Avoiding 'Charity' Scams

July 22, 2016

Mariano v. The Queen - massive cost award against GLGI of close of $500,000

In a recent decision Mariano v. The Queen, the Tax Court of Canada (TCC) awarded a very large cost award in favour of CRA (who was the respondent in the matter) and against GLGI, the promoter, and some of its investors.  The Court ordered costs of $491,136.95 minus the costs of two expert witnesses which will have to be determined.  The TCC also noted with respect to CRA "The Respondent was totally successful in the trials of the above matters involving a charitable donation scheme which spanned over 25 days of hearings including one week of oral argument supplemented by detailed written argument given by both sides."  Please note they did not say largely succesful - they said "totally" succesful.   It is quite clear that the TCC after many many years is getting impatient with listening to arguments in favour of what the CRA used to call "abusive charity gifting tax schemes".   

July 15, 2016

Markou v. The Queen - deals with a Canadian tax shelter scheme - a little cash gets a big receipt!

Markou v. The Queen, 2016 TCC 137 is a super boring case dealing with the jurisdiction of the Tax Court of Canada and whether such court can make a determination as to whether certain proceeds are part of a Quistclose trust.  Beyond whether there are or are not enough legal gymnastics in this decision there is lots of interesting background on a complicated tax scheme from 2001 that probably few have heard of.  The leveraged donation scheme known as "The Donation Program for Medical Science and Technology" was implemented by Trinity Capital Corporation from 2001 - 2003.  An example of one donor is that he put in $3,520,000 and received a tax receipt for $11 million which would save him about $3.2 million in Federal taxes and $1.9m in Ontario taxes.    

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July 11, 2016

Canada Revenue Agency revokes the registration of the ACTLAP Children’s Foundation (A.C.F.)

The Canada Revenue Agency ('CRA') recently revoked the charitable registration of the ACTLAP Children's Foundation (A.C.F.).  CRA revoked the charitable status on the basis that the organization had operated primarily for the non-charitable purpose of furthering a tax shelter donation arrangement, the Pharma Gifts International Inc. program. The charity agreed to accept alleged gifts of property from participants in this scheme and act as a receipting agent.  Over $64 million dollars in charitable receipts were improperly issued for donations of cash and pharmaceuticals. 

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June 18, 2016

CBC “Charity tax fraud to cost brothers their freedom”

The CBC in an article entitled "Charity tax fraud to cost brothers their freedom" how two brothers were each sentenced to over 4 years for being involved in charity fraud over nearly $5 million. It shows how the CRA is increasingly using criminal convictions instead of just revocations.  The judge described the fraud as "industrial scale".   The article notes "The total number of false claims over the life of the scheme was more than 1,700 for a purported $11.4 million of alleged donations." Keep in mind that this was only issuing $5 million in fraudulent receipts which is a tiny tiny amount compared to some other schemes out there.

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May 22, 2016

Another poorly thought through Canadian private members bill that affects the charity sector

A Canadian private members bill, introduced by MP Ted Falk, would change the tax credit for donations to charities.  It is called the Fairness in Charitable Gifts Act- Bill C-239.  Malcolm Burrows recently wrote a very useful critique of this poorly thought through piece of legislation. Essentially the idea behind the proposal is to match the incentive for charitable donations to those offered for political donations.  However, unlike political donations which have very low caps and therefore the tax benefits are very limited, there will be no limit on the tax benefits that donors to charities receive under this bill. 

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April 25, 2016

High Court rules Cup Trust Gift Aid claim can be withdrawn

In the Cup Trust case there was an abusive scheme run by a charity and controlled by a trustee, Mountstar.  The Mountstar trustee was replaced by an interim manager appointed to take over the affairs of the charity.  The interim manager decided that they did not want to pursue litigation relating to a Gift Aid claim.  The organizers of the scheme (Mountstar) wanted the charity to continue litigation and were prepared to pay for its costs.  The High Court in the UK decided that charities should not be involved in speculative litigation and that it was acceptable for the interim manager to withdraw the Gift Aid claim.  

