Topics: News, What's New from the Charities Directorate of CRA, Canadian Charity Law, Ethics and Canadian Charities, Avoiding 'Charity' Scams
Here is an article by James Daw on two registered charities that recently lost their charitable status for involvement with tax shelters. http://www.thestar.com/news/canada/article/797804—cra-targets-david-singh-s-charitable-tax-shelters?bn=1 Although these charity gifting tax shelter “charities” are being attacked by CRA and falling like flies there are unfortunately tens of thousands of ‘investors’ in these “retail schemes” who are left holding the bag with disallowed donation receipts, interest, penalties, and headaches.
Sure they were greedy - but so are people who respond to Nigerian letter scams that promise you 20% of 16 million if you just provide some help by paying $2500 to facilitate a payment. Remember you cannot make a ‘donation’ or investment of $2500 and get a tax receipt for $10,000. It is simply not a gift at law, whether before the split receipting rules or after. Does not matter if it has a tax shelter identification number, a legal opinion from a major law firm, etc. The phrase “If it sounds to good to be true it probably is” should be “if it sounds to good to be true in the charity donation tax shelter area - then it definitely is”.
Every few days I get letters like this one that I received today from Raymond [pasted as sent]:
“CRA help these organisation by not doing their do deligence.The promoter proved ,at the time,that outer clients are getting refunds year after year.Why would not believe your Accountant.Most of these were sold through people we trusted.Why did the Government took so long to reject this scheme.”
You can read CRA’s warnings that go back to 1998. [http://www.cra-arc.gc.ca/nwsrm/lrts/2007/070813-eng.html] Because of privacy rules CRA cannot say anything about the activities of a registered charity until after it is deregistered. So CRA will not provide a particular warning about every particular ridiculous scheme. I would point out the Toronto police does not have officers walking around downtown Toronto reminding people that stealing from this bank is a criminal offence and also stealing from that bank is a criminal offence and also stealing from that bank is a criminal offence - hopefully you get the picture. A very good sales person may be able to convince you that this scheme is a great idea and a clever loophole in the system - but they will not be convincing CRA and more importantly the courts that such an ‘investment’ is really a donation. You cannot make money off a donation. You can read on my site about a number of cases involving different schemes. For example, there is a recent decision handed down relating to a scheme from 2001 involving a senior lawyer at a major law firm who invested in a tax shelter scheme and obviously lost.
It is sad that there are a large number of professionals that are involved with either setting up, marketing, promoting, encouraging, prolonging, etc these schemes. My view is that any Canadian who receives advice from a professional to invest in one of the abusive charitable tax shelter donation schemes should leave that professional and find another one.
You might also find Gordon Pape’s recent warning helpful. http://www.globalphilanthropy.ca/index.php/blog/comments/gordon_pape_warns_against_charitable_donation_tax_shelters/
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.