Objections – Gifting tax shelter arrangements
Donations through a gifting tax shelter arrangement may involve cash payments and the acquisition of in-kind property.
The Canada Revenue Agency's (CRA) position is that payments to charities through a gifting tax shelter arrangement do not necessarily result in a donation tax credit.
Based on this position, the CRA has issued reassessments to taxpayers to deny the donation tax credit, as claimed, for payments to charities through gifting tax shelter arrangements.
It is important to note that the CRA audits every gifting tax shelter arrangement.
Notices of objection from taxpayers who made payments to charities through gifting tax shelter arrangements
Certain taxpayers who made payments through a gifting tax shelter arrangement and have received a denial from the CRA of their claim for a donation tax credit have filed an objection.
As a result of recent changes to legislation, some of these taxpayers are receiving letters from the CRA intended to resolve their objections.
What you should consider if you receive a letter from the CRA
If you receive a letter offering to resolve your objection, you are encouraged to carefully consider the terms offered by the CRA and to contact us if you have any questions regarding your objection(s).
The CRA is not considering changes to the terms it has offered and will not make another offer containing more favourable terms. Any suggestion to the contrary is false.
You may wish to seek advice from an independent professional in deciding which course of action to choose regarding the offer made by the CRA.
What you should know if you accept the offer made by the CRA
- Your objection(s) will be resolved and your return will be reassessed.
- Your acceptance will conclude the dispute process.
- You will avoid costs associated with the court process.
What you should know if you refuse the offer made by the CRA
- The CRA will take further action on your objection without advance notice.
- The CRA will maintain its position that you are not entitled to the donation tax credit that you claimed for your payments to charities through gifting tax shelter arrangements.
- The next step available to you in the dispute process is to pursue the matter before the Tax Court of Canada.
- You may incur costs associated with the court process.
If you have filed an objection but have not yet received a letter from the CRA:
The CRA is continuing to issue letters to taxpayers who have filed objections for the denial of donations through gifting tax shelter arrangements.
The CRA will contact you in writing in the coming months to resolve your objection if your situation meets the requirements for resolution under recent changes to legislation..
The position of the courts on gifting tax shelter arrangements
Various types of gifting tax shelter arrangements, some including the issuance of promissory notes, some with the donation of in-kind property, have emerged over the last few years. Although they may be different in their design, these arrangements have similar results: charitable donation receipts are issued to participants for amounts greater than they paid. In all cases, the CRA has reassessed the participants and denied the donation tax credit as claimed.
The Federal Court of Appeal has rendered three significant decisions involving promoted gifting tax shelter arrangements that promised a profit to participants in return for a payment. In each case, the cash benefit for the taxpayer exceeded the taxpayer's cash payment. While each taxpayer argued that their arrangement met the requirements of the law, in each case, the courts concluded that the taxpayer's donation tax credit was zero. The three cases are:
- F. Max E. Maréchaux (2010 FCA 287)
- Kathryn Kossow (2013 FCA 283)
- Allen Berg (2014 FCA 25)
An independent review by the Taxpayers' Ombudsman
Taxpayers are encouraged to consult the Taxpayers' Ombudsman special report Donor Beware, which contains more information about gifting tax shelters.
For more information
For more information consult the CRA webpage on Tax Shelters.
For more information about your objection, call 1-855-606-7612.
To discuss payment arrangements, call 1-855-806-1160.
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