Gifting tax shelters (also known as charity tax shelters) are arrangements that result in donation receipts worth three or four times the actual amount donated by the taxpayer. The CRA’s official position on the matter is that if a tax shelter offers a deductible receipt for a larger amount than the donation itself, the donation is likely not valid. The CRA has underscored its position with an unyielding crackdown on tax shelter participants. To date, the CRA has denied almost $6 billion in gifting arrangement donations and reassessed almost 200,000 taxpayers who participated in these schemes. Moreover, the CRA has also revoked the charity status of approximately 50 charitable organizations that participated in gifting tax shelters.
Oftentimes, taxpayers are misled by tax shelter promoters and persuaded to invest in the schemes on the false assurances of tax law compliance and professionally vetted tax structures. We have compiled a list of red flags donors should be aware of when evaluating a potential donation:
- You are promised a tax receipt for much more than your contribution.
- There is little information about how the scheme works on the tax shelter’s website.
- The promoters refuse to answer questions until you hear their sales pitch.
- The promoters keep reassuring you that there is nothing to worry about in their scheme, which is purportedly different from similar schemes which were shut down by the CRA.
- You have never heard of the beneficiary party or the beneficiary party has a name similar to that of a legitimate, reputable organization.
- The promoters claim to have a legal opinion verifying their scheme. Donor beware, an opinion doesn’t guarantee anything!
- You are pressured to sign right now without being granted the time to think about it or consult an independent financial advisor or tax lawyer.
- You are pressured to consult only the lawyer the promoter is suggesting.
- The arrangement involves incredulous claims such as an unnamed individual establishing a trust to distribute highly valued property to participants.
- The promoter knows very little about the beneficiary charity, its purposes, where it operates and so forth, or provides very limited details about the beneficiary charity and how it will use the copious amounts of cash and property to be received from the taxpayer.
- It is difficult to find public recognition or announcements of the charity’s good works as a result of its tax shelter participation.
- The promoter advises that the CRA will audit you and deny your donation claim but the promoter will take care of the CRA and will defend the scheme in court.
- The promoters tell you that if you lose when challenging the CRA, you can consider your tax refund a low-interest loan from the CRA. In reality, with compounding daily interest as well as penalties on a debt payable to the CRA over several years, the money owed grows exponentially.
As with most things in life, if something sounds too good to be true, it probably is. Taxpayers need to take a common sense approach when organizing their tax affairs. Donors considering a potential donation scheme should always seek the advice of an independent tax professional before taking any action. For taxpayers who have already donated to what they suspect is a charity tax shelter but have not yet been audited, we recommend speaking to a tax professional immediately to explore potential relief options.
Don’t turn to just anyone to solve your tax problem. Call Tax Solutions Canada today for expert advice from their ex-CRA and tax specialists: 1-888-868-1400.