Hey there, time traveller!
This article was published 7/10/2010 (3299 days ago), so information in it may no longer be current.
As sure as the leaves fall, and the geese and snowbirds fly south, autumn always sees a rampage of tax shelter offerings leading up to year-end.
Some are legitimate; some are not. Any proposal that promises you a charitable donation receipt for more than the cash contribution you are making is not legitimate. These will be reassessed and disallowed by CRA.
Every year, thousands of Canadians participate in such schemes. Typically, the offerings provide some professional-looking marketing material, a favourable tax opinion from a prominent law firm and a compelling appeal to your desire to do good. Many of them suggest that your donation will be multiplied and thereby provide greater value for the world.
These schemes also appeal to your greed, because they offer you a tax receipt (or other deductions) in the range of $4,000 to $5,000 for every $1,000 you donate. Since your tax saving for a donation is about 44 per cent of the amount of the receipt, they promise a tax saving of $1,700 to $2,200 for each $1,000 of donation.
The problem is that these schemes are all in violation of Canada Revenue Agency regulations, even if they are designed to comply with the letter of the Income Tax Act, as most are.
Every year participants in these schemes call me and tell me that I'm a wet blanket. They tell me they filed their donation receipt with their tax return and promptly received their refund. That must prove I'm wrong. (Promoters call and offer to make my lawyer rich, if I don't cease and desist from criticizing their plans.)
And then I hear from people who participated three years ago, who have now had their donation audited and their tax return reassessed. They have been forced by CRA to repay all of those tax savings, plus interest.
Worse yet, the taxpayers receive no credit for the actual cash they thought they had "donated".
Here are the key points I want to make:
1. Please continue to make your donations to legitimate charities. Your tax saving will be about 44 per cent of all donations in excess of $200 each year.
2. If a promoter offers you a donation receipt in excess of your actual cash gift, it will be reassessed and disallowed. Period. It may take three years or more, but it will happen.
3. Legitimate charities need your help more than ever, thanks to the economic downturn. At the same time, the need for their services is greater than ever.
4. There are also legitimate tax shelters, like flow-through shares, where you will actually be allowed to keep the tax saving you receive. These are investments with a government-endorsed tax incentive, designed to help spur resource exploration. They have investment risk, but little tax risk.
CRA told me this week that they have so far audited 120,000 inflated receipt donation schemes and reassessed and denied every single one. Good news is that fewer people are participating, with an estimated 10,500 taxpayers in 2009, compared to 17,000 in 2008 and 100,000 in 2006. So far, $285 million of those 2009 donations have been denied, and $480 million denied for 2008.
I get angry when I think of the positive things that this money could have done in the hands of legitimate charities, instead of in the hands of unscrupulous promoters. Please don't support them, and stay generous in your donations to real charities.
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Canada Savings Bonds go on sale Nov. 1, but don't worry about a stampede to buy them. Rates for the CSBs are only 0.65 per cent in the first year of a 10-year term, and the Canada Premium Bond will pay 1.1 per cent, 1.4 per cent and 1.7 per cent for the first three years. Rates for future years will be adjusted based on rates at the time.
David Christianson is a financial planner and portfolio manager at Wellington West Total Wealth Management Inc. He can be reached at firstname.lastname@example.org.
Personal finance columnist
David has been a practising financial planner and life advisor since 1982, specializing in helping clients identify and reach their most important goals, and then helping them manage all of their financial affairs, including investments.