Budget 2013 - Taxes in Dispute and Charitable Donation Tax Shelters

Notice to the reader

This measure has received Royal Assent.

Where a taxpayer has filed an objection or an appeal to the Tax Court of Canada, the CRA is generally prohibited from taking collection action in respect of assessed income taxes and related interest and penalties in dispute. If an amount in dispute has already been paid, the taxpayer can apply in writing to have the CRA repay that amount or to release the security that is held in respect of the amounts in dispute.

For amounts assessed for the 2013 and subsequent years, the budget proposes to change these rules so that they only apply to 50% of the disputed amounts associated with a charitable donation tax credit (for individuals) or deduction (for corporations) in respect of a charitable donation tax shelter.

What are the current collection procedures when a taxpayer files an objection or an appeal to the Tax Court of Canada?

If a taxpayer files an objection, collection action on amounts in dispute will usually be postponed until 90 days after the CRA sends a decision to the taxpayer. If a taxpayer files an appeal to the Tax Court of Canada, collection action on amounts in dispute will usually be postponed until the Court mails its decision or the taxpayer ends the appeal. In all cases, interest will continue to accrue on any amount payable.

If a taxpayer has already given security or paid an amount in dispute, can the payment be returned to the taxpayer?

If the taxpayer has already paid the disputed amounts, or if the taxpayer gave security instead, the taxpayer can apply in writing to have the CRA repay that amount or release the security.

What are the proposed changes to the collection procedures in respect of a charitable donation tax credit or deduction claimed when related to a tax shelter?

If a taxpayer has objected to an assessment of tax, interest or penalties because a deduction or tax credit claimed in respect of a tax shelter that involves a charitable donation has been disallowed, the CRA will be permitted, pending the final determination of the taxpayer's liability, to take action to collect 50% of the disputed amount.

What are the proposed changes to the rules applicable to the repayment of a disputed amount in respect of a charitable donation tax credit or deduction claimed when related to a tax shelter?

If a taxpayer has objected to a collection of tax, interest or penalties because a deduction or tax credit claimed in respect of a tax shelter that involves a charitable donation has been disallowed, the CRA will only be obliged, pending the final determination of the taxpayer's liability, to repay amounts paid or release security accepted in respect of 50% of the disputed amount.

What are the reasons for these changes?

The CRA has been successful in challenging charitable donation tax shelter cases in the Courts, but some taxpayers continue to participate in questionable tax shelters. Furthermore, prolonged litigation of these disputes can delay final collection of the taxes.

As a result, these changes have been proposed to discourage participation in questionable charitable donation tax shelters and to reduce the risk that unpaid amounts will ultimately become uncollectible.

Where can I get more information about the changes to the collection procedures and rules for the repayment of disputed amounts?

The CRA is committed to providing taxpayers with up-to-date information. The CRA encourages taxpayers to check its Web pages often. All new forms, policies, and guidelines will be posted as they become available.

In the meantime, please see the Department of Finance Canada's Budget 2013 documents for details.

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