ARCHIVED – Questions and answers: Gifting tax shelter schemes

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  1. What is a gifting tax shelter scheme?
  2. Can I trust a tax shelter that has an identification number?
  3. Are gifting tax shelters legitimate?
  4. What is the CRA doing to protect Canadians from these gifting tax shelter schemes?
  5. How long will it take to complete the audit of a gifting tax shelter scheme?
  6. What protection is offered to gifting tax shelter participants by holding the assessment of their 2014 tax returns?
  7. What can I do to protect myself from gifting tax shelter schemes?
  8. If I participated in one of these schemes, what should I do?
  9. How will my benefits be affected if my tax return is on hold?
  10. Where can I get more information about tax shelters?

1. What is a gifting tax shelter scheme?

In these arrangements, taxpayers receive a charitable donation receipt with a higher value than the amount they donated. This can typically be four or five times of the amount donated.

2. Can I trust a tax shelter that has an identification number?

The tax shelter identification number does not in any way confirm the entitlement of an investor to claim any tax benefits associated with the tax shelter. The identification number was introduced by the government to provide a more effective means of identifying potential tax avoidance in circumstances involving chronic or persistent non-compliance.

3. Are gifting tax shelters legitimate?

The CRA audits every gifting tax shelter scheme and not a single arrangement has been found to comply with the Income Tax Act.

4. What is the CRA doing to protect Canadians from these gifting tax shelter schemes?

As of March 31, 2014, the CRA has denied more than $6.3 billion in donation claims and reassessed over 190,000 taxpayers who participated in these gifting tax shelters. The CRA has also assessed more than $162 million in third party penalties against promoters and tax preparers.

New legislation announced in Budget 2013 allows the CRA to collect 50% of the amount in dispute or to withhold 50% of the refund of an amount in dispute, when these amounts are related to a gifting tax shelter.

The CRA will not assess a tax return on which a donation tax credit is claimed under a gifting tax shelter arrangement until after the tax shelter has been audited. While prior year tax returns will not be held, they will continue to be subjected to our regular review program that examines all gifting tax shelter schemes.

5. How long will it take to complete the audit of a gifting tax shelter scheme?

The time period to complete an audit depends on the circumstances in each case and can take up to two years.

6. What protection is offered to gifting tax shelter participants by holding the assessment of their 2014 tax returns?

Holding the assessment of a participant's tax return prevents an invalid refund from being issued. This protects participants because the CRA does not have to:

  • take collection action on the participant once the audit is completed to recover an invalid or overstated refund; or
  • charge the participant additional arrears interest and potentially increase certain penalties.

The CRA has to date denied more than $6.3 billion in donation claims and reassessed over 190,000 taxpayers who participated in gifting tax shelter schemes.

7. What can I do to protect myself from gifting tax shelter schemes?

If a tax shelter promoter offers a tax receipt for a larger amount than the out of pocket cost, then it is likely not valid.

The CRA strongly suggests that taxpayers seek advice from an independent tax professional before participating in any aggressive or high-risk activity where all or most of the return on investment is derived from a tax benefit. Independent advice should be from a tax professional who is not connected to the scheme or promoter.

8. If I participated in one of these schemes, what should I do?

Once you submit your 2014 income tax return, you will be contacted by the CRA. If you choose to remove your claim for the gifting tax shelter receipt and waive your right to objection or appeal associated with this claim for the 2014 tax year, your return will be assessed.

While the majority of the donation claims associated with these gifting tax shelter schemes are disallowed, your claim will be allowed to the extent that it is eligible when the audit is finalized.

Note

You can carry forward an unclaimed donation for up to five years following the year the contribution was made. The waiver for the 2014 tax return does not affect your objection or appeal rights related to these subsequent year tax returns.

9. How will my benefits be affected if my tax return is on hold?

If your return is on hold, certain benefits that rely on information included in your return will be delayed. However, you will continue to receive the Canada child tax benefit.

10. Where can I get more information about tax shelters?

More information on gifting tax shelter schemes can be found at Tax Shelters. For all CRA tax alerts go to Tax Alert.

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