These types of schemes are screaming for an audit on your tax return. Unless you want a red flag on your tax return, I would avoid.
tax shelter
I attended a meeting last night by a group promoting a tax shelter. The Relief Lending Group claim to have found a tax loophole where you can pay approx $2250 and recieve a tax credit for $6000.
it involves buying a coupons for pills to be sent to africa. They claim it is 100% legal.
Has anyone heard of this or tried it?
it involves buying a coupons for pills to be sent to africa. They claim it is 100% legal.
Has anyone heard of this or tried it?
1 - 20 of 20 Posts
I think it is a bad idea. Ask yourself this question: Does a scheme to make a $2,250 donation and get a tax credit worth $6,000 pass the smell test? Or the risk that CRA would deny the tax credit entirely and you'd be out $2,250.
I wrote about this when a friend asked about just such a tax shelter arrangement:
Beware of tax shelter donation arrangements
Check out the comments and ask yourself again: is it really worth the sleepless nights wondering if CRA would audit you (as they most likely will).
I wrote about this when a friend asked about just such a tax shelter arrangement:
Beware of tax shelter donation arrangements
Check out the comments and ask yourself again: is it really worth the sleepless nights wondering if CRA would audit you (as they most likely will).
CRA plans to audit *all* tax shelter gifting arrangements, which is what you are describing. CRA maintains an entire (web) page of warnings and releases on tax shelters. Here's the highlights from one:
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The CRA plans to audit all tax shelter gifting arrangements. -
For audits completed to date, over 65,000 taxpayers who participated in these schemes have been reassessed, or are in the process of being reassessed. -
In most cases the CRA has denied the “gift” completely. -
Well over $2.5 billion in claimed donations are being denied. -
In 2008, Canadian courts have continued to confirm the CRA’s position with respect to these schemes.
With respect to this, a lot of these tax "shelter" promoters claim that they have already assembled a team of heavy hitter lawyers to counter any challenge by the CRA in courts.-In 2008, Canadian courts have continued to confirm the CRA’s position with respect to these schemes.
They claim that they will fight CRA tooth and nail.
However, in reality, at the time when CRA mounts its challenge, these outfits have either vanished entirely or are not able to counter CRA even to the slightest degree.
The moneysense tax forum is full of such threads where large numbers of individuals have been left high and dry by such outfits.
So don't believe any claims of outwitting CRA, if you hear such.
thanks all for the info.
very helpful
very helpful
Harold: I have personal (but not that personal, thank you) experience with tax shelter schemes. I've worked for lots of years now as a tax preparer, and one of my clients came to me after he was brought into (by his former accountant! geesh) a buy-high, donate-low scheme.
I note that one of the commenters on CC's blog says that they expect to be able to "cut a deal" with CRA. There ain't no such thing: CRA does not "cut deals" on tax owing (you can negotiate penalties and interest, though).
I also note that another commenter says that most tax shelter arrangements of this nature are safe, because CRA has only pursued one particular arrangement in court. This displays a very fundamental misunderstanding of how common law systems work. CRA is not going to pursue every one of these arrangements in court: they don't have to. A ruling against one is effectively a ruling against all.
I note that one of the commenters on CC's blog says that they expect to be able to "cut a deal" with CRA. There ain't no such thing: CRA does not "cut deals" on tax owing (you can negotiate penalties and interest, though).
I also note that another commenter says that most tax shelter arrangements of this nature are safe, because CRA has only pursued one particular arrangement in court. This displays a very fundamental misunderstanding of how common law systems work. CRA is not going to pursue every one of these arrangements in court: they don't have to. A ruling against one is effectively a ruling against all.
One of the guys I work with bought something similar years ago. (against my advice)
He was audited for it about 3 years after filing.
And no it was not allowed. I think they allowed the amount that he actually paid....but he was asked to repay the difference w interest.
He was audited for it about 3 years after filing.
And no it was not allowed. I think they allowed the amount that he actually paid....but he was asked to repay the difference w interest.
Jamie Golombek again warned against tax shelter donation schemes in a recent FP article. Note that investors burnt by these schemes are trying to sue the lawyers who gave tax opinion on donation tax shelters.
Tax shelters leaving investors out in the storm
Tax shelters leaving investors out in the storm
To add to MoneyGal's comments, I should caution that some of the comments in that post were probably by tax shelter promoters. But I wish to draw your attention to comments from tax payers who participated in these schemes and are worrying about an audit. Best to stay clear, IMHO.As the CRA cautions, it's very important to get independent financial, tax and legal advice before investing in a tax shelter - and not from someone connected to the scheme or to the promoter.
