Beware of tax shelter donation arrangements

60 responses so far ↓

• 1 Scam hater // Aug 20, 2008 at 6:01 am

  One of the promoters of ParkLane was Roy Beyer, who is now Director of Marketing with Foundation Capital Corporation / Harvest Capital. Harvest has also marketed some questionable investments, including ‘The Land Development Company” and “Payday Today USA”. Google to find out more.

• 2 Al // Aug 20, 2008 at 8:20 am

  My wife and I investigated 4 charities that suit our tastes, and those are the only ones to which we donate. All the cold callers, no matter how good their causes may be get turned away politely.

• 3 Novice // Aug 20, 2008 at 10:17 am

  Old adage “you can’t cheat an honest man (or woman)” comes to mind. This little saying has literally saved me thousands of dollars whenever someone comes up to me and tells me about the latest money saving endeavour that sounds too good to be true.

• 4 Canadian Capitalist // Aug 20, 2008 at 10:39 am

  Scamhater: Like the Toronto Star says, it is astonishing that these “charities” simply shut down and start another when they are audited. I would think that they should be prosecuted because fraud is a crime and should be treated as such.

  Al: We have a handful of charities we support and the only exception I make is for young children who knock on the door (they don’t give out gift receipts though).

  Novice: I agree with you that “give $10 and get a $50 receipt” does not pass the BS test. And the CRA issues tax alerts every year and tax payers who participate in these schemes can’t say they weren’t warned.

• 5 Gail Bebee // Aug 20, 2008 at 11:09 am

  Canada Revenue Agency has an informative and free speaker’s kit on charitable donations which covers donation scams. It includes a PowerPoint presentation, pamphlets etc. and is ideal for investment club discussion. Find out more here:
  http://www.cra-arc.gc.ca/E/pub/xi/rc306-k/README.html

  Gail Bebee
  Author of No Hype-The Straight Goods on Investing Your Money

• 6 Brad // Aug 20, 2008 at 11:10 am

  Hmmmm. CRA issues charitable status to a charity (which they presumably investigate before doing so), then decide that it’s not a charity after all, and those who have donated are screwed?

  While I understand fully that these charities are used to structure the tax shelters, and that it’s very much ‘buyer beware’ when using such a shelter, it’s not as simple as those above make out.

  CRA is an extra-legal organization which bullies people into paying taxes they may not owe, and will not provide clear guidance as to where the lines are. Just call CRA 3 times with a complex question, and usually you will get 3 different answers. Ask them to put it in writing, and they won’t.

  Why can’t CRA investigate a tax shelter before issuing a tax shelter number?

  And I hardly think that regurgitating vague, threatening ‘Alerts’ from CRA (why don’t they specify, name names?) and quoting the shoddy financial journalism of the Toronto Star passes as wise counsel from the Canadian Capitalist. Sad.

• 7 Canadian Capitalist // Aug 20, 2008 at 11:43 am

  Gail: Thanks for the link.

  Brad: The CRA simply registers a charity initially and assumes that they will collect donations and spend it for charitable purposes. They do audit and revoke registrations but how are they going to tell a good charity from bad at the time of registering?

  It is a good question why the people running these charities are not prosecuted when they are found to be frauds. I don’t have an answer to this.

  But, I don’t find anything vague about CRA’s alerts. They specifically mention that if the receipt is many times the donation, the taxpayer is taking a risk of the charitable contribution being denied and interest and penalties applied.

  The Star’s series has named names, pointed out the abuses of the system and demanded action. How is that shoddy journalism?

• 8 NN // Aug 20, 2008 at 11:46 am

  Whow CC, you sured failed Brad’s high standards this time. Didn’t I read somewhere on your site that you do not purport to be an ‘advisor’ and therefore nothing on this site can be construed as ‘advice’ (or ‘counsel’)?

  Moving right along, thanks for the heads-up, I will be investigating the ’shoddy financial journalism’ of The Star next. I fear investors will fail to recognize to-good-to-be-true schemes for what they are until the end of time.

• 9 dc // Aug 20, 2008 at 1:10 pm

  If something seems to good to be true, it usually is.

  I am suprised at the number of people I know that gave money to these types of scams for the sole reason that they could get a deduction in excess of what they paid.

  I know one guy who “doesn’t believe in RRSP’s” but was keen to throw $5,000 at one of these scams. Ridiculous.

• 10 Steve Heath // Aug 20, 2008 at 10:02 pm

  CC, not to discourage you from giving to kids (I do as well) but you mentioned:

  “Al: We have a handful of charities we support and the only exception I make is for young children who knock on the door (they don’t give out gift receipts though).”

