Topics: News, What's New from the Charities Directorate of CRA, Canadian Charity Law, Global Giving, Ethics and Canadian Charities, Avoiding 'Charity' Scams
In a recent article by Jonathan Chevreau of the National Post, Gordon Pape warns Canadians not to be involved with charity tax shelter schemes that promise an official donation receipt greater than your cash contribution.
Here are some excerpts from the article: “Beware charity scams”
Posted: April 05, 2010, 10:52 AM by Jonathan_Chevreau
Canada Revenue Agency, CRA, Charity, fraud, tax shelters, scams
As we noted a few weeks ago here, half of Canadians worry about being defrauded by scamsters masquerading as charities. In the current edition of his Internet Wealth Builder, Gordon Pape adds to the warning, aiming his remarks at those who are just completing their annual tax returns (due later this month, lest we forget!).
“If you’re about to file a tax return with an inflated charitable donation claim, think twice,” Pape cautions, “The odds are that you will be exposing yourself to all kinds of problems that will cost you dearly in both money and sleep.”
Pape says he regularly hears from readers asking about the legitimacy of some supposedly charitable organization promising to issue a tax receipt for four or five times the amount actually contributed. The popular term for these schemes is “Buy low, donate high.”
$2.5 billion in rejected donation claims
I’ll second Pape’s recommendation to avoid such schemes. Not one has withstood the close scrutiny of the Canada Revenue Agency (CRA), Pape says, citing Cathy Hawara, head of the CRA’s Charities Directorate. Since the 2006-2007 tax year, 34 charities had their charitable status revoked for running “what amounts to an illegal tax shelter,” Pape says.
More than 65,000 people who got involved in these have been reassessed or are in the process of having their tax returns from those years be reassessed, with more than $2.5 billion worth of rejected donation claims. Remember the CRA can go back three years if it wants to reassess you.
98% of funds raised by some revoked schemes didn’t go to charity
CRA going after tax shelter charities with a vengeance
“The CRA is going after tax shelter charities with a vengeance,” Pape concludes, while recognizing “it’s easy to get sucked in.” Pape’s next paragraph, which I’ve put in Italics, is worth quoting verbatim:
“Almost without exception these scam charities make themselves look as though they are completely legit. Go to one of their websites and you will usually find one or more legal opinions, sometimes from well-known, reputable firms, which appear at first glance to give the charity a legal okay. But read the opinion in depth (and they are sometimes quite long) and you’ll find they are laced with caveats.”
But when he examined these in detail, in every case Pape concluded the opinion provided was “equivocal and conditional on CRA interpretation—in short, worthless if you are looking for some kind of legal guarantee.”
Nor should you be reassured by charities that display a CRA identification number. These are routinely issued to every charity, he warns, but are used for tracking purposes only. They are not a stamp of approval by the CRA.
On a final note, one hopes that the baby doesn’t get thrown out with the bathwater when it comes to charitable giving. There are still many worthy charities that deserve and need our financial support. Pape’s next issue will offer tips on how to find the best legitimate charities.
Do you require legal advice with respect to Canadian or Ontario non-profits or charities?
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.