Ethics and Canadian Charities
July 22, 2016
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, 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.
July 13, 2016
Deluca v Canada, 2016 ONSC 3865, is an Ontario Court of Justice claim by Mr. Deluca against the CRA. Mr. Deluca had invested over $100,000 in a tax shelter involving a barter network and 'donations' to a registered charity. When CRA denied his donation claims Mr. Deluca sued the CRA because he argued they owed him a duty and they were slow in revoking the status of a registered charity. The courts quite harshly dismissed Mr. Deluca's claim. I guess you can summarize the case as -all because a business and a registered charity encourages you to get involved in a questionable donation scheme and CRA does not accept the validity of the donation you cannot use CRA as an 'insurance policy' to cover your losses by suing CRA.
July 11, 2016
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.
June 30, 2016
The Ontario Court of Appeal has upheld a lower court decision which endorsed the Law Society of Upper Canada's decision to not accredit Trinity Western University's law school because of their "community covenant".
June 18, 2016
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.
May 22, 2016
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.
April 25, 2016
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.
March 15, 2016
I look forward to the AFP GTA Fundraising Day 2016 which will be held on June 9, 2016. There will be various speakers and panels. I will be on a panel with Bruce MacDonald (Imagine Canada), Hilary Pearson (PFC), Caroline Riseboro (Plan International), Stewart Wong (Holland Bloorview Kids Rehabilitation Hospital) dealing with the importance of government relations.
February 29, 2016
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’"
February 28, 2016
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.
February 03, 2016
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
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.
January 21, 2016
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.
December 18, 2015
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.
December 08, 2015
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."
December 04, 2015
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.
November 25, 2015
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."
November 25, 2015
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.
November 02, 2015
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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