The CRA recently revoked the charitable registration of the
Skyway Foundation of Canada ("Skyway"), a charity based
in Bolton, Ontario, for issuing receipts in 2008 totalling
approximately $2.6 million for donations that did not legally
qualify as charitable gifts. The receipts issued by Skyway
were determined to be part of a tax shelter arrangement whereby
taxpayers engaged in transactions which artificially inflated the
value of certain publicly-traded shares. These shares were
then donated to Skyway and the receipts issued reflected their
inflated value. The CRA determined that the value of the
shares had been inflated when it discovered that the same shares
inexplicably plummeted in value the next year. Based on this,
the CRA took the position that "the charity operated for the
non-charitable purpose of facilitating the tax planning
The revocation of Skyway comes on the heels of a notice (the "Notice") published by
the CRA earlier this month explaining tax shelters generally.
As we have previously
reported, the CRA is very aggressive in auditing tax shelters,
and courts have nearly always upheld reassessments of donors to
these arrangements. As pointed out in the Notice, the CRA is
committed to continuing its audit of tax shelters and also
"mass-marketed tax shelters", as defined in the
At a high level, the Notice explains the relevance of tax
shelter identification numbers and points out that simply because a
tax shelter has been issued an identification number does not mean
that a taxpayer is entitled to claim a credit or deduction in
respect of that particular shelter. Tax shelter
identification numbers simply allow the CRA to track the schemes
and their participants.
The Notice goes on to explain that the presence of a
charity's registration number on the receipt issued for a
donation does not automatically validate the gift. If the
donation is ultimately determined not to be a "gift" or
the amount has been inflated from the actual value of the property
donated, then the receipt will not be allowed and the donor will
not be able to claim the tax benefit. Furthermore, if the
donation is determined to be part of an abusive tax shelter
arrangement, the taxpayer's income tax return will be subject
to reassessment by the CRA.
In addition to highlighting three significant Federal Court of
Appeal cases which rendered judgements against tax shelter
participants, the Notice also recommends the following four steps
that taxpayer should take before entering into tax shelter
Know who you are dealing with, and request the prospectus or
offering memorandum and any other documents available in respect of
the investment and carefully read them;
Pay particular attention to any statements or professional
opinions in the documents that explain the income tax consequences
of the investment. Often, these opinions will tell the investor
about the problems that can be expected and suggest that the
investor obtain independent legal advice;
Do not rely on verbal assurances from the promoter or
others-get them in writing; and
Ask the promoter for a copy of any advance income tax ruling
provided by CRA in respect of the investment. Read the ruling given
and any exceptions in it.
This Notice is evidence that taxpayers and charities should
continue to proceed with extreme caution in respect of tax
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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