CRA cracking down on ‘sham’ tax shelter schemes
Lynda Steele & Sandra Hermiston , CTV Vancouver
Published Tuesday, April 15, 2014 6:00AM PDT
Last Updated Tuesday, April 15, 2014 7:36PM PDT
Thousands of Canadians are being caught up in tax shelter schemes that are driving many people to bankruptcy.
The companies involved encourage Canadians to donate money to purchase drugs for people in poor countries. In exchange they're promised huge tax refunds, many times greater than the original donation.
It’s all cloaked in philanthropy, but to date, nearly six billion dollars worth of these donations have been denied by Canada Revenue officials.
"I think it's just morally offensive. I think it's conduct that's reprehensible. I think it's all personal benefit for the promoters," said Blair Mantin, bankruptcy trustee.
Mantin says 10 per cent of his clients are people who were financially ruined after donating to a tax shelter scheme.
One B.C. resident donated over $114,000 to the Mission Life Financial Canadian Relief Program in 2010. They received a CRA tax slip from the tax shelter. Then the taxman denied the claim in 2013.
Why? The Canada Revenue Agency ruled that, "the financing arrangement was a sham."
The consumer was ordered to pay back the full amount, plus interest.
According to the CRA, "to date, not a single gifting tax shelter audited has been found to comply with the Income Tax Act."
So if the Canada Revenue Agency has found for years that these financial arrangements are a sham, then why are companies still in business, offering these types of tax shelters? And why is the CRA not warning taxpayers specifically about the tax shelter companies in question?
"We do not provide specific information about the specific tax shelters, because of the confidentiality provision in the Income Tax Act where we have to protect the confidential information," said Guy Bigonesse, CRA director of aggressive tax planning.
The NDP critic for National Revenue says that's not good enough.
"The CRA has a responsibility. The government has lots of money to spend on hockey, television ads on job grant programs,” said MP Murray Rankin, “but to let people know about tax laws and the like? They're not spending any time or money doing so."
But the CRA insists it is cracking down on these tax shelter schemes.
Since June 2000, the CRA says it has assessed $137 million dollars in third party penalties to tax advisors, planners, promoters and charities that make false statements about tax shelter schemes.
The CRA also tells CTV News that the number of returns that include gifting tax shelter donations has dropped from 50,000 in 2006, to 10,000 per year in recent years, a decrease of 80 per cent.
“We believe our messaging to the taxpayers of the consequences of the investing in the tax shelter is having success and more and more taxpayers realize they should not invest in the tax shelter," said Bigonesse.
The government has also stopped handing out tax refunds upfront, as part of its tax shelter intercept program. In 2012, the CRA changed the rules. Now, anytime a taxpayer tries to claim a tax shelter benefit, the refund is withheld, until the tax shelter is audited.
Still, that's no help for anyone who donated before 2012 and got a big refund. They can expect the taxman to come calling any day looking for his money back, with interest.