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Charitable Tax Shelters – 'Tis the Season Redux

Subject: Donations Number: 13-20 Date: 12/16/2013

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

We last wrote about charitable tax shelters almost 2 years to the day in Tax Tip 11-33.  All of the content of that Tip is still true today.

However, the landscape involving the charitable tax shelter saga continues to evolve.  The Canada Revenue Agency (“CRA”) has warned taxpayers and their advisors for well over a decade that they will audit and reassess people who “invest” in charitable tax shelters.  Despite these warnings and billions of dollars in reassessments, claims in respect of questionable charitable donation tax shelters continue to tie up scarce Government resources (like those of the CRA’s and the courts’). Previous legislation generally prohibits the CRA from taking collection actions in respect of assessed income taxes and related interest and penalties where a taxpayer has objected to an assessment. The 2013 Federal Budget introduced measures that will give the CRA the ability to collect 50% of the disputed tax, interest or penalties where a taxpayer files an objection to an assessment relating to credits claimed for charitable donation tax shelters. This legislation will also reduce the risk of the unpaid amounts becoming uncollectable during the long objection and appeals process.

The Courts also continue to not find in favour of taxpayers who appeal their reassessments from the CRA.  The latest decision arises from the Federal Court of Appeal in Kossow.  It is an interesting read that taxpayers and their advisors should read should they consider acquiring a charitable tax shelter.

As should be evident, Santa has not delivered any presents to people who have previously or continue to acquire charitable tax shelters.  In fact, Scrooge continues to pour cold water on anything to do with it.  As we mentioned in our previous Tax Tip, there are a couple of key messages that we hope to convey from this Tip:

1. If the charitable tax shelter seems too good to be true, it likely is; and
2. Seek professional tax advice when you are intending to purchase a charitable tax shelter.

The Ghosts of Christmas Past, Present and Future will not be illustrating any pretty scenarios with charitable tax shelters anytime soon.

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.