In separate cases now before the courts, two Canadian law firms are being sued over tax opinions given on two donation tax shelters. Investors in these shelters are now facing tax reassessments from the CRA.
The one tax shelter scam I love is the one on investment paintings.
Buying junk paintings, then getting them valued several times more (of course, by appraisers working on behalf of the promoter) and selling them for purchase price and claiming a tax deduction for the "loss".
I can't believe how people fall for this.
Buying junk paintings, then getting them valued several times more (of course, by appraisers working on behalf of the promoter) and selling them for purchase price and claiming a tax deduction for the "loss".
I can't believe how people fall for this.
Again and again...
If it sounds too good to be true, it is!
If it sounds too good to be true, it is!
Don't believe the hype!
Although the standard criticisms about many older tax shelter schemes may have been applicable in the past:
"Donating $2000 and getting a receipt for $4000 doesn't pass the smell test"
"If it sounds too good to be true, it probably is"
You folks have to realize that we are no longer in the dark ages. It's unbelievable how the newspapers & 99.9% of the people reading these forums still think most of the tax shelters of today are even remotely similar to the ones that are no longer running!
To suggest, based on the flawed & ridiculous logic, that you can't get more than what you paid is so simply proven wrong that you only need to look as far as your next credit card donation:
You can donate $1000 using your Visa and then pay $10 in interest without choosing to pay your full debt off until much much later. There you have it - everybody who donates using this method are sure "asking for it", eh? Those poor saps think that they can actually make money this way? Ridiculous. The CRA is bound to "shut this scheme down" and they will have to pay back all the money they received in tax dollars from this "scam".
People, my point is that the new programs like the ones mentioned are NOT tax shelters. They are tax DEFERRALS that have a real debt that must be paid back. People can simply take advantage of the time value of money and pay the debt back down the road.
Nobody does those old "buy low/donate high", "inflated receipt" programs anymore but, despite popular belief, nobody has HAD to pay any money back & NONE of these programs have lost in court!
The only ones who have lost in court were the Klotz & Nashs of the world where (get this) the CRA says they "won" against the tax payer. The fact of the matter is that the courts decided that the donor's receipt was limited to the price they paid for the item donated. Well, I hope the CRA keeps "winning" this way as all the new programs ONLY allow you to get a receipt for the price you paid for the item donated. It's all a matter of "how" you pay for the item donated - cash v.s. credit is exactly the same in the eyes of the law (see the Visa example I gave you above) and there you have the new tax "shelters" (deferrals) of today.
The sad truth is that the CRA will attack even these programs, which is something you should all be concerned about. This group is so scared of losing tax dollars, that they can even affect programs & strategies that are perfectly normal & legit. If you don't think it can happen, you need to take your head out of the sand.
Don't believe the hype & please get off that tired old band wagon which trashes the old tax shelters that simply aren't done anymore...
Thanks for listening & please be gentle with any forthcoming inflamatory remarks! I'm only giving you the straight goods & don't mean to offend anybody.
Although the standard criticisms about many older tax shelter schemes may have been applicable in the past:
"Donating $2000 and getting a receipt for $4000 doesn't pass the smell test"
"If it sounds too good to be true, it probably is"
You folks have to realize that we are no longer in the dark ages. It's unbelievable how the newspapers & 99.9% of the people reading these forums still think most of the tax shelters of today are even remotely similar to the ones that are no longer running!
To suggest, based on the flawed & ridiculous logic, that you can't get more than what you paid is so simply proven wrong that you only need to look as far as your next credit card donation:
You can donate $1000 using your Visa and then pay $10 in interest without choosing to pay your full debt off until much much later. There you have it - everybody who donates using this method are sure "asking for it", eh? Those poor saps think that they can actually make money this way? Ridiculous. The CRA is bound to "shut this scheme down" and they will have to pay back all the money they received in tax dollars from this "scam".
People, my point is that the new programs like the ones mentioned are NOT tax shelters. They are tax DEFERRALS that have a real debt that must be paid back. People can simply take advantage of the time value of money and pay the debt back down the road.
Nobody does those old "buy low/donate high", "inflated receipt" programs anymore but, despite popular belief, nobody has HAD to pay any money back & NONE of these programs have lost in court!
The only ones who have lost in court were the Klotz & Nashs of the world where (get this) the CRA says they "won" against the tax payer. The fact of the matter is that the courts decided that the donor's receipt was limited to the price they paid for the item donated. Well, I hope the CRA keeps "winning" this way as all the new programs ONLY allow you to get a receipt for the price you paid for the item donated. It's all a matter of "how" you pay for the item donated - cash v.s. credit is exactly the same in the eyes of the law (see the Visa example I gave you above) and there you have the new tax "shelters" (deferrals) of today.
