurs a limited recourse debt related to the gift is also a tax shelter.
The mid to late 1990’s and early 2000’s saw an increase in gifting tax shelter schemes. When the Agency became aware of the schemes, immediate action was taken. The Agency has denied more than $7 billion in donation claims and reassessed over 208,000 taxpayer claims from participants in gifting tax shelters. In addition, since June 2000, the Agency has assessed $193.7 million in third party penalties against promoters and tax preparers who advised their clients to participate in a gifting tax shelter scheme. Third parties may also face criminal prosecution.
No tax shelter identification numbers have been issued for gifting tax shelters subsequent to 2014. The CRA has effectively eliminated mass marketed gifting tax shelters. The CRA strongly suggests that taxpayers seek advice from an independent tax professional not connected to the scheme or the promoter before participating in any activity where all - or significantly most - of the return on investment, is derived from a tax benefit.
The CRA continues to use a risk-based approach to compliance to combat serious cases of non-compliance. In addition, the CRA educates taxpayers about the consequences of participating in abusive tax schemes, and works with the Department of Finance Canada to close tax loopholes through legislative amendments. Based on the Agency’s results, this strategy is working.
More information on gifting tax shelters can be found at the following tax alert: https://www.canada.ca/en/revenue-agency/corporate/about-canada-revenue-agency-cra/tax-alert/tax-shelters.html "
Do you require legal advice with respect to Canadian or Ontario non-profits or charities?
Mark Blumberg is a partner at the law firm of Blumberg Segal LLP in Toronto and works almost exclusively in the areas of non-profit and charity law.