As we get closer to year end, you may be approached by someone trying to sell you a tax shelter. In the past, such shelters were often based on questionable donation schemes in which you made a cash payment and acquired some property in return. These were then gifted to a charity with the result that you received a donation receipt that was much higher than the amount of cash you actually “donated.”
Some of these “gifting tax shelter arrangements” involved the issuance of promissory notes while others involved donation of “in-kind” property. In all such cases, however, the Canada Revenue Agency has reassessed all participants and denied the donation tax credits claimed.
These cases have also gone to court, with three of them reaching the Federal Court of Appeal. In each of these cases, the tax shelter arrangements promised a “profit” to participants in return for a payment and in each case, the cash benefit for the taxpayer exceeded the cash outlay. While each taxpayer tried to argue in court that their specific arrangement was legal, in each case, the Appeal Court concluded that the taxpayer’s donation tax credit be denied entirely and it was reduced by the Court to zero.
Earlier this month, the CRA issued a statement warning Canadians who may have participated in these gifting tax shelter arrangements that such gifts “do not necessarily result in a donation tax credit.”
As a result of this, the CRA has issued reassessments to numerous taxpayers denying their donation tax credits. The CRA also reminded us that it audits every gifting tax shelter arrangement.
If you’ve previously participated in one of these arrangements and had your donation claim denied, you may have filed a notice of objection. Recently, the CRA has been sending letters to affected taxpayer offering to resolve your objection.
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