Topics: News, What's New from the Charities Directorate of CRA, Canadian Charity Law, Global Giving, Ethics and Canadian Charities, Avoiding 'Charity' Scams
As noted before the Canada Revenue Agency Charities Directorate has revoked the registration of Escarpment Biosphere Foundation Inc. (http://www.globalphilanthropy.ca/index.php/blog/comments/the_canada_revenue_agency_revokes_the_registration_of_escarpment_biosphere/) as a charity for participating in the Canadian Humanitarian Trust tax shelter gifting arrangement (Donation Program). Here is detailed information from the CRA on the involvement of the Escarpment Biosphere Foundation Inc in an abusive charity gifting tax scheme. The letters cover topics such as fair market value, pharmaceutical donations, the revocation of registered charities who act in concert with each other to unduly delay expenditures on charitable activities, limitations on the charitable goods policy and direction and control.
There is an interesting discussion of how a registered charity can be revoked for acting in concert with each other to UNDULY delay expenditures on charitable activities.
“Acting in Concert:
Subsection 149.1(4.1) of the Act permits for the revocation of registered charities who act in concert with each other to unduly delay expenditures on charitable activities. The donation arrangement is structured in such a manner that the cash and pharmaceuticals flow directly from the receipting charity to the Organization almost immediately and do not appear to be property the receipting charities need or utilize in their own programs; except for their participation in the tax shelter. The first and second designated charities each report a “gift* to a qualified donee, the Organization. While the Organization does not issue any official donation receipts for the cash and pharmaceuticals received, its acceptance of this property, seemingly provides a level of legitimacy to the tax shelter white enabling the other participating charities to apparently meet their disbursement quota obligations.
It is our view the monies received from the other participating charities are routed through the Organization as “gifts” from another registered, charity essentially in an attempt to conceal the true source and nature of the transactions. In actuality the funds received from the other CHT participating charities are earmarked to be paid to WHI for services rendered and to retire the liens. It is our view that one of the understood purposes of the cash “gifts” from the other participating charities was to disguise the actual relationship between the cash “gift” made.’ and the payments ultimately made by the Organization to WHI. Of the total $104 million received in cash, “gifts” from the other participating charities, substantially all (99%)was paid to parties involved in the promotion of the tax shelter. $59.2 million was utilized to retire the liens attached to the pharmaceutical donations, $39.4 million was paid to WHI for fees and $4.3 million was paid, to the in-kind receipting charities. In our view, this clearly demonstrates that the cash “gifts” were used solely to compensate the parties involved in the tax shelter and were not intended to enrich the participating charities beyond, the 1% retained by the Organization.
It is our view the Organization enthusiastically lent its resources to support the tax shelter arrangement, with little regard for the legitimacy of the arrangement or the interests of the Organization itself. As above, the overwhelming majority of the property received by the Organization during the years in question was received through tax shelter arrangements - property the Organization neither saw, valued, or distributed itself, but rather was paid to purportedly accept from other participating charities and to report as being distributed by it. Additionally, the Organization has amended its objects to accommodate the tax shelter. The Organization, as set out below, cannot be certain that the goods for which it purportedly received from the other participating charities was in fact received or received in the amounts represented. All of these facts point to a pattern of active willingness to participate in a scheme designed to produce inappropriate tax benefits for the participant donors while, producing a stream of revenue for the Organization. By pursuing the promotion of a tax shelter arrangement, the Organization has failed to demonstrate that it meets the test for continued registration under subsection 149.1(1), as it appears not all of its resources were devoted to charitable activities. Under paragraph 149.1(4.1)(b) the Act, the Minister may revoke the registration of any charity where it can reasonably be considered that by accepting a gift from another charity it has acted in concert with that charity, for the purpose of avoiding the application of the disbursement quota. For these reasons and each of these reasons, it appears to us that there may be grounds for revocation of the charitable status of Escarpment Biosphere Foundation under paragraphs 149.1 (4.1)(b) and 168(1)(b)of the Act.”
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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.