The CRA goes after gifting tax shelters

The Canada Revenue Agency (CRA) has had enough of gifting tax shelter schemes and is taking action.

Starting with the 2012 tax year, if a taxpayer is claiming a credit for participating in a gifting tax shelter scheme, the CRA will put on hold that taxpayer’s assessment of returns. The CRA will first complete the audit of the tax shelter — up to a two-year process — before it issues assessments and refunds. This, says the CRA, will avoid the issuance of invalid refunds and discourage participation in these “abusive” schemes.

The tax shelter schemes involve making a donation or payment for one amount then being issued a tax receipt for a higher amount. For example, in Guindon v The Queen (Knowledge Bureau Report, Oct. 31) participants acquired vacation ownership weeks (VOWs) in a Turks and Caicos Islands time-share resort for $3,248 a week, which they were to donate to a charity in return for charitable donation receipt for $10,825.

The CRA has not found any gifting tax shelter schemes that comply with Canadian tax laws. To date, its says, it has denied more than $5.5 billion in donation claims, reassessed more than 167,000 participating taxpayers and, since June 2000, assessed $63.5 million in third-party penalties against promoters and tax preparers. The CRA has also revoked the charitable status of 44 charitable organizations.

For this reason, the CRA is reminding you that if it seems too good to be true, it probably is. If you are considering entering into a tax shelter arrangement, the CRA encourages you to obtain independent, professional advice before signing any documents. Independent advice means advice from a tax professional who is not connected to the tax shelter or to the promoter.

Taxpayers whose returns are on hold will be able to have their returns assessed if they remove the claims for the gifting tax shelter receipts in question.