Beware of tax shelter donation arrangements, and gifts of
property
Many taxpayers who participated in "buy-low,
donate-high" donations are waging a losing battle with
Canada Revenue Agency. As of December 2008, over 65,000 taxpayers have been
reassessed, and denied about $2.5 billion in donations claimed. Many
organizations have had their charitable status revoked. See the CRA
Tax Alert from December 2008.
If you have been reassessed by Canada Revenue Agency (CRA)
and owe them money, pay the tax bill to avoid racking up
expensive interest charges. You can still appeal the
assessment. If you win, you will get your tax money
refunded with interest. For more information about
appealing an assessment, see the CRA web page regarding resolving
disputes.
CRA has announced that it is auditing all "tax
shelter gifting arrangements". These
arrangements include "gifting trust" arrangements,
"leveraged cash donations", and "buy-low,
donate-high" donations of property such as art. CRA issued a
new Taxpayer Alert on this topic in August 2007. Anyone
wishing to participate in these types of arrangements should
get independent professional tax advice, from someone not
associated with the "arrangement".
If a tax shelter donation arrangement has a tax shelter
number, this does not mean that the tax shelter is approved
by CRA. This number is for identification purposes
only. See the taxpayer
alert issued by CRA in November 2005.
Changes to the Income Tax Act took effect at 6pm EST on December 5, 2003. The changes specify that where a donation is made by way of a gift of
property, the allowable
charitable donation amount will be limited to the taxpayer's
cost of the property if the property was acquired
under a "gifting arrangement" as referred to
above. Thus, if the item donated was acquired by the
taxpayer for $100, then $100 will be the maximum allowable
charitable donation amount.
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For other non-cash donations, the allowable
charitable donation amount will be limited to the taxpayer's
cost of the property, if:
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the taxpayer acquired the property less
than 3 years before the date the property was donated, or |
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it is reasonable to conclude that, at
the time that the taxpayer acquired the property, he/she
expected to donate the property. |
If the non-cash donation was made as a result of a
taxpayer's death, then the donation is considered to be made
at fair market value.
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