  Down here it became a big scam for kids to go door to door “raising funds” for something and just pocketing the cash, so residents were advised that if it is a real charity, it should have a receipt, and if it is fundraising for something else (such as a school trip) then the student should show an official letter from the school indicating such.

• 11 Steve // Aug 20, 2008 at 11:13 pm

  Unfortunately, the scams out there hurt many legitimate tax shelter programs which don’t involve the dreaded “inflated receipts”, etc.

  Question: If a program existed which didn’t harm the charities & followed the letter & spirit of the law exactly ( i.e. - no GAAR), do you think the CRA could EVER afford to say it was “okay”?

  

  Get real people - The CRA has an agenda, and even though the law allows for tax avoidance and defines “tax shelter” in the income tax act, the CRA can never afford NOT to challenge a program or everybody in Canada would participate & never pay tax again!

  Focus on the LAW - not your feelings, newspapers, or the CRA and you will have your answer as to whether a tax shelter program “works”.

  I guess none of you happened to read the retraction that very journalist did on the above mentioned article. Check it out at: http://www.canada.com/edmontonjournal/news/local/story.html?id=03a299c4-a493-4f11-acb7-5fdd381c88bb&k=60351

• 12 ThickenMyWallet // Aug 21, 2008 at 10:34 am

  The Toronto Star article was overly simplistic and clearly written by someone not drilling down on the analysis and painting the entire industry in one broad-stroke. It would be equivalent of them writing that all finance blogs give improper information.

  Like any other investment product, there are good ones and there are bad ones. The legitimate tax shelters have been challenged by CRA and, the majority of them, have survived court challenges (the tax lawyers who advise and give opinions on the legitimate ones are a who’s who of the corporate tax bar in Canada; you have lawyers charging $800 per hour against a government lawyer who wants to leave at 4:30 every day- hardly a fair fight). The reason why you never hear of CRA losing these challenges is because the original legitimate tax shelters had a minimum buy-in that precluded most middle class citizen (usually starting at cash contributions over $25,000) so why would a media outlet like the Star report on that?

  As with all things, greed took over and the products went retail. This is when the scams began to happen and because of the number of people claiming credits CRA had to act to defend its bottom line.

  There’s good tax shelters and bad ones. If the entire concept of tax shelter make your eyes glaze over. Avoid the entire industry.

  Of course, I would like to point out, from the all the background noise, what the real problem is. If the tax rate was actually fair and low there would be no need for this entire industry- good or bad. Let’s remember why we all spend countless hours looking at shelters and figuring out ways to deduct interest off our mortgages etc. We all feel our taxes are too high and attempt to find ways to minimize them.

• 13 Steve // Aug 21, 2008 at 3:31 pm

  Excellent points!

  I agree entirely…

  S.

• 14 No Fee Banking, Cheap Books and Roundup - Aug 22, 2008 | Million Dollar Journey // Aug 22, 2008 at 6:31 am

  [...] Canadian Capitalist warns us to beware of tax shelter donation arrangements. [...]

• 15 Thankful For Fools // Aug 23, 2008 at 1:53 am

  I worked for a fundraising company a few years back. They raised money for questionable and not so questionable groups. And regardless of their real merit, if you’re being propositioned with an offer for charity giving then just simply don’t do it.

  The company I worked for never exceeded 22% for actual “charitable offerings.”

  And that’s a high number for the “fundraising industry.”

  Never give to solicitors of any kind, unless you truly believe it’s worth it simply to help your local (for canvassers) or international (for telemarkets) job markets.

  Pick a charity. Research it as you would a stock, to ensure the money might accomplish *something* and then enjoy your minor tax benefit.

  Charitable giving should be about doing something you believe in, not a minor tax deduction. It’s one place that I simply can’t find selfishness to be ironic.

• 16 Canadian Capitalist // Nov 4, 2008 at 9:20 am

  Column in the Globe and Mail that CRA says a charity is running a tax-shelter scheme:

  Link

• 17 Steve // Nov 5, 2008 at 12:06 am

  Yes, this charity works with a “Trust structure” (warned against by the CRA) called CHT (Canadian Humanitarian Trust).

  These type of programs are worse than the “buy low, donate high” programs of old as they are buy NOTHING and donate high.

  If you are participating in a tax shelter, be sure that it only gives receipts for the price paid for items donated & that charities are achieving a 100% disbursement quota. They DO exist - do your homework!

