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Wehret Den Anfängen!
Location: Ontario, Canada
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The old thread on the subject had some discussion on the issue.
From that old thread, there is one link in particular I think is most interesting:
CRA on tax shelter donation agreements
Quote:
Fact Sheet
November 2004
Tax shelter donation arrangements
The Canada Revenue Agency (CRA) reminds investors that the proposed legislative changes announced by the Department of Finance on December 5, 2003, to limit the tax benefits of charitable donations made under tax shelter and other arrangements, are effective throughout the 2004 tax year.
Potential investors should be aware of the risks associated with participating in certain tax shelter donation arrangements, including gifting trust arrangements, leveraged cash donations, and buy-low, donate-high arrangements.
All tax shelter promoters are required by law to report all sales of their arrangements to the CRA.
The CRA will challenge any arrangement that does not comply with the Income Tax Act and will audit the tax returns of investors with respect to their participation in such an arrangement.
Recommendation
The CRA has previously issued alerts to investors about the risks associated with certain donation arrangements and advised investors to take a number of precautions to protect their interests. In addition to the comments in this Fact Sheet, and those in the attached November 2003 Fact Sheet (including the December Update), the CRA recommends that anyone considering participating in tax shelter donation arrangements obtain independent legal and tax advice.
Background
The CRA issued a Fact Sheet, in November 2003 warning investors about the risks associated with participating in certain tax shelter arrangements. An update to that Fact Sheet was issued in December 2003 to advise that the Department of Finance had announced proposed changes to the Income Tax Act, on December 5, 2003, to limit the tax benefits from these arrangements. While the Update referred to one type of arrangement as an example (the buy-low, donate-high arrangement), the proposed changes are applicable to all tax shelter donation arrangements.
Current promotions
The CRA is aware that some donation arrangements continue to be promoted. Two such arrangements are identified as gifting trust arrangements and leveraged cash donations. It is the CRA's position that the December 5, 2003 amendments apply to these arrangements and will reduce their associated tax benefits.
Gifting trust arrangements
In these arrangements, the investor becomes a beneficiary of a trust and receives property as a distribution from the trust. Often, but not always, the property has a lien attached. The investor then donates the property along with an amount of cash (to pay off the lien where applicable) to a registered charity and receives a donation receipt for the total of the cash and purported fair market value of the property. Typically, the total cash paid by the investor is about 30% of the amount on the donation receipt.
The December 5, 2003 amendments provide that the donation amount on which the tax credit is based will be reduced by any "advantage" that is in any way related to the gift. It is the CRA's position that the receipt of such property from the trust is such an advantage, and the donation amount will be reduced accordingly.
Leveraged cash donations
These arrangements involve an investor applying for and receiving a loan to facilitate a cash donation (comprising the investor's own funds and the proceeds from the loan) to a charity. Usually, the investor makes another cash payment to the promoter or another entity as an investment, and the investment will be used to repay the loan. Typically, the total cash paid by the investor is about 30% of the amount on the donation receipt.
As explained above, the December 5, 2003 amendments reduce the donation by the amount of any advantage. The definition of advantage for this purpose includes a limited-recourse debt in respect of the donation. A limited-recourse debt is broadly defined to include any unpaid amounts if there is a guarantee, security, or similar indemnity or covenant in respect of the debt. It is the CRA's position that debts incurred as part of a leveraged cash donation constitute limited-recourse debts if they are to be repaid under such arrangements structured as part of the donation arrangement. The donation amount will be reduced accordingly.
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The subsection:
Quote:
Gifting trust arrangements
In these arrangements, the investor becomes a beneficiary of a trust and receives property as a distribution from the trust. Often, but not always, the property has a lien attached. The investor then donates the property along with an amount of cash (to pay off the lien where applicable) to a registered charity and receives a donation receipt for the total of the cash and purported fair market value of the property. Typically, the total cash paid by the investor is about 30% of the amount on the donation receipt.
The December 5, 2003 amendments provide that the donation amount on which the tax credit is based will be reduced by any "advantage" that is in any way related to the gift. It is the CRA's position that the receipt of such property from the trust is such an advantage, and the donation amount will be reduced accordingly.
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seems to apply to the above tax shelter.
The fact sheet linked on that first page includes both this section:
Quote:
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As of 6:00 p.m. (EST) December 5, 2003, the value of a tax receipt issued by a charity for gifts of property, will be limited to the donor's cost of the property where it is donated within three years of acquisition or acquired through a gifting arrangement.
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and a number of others. Read it here.
note that the CRA does not claim that such arrangements are impossible. In fact:
Quote:
Tax Shelter Amendment
A tax shelter is defined in the Income Tax Act to include any property or gifting arrangement for which a promoter represents that an investor can claim deductions or credits which equal or exceed the cost of the property less certain benefits within a four year period. The amendment to include gifting arrangements was effective February 19, 2003. Any subsequent arrangements that promise that donation tax credits will exceed the cost will be tax shelters, and promoters must obtain a tax shelter number before selling them. Taxpayers will be denied tax benefits if they participate in tax shelter arrangements that do not have a tax shelter identification number.
A tax shelter number is used for identification purposes only. It enables the CCRA to identify all tax shelters and their investors but offers no guarantee that taxpayers will receive the proposed tax benefits. The CCRA reviews all tax shelters to ensure that the tax benefits being claimed meet the requirements of the Income Tax Act.
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It is thus possible for the above to be a valid tax shelter, assuming the seller has a tax shelter number.
It appears you are selling a tax shelter. May I ask your tax shelter number, if that wouldn't be rude?
Lastly:
Quote:
The CCRA may ask taxpayers to support their claim with receipts, and may challenge transactions that have one or more of the following characteristics:
* the advertised arrangements promise to sell items (such as art, software, or pharmaceuticals) to taxpayers to be donated immediately to selected charities for tax receipts that are much higher than what the person paid;
* the appraiser is not acting independently of the promoters or sellers of the arrangement or the charities involved;
* the fair market value seems too high;
* where the arrangement involves a loan where it's unlikely the person has to repay the loan because the lender's recourse to collect is limited, or the provision to settle the loan is by way of something other than cash payment from the taxpayer.
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Last edited by JHVH : 10-29-4004 BC at 09:00 PM. Reason: Time for a rest.
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