CRA recently released a letter which gives CRA’s views on providing advance tax rulings in respect of leveraged donation arrangements. Following the recent Maréchaux decision and the CRA audits of leveraged donation arrangements, there have been concerns raised regarding the validity of the tax results and benefits that are purported to accrue under such arrangements. In the letter, CRA provides several examples where it would not be appropriate to consider requests for advance income tax rulings with respect to leveraged donation arrangements.
AUTHOR Leigh, Jenie
SUBJECT Leveraged Donation Arrangements
Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the CRA.
Prenez note que ce document, bien qu’exact au moment émis, peut ne pas représenter la position actuelle de l’ARC.
PRINCIPAL ISSUES: Following the Maréchaux decision, what are the CRA’s views on providing advance tax rulings in respect of leveraged donation arrangements?
POSITION: See response.
2010 CTF Roundtable
Leveraged Donation Arrangements
Following the Maréchaux decision,(note 1) what are the CRA’s views on providing advance tax rulings in respect of leveraged donation arrangements?
The Maréchaux decision and the CRA audits of leveraged donation arrangements raise concern about the validity of the tax results and benefits that are purported to accrue under such arrangements. The CRA plans to audit all tax shelter gifting arrangements, including leveraged donation arrangements, and will challenge any arrangement that does not comply with the Act. In light of this, the CRA has concluded that it would not be appropriate to consider requests for advance income tax rulings with respect to leveraged donation arrangements where the following elements are present:
* Financing is available to fund the donation, with the result that only a small percentage of the receipted amount is paid out of the taxpayer’s own funds.
* The charity receives very little cash up front (a small percentage of the total receipted donation).
* The arrangement involves preordained transactions involving several entities.
* It is unlikely that the taxpayer has to repay the loan because the lender’s recourse to collect is limited, or there is a provision to settle all or part of the loan by way of something other than a cash payment from the taxpayer.
* The arrangement involves long-term loans such that there is uncertainty about impact of future events (for example, whether there will be repayment by the taxpayer, whether refinancing will be available, or whether cash invested will grow sufficiently to equal the amount of the loan).
* The funds loaned to the taxpayer circle back to the lender.
* The use of a limited partnership or other structure permits losses or other deductions to flow through to investors.
* Offshore money managers or investment accounts are used.
* There is uncertainty about certain aspects such as valuation and questions of fact such as arm’s-length issues.
(1) Maréchaux v. The Queen, 2009 TCC 587; aff’d. 2010 FCA 287.
November 28, 2010
Title: CRA Views 2010-0389111C6: Leveraged Donation Arrangements—Section 118.1
Date Posted: 06/05/2013 08:26
Date Released: 06/05/2013 08:26
Areas of Interest: Federal Income Tax
Document Source(s): Canada Revenue Agency
Topic(s): Charities and Charitable Donations
General Subject Area: Income Tax (Federal)
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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.