- ‘Tis the Season for Charitable Tax Shelters – Beware! (Charitable Tax Shelters)

‘Tis the Season for Charitable Tax Shelters – Beware!

Subject: Charitable Tax Shelters
Number: 11-33
Date: 12/23/2011

If the charitable tax shelter seems too good to be true, it likely is

Charitable tax shelters have been around for quite some time. We first wrote about them in 2004 with Tax Tip 04-04. Since 2004, the CRA has written many times on the dangers of acquiring a charitable tax shelter. In addition, virtually all of the case law involving charitable tax shelters has not been in favour of the taxpayer.

Notwithstanding the above and the dangers involved in engaging in charitable tax shelters, there is no shortage of promoters who still try to prey on people who believe that charitable tax shelters are worth the risk. One recent newspaper article explored the merits (or lack thereof) of a recently promoted charitable tax shelter. The article was interesting in that it also called for increased regulation involving the marketing of charitable tax shelters.

The Income Tax Act is littered with proposed amendments in an attempt to tighten up the legislation regarding clever schemes that attempt to circumvent the spirit and intent of the law involving donations.

Bottom line, a few messages arise regarding charitable tax shelters that you should be aware of:

If the charitable tax shelter seems too good to be true, it likely is;
The CRA has aggressively audited charitable tax shelters. Accordingly, expect to be audited and reassessed to the extent that you purchase a charitable tax shelter and claim inflated donation tax credits; and
Seek professional tax advice when you are intending to purchase a charitable tax shelter.

Other comments from the CRA are contained in their December 19, 2011 press release.

Overall, if you are expecting a nice Christmas present from the purchase of a charitable tax shelter, expect to have to return it for no "credit."

TAX TIP OF THE WEEK is provided as a free service to clients and friends of the Tax Specialist Group member firms. The Tax Specialist Group is a national affiliation of firms who specialize in providing tax consulting services to other professionals, businesses and high net worth individuals on Canadian and international tax matters and tax disputes.

The material provided in Tax Tip of the Week is believed to be accurate and reliable as of the date it is written. Tax laws are complex and are subject to frequent change. Professional advice should always be sought before implementing any tax planning arrangements. Neither the Tax Specialist Group nor any member firm can accept any liability for the tax consequences that may result from acting based on the contents hereof.