Recognizing a Charity Tax Shelter - If It Seems Too Good To Be True, It Probably Is

The Canada Revenue Agency (CRA) has a warning for taxpayers: “If you donate to a gifting tax shelter, expect to be audited.”

Gifting tax shelters (also known as charity tax shelters) are arrangements that result in donation receipts worth three or four times the actual amount donated by the taxpayer. The CRA’s official position on the matter is that if a tax shelter offers a deductible receipt for a larger amount than the donation itself, the donation is likely not valid. The CRA has underscored its position with an unyielding crackdown on tax shelter participants. To date, the CRA has denied almost $6 billion in gifting arrangement donations and reassessed almost 200,000 taxpayers who participated in these schemes. Moreover, the CRA has also revoked the charity status of approximately 50 charitable organizations that participated in gifting tax shelters.

Oftentimes, taxpayers are misled by tax shelter promoters and persuaded to invest in the schemes on the false assurances of tax law compliance and professionally vetted tax structures. We have compiled a list of red flags donors should be aware of when evaluating a potential donation:

      - You are promised a tax receipt for much more than your contribution.

- There is little information about how the scheme works on the tax shelter’s website.
 
- The promoters refuse to answer questions until you hear their sales pitch.
 
- The promoters keep reassuring you that there is nothing to worry about in their scheme, which is purportedly different from similar schemes which were shut down by the CRA.
 
- You have never heard of the beneficiary party or the beneficiary party has a name similar to that of a legitimate, reputable organization.
 
- The promoters claim to have a legal opinion verifying their scheme. Donor beware, an opinion doesn’t guarantee anything!
 
- You are pressured to sign right now without being granted the time to think about it or consult an independent financial advisor or tax lawyer.
 
 - You are pressured to consult only the lawyer the promoter is suggesting.
 
- The arrangement involves incredulous claims such as an unnamed individual establishing a trust to distribute highly valued property to participants.
 
- The promoter knows very little about the beneficiary charity, its purposes, where it operates and so forth, or provides very limited details about the beneficiary charity and how it will use the copious amounts of cash and property to be received from the taxpayer.
 
- It is difficult to find public recognition or announcements of the charity’s good works as a result of its tax shelter participation.
 
- The promoter advises that the CRA will audit you and deny your donation claim but the promoter will take care of the CRA and will defend the scheme in court.
 
- The promoters tell you that if you lose when challenging the CRA, you can consider your tax refund a low-interest loan from the CRA. In reality, with compounding daily interest as well as penalties on a debt payable to the CRA over several years, the money owed grows exponentially.

As with most things in life, if something sounds too good to be true, it probably is. Taxpayers need to take a common sense approach when organizing their tax affairs. Donors considering a potential donation scheme should always seek the advice of an independent tax professional before taking any action. For taxpayers who have already donated to what they suspect is a charity tax shelter but have not yet been audited, we recommend speaking to a tax professional immediately to explore potential relief options.

Don’t turn to just anyone to solve your tax problem.  Call Tax Solutions Canada today for expert advice from their ex-CRA and tax specialists: 1-888-868-1400.

How to Choose the Right Type of Canadian Tax Professional for Your Tax Problem

When you want something done properly, it is best to select a person or company who specializes in the job you need completed. 

For example, when you are looking to renovate your home, this may require electrical or plumbing skills.  YouTube videos and a trip to the hardware store might seem like a viable option, but it will end up costing a lot more down the road. However, if you choose the right person for the job the first time, it will save you time, money and headaches down the road. Similarly, when you have a problem with the Canada Revenue Agency (CRA) such as getting audited or owing the CRA money, it is important to choose the right type of Canadian tax professional to assist you.  

Let’s look at the most common options to choose from when dealing with CRA issues:

a)      Accountants

Accountants are excellent at preparing tax returns, financial statements and providing a variety of tax planning and accounting advice. However, many accountants are not interested in “doing battle” with the CRA as it’s not their strong suit.

b)      Lawyers

Lawyers are skilled at researching case law, preparing oral and written legal arguments and defending your case in court, but their fees are often very expensive and using a lawyer is usually overkill for most non-court-related CRA problems.

c)       CRA Dispute Resolution Companies

Companies in this space are specialists in dealing with CRA problems – it is what they do day in and day out. The best of them are staffed with ex-CRA auditors and collectors. 

So ask yourself, who you would hire for the following CRA problems:

1.       CRA Audit 

You receive that dreaded phone call or little brown envelope in the mail from the CRA. What do you do?  Who do you call for help? An audit of your company or personal returns by the CRA can often be the beginning of a long and stressful process. If not handled properly, you could be facing at best a massive tax bill or at worst criminal charges. Do you call an accountant or do you call a CRA dispute resolution company who has ex-CRA employees who know the ins and outs of a CRA audit?

2.       Money Owing to CRA

You owe the CRA thousands of dollars and can’t pay it off any time soon. You’ve received their threatening letters and phone calls – serious collection action is only days away. Your bank account may be seized and emptied, a garnishment notice is on its way to your employer or a lien is placed against your home. What do you do? Do you call a lawyer who will charge you top dollar and possibly have a junior associate work on your file? Or do you call a CRA dispute resolution company that can successfully negotiate with CRA collection officers every day?

Dealing with the CRA is not a “do-it-yourself” project.  It is critical that you hire the proper Canadian tax professional for your CRA problem.  

