Topics: What's New from the Charities Directorate of CRA, Canadian Charity Law, Receipting by Canadian Registered Charities
The problem of “abusive charity gifting tax schemes” continues. These are schemes that promise that if you put in say $1000 through a complicated scheme you will end up with a $5000 receipt and therefore you can save $2500 in taxes. CRA notes that two additional strategies will be used to prevent Canadians from investing in these schemes. The first is that CRA will not assess tax returns until after the tax shelter scheme has been reviewed. That means a person who claims tax benefits under one of these schemes and then files a tax return may have to wait a couple years for a refund. Also as per the 2013 budget CRA can collect 50% of the taxes owing of an amount in dispute. What is shocking from the press release is apparently over 182,000 taxpayers have participated in these schemes.
Here is the CRA press release
“Canada Revenue Agency continues its administrative procedures for gifting tax shelter schemes
January 10, 2014 - Ottawa, Ontario - Canada Revenue Agency
For the 2013 tax year, the Canada Revenue Agency (CRA) will not assess taxes owed or provide a refund to taxpayers who claim a tax credit under a gifting tax shelter scheme until the CRA has audited the tax shelter. However, if a taxpayer makes a claim under a gifting tax shelter scheme, the taxpayer can have his or her tax return assessed before the related tax shelter has been audited if they agree to remove the claim from their return. This procedure remains unchanged from the 2012 tax year.
The CRA continues to alert taxpayers that if they receive a charitable donation receipt for an amount higher than the value of property donated, the receipt is not valid and can’t be used to claim a tax credit. The CRA is auditing all such gifting tax shelter schemes, and to date, none has been found to comply with Canadian tax law.
The new legislation, introduced in Economic Action Plan 2013, affects taxpayers who have been denied, in whole or in part, a tax credit for donations made under a gifting tax shelter and who have filed an objection to this decision with the CRA or appealed it to the Tax Court of Canada. The new legislation allows the CRA to collect 50% of the amount in dispute or to withhold 50% of the refund of an amount in dispute, when these amounts are related to a gifting tax shelter.
The CRA strongly encourages taxpayers to get advice from an independent tax professional before engaging in a tax shelter. To make sure the advice is independent, a tax professional should not be linked in any way to the tax shelter or the promoter of the tax shelter.
- The CRA has denied more than $5.9 billion in donation claims and reassessed over 182,000 taxpayers who participated in these gifting tax shelters.
- The CRA has revoked the charitable status of 47 charitable organizations that participated in gifting tax shelters.
- The CRA has assessed $137 million in third-party penalties against the promoters and tax preparers involved.
- The CRA will also be administering new legislation for the 2013 tax year, which affects taxes in dispute related to gifting tax shelters.
- Tax shelters (Canada Revenue Agency)
Director of Communications
Office of the Minister of National Revenue
Canada Revenue Agency
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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.