Avoiding 'Charity' Scams
October 2012
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Avoiding 'Charity' Scams
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.
Here is a recent decision of the Tax Court of Canada in Kossow. http://decision.tcc-cci.gc.ca/en/2012/2012tcc325/2012tcc325.html After the Marechaux case, Kossow is the most important case on abusive charity gifting tax schemes. The Tax Court of Canada decided “As in Maréchaux, there was “only one interconnected transaction here”. No part of the Donation was given as a gift without expectation of a return. The appeal is dismissed with costs to the Respondent.”
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Avoiding 'Charity' Scams
I will be delivering a presentation to the Canada Southern Africa Chamber of Business 2012 8th Risk Mitigation Program in Toronto on October 16, 2012 on the subject of “CSR with Canadian Charities – Opportunities and Pitfalls”.
In February 2012, the Charity Law Information Program (CLIP) had a very successful “Being Good at Doing Good” conference. We had about 250 attendees in Toronto and the conference lasted 2 days. We had some of the top experts from Canada, the US and the UK on governance, financial management and compliance. There was some excellent networking and educational opportunities, not to mention ability to ask questions and enter into discussions with charity regulators from Canada, the US and UK. As charities increasingly operate in more than one country this sort of integrated conference was very helpful for both local and global charities.
I will be delivering for the Carleton Centre for Community Innovation a full day workshop entitled “Charity Law Boot Camp: compliance and standards issues for Canadian Charities”. It will be on October 12 at Carleton University.
Recently the Department of Finance requested submissions on “Strengthening Canada’s AML and Anti-Terrorist Financing Regime”. I sent in a submission that focussed specifically on the vulnerabilities of charities.
August 2012
The CRA has announced new charity information sessions for September and October.
The Charities Directorate of the CRA has posted a page on CIDA’s Sahel Crisis Matching Fund.
The Canadian government is launching a matching program for donations made by Canadians to organizations from August 7 - September 30, 2012. CIDA notes: “An estimated 18.7 million people in the Sahel region in West Africa are affected by a food and nutrition crisis due to drought, sporadic rains, poor harvests, soaring food prices and widespread displacement. As a result, more than 1 million children under the age of five are at risk of dying from severe acute malnutrition. Canada, through CIDA, is helping to meet vital humanitarian needs in the Sahel, and as part of its efforts, has created the Sahel Crisis Matching Fund. For every eligible dollar donated by individual Canadians to registered Canadian charities, Canada will set aside one dollar for the Sahel Crisis Matching Fund. CIDA will allocate these funds to established Canadian and international humanitarian organizations for humanitarian assistance efforts that benefit the people most affected by the crisis.” Organizations that receive a donation will not receive directly a matching amount but those organizations will advise CIDA of the funds collected and then CIDA will have a process to determine which organizations receive the funds. Organizations that are interested in potentially applying for those funds should review CIDA’s “Guidelines for Emergency Humanitarian Assistance Project Proposals and Reports”.
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Avoiding 'Charity' Scams
The Standing Committee on Finance Pre-Budget submission deadline for the 2013 Canadian Federal Budget has passed. I put in a brief submission with a number of recommendations including: Recommendations: 1) We need better governance in the charity sector through education and training to ensure that there is appropriate stewardship of the resources that charities have. 2) We need more transparency in the charitable sector through a. changes to the Income Act to allow CRA to disclose more about registered charities and also non-profits; b. an improved T3010 Registered Charity Information Return which provides greater details on charities, especially large charities, as we have seen in the UK and US improving their charity sector’s transparency over the last few years; and c. Canadians need to encouraged to be more knowledgeable and aware in their giving and to be able to carefully select worthy charities and avoid scams; 3) We need to reduce the amount of abuse of charities by a relatively small number of people a. by monitoring the implementation of the “ineligible individual” rules, and if these rules are not sufficiently effective in removing those who abuse charities, or their beneficiaries, then considering additional measures.; and b. making greater use of police forces to investigate abuse of charities and establishing a dedicated police unit that focuses on complicated schemes involving charity fraud. 4) We don’t need more tax incentives that will disproportionately benefit a few charities, including closely held private foundations, and some very wealthy individuals. Rather we should make small changes to the disbursement quota to increase the payout from 3.5% to 5%, so hundreds of millions of dollars can be used for charitable programming that would have been otherwise an unauthorized encroachment on capital.
