What are others saying about Canadian charity gifting tax shelters?

The Canadian Council of Christian Charities has sent out a warning to its members stating in part:

“The Canadian Council of Christian Charities (CCCC) advises registered charities not to get involved in tax shelter gifting arrangements. The CCCC has serious concerns about these arrangements. Registered charities should be aware that participating in such arrangements can jeopardize their charitable status or expose them to monetary penalties. A tax shelter gifting arrangement typically promises participants tax savings greater than the cost of participation in the scheme, thus allowing donors to “profit” from donating to a charity. Prominent examples of such schemes include gifting trust arrangements, leveraged cash donations, and buy-low, donate-high schemes. Many of these arrangements provide little or no benefit to the charities involved or to their intended beneficiaries. Instead, many of these arrangements take advantage of a registered charity’s receipting privileges for the private gain of promoters and participants. Charities that knowingly participate in schemes that are abusive or fraudulent or that fail to devote their resources to legitimate charitable activity, can be subject to revocation and/or significant monetary penalties. In addition to penalizing charities involved in these arrangements, the CRA may also apply penalties against those persons who promote such arrangements or who participate in the making of false statements to the CRA.”

Gordon Pape was recently interviewed by the National Post in an article entitled “Beware charity scams” by Jonathan Chevreau (April 6, 2010)

Here are some quotes from the article:

“If you’re about to file a tax return with an inflated charitable donation claim, think twice,” Pape cautions, “The odds are that you will be exposing yourself to all kinds of problems that will cost you dearly in both money and sleep.”

I’ll second Pape’s recommendation to avoid such schemes. Not one has withstood the close scrutiny of the Canada Revenue Agency (CRA), Pape says, citing Cathy Hawara, head of the CRA’s Charities Directorate. Since the 2006-2007 tax year, 34 charities had their charitable status revoked for running “what amounts to an illegal tax shelter,” Pape says. ... 98% of funds raised by some revoked schemes didn’t go to charity

“The CRA is going after tax shelter charities with a vengeance,” Pape concludes, while recognizing “it’s easy to get sucked in.” Pape’s next paragraph, which I’ve put in Italics, is worth quoting verbatim:

Almost without exception these scam charities make themselves look as though they are completely legit. Go to one of their websites and you will usually find one or more legal opinions, sometimes from well-known, reputable firms, which appear at first glance to give the charity a legal okay. But read the opinion in depth (and they are sometimes quite long) and you’ll find they are laced with caveats.”

But when he examined these in detail, in every case Pape concluded the opinion provided was “equivocal and conditional on CRA interpretation — in short, worthless if you are looking for some kind of legal guarantee.”

Nor should you be reassured by charities that display a CRA identification number. These are routinely issued to every charity, he warns, but are used for tracking purposes only. They are not a stamp of approval by the CRA.