On October 30, 2012, CRA released a news release concerning steps that it is taking to better inform and protect taxpayers from gifting tax shelter schemes.
In this release, CRA warns that this is the time of year when tax shelter promoters are heavily marketing their arrangements to the public. CRA states that starting in the 2012 taxation year, it will put on hold the assessment of returns for individual taxpayers claiming a credit by participating in a gifting tax shelter scheme. The intention is to avoid the issuance of invalid refunds and to discourage participation in abusive tax shelters. Assessments of returns and the processing of refunds will not proceed until the completion of an audit of the particular tax shelter, which CRA states may take up to two years. CRA states that it audits all gifting tax shelter schemes and states that, to date, it has not found any gifting tax shelter schemes that comply with Canadian tax law. CRA notes that a taxpayer whose return is on hold will be able to have his or her return assessed if he or she removes the claim for the gifting tax shelter receipt in question.
We have warned in this Newsletter on numerous occasions about the risks of being involved in charitable donation tax shelters, both as a charity, an advisor and as a donor. CRA is very aggressive in auditing tax shelters, and courts have nearly always upheld CRA reassessments of donors to such schemes. Charities considering participation in such arrangements should also be aware that the CRA Charities Directorate aggressively audits registered charities that participate in these schemes, and has generally sought (successfully) to revoke the registration of the participant charity.
The new CRA position with respect to postponing assessments creates a further disincentive for individuals considering participation in a tax shelter. Individuals who are considering entering into a tax shelter arrangement should obtain professional tax advice before signing any documents. The CRA provides more information on abusive gifting tax shelters and other tax alerts here.