It has come to the Better Business Bureaus attention that once again Tax Shelter Gifting companies are approaching local residents. Donors should be aware that there are risks involved in these sorts of offers.
An alert from Revenue Canada gives the following information:
Taxpayers are reminded that the amendments to the Tax Act are applicable to years after 2003 and limit donations made under tax shelter and other arrangements to a maximum of the donor’s out-of-pocket costs, and previous years can be reassessed.
The CRA continually audits many gifting arrangements and for the year 2002 the CRA has reassessed about 6,700 taxpayers, disallowing about $490 million in donations. A further 5,700 taxpayers with donations of $360 million have also been audited and reassessments were issued in all arrangements. The CRA reduces the amount of the gift to no more than the cash paid by the taxpayer, and in many cases it is reduced to less than that. In some cases it is reduced to nil, when the donation is not a true gift.
Some of the arrangements currently being marketed as donation programs and gifting initiatives are advertised and/or promoted as resulting in “unique” or “valuable” tax saving opportunities. In gifting trust arrangements, the taxpayer makes a cash donation to a charity and also becomes a beneficiary of a trust. The taxpayer receives goods or property as a distribution from the trust and donates it to charity. The taxpayer receives donation receipts for the total of the cash and the purported fair market value of the property. Typically, the total cash paid by the investor is about 30 percent of the amount on the donation receipt. The amendments to the Income Tax Act provide that the donation amount on which the tax credit is based will be reduced by any “advantage” that is in any way related to the gift.
For more information on this, or any other concerns, call Revenue Canada at:
1-888-267-2384 or check their web site www.cra-arc.gc.ca.