Avoiding 'Charity' Scams
May 2013
The CRA has revoked the registration of The Life Centre Word of Faith Ministries Inc. as a charity. The Globe and Mail covered this story in “Toronto pastor, wife charged in alleged $8.6-million Ponzi scheme” http://soa.li/mVtmmlY
The Canada Revenue Agency has revoked the charitable registration of the Canadian registered charity Trinity Global Support Foundation. The London Free Press has written extensively on this charity and we have covered here: “FCA case on Trinity Global Support Foundation - CRA wins again” http://www.globalphilanthropy.ca/index.php/blog/comments/fca_case_on_trinity_global_support_foundation_-_cra_wins_again
April 2013
On October 15, 2013 we will be having the 2nd Annual Blumbergs’ Canadian Charity Law Institute in Toronto. It will be a full day of practical legal and ethical compliance information geared toward charities, professional advisors and those interested in regulatory issues affecting charities.
In this case Trinity Global Support Foundation (the “Foundation”) asked the court to delay CRA publishing a notice of intention to revoke the registered charity status until the Foundation’s other legal claims have been dealt with. The FCA ruled against the Foundation because the Court determined that “there is no substantive evidence that the Foundation or its clients will be forced to shut down or be significantly affected prior to its notice of objection being considered.” The Court also did not think that losing its charitable status caused irreparable harm as “It is clear from the evidence that the reputation of the Foundation has already been subject to intense public scrutiny for reasons distinct from the notice of intention to revoke. As such, I see no basis upon which to conclude that any possible further harm to the Foundation’s reputation will be such as to amount to irreparable harm.” The judge does not mention the London Free Press coverage but presumably that is what is being referred to. The conclusion of the FCA decision is important “Given my conclusions with respect to irreparable harm, I need not consider the balance of convenience element of the test. However, it is clear that serious allegations have been raised in the context of the proposed revocation. It is clear from the Foundation’s own evidence that it has been engaged in fundraising activities using tax shelter arrangements, which have been an activity of legitimate concern generally to the Minister. As such, in my view the public interest in the Minister protecting the integrity of the charitable sector outweighs the Foundation’s interest in staying revocation and I see no reason for the Court to grant an equitable remedy to the Foundation.”
Today the Department of Finance released the “Notice of Ways and Means Motion to amend the Income Tax Act, the Excise Tax Act and Related legislation”. This will introduce the First-Time Donor Credit, improve the efficiency of the Tax Court of Canada which has been bogged down with charity gifting cases and allowing CRA with abusive gifting tax shelters to collect 1/2 of the taxes allegedly owed.
The CRA has provided more information on the provision in the 2013 Federal Budget dealing with taxes in dispute and abusive charity gifting tax shelters.
I wish it was an April Fool’s joke but unfortunately there are still Canadians investing in the ‘abusive charity gifting tax schemes’. The Globe and Mail had an article today by Paul Waldie discussing “New Canada Revenue rules target charitable tax shelters”. The article discusses a measure in the 2013 Federal Budget dealing with donation tax shelters. Over the last decade over $6 billion in receipts have been issued as part of abusive charity gifting tax schemes. As a result billions of dollars have either not been collected or have been delayed in collection. The CRA has been winning these cases (for example Marechaux) and now the CRA will be given an increased ability to collect funds on disputed amounts related to donation tax shelters. In the past CRA could not collect until the process was completed (sometimes 10 or more years later). Now CRA can collect on 50% of potential taxes if CRA disputes the charity donation tax shelter. If the taxpayer wins they would get their 50% back. This just makes these schemes a little less attractive. It also reduces the likelihood of someone trying to avoid a large amount of taxes and then skipping off to Bermuda or Panama or wherever people skip off to these days.
March 2013
In an article today in the Globe & Mail entitled “Canada Revenue Agency struggling to put a lid on tax fraud” Kathryn Blaze Carlson discusses false receipting schemes.
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Avoiding 'Charity' Scams
Jeff Gray of the Globe and Mail is reporting today in an article “Tax-scheme case revived against Bay Street law firm” that the class action lawsuit against Cassels Brock & Blackwell LLP has been certified by a decision of the Ontario Court of Appeal.
The Charities Directorate of the Canada Revenue Agency has announced the revocation of Marketplace Ministries International as a registered charity for its involvement in the “Insured Giving Donation Program tax shelter gifting arrangement”.
Here is a CRA press release on a Brampton tax preparer sentenced after “A CRA investigation discovered that false charitable donation claims totalling $858,897 were made on 129 income tax returns prepared by Mr. Adebukunola for clients for the 2004 to 2009 tax years.”