• 18 stuart grunert // Dec 6, 2008 at 1:32 am

  I wish that you would get your facts straight before you bash this particular tax shelter. In the above example it was not a donation of 10k, that was just the prepaid interest on the full donation amount of 40K. It is no different than donating on a credit card.

• 19 Steve // Dec 9, 2008 at 6:52 pm

  Hi Stuart,

  You are mistaken. You are referring to the COIP program, which helps donors use credit to make a donation. This is very different than the
  CHT program, which I mentioned in my last post, and uses a “Gifting Trust” structure, which gives donors something free from a trust & they donate it to charity to get a receipt.

  I think you are simply getting the 2 of them confused, right?

• 20 Anna // Dec 24, 2008 at 11:47 am

  Steve,
  Any comments on the COIP program?

• 21 Anna // Dec 24, 2008 at 11:47 am

  All,

  Does anyone have any comments in regards to the COIP progam?

• 22 Steve // Dec 27, 2008 at 1:53 am

  Hi Anna,

  I personally feel that the COIP program is perhaps the strongest donation tax shelter program in the country, based on a few very important criteria:

  1) No CRA warning of this type of structure
  2) No inflated receipts (i.e. - donation receipt = purchase price of donated goods)
  3) Deflated receipts are present (1st donation is 20% less than FMV “otherwise determined” by appraisers) due to reduction based on purchase price & 2nd receipt is reduced to $0 despite a small cash donation.
  3) No charging any fees to the charities involved (i.e. - charities are perhaps the highest performing charities in Canada due to OVER 100% disbursement quotas)
  4) GAAR inadmissible by law by the presence of SAAP’s - Deflated receipts & interest component not tax deductable.

  Just my opinion…

• 23 Anna // Dec 27, 2008 at 10:39 am

  Steve,
  I agree. I tried to get as much info as possible and every time I call the CRA they never have a straight answer for me other then “do not get involved”. That is unacceptable answer. I will donate this year and hope for the best.
  I truly can not find anything wrong with this program.

  Thanks Steve, greatly appreciate it.

  .

• 24 Steve // Dec 30, 2008 at 1:43 am

  That’s like asking Dracula if he thinks we “really” need our blood or whether we should give it to him…

  

  Steve

• 25 Anna // Feb 12, 2009 at 10:58 am

  Hi Steve,

  I got a questionnaire to fill out for CRA in regards to my COIP contribution in 2007. Did anyone receive the same?

• 26 Richard // Feb 13, 2009 at 1:34 pm

  Everyone received/will receive the questionnaire from CRA. It’s one of their harassment/fear-inducing techniques. This, along with the attached warning. You just need to deal with it.

  I contributed to COIP in 2006 onward. I completed the same questionnaire afterwards. If you haven’t already received it, COIP will send you a letter or email showing you how to complete it correctly. It’s a bother, but well worth the time.

  Some people who commented above don’t seem to be aware or understand some basic facts regarding tax shelters. First, there are many tax shelters; your RRSP or LIRA are but two of them. Second, what matters is not somebody’s first (usually wrong) impression, but the law. Third, to my knowledge, only one tax shelter has ever been convicted in court. (The buy art low, donate high one.)

  Even with the truly egregious tax shelters, CRA usually comes to some agreement to reduce the benefit at worst.

  In the case of COIP, I believe they’ve followed the law. That’s what matters. Steve above pointed out some of the reasons why this is the case. There are more, so check them out for yourselves.

  CRA’s job is to collect money for the government. They like going after easy targets like individuals rather than the really rich and corporations who have the legal muscle to fight them.

  That’s why COIP’s got a $1 million defence fund built up. They knew the CRA would audit the program. But they also know that the program is on solid footing and thus eminently defendable. I think that CRA knows this too. Now in its fourth year, why hasn’t the CRA done nothing more than levitate boogie men?

  Finally, the government could have made this program truly illegal easily by changing a few things in the law. But it hasn’t. Why not? Maybe it’s because they get praise from the leaders of the countries who’ve benefitted from the AIDS drugs donations even though they’ve been cutting back of foreign aid? I don’t know.

  My only advice is to not depend upon the words of agenda-laden reporters or knee-jerk reactionaries. Take a close look at the details and decide for yourselves.

• 27 Steve // Feb 15, 2009 at 9:13 am

  I agree with Richard.

  It’s important to note that the end result for the Klotz/Nash case which “lost” in court was that the donors receipts were reduced to the price they paid for the artwork - is this a loss? Maybe for the individual’s net cash-on-cash return, but what do you expect if you intend to save your taxes this way? This court decision is what the COIP program was based on: the price you pay = your donation receipt. Klotz & Nash supports the COIP program. The results of that case prove why the COIP program works.

