Tax Shelter Information from CRA
June 20, 2007
The Canadian Council of Christian Charities (CCCC) advises registered charities not to get involved in tax shelter gifting arrangements. The CCCC has serious concerns about these arrangements. Registered charities should be aware that participating in such arrangements can jeopardize their charitable status or expose them to monetary penalties.
A tax shelter gifting arrangement typically promises participants tax savings greater than the cost of participation in the scheme, thus allowing donors to “profit” from donating to a charity . Prominent examples of such schemes include gifting trust arrangements, leveraged cash donations, and buy-low, donate-high schemes. Many of these arrangements provide little or no benefit to the charities involved or to their intended beneficiaries. Instead, many of these arrangements take advantage of a registered charity’s receipting privileges for the private gain of promoters and participants.
The Canada Revenue Agency (CRA) reviews all tax shelters to ensure that the tax benefits being claimed meet the requirements of the Income Tax Act (the Act). The CRA continually audits these arrangements, reassesses donors and disallows donations claimed. In many cases the CRA has reduced the donation amount to no more than the cash paid by the taxpayer. When the donation is not a true gift the CRA will reduce the claim to nil.
The CCCC has been advised that the CRA intends to challenge and proceed with compliance action against any arrangement that does not comply with the Act. Charities that knowingly participate in schemes that are abusive or fraudulent or that fail to devote their resources to legitimate charitable activity, can be subject to revocation and/or significant monetary penalties. In addition to penalizing charities involved in these arrangements, the CRA may also apply penalties against those persons who promote such arrangements or who participate in the making of false statements to the CRA.
