Another Canadian charity has been revoked involvement with “abusive charity gifting tax shelters”. [Update] Here is a copy of various letters from CRA to The Malvern Rouge Valley Youth Services.
November 15, 2011 10:39 ET
The Canada Revenue Agency Revokes the Registration of Malvern Rouge Valley Youth Services as a Charity
OTTAWA, ONTARIO—(Marketwire - Nov. 15, 2011) - The Canada Revenue Agency (CRA) has revoked the charitable registration of Malvern Rouge Valley Youth Services, a Toronto-area charity. The notice of revocation was published in the Canada Gazette with an effective date of November 12, 2011.
On September 29, 2011, the CRA issued a notice of intention to revoke the charitable registration of Malvern Rouge Valley Youth Services, in accordance with subsection 168(1) of the Income Tax Act. The letter stated, in part, that:
“Our audit revealed that the Organization had devoted a significant portion of its resources to the promotion of the Global Learning Gifting Initiative tax shelter gifting arrangement. Our audit indicated that, for the period from May 1, 2008 to April 30, 2009, the Organization had received in excess of $17 million of cash. Of this amount, over $8.3 million was received as tax-receipted donations from the participants of a tax shelter. The Organization received a further $8.7 million from another registered charity participating in the tax shelter. Our audit showed that of the approximately $17 million of cash received, the Organization paid over $14 million to the promoters of the tax shelter.
Our audit also revealed that the Organization issued tax receipts in excess of $103 million for courseware purportedly donated by the participants of the tax shelter. It is our position that the amounts on the tax receipts for the courseware were grossly inflated, as the Organization failed to ensure these receipts were issued at their fair market values as required under Regulation 3501(1)(h)(ii) of the Act.
It is our position that the Organization has operated for the non-charitable purpose of promoting a tax shelter arrangement and for the private benefit of the tax shelter promoters. The Organization has issued receipts for transactions that do not qualify as gifts; issued receipts otherwise than in accordance with the Income Tax Act and its Regulations; failed to file an accurate T3010 Information Return; and, acted in concert with another registered charity to unduly delay its obligation to meet its disbursement quota. Our audit findings were explained in detail in our letter of November 30, 2010, to which you failed to respond by January 31, 2011, and have yet to respond. For all of these reasons, and for each of these reasons alone, it is the position of the Canada Revenue Agency (CRA) that the Organization’s registration should be revoked”.
The notice of intention to revoke and other letters relating to the grounds for revocation are available to the public on request, in the language in which they were originally written, by calling 1-800-267-2384.
A charity that has had its charitable status revoked can no longer issue donation receipts for income tax purposes and is no longer a qualified donee under the Income Tax Act. The organization is no longer exempt from income tax, unless it qualifies as a non-profit organization, and it may be subject to a tax equal to the full value of its remaining assets.
Registered charities perform valuable work in our communities, and Canadians support this work in many ways. The CRA regulates these registered organizations through the Income Tax Act and is committed to ensuring that they operate in compliance with the law. When a registered charity is found not to comply with its legal obligations, the CRA may revoke its registered status under the Income Tax Act.
The CRA is reviewing all tax shelter-related donation arrangements (for example, schemes that typically promise donors tax receipts worth more than the actual amount of the donation), and it plans to audit every participating charity, promoter, and investor. For more information about tax shelters, go to the CRA’s Tax alert Web page at http://www.cra.gc.ca/alert
For more information about the registration of Canadian charities, go to the CRA’s Charities and Giving Web page at http://www.cra.gc.ca/charities.
FOR BROADCAST USE:
The Canada Revenue Agency has revoked the charitable registration of Malvern Rouge Valley Youth Services, a Toronto-area charity. The revocation took effect on November 12, 2011.
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Here are some media articles:
Scarborough youth organization loses charitable status
Toronto charity goes from zero to $60 million in a year
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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.