The Canada Revenue Agency (CRA) is committed to preserving the integrity of Canada's tax system, including protecting Canadians from widely marketed abusive gifting tax shelter schemes.
As a result of the CRA's on-going compliance activities, the number of returns filed per year nationally that include gifting tax shelter donation amounts has been steadily declining, from a peak of approximately 50,000 participants in 2006 to approximately 10,000 in recent years. While this amounts to an 80% decrease in the number of participants in these arrangements, it still represents an estimated $300 million in “donations” and $85 million in federal tax refunds annually.
The CRA continues to develop innovative ways to deter taxpayers from participating in gifting tax shelter schemes.
What is a tax shelter?
Tax shelters are defined in the Income Tax Act (ITA). In general terms, a tax shelter includes either a gifting arrangement or the acquisition of property, where it is represented to the purchaser or donor that the tax benefits and deductions arising from the arrangement or acquisition will equal or exceed the net costs of entering into the arrangement or the property. In the context of gifting arrangements, this means that an individual will receive a donation receipt that is more than the amount they donated.
Why does the CRA track tax shelters?
The tracking of tax shelters and the reporting requirements imposed on tax shelter promoters are important tools that assist the CRA in identifying, reviewing and challenging abusive tax planning arrangements. Budget 2012 introduced changes to encourage tax shelter promoters to meet their reporting requirements.
When is a gifting tax shelter scheme abusive?
Gifting tax shelters include schemes where taxpayers receive a charitable donation receipt with a higher value than the amount they donated. This can typically be four or five times the amount of the donation.
How do Canadians know an abusive gifting tax shelter scheme when they see one?
The CRA is committed to protecting taxpayers and strongly suggests that taxpayers seek advice from an independent tax professional before participating in any aggressive or high-risk activity where all or most of the return on investment is derived from a tax benefit. Independent advice should be from a tax professional who is not connected to the scheme or promoter.
What is a third-party penalty?
A third-party penalty is a fine that is imposed on anyone found to have counselled or assisted others in filing false returns or to have turned a blind eye to false information submitted by taxpayers for tax purposes. Third-party penalties can apply to tax advisors, planners, promoters, and charities that make false statements involving tax shelters and other schemes. Since June 2000, the CRA has assessed $63.5 million in third-party penalties against promoters and tax preparers. For more information on third party penalties, go to: IC 01-1, Third-Party Civil Penalties.