  Steve

• 28 Andy // Mar 1, 2009 at 5:59 pm

  Thanks Richard and Steve…there is a lot of misdirection and falsehood out there. Its nice to have some clarity!

• 29 Ravi // Apr 16, 2009 at 3:23 pm

  Can anyone tell me how long does CRA have before they can audit me. I have done the program since 2007…I don’t think I will do it this year. When can I stop worrying they won’t come and ask for the money back.

• 30 Canadian Capitalist // Apr 16, 2009 at 3:32 pm

  “Normally, the CRA can only go back three years to reassess a prior-year return. However, if an error or omission was made out of neglect, carelessness or wilful default, the CRA can go back as far as it wishes.”

  Link

• 31 Ravi // Apr 16, 2009 at 3:35 pm

  thanks for the reply…they only have three years to do that. If I did the program in 2007, they have until 2010 to autid and go back as far as they want. Once the 3 years is passed they can’t do an audit or ask for the money.

• 32 brian // Apr 29, 2009 at 10:33 am

  in reference to the “fight aids save taxes” the promotors of the “COIP” and “MISSION LIFE FINANCIAL” programs check out their websites. when i first heard about these programs i spent two and a half months researching them. the only negative feedback i found were peoples opinions based on fear. yes there are many tax shelters out there that are in my opinion illegal. after all my research i then phoned revenue canada at (1-800-267-2384) charities client assistance. i told them that i wanted to invest in a tax shelter and his responce was “you do not want to get involved, there are too many grey area charities” i then asked about a specific charity. the one that “COIP” uses called THE ORION FOUNDATION tax shelter #119213122 RR0001. he told me they were in the top 1% of charities. they did everything acording to there, mission obligation, when audited a few times per year. “THE TAXMAN SOLD ME ON THE TAX SHELTER”. i bought into the program, and became an ambassador #10219 “fight aids save taxes” if you are interested in saving big time on your canadian personal taxes i can help you with your questions. just e-mail me at bfirbank*no spam* @telus.net. remember when you fill out your income tax return there is just one line to put your donation amount in. with no charity name its your word only. with amounts of $20000. or more dollars the taxman may want to confirm your donation receipt by faxing it to them if they get in touch with you. give me some feedback please!

• 33 Nimi // May 4, 2009 at 3:15 pm

  can someone recommened a good accountant who knows this program…if you do pelase email me at joshi04* no spam* @hotmail.com

• 34 Anna // May 19, 2009 at 1:51 pm

  Have you heard that COIP has been replaced by Mission Life Financial inc. (www.missionlifefinancial.com)?
  What happened if we get audited by CRA now?
  Can anyone explain?

• 35 Nimi // May 20, 2009 at 10:38 am

  Email Steve who works for COIP and see what he says.

• 36 Canadian Capitalist // May 20, 2009 at 11:03 am

  When donating to charities, doesn’t it sound suspicious off the bat if the charity is willing to issue a receipt for more than the donation? When I donate to a charity, my aim is to help the less fortunate, not make a profit on the donation. IMO, getting more money back from the tax man than the actual donation itself simply doesn’t pass a basic smell test.

• 37 Anna // May 22, 2009 at 7:02 pm

  Steve,

  do you have any comments?

• 38 Anna // May 28, 2009 at 2:04 pm

  Does anyone have any comments on how they see the outcome will be for COIP?

• 39 Nimi // May 28, 2009 at 2:26 pm

  I guess Steve is hiding with all our money….I guess you and I will find out the outcome when we get audited.

• 40 Anna // May 29, 2009 at 3:04 pm

  His silence is intriguing me. Why the silence…..ANYONE????

• 41 james // May 29, 2009 at 3:08 pm

  i would call COIP and ask for Steve…if you need his email and phone number let me kow.

• 42 Anna // Jun 10, 2009 at 8:39 am

  any updates?

• 43 Anna // Jun 11, 2009 at 10:20 am

  Does anyone know how to proceed once CRA send out the reassessment?

• 44 tavi // Jun 11, 2009 at 10:27 am

  not sure as i’m waiting for that as well. They have up to 3 years to reasses you. Hope they don’t sent out a reassessment letter.

• 45 Anna // Jun 15, 2009 at 10:23 am

  Good morning all,
  I briefly spoke to a COIP representative. He explains that if we receive any reassessment for the CRA, NOT TO PAY and send it to COIP immediately. They will take care of it for you.
  The worst case scenario is after 5 to 10 years from now with many discussions with COIP lawyers and CRA. If at the end of the court case..etc..etc.. We lose they will ask us to pay a maximum of 50% of the checks we wrote. No penalties and no fees. I figure if this is the worst case scenario..it is that bad!
  Can someone please verify with their COIP representative if this is true? I still find it odd that they will come after the money I advance instead of the tax receipt I received…… any thoughts?

