During a recent seminar on aggressive tax planning, a panelist outlined the onerous compliance burden of the proposed avoidance transactions rules. He asked rhetorically what the government might be targeting with such an apparently wide casting of the net.
A neighbouring attendee whispered that maybe it would catch the charitable donation schemes. An interesting thought, though CRA has long tracked donor-taxpayers, promoters and charities without the need of this further monitoring mechanism, and has successfully reassessed, prosecuted and de-registered, respectively.
Even so, incredibly I had a conversation earlier in the summer with an advisor who had again been solicited for what appeared to be yet another such scheme.
History of donations schemes
Though they’ve been around since the 1990s, I should be clear that I’m talking about the ‘buy-low, donate-high’ arrangements promoting tax benefits in excess of taxpayer outlays. Early ones peddled artwork, computers and comic books, and later they reached for the heartstrings with things like textbooks, prescription drugs and medical supplies.
CRA (when it was CCRA) directly warned of these schemes over a decade ago in December 1999. By December 2003, new legislation was introduced limiting the value of a charitable tax receipt to the donor’s cost where property is donated within three years of acquisition or is acquired through a gifting arrangement.
CRA getting more active
Subsequently there has been a renewed CRA effort to address concerns about the charitable sector. Some of this has been through more carrot than stick, such as the Charities Partnership and Outreach Program. As well, the Budget 2010 relaxation of the disbursement quota rested in part upon the government’s expressed confidence in CRA’s ongoing monitoring capabilities.
Still, the stick remains. Specifically, charities related fraud is one of the three tines of CRA’s Project Trident, the other two being tax preparer fraud and identity theft.
Perhaps the watershed event evidencing CRA’s progress was in August 2008, with the de-registration of ICAN, The International Charity Association Network. Here was a purported charity that dwarfed even the largest of known charities, propagated by such schemes. It was the 200th registration revocation “for cause” since 1992, as published in the Charities Directorate listing on the CRA website. While only a limited number would be related to this specific activity, it is interesting to note that there have been 78 more revocations for cause in the 2 years since, including some having similar allegations.
Recent court activity
As to this seeming turn in the tide against charities related fraud, two cases reported in June 2010 are worth noting. In an administrative review, the federal court upheld the revocation of EFILE privileges for a tax preparer who submitted doctored charitable receipts. And in a private law suit, an accountant was found liable to his donor-taxpayer client for having received secret commissions in a buy-low, donate-high scheme.
And that advisor who was solicited by the promoter just recently? He just laughed it off. Too bad it’s not so easy for us to see the backs of all these promoters, once and for all.