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February 29, 2016

Spotlight wins Academy Award, but real investigative reporting does not deserve any awards

It was nice to see the movie Spotlight winning an Academy Award as best picture.  The movie focused on a team of Boston Globe investigative reporters who uncovered extensive abuse by priests.  The Chronicle of Philanthropy had a very good opinion piece by Pablo Eisenberg entitled "Philanthropy Needs More Reporters Like Those in ‘Spotlight’"

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February 28, 2016

National Post article highlights how charities can unwittingly be used to support terrorism

In a recent and lengthy article in the National Post entitled "Who is Awso Peshdary? The case against an alleged Ottawa extremist who police say recruited for ISIL" the article describes the way Mr. Peshdary allegedly recruited for ISIS in Ottawa. What is interesting to see is the number of charities that have some sort of unwitting involvement with Mr. Peshdary and that he used their programs or services to further his efforts.  This article is helpful in challenging misconceptions about charities and terrorism. The biggest misconception that people have about charities and terrorism is that a charity would only be useful for fundraising for a terrorist enterprise. There are so many ways that terrorists can misuse charities that I will discuss below.  The second biggest misconception about charities and terrorism is that those who control the charity' are knowingly involved in supporting the terrorism.   All that a charity needs to be is unaware of the activities for them to take place.   

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February 03, 2016

R. v. Raza, -using criminal courts to crackdown on charity fraud

There was recent case of R. v. Raza, 2015 BCSC 2512 (CanLII).  The three accused were tax preparers who were charged with fraud for allegedly being involved with the issuance of false donation receipts. 

January 21, 2016

Canada v. Scheuer, - CRA not responsible for bad shelters that have tax shelter numbers

In the recent case of Canada v. Scheuer, 2016 FCA 7 the Federal Court of Appeal sided with CRA.  A number of people who had invested in abusive tax shelter arrangements sued CRA because CRA had issued a tax shelter number.  The FCA concluded that CRA had no alternative but to issue the tax shelter number and such number does not mean that the tax shelter works. CRA does not have a duty to warn "investors" that a scheme like GLGI is suspect.  Although I might add that CRA does warn people not to invest in these schemes. Also the FCA suggested "the plaintiffs acknowledge that they received independent legal opinions, opinions from accountants and valuation appraisals in respect of the tax shelter. The issuers of such opinions, who benefited financially from the provision of their professional advice, are better placed to indemnify the plaintiffs in the event of negligence in the exercise of their professional responsibilities."   In other words the FCA is encouraging those who invested in these schemes to sue the lawyers, accountants and valuators who provided opinions and appraisals if they were negligent. 

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January 21, 2016

Liberals announces winding down of the political activities audit program for charities

Diane Lebouthillier, the new Minister of National Revenue has announced that the 2012 Conservative government initiative to audit more registered charities on the issue of political activities will be wound down.  There is a lot in the release and I will be writing more about it shortly.  

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January 19, 2016

Charity Village webinar “Top 20 Compliance Issues for Canadian Charities”

I will be presenting a webinar for Charity Village on January 28, 2016 on Top 20 Compliance Issues for Canadian Charities.

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December 18, 2015

The important charity information British people get to see that Canadians are forbidden from seeing

The Charity Commission of England and Wales just released a report entitled Campaigning and political issues arising in the run-up to the 2015 General Election.  When they put it out they probably did not think that it is such a special report.  It explained that in the 2015 UK election there were complaints about UK charities, the Charity Commission investigated and what the result was.   Nothing that exciting, except in Canada if the CRA was to prepare a similar report and provide it to either MPs or the public then people at CRA would go to jail.    

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December 17, 2015

Charity Commission warns UK charities about the risks of ‘dominant individuals’

Here is part of a press release from the Charity Commission of England and Wales concerning "dominant individuals".