The sad truth is that the CRA will attack even these programs, which is something you should all be concerned about. This group is so scared of losing tax dollars, that they can even affect programs & strategies that are perfectly normal & legit. If you don't think it can happen, you need to take your head out of the sand.
Don't believe the hype & please get off that tired old band wagon which trashes the old tax shelters that simply aren't done anymore...
Thanks for listening & please be gentle with any forthcoming inflamatory remarks! I'm only giving you the straight goods & don't mean to offend anybody.
The situation you are describing has nothing to do with CRA. It involves third party payment arrangements.
If you make a donation to a registered charity using your VISA card, and then receive a receipt for that amount from the charity, they have received the funds from VISA.
How you settle the amount owing to VISA is up to you; it has nothing to do with your taxes (except that you could make only minimum payments to VISA and then pay the balance with a tax refund. But this has NOTHING to do with taxes and is a straight mental accounting exercise).
This isn't tax deferral. It isn't a "tax shelter" (beware the "scare quotes!"). It isn't a tax strategy.
And the problem with the "older" tax shelters is twofold:
First, even though these shelters may not be offered any more, the audits related to them are ongoing. There are people who are being audited now who contributed in 2005. So this is a real, contemporary issue for them, even though they may have participated in an "old" tax shelter.
Secondly: CRA is denying many of these buy-low-donate-high schemes without going to court. I suspect we will never know the number of people who have been reassessed and asked to repay amounts that were previously credited. The vast majority of those people will never appeal the reassessments. To rely on the court cases as "proof" of CRA's position or the individual situations of any taxpayers captures only a very small part of what is really happening with these schemes.
(Also, I don't exactly know what you mean by "nobody has HAD to pay money back" -- CRA is mailing out reassessments with required repayments on them. You may be relating to reassessed amounts owing as essentially a haggling process between the taxpayer and CRA, but CRA doesn't take that POV.)
If you make a donation to a registered charity using your VISA card, and then receive a receipt for that amount from the charity, they have received the funds from VISA.
How you settle the amount owing to VISA is up to you; it has nothing to do with your taxes (except that you could make only minimum payments to VISA and then pay the balance with a tax refund. But this has NOTHING to do with taxes and is a straight mental accounting exercise).
This isn't tax deferral. It isn't a "tax shelter" (beware the "scare quotes!"). It isn't a tax strategy.
And the problem with the "older" tax shelters is twofold:
First, even though these shelters may not be offered any more, the audits related to them are ongoing. There are people who are being audited now who contributed in 2005. So this is a real, contemporary issue for them, even though they may have participated in an "old" tax shelter.
Secondly: CRA is denying many of these buy-low-donate-high schemes without going to court. I suspect we will never know the number of people who have been reassessed and asked to repay amounts that were previously credited. The vast majority of those people will never appeal the reassessments. To rely on the court cases as "proof" of CRA's position or the individual situations of any taxpayers captures only a very small part of what is really happening with these schemes.
(Also, I don't exactly know what you mean by "nobody has HAD to pay money back" -- CRA is mailing out reassessments with required repayments on them. You may be relating to reassessed amounts owing as essentially a haggling process between the taxpayer and CRA, but CRA doesn't take that POV.)
You are getting part of it, MoneyGal. Whatever you call it, we agree that the newer types of tax programs (for lack of a better term) that were described in the previous threads are no different than a standard credit card transaction. Or at least that's what I am telling you, whether you call it a shelter, a program, a tax strategy, etc. That is indeed my point. And in no way, shape, or form are these programs suggesting that you get something for nothing as many people have posted.
Regarding the fact that nobody has HAD to pay back the disputed amount, I think that even you too are falling into the faux pas of believing that the CRA's opinion is, indeed a final ruling. Because the CRA has sent out "collection letters", does not mean that you HAVE to pay the disputed amount or even agree with it.
There has been no final court ruling on any of the cases save the Klotz & Nash's, which were 100% "favourable" depending on how you look at it.
Hope this clarifies my points.
Regarding the fact that nobody has HAD to pay back the disputed amount, I think that even you too are falling into the faux pas of believing that the CRA's opinion is, indeed a final ruling. Because the CRA has sent out "collection letters", does not mean that you HAVE to pay the disputed amount or even agree with it.
There has been no final court ruling on any of the cases save the Klotz & Nash's, which were 100% "favourable" depending on how you look at it.
Hope this clarifies my points.