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Avoiding 'Charity' Scams
Statistics Canada has recently released donor information for 2011. Every year Stats Can puts out this information and people write about it. Stats Can notes: “Charitable donations reported by taxfilers increased 2.6% from 2010 to just under $8.5 billion in 2011. At the same time, the number of people reporting charitable donations on their 2011 income tax return decreased by 0.6% to 5.7 million.” Looking at what tax filers claim as the basis for charitable donations is problematic on a number of levels and the “Note to Reader” is completely inadequate and getting worse. You have about $300 million dollars per year are now claimed as part of abusive gifting tax schemes in which almost none goes to charity. Furthermore, Canadians often give to charity in circumstances in which receipts are not issued. As well, not all Canadians who receive receipts use them on their tax filing. Canadian charities in 2011 issued approximately $13 billion in receipts and only $8.5 billion were claimed on tax returns.
We recently reviewed the T3010 Registered Charity Information Return database for 2011 as part of the Sean Blumberg Transparency Project. The database covers 82,000 of the 86,000 registered charities in Canada that had filed their T3010 and were processed into CRA’s Charity Listing database by November 2012. This article provides a snapshot of the registered charity sector based on the 2011 T3010 filings.
February 2013
Today the House of Commons Standing Committee on Finance (FINA) released its much anticipated report on Tax Incentives for Charitable Giving in Canada. The report discuss “Charitable Donations and Donors in Canada”, “The Regulation of Charities”, “Tax Incentives and their Estimated Federal Fiscal Cost” as well as specific proposals such as Charitable Donations Tax Credit Thresholds and Rates and Donations of Real Property and Shares of Private and Public Corporations. There is also discussions of bequests and tax fairness as well transparency and accountability of charities.
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The UK is dealing with a scandal right now called The Cup Trust. It involves a complicated scheme to get money refunded through the Gift Aid system. I thought this quote is interesting “Margaret Hodge MP, Labour chairwoman of the Commons Public Accounts Committee said: ‘To exploit a mechanism designed to encourage charitable giving in order to avoid tax is just disgusting.’
I missed this article by Vancouver Sun columnist David Baines last summer entitled “Baines: Couple who cheated tax department suffer litany of woes: Chartered accountant Martin Johnson and estranged wife Celia Martin failed to declare fees earned on art donation”. The story talks about some of those involved with a donation to a major Toronto university.
January 2013
In the case of Glooscap Heritage Society v. The Queen, a charity had its charitable status revoked for improperly issuing tax receipts and operating for the benefit of a tax shelter. The Charity filed an objection to the revocation and applied for an order delaying the revocation until their challenge was heard but this objection was ultimately dismissed. The Court acknowledged that “Glooscap’s activities are socially worthy and important to the community” but the Court noted that “Glooscap’s involvement with the tax shelter is central.” There is a very important discussion about the issue of reputation. There is also an interesting recognition by the FCA on the subject of “the regrettable, often abysmal, sometimes unspeakable events surrounding Canada’s history of aboriginal/non-aboriginal relations: Report of the Royal Commission on Aboriginal Peoples: Looking Forward, Looking Backward, vol. 1 (Ottawa: Canada Communication Group Publishing, 1996)”. In this case the Court noted that Glooscap issued $19,775 in total donations during 2007-2011 that were not related to the tax scheme but issued $116 million in tax receipts related to the scheme.
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The Charity Commission notes that the Guidance “explains trustees’ duty to prevent their charity being used to promote extremist views or terrorist ideology. The toolkit also suggests steps trustees can take to minimise risks associated with particular activities, such as organising public events and debates and circulating information. It is aimed in particular at charities that host regular events involving external speakers, and those with educational purposes that distribute material and information. Examples include charitable think tanks and debating societies, students’ unions, schools, colleges and universities and religious charities.”
In a recent Tax Court of Canada case Afovia v. the Queen, Paris J. decided that CRA can revoke a charity for issuing official donation receipts that do not have all the mandatory elements on them. As well, CRA can deny the credit to the taxpayer if the receipt does not have all the mandatory elements. It is very important that Canadian charities that issue tax receipts are aware of the rules and follow them. Here is a 145 page “Receipting Kit” that may be of assistance. http://bit.ly/A2jbA2
December 2012
The Canadian Government has reminded Canadians to be careful when donating to charities, especially when the donation is part of a scheme offering more tax incentives than the cash contributions. If you are interested in more details on how to find good charities and avoid charity scams check out http://www.smartgiving.ca
November 2012
The Canadian Bar Association PracticeLink Solo and Small Firm Bulletin has sent a note to its members “Tis the season: CRA warns about gifting tax shelter schemes. Whether you approach them as a lawyer or as a tax-payer, gifting tax shelter schemes are bad news, the Canada Revenue Agency warns. How do you tell a rip-off from a write-off? If it looks too good to be true, it probably is.”
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Canadians in late November and December each year really focus on charitable donations. Here is a microsite I worked on to help Canadians understand how to thoughtfully select charities to donate to. http://www.smartgiving.ca
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The Toronto Sun has written a followup article on the involvement of the mayor of London, Ontario in a type of tax shelter that CRA refers to as an “abusive charity gifting tax shelter.” The Toronto Sun notes “As choppy political waters rock London mayor Joe Fontana locally, a charity he heads said it’s cutting ties with a tax shelter criticized by Canada Revenue Agency (CRA).”
