Thinking about a tax shelter? Think again!

[BarryMcGuire]

`If it seems too good to be true`` is the title of a column by tax expert Jamie Golombek. Jamie's column is yet another reminder to all of us that the Canada Revenue Agency (CRA) is death on questionable charitable tax shelters.



Essentially, if a tax shelter promoter says you will get a tax receipt for an amount that exceeds your donation, it is likely not a valid tax shelter. Some of these schemes promise deductions of four or five times your donation amount. Normally the CRA isn't very forthcoming in giving their opinion on any particular tax issue. For tax shelters, however, they are crystal clear. They will audit, disallow not only those bloated deductions but also your actual donation amount and pursue for penalties.



The CRA is ramping up their attack on these phony shelters. Their latest is that they will now not complete an assessment or allow any deductions until they finish their audit of the tax shelter. That can take 2 years +. And, guess what? They audit EVERY tax shelter.



Folks, they are serious. Read this article. Read it again. None of these excessive donation credit tax shelters have been approved. In fact, the CRA has turned down $5.5 billion in donation claims and reassessed more than 167,000 taxpayers. Charitable status has been revoked for 44 charitable organizations that participated in these gifting tax shelters.



Don't listen to anyone who tries to sell or promote this type of shelter. Don't pay attention to the expensive suits of lawyers and accountants who are providing opinions supporting the shelter. Ignore the shelter`s claims that the shelter will vigorously defend their position and they have the legal resources to do it. Doesn't matter. You will lose. It's a colossal legal quagmire that will cost you tremendous amounts of time, money and negative energy all for nothing. Run!!

 

[kir]

It might be interesting to buy something....but take physical possession of the goods to which the charity is applied. Let's see what happens. Hire a separate independent appraisal (one that is CRA approved). Then donote it to a charity....





Kir.

 

[moparcanuck]

Please please please listen to Barrie on this one. While we all hate paying taxes, and the apparent opportunity to 'stick it to the man' seems very tempting, these scams always eventually get caught. Sometimes it takes a while to happen, and you think you've found a winner, but they get caught up to eventually. And it's not a matter of just having to pay back the illegitimate refund, but also:



1. Denying the receipt for your actual cash outlay.

2. Denying the receipt for your inflated donation amount.

3. Gross negligence penalties (50% of the tax evaded)

4. Interest on the amount back to the date of the refund.





Your $5000 cash outlay resulting in a, say..... $10,000 refund sounds great. However, when these things get caught up with, you could easily wind up having to pay back $15,000-$20,000.



Every point that Barrie raises is accurate, but I'm going to throw in one more. Many of these scams claim to have letters of endorsement showing that they are the only ones out of the bunch that are actually legit. These opinions will be from people like very high profile lawyers, politicians, and even the Prime Minister. Don't buy it. Work more on your legit pursuits like real estate, and please, feel free to donate to legit charities. All communities across the country have food banks and Christmas charities that need your help this time of year. Don't get greedy, get warm and fuzzy.

 

[PeterCuttini]

I will 100% agree with Barry. Stay far, far away from anything that is promoted as a donation tax shelter. The bottom line is if you pay $100, it is not worth the $500 or whatever the "appraisal" say it is. You have establish the fair market value of an item by purchasing it for $100. You will lose every time on these tax shelters. As a policy, we will not complete a tax return in the office if we see one of these tax shelters.

 

[PWZ]

Hi Kir,



Do you know where I can find the list of CRA approved appraisal? Thank you in advance.





PWZ

 

[kir]

Sorry, what I meant to say was get any independent appraiser to get the real valuation. Then you will know it cannot be worth more than the cash input. Even if it is worth something...CRA can just say,



you didn't have any intent to donate or you didn't show that the "gift" was in the spirit of giving.



Basically, don't buy anything from them. However, if you must, buy and take physical possession and ask tough questions in an attempt to expose the founder and the promoters who just want to make a handsome commission.


For instance, one promoter was pushing a program call Liberty Health Initiative (Universal Health Donations). This product used to be in their website (http://www.susyfoo.com/). A few years ago, all

donors lost and had to pay interest to CRA (http://www.cbc.ca/news/story/2010/04/19/con-cra-revoke.html) . Now they are promoting http://www.glgi.ca.




So please help stop these people and most importantly do your homework, like you would if you were buying real estate (ex. with valuation, and have documentation to able to follow the money trail, reciepts, etc..). The documentation from these charities are mass produced and one should question it's authenticity.



If you google more, the courts are saying that:

a) the intentions to give was not present.

b) the valuation was questionable.



So if you can proof a) and b) then why not? but ...Good luck with getting documentation form these charities.

 

[moparcanuck]

And GLGI is another one that has been being challenged by CRA. Looks like all the donations have been denied at the moment. GLGI is challenging this in court, still waiting for results, but CRA has a pretty winning track record on these things.

 

[Pheenix]

Some of the best work on evaluating and selecting Canadian charities has been done by this organization http://www.charityintelligence.ca/.



Read their Top choices Report for 2012 for a really good outline of their approach.

 

[PWZ]

I didn't mean "buy-and-give". I won't believe any of those schemes. What I meant was to donate something you already own. For example, you are closing down a retail store, and you want to donate the goods to a charity. But you definitely don't want to be "over-receipted" or "under-receipted". If there are some appraisers who are approved by CRA, then we can use their appraisal before donating the good. The charity evaluation website provided by Brad is kind of useful, because some of them might provide appraisal and are approved by CRA, but I'm not sure yet.



Thank you Barry, Kir, Brad and everyone for the information.



PWZ

 

[moparcanuck]

Just remember that donating something from a commercial venture (ie, your retail store) counts as a sale. While you might get the receipt for $100, you also have to record $100 in revenue (and may even have GST/HST implications, not sure off the top of my head). Might work out in your favor, might not. However, still a good way to give back to the community.

 

[kir]

this CRA link might help:

http://www.cra-arc.gc.ca/chrts-gvng/chrts/plcy/cpc/cpc-018-eng.html



Kir.