Canada: Parents Could Face Massive Bills After CRA Accuses Christian Schools Charity Program Of Running ‘Tax Scheme’

Last Updated: February 26 2013
Article by Anna C. Naud

Most Read Contributor in Canada, September 2016

Parents at Christian schools across the country could suddenly face bills for back taxes and a hike in school fees after the Canada Revenue Agency ruled that a charity-run program that helps students attend independent religious schools is "merely a tax scheme" designed to mask tuition payments as grants.

The federal tax agency said in a letter this month donations to the Christian Economic Assistance Foundation made in 2009 and 2010 would be denied because they do not qualify as "gifts" under the Income Tax Act.

It accused the Christian organization of setting up its School Support Program to intentionally circumvent the act and, quoting the organization's own pamphlet, "offset the impact of unfair government policies" such as the decision not to fund non-Catholic religious schools.

"It is CRA's opinion that the intention of the School Support Program is merely a tax scheme to artificially maximize charitable donation receipts received by parents for private school tuition fees by improperly characterizing tuition payments by parents as grants," the letter read.

The letter, following a CRA review, has prompted a flood of worry and confusion from parents, said Julius de Jager, the executive director of the Ontario Alliance of Christian Schools, Canada's biggest independent school organization.

"The negative scenario is that they would be taxed on some or all of those donation pieces and so a portion of that value would have to be paid back to the government as taxes if they were not properly defended," he said, adding that the organization is looking into hiring tax accountants to help some OACS members craft a response by March 5.

One Ontario parent who received the letter but didn't want his name published, said that when his children were in school, he cut one cheque every year to CEAF and another to the school for the actual tuition payments.

At tax time, he received a deduction of about $5,000 for the CEAF donation.

"This has struck a huge chord in the Christian school community," he said. "There are people who, if this [review] ruling stands will have to a) pay back and b) can no longer use this get a deduction on a portion of their tuition would not be able to send their kids anymore."

Longtime CEAF chairman Adrian Guldemond maintains his organization runs a "legitimate program" that helps families afford a Christian education for which there is little to no public funding. The school community appoints a development officer who raises money for the program, and the participating schools request grants. The School Support Program conforms to the CRA's arm's-length requirements because "the parent has no say over what happens to the money," he said.

CEAF voluntarily suspended the School Support Program on Jan. 22, after receiving the CRA notice that said it had problems with the program's structure, stemming from an April, 2012, audit, the third time CEAF had been audited by the government, Mr. Guldemond said.

"We're not trying to avoid some of the rules that Revenue [Canada]'s got in place for this kind of stuff," said Mr. Guldemond, who is also president of the Canadian Hallmarks Institute, which advocates greater recognition for independent schools. He said CEAF will meet with the CRA in March to discuss the tax agency's review.

While Mr. Guldemond said parents shouldn't worry, he did express concern that his organization could lose support if donors were reassessed. The anonymous parent is concerned he'll have to pay back at least $10,000 from both 2009 and 2010.

In December, Redeemer University College and its foundation settled a class action suit struck by parents who were required to pay an administrative fee in exchange for the donation or "forgiveable loan" that was, in reality, a tuition payment, said Hamilton, Ont., lawyer David Thompson, who represented the parents.

"There was nothing nefarious about it," he said. "It was legitimately an attempt to characterize a payment one way when truly viewed the payment is something other than a charitable donation receipt. It could very well be that that's the case here."

The CRA cannot comment on individual cases but said that when a donor receives an advantage —something in return —or consideration for a donation, part or all of the donation may no longer count as a gift.

Originally published in the National Post.

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