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January 3, 2011

Warning: If you donate to a gifting tax shelter, expect to be audited

According to a new Tax Alert published by the Canada Revenue Agency, "each year, Canadian taxpayers participate in gifting arrangements that result in donation receipts worth three or four times the actual amount donated by the taxpayer. The Canada Revenue Agency (CRA) continues to warn Canadians against these gifting arrangements and audits those who participate."

The tax alert continues its warning stating:

To date the CRA has denied over $4.5 billion in tax shelter gifting arrangement donations and reassessed over 130,000 taxpayers who have made donation claims through a gifting scheme. For most claims, the CRA has denied the gift entirely. The CRA audits gifting arrangement tax shelters that provide donation receipts three or four times the out-of-pocket cost.

Decisions in recent court cases have concluded that the "donation" made by the taxpayer was not a gift or, where it was a gift, the amount did not exceed the out-of-pocket cost to the taxpayer. In the Maréchaux case, the Federal Court of Appeal upheld the Tax Court of Canada (TCC) decision that there was no gift given as a result of the defendant's participation in a leveraged cash donation scheme. In the Lockie case, the TCC concluded that the gift in a buy-low-donate-high scheme was the amount paid by the taxpayer.

The CRA advises that anyone thinking of investing in a tax shelter gifting arrangement should get independent legal and tax advice from a tax professional who is not connected to the arrangement or the promoter.

For more information on previous tax alerts, go to www.cra.gc.ca/alert on the CRA Web site.

Posted by Taxes.ca Editorial Team [permalink]

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