• 46 Anna // Jun 15, 2009 at 12:51 pm

  I called COIP head office and they told me the following that could happen:
  • WIN at supreme court
  Or
  • We lose and we need to reimburse 100% what we received.
  OR
  • CRA can’t afford to go to court so we settle on $.30 a dollar…
  One question two total different answers!
  Any thoughts….

• 47 ravi // Jun 15, 2009 at 1:38 pm

  Your second comment is true, not the first one. If you don’t pay the reassessment, interest will be billed until the final decision. Worst case, you pay back your refund, all the interest plus penalty.

• 48 Anna // Jun 15, 2009 at 2:02 pm

  Actually they say NOT to PAY the reassessment! At the end of the day a decision will have to be made and at that point interest and penalties will be waived even if we have to reimbuse all..

• 49 ravi // Jun 15, 2009 at 2:20 pm

  not paying is fine but they will ask for interest and penalty. This is CRA…they won’t let that slide.

• 50 Canadian Capitalist // Jun 15, 2009 at 2:31 pm

  “CRA can’t afford to go to court so we settle on $.30 a dollar…”

  I somehow doubt this is the case. CRA probably employs an army of lawyers and profitable donation schemes are juicy targets.

  I second Ravi’s opinion. CRA would likely be after for interest and penalty. Anna, did you get reassessed?

• 51 Anna // Jun 15, 2009 at 3:07 pm

  Not yet. I donate in 2007 and 2008. What I don’t understand is that I did do my due diligence and they confirmed that there was no warning against COIP. How can they now tell me otherwise? I called the CRA plenty of times asking the same question and I never got a negative feedback.
  I am sure that the CRA will try and ask for interest and penalty BUT I was told by 3 different people at COIP not to pay anything.

• 52 ravi // Jun 15, 2009 at 3:14 pm

  Anna, i’m looking for somone to do my taxes. Would you mind emailing me the person you used to joshi04@hotmail.com.

• 53 Anna // Jun 16, 2009 at 4:31 pm

  I called CRA this morning and there are no warnings against COIP. They said that they will audit everyone that donates to tax Shelters regardless the shelter that they are in. This doesn’t mean that COIP isn’t complying with the law. COIP does not issue inflated receipts.
  There are 2 other tax shelters that are in discussions with CRA and I am sure that both parties will come to some arrangement. The law is vague and there are loop holes. If the CRA was totally against tax shelters, why do they still allow us taxpayers to donate a maximum of 75% of our salaries?
  I personally think that COIP is a strong organization hence my donation. You should not be afraid of the CRA. We also have rights!

• 54 Susan // Jun 19, 2009 at 1:04 am

  I have just heard about the tax shelter called Missionlife. I have been in the process of researching it. That is how I came across the site; I used the terms ’scam missionlife’. Both myself and my son are interested the donation component, but I am scepitical about the tax shelter scheme. So please provide more information, as I keep researching. Thank you,
  Susan

• 55 brian // Jun 23, 2009 at 11:15 pm

  hi all : i have four pages of questions and answers re: MISSION LIFE andCOIP. e-mail me at bfirbank*no spam*@telus.net with a fax number and will fax to you. in time i will post them here. these TAX SHELTERS, in my opinion the best tax shelters in CANADA for the average person
  now if only we could overcome fear,cynicism,laziness, bad habits, and arrogance we could have fun working towards financial freedom!

  have a great week! brian

• 56 Canadian Capitalist // Jun 24, 2009 at 10:01 am

  Brian: Why don’t you send it to me via email at cc *no-spam* @canadiancapitalist.com? Personally, I feel that charitable donations are just that — money donated for charity, not money to make a profit on. There are so many ways to make money — making profits on charitable donations is not worth the hassle IMO. I can totally understand why CRA takes a dim view of donation tax shelters.

• 57 Anna // Jun 29, 2009 at 1:37 pm

  Has anyone heard from Brian? I emailed him twice.

• 58 tom // Jun 29, 2009 at 1:38 pm

  yes

• 59 Anna // Jun 29, 2009 at 3:54 pm

  can you please pdf them and send it to me at
  4friends1972@libero.it. THANKS

• 60 Anna // Jun 29, 2009 at 3:57 pm

  I am quite curious on the information that Brian’s has.

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