Don’t turn to just anyone to solve your tax problem.  Call Tax Solutions Canada today for expert advice from their ex-CRA and tax specialists: 1-888-868-1400. 

Summer Clean Up – Today is the Day to Get Your Records Straight

You hear all your friends sighing in relief because there taxes are done, but instead of being excited, your anxiety kicks up another notch…You’re anxious because you cannot do your taxes without records – that’s what your accountant told you.  So the years of not filing are simply piling up. If this sounds like your current predicament, you are not alone.

No need to fear! There are solutions. The most important step is to file your returns as accurately as possible and, if possible, before the Canada Revenue Agency gets to you for HST and income tax.

Why now? Perhaps you are thinking that it has been so long that what does another year matter? Well, if CRA gets to you before you file, you will lose your ability to use the Voluntary Disclosure Program to save the interest and penalties and avoid criminal prosecution.  We recommend that you see a company specializing in these programs as it is a “one shot deal” and if you mess up the filing you will not get a “do over” - the opportunity will be lost.

If you have only partial records, or even no records at all, you can use a system of estimating. 

Some examples of tracking down missing documents for income and expenses:

1.    Get copies of all bank statements where you deposited your customers’ payments.  Add up the credits and these are your sales.

2.    Ask your major customers to help you out by giving you a list of all payments they have made to you. This can replace the option above or provide a good quality of proof to CRA that your estimating is accurate.

3.    Credit card and store card statements – if you buy your supplies on the card, these are available online for most banks. 

4.    As long as you did not pay in cash, you will be able to find the payments to suppliers, employees and subcontractors from the cancelled cheques and bank statements.

5.    Many industries have well established norms for the Gross Profit Margin and these can also be used as a percentage of your sales.

Every year that passes causes the penalties to increase substantially. Interest is compounded daily. Delaying is your worst enemy and thus should never be considered a viable option!

Find a good accountant who is experienced in estimating when it comes to these missing document circumstances. If you do not know one, simply call us for a referral. 

Going forward, embrace technology: use your smartphone to photograph every expense receipt so if you lose them again you have them saved.

Afraid to file even though you know you should. Stop living in fear. Call Tax Solutions Canada today to get things straightened out: 1-888-868-1400

Getting to Know the Voluntary Disclosure Program

The Canadian tax system is based on the principles of voluntary compliance and self-assessment. Where an error or omission has been made in reporting to the Canada Revenue Agency (CRA), a taxpayer may, under certain circumstances, be permitted to come forward and report the error or omission for potential relief from penalties, interest and criminal prosecution.

An examination of interest and penalties for noncompliance quickly reveals the benefits of the Voluntary Disclosure Program. For example, late or deficient payments currently accrue interest at a rate of 5% compounded daily. Penalties such as the “False Statements or Omissions Penalty” can be as high as 50% of the understated tax and/or the overstated credits related to the false statement or omission. 

Possible circumstances which may qualify for VDP relief include:

·         Failure to report taxable income you received;

·         Incorrectly reporting your taxable income;

·         Claiming ineligible expenses on your tax return;

·         Failure to remit your employees’ source deductions;

·         Failure to report an amount of GST/HST (which may include undisclosed liabilities or improperly claimed refunds or rebates or unpaid tax or net tax from a previous reporting period);

·         Failure to file information returns; or

·         Failure to report foreign-sourced income that is taxable in Canada.

Taxpayers interested in utilizing the Voluntary Disclosure Program must keep in mind the four conditions that must be satisfied in order for a disclosure to be accepted by the CRA.

1.     First, the disclosure must be voluntary. This means that the taxpayer must disclose the error or omission to the CRA before any enforcement activity has been initiated. Enforcement activity includes any audit, investigation or collection activity under any program line administered by the CRA or other federal and provincial tax administrations.

2.     Second, the disclosure must involve a penalty. If no penalty would be imposed on the information in the disclosure, a VDP is not necessary.

3.     Third, the disclosure must include information that is at least one year overdue.

4.     Finally, the information in the disclosure must be complete. A disclosure is considered complete if it provides a full and accurate account of all previously inaccurate, incomplete or unreported information. 

The Voluntary Disclosure Program is a final chance for taxpayers to come forward and the CRA stipulates relief on the condition that taxpayers reveal all past errors and omissions. Failure to meet any one of the VDP conditions results in the rejection of the VDP application and ineligibility for relief.

It is important to note that voluntary disclosure to the CRA carries significant risk. In the event a taxpayer’s VDP application is rejected for failing to meet the four required conditions, the CRA will proceed to audit the taxpayer based on the information disclosed in the voluntary disclosure.

Taxpayers who are uncertain whether they qualify for voluntary disclosure may present their disclosure to the CRA on an anonymous basis. The no-name procedure allows taxpayers to determine whether the proposed disclosure will be accepted by the CRA. Depending on the CRA’s decision, the taxpayer may choose to come forward with a named disclosure or walk away altogether. 

The Voluntary Disclosure Program is a second chance opportunity for taxpayers to disclose tax noncompliance. Given the excessive interest and penalties that can apply on errors and omissions, a voluntary disclosure can be incredibly helpful in reducing the overall tax liability. However a voluntary disclosure is not something to be taken lightly and can carry serious repercussions if handled incorrectly. Taxpayers are strongly encouraged to seek expert advice when considering a voluntary disclosure application.

For more information, or to find about more about conditions and qualifying for VDP, please contact Tax Solutions Canada today at 1-888-868-1400.