Gifting shelters not always built to last
It's that season again, the tax-shelter season, where promoters attempt to sell their latest schemes to unsuspecting, tax-burdened Canadians.
Not surprisingly, the Canada Revenue Agency has once again warned taxpayers to be wary of tax-shelter promotions, especially those involving donation arrangements.
Under a gifting tax-shelter scheme, the taxpayer would typically receive donation receipt equal to three or four times the amount of cash actually "donated." To date, the CRA has denied more than $2.5-billion in tax-shelter gifting arrangement donations, yet despite numerous warnings and audit activity, the CRA says that some taxpayers are still participating in these schemes.
In the summer of 2007, the CRA issued an alert in both official languages as well as in Arabic, Chinese and Punjabi, warning Canadians that it "plans to audit all tax-shelter gifting arrangements." Last week, the CRA released an update on their audit progress, saying that they have now reassessed, or are in the process of reassessing, more than 65,000 taxpayers who participated in these schemes.
In most cases, the CRA has denied the "gift" completely, not even allowing the cash amount paid by "donors" to be claimed as a charitable donation.
The CRA also reminded taxpayers that just because a tax shelter has a tax-shelter number, that doesn't mean that benefits associated with the tax shelter have been endorsed, guaranteed or approved by the CRA. It just means that the CRA is aware of the shelter's existence and can follow up on it at a later time.
If you bought one of these deals last year and have received your tax refund, does that mean you're home free? Not necessarily, the CRA warns. Just because your 2007 return was accepted as filed doesn't mean the CRA agrees with your donation claim. They generally have three years from the date of your notice of assessment to audit and reassess you.
Taxpayers may also face arrears interest and penalties. The CRA may be more tempted to assess the latter if you have a prior history of investing in gifting schemes.
In the past five months alone, the CRA has already revoked the charitable status of a half-dozen charities that got involved in tax-shelter donation schemes: H.B. Arts Foundation Ltd., Pinnacle Foundation, Choson Kallah Fund of Toronto, the Banyan Tree Foundation, the Canadian Amateur Football Association and the International Charity Association Network (ICAN).
Of these, the largest was ICAN, which, in 2006, was one of the highestgrossing charities in Canada, issuing about $464-million in donation tax receipts to nearly 23,000 donors through its participation in various tax-shelter programs such as the Global Learning Gifting Initiative.
Once a charity's status has been revoked, it is no longer able to issue receipts for funds or gifts, effectively shutting down related tax-shelter programs.