Avoiding 'Charity' Scams
September 2011
Here is an article in Valuation Law Review entitled Tax Donation Fallout
Here is an article entitled Valuation Based Charitable Donations” that appeared in the Valuation Law Review.
Here is a case comment on Maréchaux v. The Queen that recently appeared in Valuation Law Review.
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Avoiding 'Charity' Scams
Here is an article that appeared in Valuation Law Review entitled “Innovative Gifting Inc. and the House of the Good Shepherd, et al.” on the issue of enforcement of fundraising contracts. It is very important that charities obtain legal advice before entering into substantial fundraising contracts.
Here is a copy of The Valuation Law Review - Vol 17 Issue 2 September 2011 Taxation Decisions of The Canadian Institute of Chartered Business Valuators (CICBV). In this edition it discusses Marechaux, Lemberg, Lockie, Innovative Gifting and Russell and we have been able to reproduce the whole journal with the permission of the CICBV. The editor is Dennis Turnbull, CBV.
I will be delivering with Guillermo Correa of RACI-Red Argentina para la Cooperación Internacional a workshop on capacity building at the CIVICUS World Assembly conference in Montreal looking at the Argentinean and Canadian examples.
Here are letters from the CRA on a private share donation transaction in which CRA revoked the status of the 4 registered charities involved.
August 2011
Here is a CRA note on what is a qualified donee. If you are involved with governance or management of a charity it is important to understand what is a qualified donee because registered charities can make gifts to qualified donees but registered charities cannot make gifts to “non-qualified donees”. If a registered charity makes a gift to a non-qualified donee it could faces penalties and revocation. After the CRA guidance below I have placed a link to some helpful resources that relate to qualified donees that are working with groups that are not qualified donees in both Canada and also abroad.
The Charities Directorate on August 15, 2011 put out a note CG-008 - Confidentiality – Public Information Guidance which discusses the circumstances in which the CRA can divulge information about a charity. What most people don’t realize is that the confidentiality provisions of the Income Tax Act (s. 241) preclude CRA from disclosing almost anything about a charity other than the application and T3010 public filings until after such charity has been revoked. So for example in the extreme case if a charity is involved with a $500 million dollar fraud CRA is forbidden to say anything until after revocation which could be years afterwards. There are only a small number of charities doing really bad things and I personally believe that the public has a right to know more about these few charities. The interesting thing is that the situation is even worse with non-profits that are not registered charities who we can find out almost no publicly accessible information. So here is the CRA note on the charity confidentiality provisions and at the bottom is a Pre-Budget Submission from our law firm to the House of Commons Standing Committee on Finance dealing with the issue of transparency.
The Globe and Mail published an article yesterday “Lawyers targeted over charity tax schemes”.
The Dept. of Finance has released some Legislative Proposals Relating to the ITA on August 16, 2011. These proposals deal with implementing the June 2011 budget proposals which include a number of proposals to prevent abuse of charities and RCAAAs.
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Avoiding 'Charity' Scams
Here is an interesting Regulatory Case Report from the Charity Commission of England and Wales. It seems in the UK that one can put in on-line applications to be registered as a charity. This report covers how one or more persons put in about 35 false charity applications. 7 of the “charities” were registered and now removed from the charity list.
June 2011
Here is an article I recently wrote for the Canadian Donor’s Guide entitled “Receipting Takes Front and Centre in Federal Budget”
Here are a couple of interesting blog postings notes entitled “Budget 2011 Cracks Down on Abusive Charities” and “Beware of tax shelter donation arrangements”.
F. Max E. Maréchaux, is a partner at the law firm of Miller Thomson LLP. According to Federal Court of Appeal decision “F. Max E. Maréchaux participated in a “leveraged donation” scheme. The essence of the scheme was that, for an expenditure of $30,000, he received a charitable donation tax receipt for $100,000, and claimed a tax credit of $44,218, a potential return on his outlay of nearly 50% in a matter of months. Very little of the money was retained by charities to advance their purposes.” Mr. Maréchaux had lost a decision at the Tax Court of Canada and his appeal to the Federal Court of Appeal was dismissed as “Mr Maréchaux had not made a “gift””. Now the Supreme Court of Canada has denied Mr. Maréchaux’s leave to appeal which results in the Federal Court of Appeal decision standing. According to the Trial Court “The Program was implemented on December 31, 2001, with 118 participants (“Participants”) and donations totalling approximately $18,305,000.”
Another tax preparer has been sentenced to jail for the issuance of fraudulent official donation receipts. This tax preparer was based in Etobicoke, Ontario and issued over 34 million of false receipts.
As discussed on this blog there were a large number of provisions in the June 6, 2011 Canadian Federal budget that will affect charities and other qualified donees and the CRA has placed some information on their website to help those who wish to understand the budget provisions. Finance and CRA are looking for comments and suggestions on the budget provisions.
Here is a copy of a CRA press release on a tax preparer who has been sentenced to 3 years in jail for issuing $34 million of official donation receipts as part of a charitable donations scheme.
Today at 4 Finance Minister Jim Flaherty delivered a budget which was similar to his last proposed budget with a few tweaks. In March, as well as today, there were about 25 pages of material relating to charities
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I will be giving a presentation to the CGA-Ontario on The Top Compliance Issues Facing Not For Profit Organizations and How to Deal with Them at the CGAO Not-for-Profit Symposium Flyer.
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Avoiding 'Charity' Scams
In 2010 the UK government introduced measures dealing with “Payments to overseas bodies” by UK charities. The requirements seem common sense to me and I have reproduced them below. For Canadian charities interested in understanding their obligations when operating abroad may find CRA’s Guidance helpful at: http://www.globalphilanthropy.ca/index.php/blog/comments/cras_new_guidance_on_foreign_activities_by_canadian_charities/
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The UK has introduced in 2010 a “fit and proper persons test” for people involved with the management of charities that apply for Gift Aid. “Factors that may lead to HMRC deciding that a manager is not a fit and proper person include, but are not limited to, individuals: with a history of tax fraud; with a history of other fraudulent behaviour including misrepresentation and/or identity theft; for whom HMRC has knowledge of involvement in attacks against or abuse of tax repayment systems; barred from acting as a charity trustee by a charity regulator or Court, or being disqualified from acting as a company director”
The CRA has released letters on the World Islamic Call Society which was a registered charity but recently revoked by the Charities Directorate.
According to CRA for 2010 there were claims on abusive charity gifting tax schemes of over $320 million. While a lot better than the 2006 numbers of 1.3 billion - it is still a significant problem.
May 2011
Here are some free podcasts from the Charity Law Information Program (CLIP). http://www.capacitybuilders.ca/clip/podcast/podcastgen1.3/?p=home
Here is an article by Vancouver Sun reporter David Baines on a BC charity and its revocation by CRA. http://www.vancouversun.com/health/butts+stop+smoking+charity/4821852/story.html
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A Brampton tax preparer issues in excess of $34 million in false charitable donation receipts, according to CRA.
Here are some of the upcoming FREE Charity Law Information Program (CLIP) webinars on appropriate receipting and fundraising with links to the registration pages that I will be delivering. The CLIP program of Capacity Builders is supported by a contribution from the Charities Partnership and Outreach Program of the Charities Directorate. There is no charge for these sessions at this time. You can register for any session by clicking the link. The short link for this page is: http://ow.ly/3jsBh
