The CRA takes a aggressive stance against gifting tax shelters. There are ways to prevent potential facing significant penalties and interest by the CRA.
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Charitable Donation Tax Shelters
Over the years, thousands of taxpayers have been misled into participating in abusive donation tax shelter schemes, lured by the promise of large refunds and reduced tax liability.
What is a Charitable Donation Tax Shelter?
Many charitable donation tax shelters operate in a way that allows taxpayers to receive tax benefits magnitudes larger than their out-of-pocket donation amount. These arrangements often take advantage of a series of complex transactions that create exaggerated donation receipts that would otherwise have not been possible.
Are Donation Tax Shelters Legal?
While some tax shelters may be genuine, be wary of telltale signs that may suggest that a tax shelter is illegitimate.
For example, many gifting tax shelters often point to misleading comfort letters and opinions of experts to appear legitimate. In addition, most tax shelters rely on the fact that they have received a tax shelter identification number to persuade donors of their legitimacy. However, it is important to note that a tax shelter identification number serves only an administrative function. It is intended to track the shelter, and does not entitle the participants to any of the benefits related to the tax shelter. In fact, the CRA have audited large numbers of charitable donation tax shelters, with valid tax shelter identification numbers, and found that most were illegitimate.
CRA Position on Tax Shelters
The CRA has taken a very aggressive stance against gifting tax shelters. To date, the CRA has denied over $4.5 billion in tax shelter gifting arrangement donations and reassessed over 130,000 taxpayers who have made donation claims through a gifting or donation scheme. All aspects of the donation, including the out-of-pocket amounts have been denied, and significant interest and penalties have been charged.
In addition, the CRA has challenged and successfully won against tax shelters in the Tax Court of Canada and the Federal Court of Appeal. Significant decisions include: Mariano v. the Queen, Canada v. Scheuer, and Maréchaux v. the Queen. It is important to note that no gifting tax shelter has ever won in court, though many have tried.
What Can Tax Shelter Participants Do?
Most donors that were involved in gifting tax shelters have already been reassessed and have a substantial amount owing to the CRA. Some donors have filed objections which may be held in abeyance. At Farber Tax Solutions, we can help donors move forward and resolve their tax problems by negotiating long-term payment arrangements or reducing the interest and penalties that have been applied against you.
Recognizing Potential Issues with Tax Shelter Arrangement
Remember that not all charitable donations are considered tax shelters. The majority of charitable donations provide you with a tax receipt for only the amount that was donated, not more. If you are better off after having made the donation than you were before it, chances are you may later have issues with the CRA.
It’s also important to remember that not everyone who donates to a tax shelter is doing so because they want to “scam” the government. Many people who donate do so because they want their money to go to a good cause. Unfortunately, the CRA does not provide specific information on any specific tax shelter, which can make it very difficult for a person to know whether or not they are contributing to a scam.
If you are thinking of participating in a tax shelter arrangement, the CRA lists several cautionary steps to follow:
- Know who you’re dealing with
- Get as much information as possible and carefully read any documents relating to the investment or donation
- Learn about the potential income tax implications of the investment
- You should seek legal advice if needed to understand the situation fully.
- Get all statements from the tax shelter provider in writing, rather than verbally.
- Ask the tax shelter promoter for any advance income tax ruling that may have been provided by the CRA.
It’s important to note that CRA tax shelter audits take time. It could take the CRA up to three years to reassess an income tax return. Just because your donation or investment was accepted by the CRA initially, don’t assume that the CRA has accepted the claim.
How We Help
Participating in an abusive charitable donation tax shelter can lead to significant penalties and interest. At Farber Tax Solutions, we have successfully negotiated interest and penalty forgiveness on behalf of donors who participated in these shelters. Requesting taxpayer relief is a serious matter and should be done carefully with an experienced representative. Our services include investigating your circumstances and qualification for relief, providing advice on strategy and submitting a formal application on your behalf, and handling all correspondence with the CRA Taxpayer Relief division until a decision is rendered.
Donors involved with gifting tax shelters ultimately have a large tax debt to pay. Our team are experts in securing long-term payment arrangements with the CRA. We work with the CRA to determine an affordable monthly payment to reduce your outstanding tax debt.
In addition, as a member of the Farber Group, our network of companies allows us to help find creative alternative solutions to your tax arrears, including alternate financing, restructuring and insolvency.
No matter the CRA Collections issue, contact us today to find out how we can help.
Let Us Solve Your Problems
Our team of ex-CRA, legal, and accounting professionals have built a proven track-record that comes from our extensive experience. We can help ensure that your rights as a taxpayer are respected and are committed to helping you find relief from your tax troubles.
If you have participated in a charitable donation tax shelter, contact us today to learn more about your options.
Farber Tax Solutions can help you successfully deal with CRA problems. We utilize the experience of our tax experts to:
- 1| Offer a comprehensive solution that is focused on achieving the most favourable possible outcome for your tax issue;
- 2| Communicate with the CRA on your behalf and navigate the entire CRA dispute process; and
- 3| Offer a complete solution to your tax problems, including ex-CRA professionals and tax lawyers from Farber Tax Law.