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CRA Clarifies Stance On Gifting Tax Shelters

by Mike Godfrey,, Washington

14 January 2014

Legislative reforms will give the Canada Revenue Agency (CRA) greater powers to tackle the use of gifting tax shelter schemes.

The reforms, introduced in Finance Minister Jim Flaherty's 2013 Budget, affect taxpayers who have been denied, in whole or in part, a tax credit for donations made under a gifting tax shelter, and have filed an objection to the decision. The CRA has been authorized to collect or withhold 50 percent of the amount in dispute.

The Agency has now clarified that for the 2013 tax year, it will not assess taxes owed or provide a refund to taxpayers who claim a tax credit under a gifting scheme until it has audited the shelter in question. A taxpayer can have their tax return assessed before the auditing process begins if they agree to remove the claim from their return.

If a taxpayer receives a charitable donation receipt for an amount higher than the value of property donated, the receipt will be deemed invalid and cannot be used to claim a tax credit.

Canada's Income Tax Act defines a tax shelter as an investment in property (other than a flow-through share or a prescribed property), or a gifting arrangement under which a gift is made to a qualified donee or registered body or an individual incurs a limited-recourse debt that can be considered to relate to a gift to a qualified donee or to a monetary contribution. Generally, the investment in property or the gifting arrangement is considered a tax shelter if it is promoted as offering income tax savings and it is reasonable to expect that the buyer or donor will have losses, deductions, or credits within the first four years.

The CRA has denied more than CAD5.9bn (USD5.4bn) in donations and reassessed over 182,000 taxpayers who have participated in such shelters. It has also revoked the charitable status of 47 organizations and assessed CAD137m in third-party penalties against the promoters and tax preparers involved.

The Agency encourages taxpayers to seek advice from independent professionals before engaging in a tax shelter.

TAGS: compliance | Finance | tax | investment | tax compliance | tax incentives | audit | tax credits | ministry of finance | tax authority | professionals | tax planning | Canada | penalties | Tax

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