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Tax

Advice from tax lawyer crucial before investing in charity shelter

News that the Canada Revenue Agency (CRA) is widening its probe into a number of charity tax shelter schemes highlights the importance of seeking professional tax advice before investing in a tax shelter, says Toronto tax litigation lawyer David J. Rotfleisch.

The Toronto Star reports that as many as a dozen tax shelter participants and promoters are currently the subject of criminal investigations. They are alleged to have marketed a scheme to taxpayers promising a tax receipt that was four to six times the value of their donation to a federally registered charity. The Star says that 182,000 taxpayers have had billions in tax credit claims dismissed as a result of the schemes.

“Charity tax shelters have been a problem for the CRA for many years. They have brought out numerous amendments to the Income Tax Act over the years to try to shut them down on a technical basis. Many of their attempts failed. Other attempts may or may not have been successful,” says Rotfleisch, founding tax lawyer at Rotfleisch & Samulovitch Professional Corporation, a boutique tax and business law firm specializing in tax dispute resolution and income tax planning.

“The CRA is of the view that they have blocked all charity tax shelters with the last round of amendments that took effect recently and I have not seen any recent charitable tax shelters since those amendments came into force,” he adds.

Rotfleisch says that he has not yet seen any criminal charges related to tax shelters, although the investigation has been ongoing for some time. "The tax shelters that I have seen have not been illegal or improper in any way. There is a legitimate disagreement between the CRA and the tax shelter promoters as to the effectiveness of the charity tax shelters. But that does not make them criminal or illegal," he says, adding, "The CRA will often take a very harsh approach, and an experienced tax lawyer is needed to protect the taxpayer's rights." 

However, he says, these schemes have had an impact on taxpayers who contributed to them and then claimed tax credits.

“With a regular (non-criminal) donation shelter, the CRA will challenge the deductions. Some of the cases have been tested in court and taxpayers have lost. In other cases, settlements have been entered into.”

Taxpayers who may have received a charitable donation receipt from one of these schemes, he says, should speak to a Canadian tax lawyer to discuss their options. "Potential participants in any tax shelter investment should seek independent Canadian tax lawyer advice prior to entering into the transaction," says Rotfleisch.

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