Abusive Canadian Charity Tax Shelter Schemes

There are a few remaining schemes which promise “investors” a charitable tax receipt for amounts greater than their cash investment. These are known as abusive charity gifting tax schemes. The estimated amount of receipts issued as part of abusive charity schemes over the last 7 years is $6 billion. There have been 175,000 filings by taxpayers claiming inflated receipts issued by these abusive charity gifting tax shelters. Not only has the Canadian and provincial governments lost billions in tax revenue, which either results in the reduction of services provided or increased taxes, but schemes such as these are damaging the credibility of the charitable sector.

The Canadian government has made a concerted effort to eliminate these schemes and they have been successful in their efforts, although there is more work to do. In 2006, $1.3 billion worth of receipts were issued by abusive charity gifting tax schemes. In 2009 that number was down to $285 million.

The Canada Revenue Agency has taken a hard-line on these abusive schemes. On numerous occasions CRA has provided notices cautioning Canadians to avoid such schemes.

Charities should avoid any involvement with these schemes. First these schemes are undercutting the charitable sector. Second, they are shifting the tax burden onto other law abiding citizens. Third, the charity in the end will get very little out of the scheme except the possible revocation of its status, financial penalties and a multi-year headache. Also donors should realize that these schemes don’t work and taxpayers should not invest in them.