Latest Charity Tax Shelter Information from CRA - further decline in charity tax shelters

May 01, 2010 | By: .(JavaScript must be enabled to view this email address) Mark Blumberg
Topics: News, What's New from the Charities Directorate of CRA, Canadian Charity Law, Canadian Charity Statistics, Ethics and Canadian Charities, Avoiding 'Charity' Scams

In Cathy Hawara’s presentation to the Canadian Bar Association on April 30, 2010 in slide 15 she notes the most up to date statistics on charitable gifting tax shelters.  “The scope of the problem is significant; the CRA estimates that since 2003 there has been approximately: 172,300 participants, $5.4 billion in claimed donations.  The Charities Directorate has revoked 35 charities and RCAAAs for participating in tax shelter schemes. 2006 to 2009 saw participation drop by 80% to 10,800 individuals and the amount of “donations” drop by 76% to $284 million.”

Cathy Hawara also noted in her comments:

“Proportionately, little money is retained by a charity/RCAAA – generally 1%. For that 1%, tax shelters not only reduce the tax base, but damage the integrity of the charitable sector as a whole, since most of the money/property involved: is paid out to promoters and related companies, simply doesn’t exist, or is grossly overvalued.”  “As of November 2008, the CRA had reassessed over 65,000 taxpayers and denied over $2.5 billion in claimed donations. ...
All of these efforts from the CRA and the Charities Directorate are having an effect; the number of participants is down from 48,000 in 2006, the year in which participation peaked, to 10,800 in 2009 and the “donations” dropped from $1.3 billion in 2006 to $284 million in 2009.”

Here are my thoughts on this.  First of all the drop is impressive - CRA on the personal tax side and the Charities Directorate on the charity side have put in a lot of effort over the last few years to deal with this problem.  Journalists like Kevin Donovan of the Toronto Star have done a good job of bringing to the public’s attention this problem.  It seems that people are starting to work out that these charity gifting tax shelter arrangements that promise you more tax savings than you invest - they do not work and they leave taxpayers on the hook for huge amounts including money paid out, penalties, interest, and professional fees.  To use the parlance of Goldman Sachs they are a “shitty” investment for the investor.  Whether they are designed to fail or it is just obvious to those who know about the legal meaning of “gift” they do not work, they are not a good thing for the donor/investor/sucker/victim.  Although I would be remiss if I did not mention that some of the promoters and some professional advisors have not done so badly out of them even if there is a trail of very depressed and financially hurt investors.  As well there is a lot of money flowing into the governments’ coffers today when we need it to deal with budgetary deficits from taxes that were supposed to be paid years ago - with interest and penalties.  By the way if you have cash, you don’t want to actually donate to a real charity, then you may want to check your spam filter and meet up with some Nigerian heir to a fortune which also offers ostensibly a very good rate of return!

I think every scheme always say it is different from an earlier scheme and therefore ok - just like one bank robbery is never the exact same as the next bank robbery - it does not make bank robberies legal.

These abusive charity tax shelter schemes also undercut the reputation of the charity sector which is a serious concern - the charity sector is no longer only the kitchen table all volunteer group with a $5000 budget - according to recent statistics registered charities in Canada have revenue of $189 billion.  It is time for the sector, which knows how bad these schemes are, to be more vocal in warning the public about the problem.  It is amazing that in the past there were 172,300 participants and $5.4 billion in claimed donations.  In the past the OECD has compared tax avoidance and charities and Canada seems to be the worst.  You can read the report for yourself -http://www.globalphilanthropy.ca/index.php/blog/oecd_report_on_abuse_of_charities_for_money_laundering_and_tax_evasion_-_ca/  When it comes to abusive charity gifting arrangements I don’t want Canada any more to ‘own the podium’

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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.

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