Tax Shelters & Gifting Arrangements
A tax shelter is defined in subsection 237.1 of the Income Tax Act as an arrangement that provides a taxpayer tax benefits or deductions which are greater than the net cost of participation in the shelter. Tax shelters may be gifting arrangements, charitable donations, limited recourse debts, or the acquisition and donation of properties.
Tax Shelter Identification Number
A tax shelter identification number is intended to monitor the tax shelter themselves, and those choosing to participate. Taxpayers must be aware that the number does not mean the shelter has been approved of by the Canada Revenue Agency.
Gifting Tax Shelters / Donation Receipts
Subsection 248(35) of the Income Tax Act has changed the laws as they pertain to charitable donations and official charitable receipts. Basically, the CRA will now only allow the actual cash contribution rather than the amount written on the official charitable receipt. The reason for this change is because of the many abusive tax shelters that attempted to create loopholes allowing a taxpayer who provided a small cash donation to receive a much larger amount on their official donation receipt.
Canada Revenue Agency View
The Canada Revenue Agency will, at times, take the position that the reason a taxpayer donated funds to a tax shelter was for the tax benefits rather than for charitable purposes. Where they make this argument, the CRA will attempt to remove the entire charitable donation and will not even allow the cash contribution as a deduction on a taxpayers tax returns.
If you participated in a tax shelter, or gifting arrangement and the CRA has reassessed you, or is refusing to process your returns, contact us today to see how we can help!
Marechaux v. Canada, 2010 FCA 287 – Charitable Purpose vs. Tax Benefit
Mariano v. The Queen, 2015 TCC 244 – Global Learning Trust and Global Learning Gift Initiative (GLGI)
Canada v. Castro, 2015 TCC 225 – CanAfrica
This article provides information of a general nature only. It does not provide legal advice nor can it or should it be relied upon. All tax situations are specific to their facts and will differ from the situations in the articles. If you have specific legal questions you should consult a lawyer.