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What is a tax shelter?

The Income Tax Act defines "tax shelter" and "gifting arrangement" in subsection 237.1(1).

Generally, a tax shelter is:

  • a gifting arrangement described under paragraph (a) of gift arrangements or an investment in property (other than prescribed property or flow-through shares) where it is reasonable to consider, based on statements or representations made or proposed to be made in connection with the gifting arrangement or the property, that within the first four years of buying an investment in the property or entering into the gifting arrangement, the buyer or donor will have losses, deductions, or credits equal to or greater than the Net cost of the original investment or of the property acquired under the gifting arrangement

Gift arrangements

gifting arrangement means any arrangement under which it may reasonably be considered, having regard to statements or representations made or proposed to be made in connection with the arrangement, that if a person were to enter into the arrangement, the person would

(a) make a gift to a qualified donee, or a contribution referred to in subsection 127(4.1), of property acquired by the person under the arrangement; or

(b) incur a limited-recourse debt, determined under subsection 143.2(6.1), that can reasonably be considered to relate to a gift to a qualified donee or a monetary contribution referred to in subsection 127(4.1)

 

Net cost

"Net cost" is net of any prescribed benefits expected to be received or enjoyed, directly or indirectly, by the person or another person with whom the person does not deal at arm’s length.

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