July 2012
In Edwards v. The Queen, 2012 TCC 264 (July 23, 2012) the Tax Court dealt with whether it would allow a further delay in hearing a test case related to what CRA terms an abusive gifting tax scheme. This case deals with “ParkLane Charitable Donation Program.”
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Avoiding 'Charity' Scams
A UK law firm Farrer & Co recently published an article entitled “Tax reputation for high-profile individuals and corporations - being ‘legal’ is not enough”. Although it is a UK article it provides some important points for Canadians who are looking at schemes that are “too good to be true”. I have blogged about what CRA terms “abusive charity gifting tax schemes” and other inappropriate schemes involving Canadian charities. It is important that taxpayers not only consider the tremendous financial cost of investing in such schemes but also the reputational costs.
June 2012
The CRA recently released a press release that “Stéphane Saintonge, one of the promoters of an art-donation scheme to the municipality of Larouche in the Saguenay region, pleaded guilty to a tax evasion charge today before the Court of Quebec in Montréal. He was fined $840,000.”
Posted by
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The New York Times discusses the conviction of Msgr. William J. Lynn, a former cardinal’s aide, in Philadelphia and describes it as “becoming the first senior official of the Roman Catholic Church in the United States convicted of covering up sexual abuses by priests under his supervision.”
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Here is the cost decision of Strathy J. in the Cannon v Funds for Canada Foundation et al class action case.
We have noted for a number of years that almost $500 million in “false” receipts have been issued. These are fraudulent receipts - no complicated scheme is involved and typically is no donation at all to a charity. (These are in addition to the approximate $6 billion in “abusive charity gifting tax schemes”) Typically, the taxpayer paid 10% of the donation to a tax preparer who issued them a receipt. CRA has found over 100,000 tax returns with such false receipts. Here is an example of one case involving Mr. James O. Grossett.
Here is the Blumbergs’ Canadian Charity Law List - June 2012
Posted by
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Avoiding 'Charity' Scams
The Charity Finance Group is a group of charity finance managers based in the UK. They prepared recently a “Guide on Charity Fraud: A guide for the trustees and managers of charities”. Canadian charities may find the free guide helpful in preventing and detecting fraud. It is interesting to see the large number of organizations involved in producing the guide.
Andy Levy-Ajzenkopf of CharityVillage recently wrote an article “Don’t be a nonprofit party to terror” which discusses regulatory and risk management issues for charities in the area of preventing terrorism.
A few weeks ago CRA revoked the charitable status of an environmental group for involvement in an abusive gifting tax scheme. Sorry to disappoint some but no political activities here.
Here are the letters from CRA to HEDAC (Help Eliminate Disease and Addiction Canada) which explain why HEDAC was revoked for cause.
May 2012
The Globe and Mail had an article today entitled “Noose tightens around donation tax schemes”. It discusses litigation around some schemes that the CRA characterizes as “abusive gifting tax schemes”.
The Office of the Parliamentary Budget Officer has released a very interesting report entitled “Cost Estimates of Proposed Tax Measures to Encourage Charitable Donations of Assets”. It was written by Stephen Tapp. It looks at the effect of increasing certain tax incentives of donations of private shares, real estate and ecologically sensitive land. There are lots of interesting nuggets in the study that go far beyond just the issue of tax incentives for these measures.
According to Danie Huppé-Cranford, Director of the Compliance Division of the Charities Directorate the tentative 2011 numbers for abusive charity gifting tax schemes in Canada are down slightly in 2011 compared to 2010.
Here is an updated version of my article Top Ten Canadian Charity Law Issues. incorporating some of the recent changes.
Here are some comments from Cathy Hawara, Director General of the Charities Directorate, relating to the issue of Canadian charities and ineligible individuals rules in the 2011 Federal Budget.
Here is an opinion piece that appeared in the Toronto Sun entitled “Beware of too-good-to-be-true tax shelters”.
The Toronto Star on May 14th reported that “Seven charitable tax shelter promoters whose schemes have left thousands of Canadians with a $5 billion financial headache are under criminal investigation.”