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December 08, 2015

R. v. Kueviakoe - using the criminal courts to go after charity fraud

In R. v. Kueviakoe, 2015 ONCJ 681 (CanLII) Ekue Kueviakoe was charged with numerous offences contrary to the Income Tax Act (Canada) because he prepared many false income tax returns.  He was fined at a rate of 100% of the tax avoided on all those income tax returns and sentenced to a one year conditional sentence ie. house arrest.  He will have to pay over $70,000 in fines.   The Judge took into account a myriad of factors in determining the sentence including sick members of his family, his loss of a stable job resulting from the fraud etc.  The Judge noted that in terms of the taxpayers "The Canada Revenue Agency reassessed each of those people such that they are responsible for paying their portion of those taxes.  The Canada Revenue Agency has therefore already been reimbursed.  The individual taxpayers might also have been assessed administrative penalties for their part in this."  

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December 04, 2015

CRA Revokes the Registration of Le Refuge des Rescapes for involvement in tax shelter scheme

Today the Canada Revenue Agency announced the revocation of the registration of of the Canadian registered charity Le Refuge des Rescapes for issuing over $2 million in official donation receipts connected with an abusive charity gifting tax scheme. 

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November 25, 2015

CRA initiative “Protect yourself against fraud”

It is interesting to see that CRA used to refer to "abusive charity gifting tax schemes" and they appear to be lumping them in with fraud.  "Meet Mary & William. Mary and William are a married couple with kids. They have fallen victim to a donation tax shelter scheme. Find out more about Mary and William’s story and how you can protect yourself against fraud."

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November 25, 2015

Mattachione, V. et. al. v. The Queen (TCC)

The Tax Court of Canada recently released a decision where they dismissed the appeals of former spouses relating to reassessments under the Income Tax Act with respect to their alleged charitable donations made in 2003, 2004 and 2005. 

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November 24, 2015

Major national charity allegedly hit with $800,000 fraud

A number of media outlets have reported that allegedly March of Dimes Canada has been hit with a $800,000 fraud over an 8 year period.   Here is a report from consumer reporter Sean O’Shea.  "Toronto woman charged in alleged defrauding of the March of Dimes of $800K"

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November 02, 2015

Successful appeal by CRA in Canada v. Castro, 2015 FCA 225

We have previously blogged about the decision of the Tax Court of Canada in David, R. et al. v. the Queen (TCC) (here and here). In this decision, the court allowed the appeals of the respondents relating to tax credits that had been previously disallowed by the Minister of National Revenue for gifts the respondents had made to CanAfrica International (CanAfrica), a registered charity, in 2006 (each of the respondents was issued an inflated tax receipt by CanAfrica).  

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November 01, 2015

Ontario Bar Association program “Top Compliance Issues for Canadian Charities” on Nov 9, 2015

On November 9, 2015 I will be presenting a program for the Ontario Bar Association, along with Nevena Urosevic, on Top Compliance Issues for Canadian Charities.  It is available both in-person and by webcast.

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October 09, 2015

Agenda for the Blumbergs’ Charity Law Institute 2015

October 08, 2015

Canadian Charity Case Law

We are compiling a list of Canadian cases dealing with charities, gifting and related issues.  Let us know if you have any other suggestions:

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September 14, 2015

Humber Fundraising Management Course “Ethical and Legal Issues”

Mark Blumberg will be team teaching, with Valerie Campbell and Sharilyn Hale, the Humber Fundraising Management Course "Ethical and Legal Issues".  It was previously taught by Ken Wyman so we will have big shoes to fill.    

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July 31, 2015

Guindon v. Canada - SCC upholds third party civil penalties under the ITA

In the recent Supreme Court of Canada decision Guindon v. Canada - 2015 SCC 41 the SCC has upheld the third party civil penalties provided under the Income Tax Act.

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Charity Lawyer Mark Blumberg

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.

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416.361.1982
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