Warning: Canada Revenue Agency Has Denied Over $2.5 Billion In Tax Shelter Gifting Arrangement Donations

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The following is now available on the CRA Web site:

Tax Alert:

Despite numerous warnings and audit actions by the Canada Revenue Agency (CRA), some taxpayers are still participating in tax shelter gifting schemes.

Statistics and facts

* The CRA plans to audit all tax shelter gifting arrangements.
* For audits completed to date, over 65,000 taxpayers who participated in these schemes have been reassessed, or are in the process of being reassessed.
* In most cases the CRA has denied the “gift” completely.
* Well over $2.5 billion in claimed donations are being denied.
* In 2008, Canadian courts have continued to confirm the CRA’s position with respect to these schemes.

Tax shelter identification numbers

The CRA reminds taxpayers that tax shelter numbers are used for identification purposes only. A tax shelter with an identification number does not guarantee that taxpayers are entitled to receive the proposed tax benefits.

Did you participate in 2007? Not been contacted by the CRA yet?

If you participated in a tax shelter gifting arrangement in 2007 and claimed your “donation” on your tax return, the claim may have been accepted as filed. This does not mean that the CRA agrees with your donation claim. Keep your books and records in case the CRA reviews your return.

The CRA generally has three years from the date of assessment to audit and reassess taxpayers. These audits can take over a year to complete. The fact that investors in these tax shelters have not been contacted and/or reassessed should not be interpreted as the CRA’s acceptance of their claim.

Penalties will be considered, especially where an investor was audited and reassessed for previously participating in a gifting scheme.

Current promotions

Tax shelter gifting schemes continue to be marketed and claim to be different from those for which the CRA has previously issued warnings. However, completed audits have shown that, in many cases, there was effectively no gift being made and, as a result, the donation was reduced to zero. Taxpayers should avoid all schemes that promise donation receipts for three to four times the cash payment.

Packages promoting these schemes sometimes include letters of commendation about the particular charity, which can give the impression of endorsing the scheme itself. These letters should not be interpreted as providing any assurance that these schemes do what they claim to be doing, or that the promised tax benefits are in accordance with the Income Tax Act.

Still thinking of investing? Get professional, independent advice

If you are still thinking about participating in a tax shelter gifting arrangement, it is very important that you get independent legal and tax advice. Independent advice means advice from a tax professional that is not connected to the arrangement or the promoter. If property is involved, you should also get independent advice on its true value. Packages from promoters will often claim to have legal or tax opinions from a law firm. You may find that these opinions contain very general comments and do not provide unconditional support for the scheme. Ask to see them, and have them reviewed by an independent professional.

Come to us before we come to you.

If you choose to correct your tax affairs before we begin any audit action or investigation, you may be able to avoid penalties or prosecution. To find out how to request an adjustment to your tax return, go to http://www.cra.gc.c/voluntarydisclosures.

Previous tax alerts

For more information on previous tax alerts, go to http://www.cra.gc.ca/alert on the CRA Web site.

MORE: See CRA Newsroom

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