Foundation stripped of charity status
A Toronto charity — run by brothers whose Records on Wheels retail business grew into the massive movie distributor Entertainment One — has had its charitable status stripped after federal auditors found it participated in an “abusive” $14-million life insurance scheme.
The Latitude Foundation was operated by Vito and Don Ierullo for their “private gain . . . and the sole purpose of avoiding Canadian tax,” the Canada Revenue Agency wrote in a decision earlier this month.
From 2004 to 2008, auditors say, the brothers donated more than $15 million through their own companies — for which they received tax receipts — to ultimately purchase life insurance policies for themselves.
The Ierullos’ beneficiaries then stood to receive million-dollar tax-free payouts when the policies come due, though it remains unclear who the beneficiaries are.
Vito Ierullo did not respond to repeated requests for comment, and Merv Simpson, Don Ierullo’s power-of-attorney, said Don was unable to speak because of a recent stroke.
The revocation comes on the heels of a Canada Revenue Agency notice warning Canadians to avoid certain taxshelter programs.
Beginning in the 2012 taxation year, the federal government will put on hold assessing returns where the taxpayer participated in a gifted tax shelter program.
In the Latitude Foundation case, auditors said the donation scheme involved a winding series of money transfers, starting with an ostensibly charitable $13.95 million contribution to Jamaica’s University of the West Indies-Mona between 2004 and 2006.
Shortly after the donations were made, the money was flipped by the university’s escrow agent to the school’s endowment fund. The money was then brokered in the Bahamas for the purchase of life insurance policies through Hampton Insurance Company Ltd., a firm based in the British Virgin Islands.
The tax-free policies totalled $4.83 million for Vito and $7.23 million for Don. According to the Canada Revenue Agency, of Latitude’s total donation to the university, only $390,000 — roughly 3 per cent — found its way into the university’s coffers. The donations, auditors suggest, were merely distractions meant to obfuscate Latitude’s true purpose: to enrich the Ierullos.
Both insurance policies are now owned by the university’s endowment fund.
But in an interview with the CRA, representatives of the fund said it is not the beneficiary and “had no control or say on the insurance policy, the lives insured . . . and the amount that went into the insurance policy.”
The CRA said the escrow agent, Myers, Fletcher, Gordon, retained up to a 5 per cent cut of the donations for facilitating and promoting the donation scheme. Noel Levy, a consultant at the firm, refused to comment.
The Ierullo brothers shot to prominence in the mid-1970s as owners of Records on Wheels, a record re- tailer that battled the likes of Sam the Record Man. “Wheels Has the Deals” was the slogan, and by 2001 the rapidly growing company had expanded to online CD and DVD distribution, in partnership with CD Plus. Four years later, Records on Wheels changed its name to Entertainment One Income Fund. In recent months, the entertainment distribution conglomerate has distributed Oscar-contender The Master in Canadian theatres and the final instalment of the Twilight franchise in the U.K. Entertainment One CEO Darren Throop is named as CEO of one of seven companies and trusts that donated money to Latitude between 2004 and 2008. Throop did not respond to repeated requests for comment. Don Ierullo’s nephew Taylor Battye, who is also Entertainment One’s vice-president of information technology and listed as a director of two other companies that donated money to Latitude, told the Star he was not informed enough to comment on Latitude’s financial operations. He said the Ierullos do not have a financial stake in the entertainment distributor.
The Ierullo brothers shot to prominence in the 1970s as owners of record retailer Records on Wheels
Under the terms of revocation, Latitude is allowed to operate but can no longer issue tax receipts. The charity, however, appears to have been inactive since 2007, reporting less than $5,000 in total assets last year, according to the CRA.
In its early history, the charity donated to several national and Toronto-area charities. In 2004, for example, Latitude gave $639,000 to the Salvation Army and nearly $500,000 to the Yellow Brick House, a York Region shelter for battered women. The charity has also donated $125,000 to the Jane Goodall Institute of Canada, a wildlife research and conservation organization.
Auditors concluded about 90 per cent of Latitude’s total cache was used to buy the life insurance policies. The remaining 10 per cent, or roughly $1.5 million, was for a charitable purpose, the CRA found.
In revoking its charitable status, the auditor said, “It is our position these gifts were merely window dressing, to give the appearance that (Latitude) was conducting charitable activities when in fact it was not.”