Of course, as a taxpayer, you have a right to appeal the CRA's assessment and the results of an audit. You also have the right to file a notice of objection against any reassessment. You have the right to fight the CRA in the Tax Court of Canada, the Federal Appeals Court and the Supreme Court of Canada if need be. During this time, collection of any outstanding unpaid taxes may be be put off. During this time though, the outstanding balances accumulate interest, and the CRA's reference interest rates can be pretty high.Regarding the fact that nobody has HAD to pay back the disputed amount, I think that even you too are falling into the faux pas of believing that the CRA's opinion is, indeed a final ruling. Because the CRA has sent out "collection letters", does not mean that you HAVE to pay the disputed amount or even agree with it.
There has been no final court ruling on any of the cases save the Klotz & Nash's, which were 100% "favourable" depending on how you look at it.
Hope this clarifies my points.
The tax schemes described in this thread are not necessarily illegal, i.e., the promoters aren't necessarily at risk of going to jail since there is nothing in the criminal code that says that they can't do what they do (maybe in some cases it could fall under fraud). I think that the worst that can happen to the investor/taxpayer is that the CRA will deny part of the credit claimed. That can be a pretty bad outcome though. The promoter would normally be at risk of civil suits filed by disgruntled investors/taxpayers, but by the time that happens, surely the promoter would have made himself scarce.
Incidentally, from what I have read, the federal appeals court has ruled in favour of the CRA in the Klotz, Nash and Tolley cases, i.e., it upheld the CRA's position in barring the credits on the excess amounts. So if you donated $1000, you could only get a credits on $1000, even though the art or whatever else was purchased for that amount was appraised at a higher value and donated to (a legitimate) charity.
1. CRA can seize property without a writ. Of course the taxpayer can always appeal -- but CRA does not need to wait for a judgement in order to begin and complete the seizure and sale of assets.
2. Depending on the case, CRA is denying not only the "excess" amounts donated, but the initial "donation" as well.
2. Depending on the case, CRA is denying not only the "excess" amounts donated, but the initial "donation" as well.
Missed points & confusion - this is what I'm talking about...
The CRA "won" the case as they said the receipt you get is price you pay. Because Klotz paid $100 for the art & got a receipt for $1000, the CRA feels they won & the tax payer lost. Because the taxpayer did something ridiculous, in my opinion, I feel they got exactly what they were supposed to get. The CRA isn't "winning". This is just the law.
In the new tax shelters discussed originally in this thread, you pay $100 and get a receipt for $100. That's why the same logic, CRA threats, & mis-statements by people not understanding this do not hold the same water.
The "rub" is in the fact that you are using credit to donate the $100, and your out-of-pocket expense (ie - interest expense) may only be $10. That doesn't mean that you only "paid" $10 & therefore should only get a receipt for $10. See the difference? A person still has a debt to pay back, albeit it's down the road & they can enjoy an initial cash surplus today. (ie - $46 tax credit on the $100 in Ontario)
The CRA cannot seize assets once a formal objection (NOO) has been filed and that scary interest they "charge" you is only applicable if they are right about the fact that you owe the tax. How can they seize assets if they are not proven right in court? I think you are referring to the fact that if you do NOT file an appeal when the CRA challenges your tax return, then YES, they can go after your assets. But that's like disagreeing with a speeding ticket, not appealing it, and then acting surprised when your car is impounded. You have to speak up if you feel something is wrong.
Would you feel confident that (given my example above) if the CRA said you were only entitled to a $10 receipt for your $100 donation that you made on your Visa because it only "cost you" $10, that they would win in court? Would you be worried about the interest they are "charging" you throughout your appeal?
If you do not have to pay for any of the appeals (any tax shelter company today pays all the bills) and you know the law is on your side (clearly, given the example above) I think we would all admit that the CRA is traveling down a very slippery slope that ends up costing tax payers a lot of money and abusing their powers. In the end, the law will prevail 90% of the time.
The CRA "won" the case as they said the receipt you get is price you pay. Because Klotz paid $100 for the art & got a receipt for $1000, the CRA feels they won & the tax payer lost. Because the taxpayer did something ridiculous, in my opinion, I feel they got exactly what they were supposed to get. The CRA isn't "winning". This is just the law.
In the new tax shelters discussed originally in this thread, you pay $100 and get a receipt for $100. That's why the same logic, CRA threats, & mis-statements by people not understanding this do not hold the same water.
