Charity tax shelters face criminal probe
As many as 12 charity tax shelter promoters are under criminal investigation in a widening probe of schemes that saw donors contribute hundreds of millions of dollars in return for charity receipts worth six times as much.
The Canada Revenue Agency has refused to identify the promoters — Canadian business people — who have made a lucrative career out of charity donations. The federal agency said the promoters, who are also taxpayers, have a right to their privacy.
The schemes at issue, an ongoing Star investigation has revealed, have dogged the federal taxman for years. It is the federal government that allows them to exist, yet it is the federal government that is aggressively trying to shut them down.
“As of March 31, 2014, criminal investigations are currently ongoing on 12 taxpayers (promoters and participants) involved in tax shelters,” said Philippe Brideau of the Canada Revenue Agency.
One reason for the secrecy, federal officials say, is that the people who “promote” these schemes are also donors. As taxpayers, they have a right to privacy.
In each case under investigation, there are allegations that they marketed to individual taxpayers a scheme that promised a huge payoff — donate $1,000 to a federally registered charity and receive a tax receipt of four to six times the value. The effect of such a massive tax receipt had the effect of lowering taxpayers’ taxes to the point that they actually made money on the scheme.
Two years ago, following a series of Star stories on the schemes, the Canada Revenue Agency said it had launched a probe into seven promoters. Those promoters were not identified and the agency has not said what happened to those probes. No criminal charges have been laid in connection with promoters. This week, the revenue agency revealed to the Star that a total of 12 promoters are under investigation. The CRA would not say if these are new probes or an extension of the investigations that began in 2012.
Among the schemes exposed by the Star was a promoter who took in millions of donations for AIDS drugs that were apparently destined for Africa. The Star found little evidence that the program helped people overseas. The charity, which had a sideline processing credit card transactions for high-end escort agencies, never saw much of the money. But it handed out receipts for six times the amount of the donation, totalling $91 million in a short period. The charity, the Orion Foundation, was shut down after a federal audit, as is the case with most charities caught up in the scheme.
The promoter, originally called the Canadian Organization for International Philanthropy (it uses several names), was not shut down and has continued to do business. It is unknown if the promoter is one of the charities under investigation. Their literature describes the group as “a Canadian leader in what has been called new philanthropy, a philosophy of charitable giving that seeks innovative ways to maximize charitable resources and create better incentives to encourage people to give more generously.”
At issue are schemes that have stung 182,000 taxpayers whose $5.9 billion in tax credit claims were reassessed and dismissed. These taxpayers have had to pay back undisclosed millions they received in tax refunds and many have had to also pay significant penalties, revenue officials say.
One stiffly worded, recent missive from the federal tax agency states:
“The CRA continues to alert taxpayers that if they receive a charitable donation receipt for an amount higher than the value of property donated, the receipt is not valid and can’t be used to claim a tax credit. The CRA is auditing all such gifting tax shelter schemes, and to date, none has been found to comply with Canadian tax law.”
The CRA issues tax shelter numbers to each promotion scheme, which donors take as a sign that the federal government approves of them. The CRA states that they only do this to keep track of each scheme and has for years warned taxpayers that all such donations will trigger an aggressive audit of the donation.