According to CRA “The Canada Revenue Agency’s (CRA) audit has revealed that the Organization failed to devote its resources exclusively to its own charitable activities by participating in a promoted donation arrangement in 2008. As a direct result, the Organization issued donation receipts exceeding $9 million for cash and shares purportedly traded on the Frankfurt Stock Exchange. Of the $1 million the Organization received in cash, it paid fundraising fees equivalent to 90% of the cash received to the donation arrangement promoter, Innovative Gifting Inc. It is the view of the CRA that the property for which the tax receipts were issued did not legally qualify as gifts; that the Organization failed to demonstrate that it had actually received the tax-receipted property; and that the Organization failed to report the fair market value of the property purportedly gifted. Additionally, the Organization has operated for the non-charitable purpose of promoting a donation arrangement and for the private benefit of the donation arrangement promoters.”
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On June 28, 2012, in Barrie, Ontario, a fundraiser named Adam Gour was convicted by McIsaac, J. of fraud for failing to disclose commissions to donors and deceiving donors. The decision may be appealed. The Gour case is important because it shows the effective use of criminal law in regulating inappropriate activities involving charities or fundraisers. Also it highlights the importance of charities being transparent about fundraising solicitations. In this case failure to disclose a commission arrangement to the public constitutes fraud under criminal law. Will this result in more criminal prosecutions? We will see. I have been arguing for a while that expecting the Charities Directorate to deal with major abuse affecting the sector with their very limited tools is unfair and that police forces and prosecutors need to take more initiative and use the criminal code.
October 2012
The Canada Revenue Agency has changed some of their procedures to deal with gifting tax shelter schemes. Below is a press release from CRA. What is interesting first of all is that they call them “gifting tax shelters” in the release and not the normal “abusive gifting tax shelters”. They state “All gifting tax shelter schemes are audited and the CRA has not found any that comply with Canadian tax laws.” I want to emphasize they used the phrase “not found any”. After the CRA’s victory’s in Marechaux last year and the recent CRA victory in Kossow, CRA is reminding charities that you cannot make an investment in a donation scheme and expect that the courts will consider any part of it a gift. CRA reminds people “This is the time of year when promoters are heavily marketing their tax schemes to Canadians. For this reason, the CRA is reminding Canadians that if it seems too good to be true, it probably is. If a tax shelter promoter offers a tax receipt for a larger amount than the donation or payment, it is very likely not a valid donation.” CRA states that “Starting with the 2012 tax year, the CRA will put on hold the assessment of returns for individuals where a taxpayer is claiming a credit by participating in a gifting tax shelter scheme. This will avoid the issuance of invalid refunds and discourage participation in these abusive schemes. Assessments and refunds will not proceed until the completion of the audit of the tax shelter, which may take up to two years.” The CRA also noted “The CRA has to date denied more than $5.5 billion in donation claims and reassessed over 167,000 taxpayers who participated in gifting tax shelter schemes. In addition, the CRA has revoked the charitable status of 44 charitable organizations that participated in these gifting tax shelter schemes.”
Here is a recent press release from CRA. They went after a tax preparer for issuing some false donation receipts.
Here is a press release from the CRA entitled “The Canada Revenue Agency revokes the registration of Glooscap Heritage Society as a charity ” Despite what some have been suggesting these “abusive charity gifting tax schemes” are not dead. According to CRA over the last 2 years approximately $600 million in receipts have been issued under these schemes. The CRA has been succesful in both the Marechaux and Kossow cases in which the courts determined that for a participant in these schemes there is no gift and they are not entitled to any receipt, not even for their cash investment.
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I finally worked out why we have not been that successful in getting rid of those who are involved with charity fraud in Canada. Take a look at this story on CNN.
September 2012
I sometimes laugh when I see some of the things that lawyers think are worthy of comment. For example really esoteric cases. Then almost two weeks ago there was an important decision in the extremely backlogged Tax Court of Canada - Kossow - it dealt with a type of scheme that CRA labels “abusive charity gifting tax schemes”. In totality the different schemes involve about $6 billion in receipts issued and $3 billion dollars in lost tax revenues. And there is almost complete silence. It is unfortunate that so far no one in the media has picked up on the case. For those who don’t understand the value of charitable donation incentives if the federal and provincial governments lose $3 billion dollars in tax revenue it either means a greater national debt, higher taxes or lower services. Every Canadian taxpayer is paying hundreds of dollars more in taxes as a result of these schemes and they are backlogging the Tax Court of Canada. Hopefully the victory for CRA in Kossow will be another nail in the coffin of these schemes - however, if no one knows that these schemes are being shot down then more gullible people will invest in the schemes.
