Avoiding Tax Schemes

What is a Tax Shelter?

In brief, a tax shelter is a method of reducing taxable income either through a gifting arrangement or through the acquisition of property. Donors should be careful about investing in tax shelter gifting arrangements. These arrangements typically promise participants tax savings greater than the cost of participation in the plan, thus allowing donors to “profit” from donating to a charity.

For example, a tax shelter promoter may promise a donor a receipt of $40,000 for every $10,000 donated to a designated charity. The plan sounds like a win-win solution for both the charity and the donor; however, many of these arrangements are misleading and provide little or no benefit to the charities involved or to their intended beneficiaries. In many cases, promoters and participants of these arrangements take advantage of a registered charity’s receipting privileges for their own private gain, while generous donors and representatives of legitimate charities find themselves entangled in a complex scheme.

How Can I Protect Myself Against Tax Schemes?

We recommend that you avoid participating in any kind of arrangement that promises a tax receipt greater than the amount donated. If you are considering entering into a tax shelter arrangement, we strongly recommend that you obtain advice from a tax professional who is not connected to the arrangement or its promoter(s). Canada Revenue Agency (CRA) has listed additional cautionary steps on their website (https://www.canada.ca/en/revenue-agency/corporate/about-canada-revenue-agency-cra/tax-alert/tax-shelters.html).