The Canada Revenue Agency has just announced that it has revoked the charitable status of the Canadian charity “Liberty Wellness Initiative” for involvement in a charity gifting tax shelter.
News release The Canada Revenue Agency revokes the charitable status of Liberty Wellness Initiative
Ottawa, Ontario, April 19, 2010… The Canada Revenue Agency (CRA) has revoked the charitable registration of Liberty Wellness Initiative, a Toronto-area charity. This revocation was effective April 17, 2010.
On March 11, 2010, the CRA issued a notice of intention to revoke the charitable registration of Liberty Wellness Initiative, in accordance with subsection 168(1) of the Income Tax Act. The letter stated, in part, that:
The Canada Revenue Agency’s (CRA) audit has concluded that from August 15, 2004 to August 15, 2006, Liberty Wellness Initiative (the Organization) issued nearly $89 million in receipts for healthcare units received through the Universal Donation Program, a registered tax shelter. However, it is our position that donation receipts were issued for amounts far in excess of the actual value of the healthcare units. Our audit has revealed that the value of the healthcare units was artificially established and constructed to be five times a participants’ cash contribution thereby facilitating the tax advantages promoted by the tax shelter.
For its participation and tax-receipting abilities, the Organization received a cash payment from another participating charity of nearly $15.4 million. All funds were directly transferred to a related third party company and used to pay the fees associated with operating and promoting the tax shelter. A small portion of these funds, $6.9 million, were used to acquire goods for use in the Organization’s programs.
Our audit has also revealed insufficient separation between the Organization’s operations and the personal business and financial interests of those responsible for its operation. In particular, the Organization has entered collusive contractual arrangements with directors and related parties who are themselves promoting the tax shelter programs. These arrangements have resulted in substantially all of the actual cash received being diverted into the hands of the promoters and related companies rather than used for charitable purposes.
It is our position that Liberty Wellness Initiative has operated for the non-charitable purpose of promoting tax shelter arrangements and for the private benefit of its directors and the tax shelter promoters. Liberty Wellness Initiative has issued receipts for transactions that do not qualify as gifts; issued receipts otherwise than in accordance with the Income Tax Act (the Act) and its Regulations; and has failed to meet its annual disbursement quota. For all of these reasons, and for each of these reasons alone, it is the position of the 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 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 in Canada perform valuable work in our communities, and Canadians support this work in many ways. The CRA regulates registered charities through the Income Tax Act and is committed to ensuring that charities operate in compliance with the law. Where a registered charity is found not to comply with its legal requirements, the CRA may apply monetary penalties or may suspend or revoke the charity’s 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.
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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.