The "rub" is in the fact that you are using credit to donate the $100, and your out-of-pocket expense (ie - interest expense) may only be $10. That doesn't mean that you only "paid" $10 & therefore should only get a receipt for $10. See the difference? A person still has a debt to pay back, albeit it's down the road & they can enjoy an initial cash surplus today. (ie - $46 tax credit on the $100 in Ontario)
The CRA cannot seize assets once a formal objection (NOO) has been filed and that scary interest they "charge" you is only applicable if they are right about the fact that you owe the tax. How can they seize assets if they are not proven right in court? I think you are referring to the fact that if you do NOT file an appeal when the CRA challenges your tax return, then YES, they can go after your assets. But that's like disagreeing with a speeding ticket, not appealing it, and then acting surprised when your car is impounded. You have to speak up if you feel something is wrong.
Would you feel confident that (given my example above) if the CRA said you were only entitled to a $10 receipt for your $100 donation that you made on your Visa because it only "cost you" $10, that they would win in court? Would you be worried about the interest they are "charging" you throughout your appeal?
If you do not have to pay for any of the appeals (any tax shelter company today pays all the bills) and you know the law is on your side (clearly, given the example above) I think we would all admit that the CRA is traveling down a very slippery slope that ends up costing tax payers a lot of money and abusing their powers. In the end, the law will prevail 90% of the time.
Relief Lending SCAM
I have just been through what I hope is the last of this scam. I paid $4,795 in 2008 for a $9,000(+) tax exemption. I have been hounded by CRA since fall 2009. In filing my 2008 return, I found out it was a scam & only filed $159 (which was indicated as a real donation). CRA indicates the $159 (3%) is administration and not a donation either. I am lucky that I only have a penalty on the $23.58 deduction (from $159). I am out $4,795 plus the interest & penalty on the $23.85 (gross income of about $6,300). Relief Lending Group is a scam and CRA offers no support. Do not get involved with Relief Lending Group, you will be throwing away money.
I have just been through what I hope is the last of this scam. I paid $4,795 in 2008 for a $9,000(+) tax exemption. I have been hounded by CRA since fall 2009. In filing my 2008 return, I found out it was a scam & only filed $159 (which was indicated as a real donation). CRA indicates the $159 (3%) is administration and not a donation either. I am lucky that I only have a penalty on the $23.58 deduction (from $159). I am out $4,795 plus the interest & penalty on the $23.85 (gross income of about $6,300). Relief Lending Group is a scam and CRA offers no support. Do not get involved with Relief Lending Group, you will be throwing away money.
"Schemes" is the important part - which why I think that the "smell test" is a good reason to do more investigating to make sure everything is kosher.Although the standard criticisms about many older tax shelter schemes may have been applicable in the past:
"Donating $2000 and getting a receipt for $4000 doesn't pass the smell test"
"If it sounds too good to be true, it probably is"
You folks have to realize that we are no longer in the dark ages. It's unbelievable how the newspapers & 99.9% of the people reading these forums still think most of the tax shelters of today are even remotely similar to the ones that are no longer running!
To suggest, based on the flawed & ridiculous logic, that you can't get more than what you paid is so simply proven wrong that you only need to look as far as your next credit card donation:
You can donate $1000 using your Visa and then pay $10 in interest without choosing to pay your full debt off until much much later. There you have it - everybody who donates using this method are sure "asking for it", eh?
[ ... ]
Nobody does those old "buy low/donate high", "inflated receipt" programs anymore but, despite popular belief, nobody has HAD to pay any money back & NONE of these programs have lost in court!
In any case, dark or enlightened, some of my co-workers say they have been approached *this year* with the "donate $1K and I'll write a receipt for $3K+" type of scheme. So some of the dark age schemes seem to be alive and well.
Think about it - it's no different than the scam emails. The cost for a scam artist to approach whomever is cheap - if 1% of people hand over their money, they can skip with the cash and not have to deal with CRA or irate "customers".
As for your example of legally getting more than is donated via a VISA donation - I'm missing something. If you donate $1K via Visa, the donation receipt is $1K and the interest is not a tax deduction. So this seems to be more of an example of the opposite (i.e. pay $1010 for a donation receipt of $1000).
Cheers
steve....I work with many people who did the donate this much and recieve tax reciepts for a higher value (school supplies to africa thingy) Sounded to good to be true so I stayed out of it...some of the people did this for a few years.. They all had to pay CRA back..they filed a formal objection to the reassessment but they still had to pay the money back (thousands of dollars) One guy currently has his wages garnished by the CRA to recover what was owed...Now had they simply invested the tax refunds and paid CRA back immediately after the reassessment thay may have been out ahead in the end, but if they spent it and then had to make a payment plan to repay they were SOL...They were credited with the original amount that they actually donated though.
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