The Canadian Bar Association PracticeLink Solo and Small Firm Bulletin has sent a note to its members “Tis the season: CRA warns about gifting tax shelter schemes. Whether you approach them as a lawyer or as a tax-payer, gifting tax shelter schemes are bad news, the Canada Revenue Agency warns. How do you tell a rip-off from a write-off? If it looks too good to be true, it probably is.”

Here is the short note:

http://www.cba.org/CBA/PracticeLink/2012-11-solo/cra.aspx

Tis the season: CRA warns about gifting tax shelter schemes

Whether you approach them as a lawyer or as a tax-payer, gifting tax shelter schemes are bad news, the Canada Revenue Agency warns.

If it seems too good to be true, it probably is, warns the Canada Revenue Agency, particularly when it comes to gifting tax shelter schemes.

“All gifting tax shelter schemes are audited and the CRA has not found any that comply with Canadian tax laws,” the agency said in a notice sent out to organizations this fall.

The CRA has denied more than $5.5 billion in donation claims; revoked the charitable status of 44 organizations that participated in these schemes; and has assessed $63.5 million in third-party penalties against promoters and tax preparers since 2000.

By the numbers: the CRA has denied more than $5.5 billion in donation claims; revoked the charitable status of 44 organizations that participated in these schemes; and has assessed $63.5 million in third-party penalties against promoters and tax preparers since 2000.

This is the season where promoters start the hard sell on this type of tax scheme, says the CRA. It can be hard to tell whether the scheme is legitimate, the agency says, but does point out one sure sign of a rip-off being sold as a write-off: if a tax-shelter promoter offers a tax receipt for a larger amount than the donation or payment, “it’s very likely not a valid donation.”

Starting with the 2012 taxation year, any tax returns where a taxpayer is claiming a credit be participating in a gifting tax shelter scheme will be put on hold until the CRA can complete an audit of the tax shelter – which could take up to two years. “This will avoid the issuance of invalid refunds and discourage participation in these abusive schemes,” it says, adding it has reassessed more than 167,000 taxpayers who have participated in gifting tax shelter schemes.

“A taxpayer whose return is on hold will be able to have their return assessed if they remove the claim for the gifting tax shelter receipt in question,” the CRA says.

The CRA urges Canadians who are considering entering into a tax shelter arrangement to obtain independent, professional advice from someone with no connection to the tax shelter or to the promoter before signing any documents.

For more information on abusive gifting tax shelters and other tax alerts, go to www.cra.gc.ca/taxshelters.