Appeal dismissed in Canadian ‘leveraged donation scheme’

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The Tax Court docket of Canada has issued a set of public warnings in a case involving a “leveraged donation scheme” the place potential donors had been lured with guarantees that their tax breaks would eclipse their contributions, however in actuality they ended up ineligible for charitable donation tax credit.

“Keep away from quick speaking, clean ‘folks of commerce’ selling charitable donation ‘packages’ who might omit the very fact they’re being paid to advertise this system,” Justice Randall Bocock wrote in a current resolution out of Ottawa.

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The case includes a household’s unsuccessful attraction of a choice denying them tax breaks for contributions to the World Studying and Gifting Initiative, also called GLGI.

“GLGI seemingly competes for the title of most litigated charitable donation program/initiative/scheme/sham (relying on one’s perspective) earlier than the Tax Court docket,” Bocock mentioned. “This system’s longevity is notable as properly; the seminal lead case regarding GLGI was heard and determined a decade in the past.”

Within the current resolution, the decide dismissed Barry, Barbara and Brandon Malone’s attraction of a Canada Income Company resolution that nixed 1000’s of {dollars}’ value of donations claimed of their 2006, 2010, 2011 and 2012 taxation years as “ineligible” as a result of they “didn’t have donative intent, at legislation, to make a charitable present.”

Keep away from quick speaking, clean ‘folks of commerce’ selling charitable donation ‘packages’

Bocock defined how GLGI donations labored in his resolution dated March 27.

The method concerned “GLGI’s offshore firm, Phoenix Studying Company (buying) software program licences consisting of a number of courseware titles at nominal worth from a Florida company, Infosource Inc.; Phoenix then gifted many of the licences to a Canadian belief, World Studying Belief 2004,” Bocock mentioned.

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After writing a cheque to an related charity named Millenium, contributors had been “accepted as a capital beneficiary of the belief.”

After the cheque was cashed, “the belief, in flip, gave the taxpayer rights to training software program licences to plenty of licences proportional to the taxpayer’s money donation,” mentioned the decide.

The individual with the taxpayer rights then donated these licences to one in every of a number of different taking part charities, and was issued tax receipts for each the unique money donation and the “theoretically apprised market-value” of the software program licences.

“Because of the money donation and the in-kind donation of licences, the taxpayer acquired donation receipts for a number of occasions the quantity donated, resulting in a charitable tax credit score that was a lot increased than the preliminary money donation,” the decide wrote.

Within the case of the Malone household, they donated software program licenses to Malvern Rouge Valley Youth Providers, a Toronto-area group. The Canada Income Company revoked Malvern Rouge’s charitable standing in November 2011 after an audit revealed “that the group had devoted a good portion of its sources to the promotion of the World Studying Gifting Initiative tax shelter gifting association.”

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For the interval from Could 1, 2008, to April 30, 2009, Malvern Rouge “acquired in extra of $17 million of money. Of this quantity, over $8.3 million was acquired as tax-receipted donations from the contributors of a tax shelter,” the company mentioned on the time. “The group acquired an additional $8.7 million from one other registered charity taking part within the tax shelter. Our audit confirmed that of the roughly $17 million of money acquired, the group paid over $14 million to the promoters of the tax shelter.”

Barry Malone argued that he, his partner, Barbara, and his son, Brandon, “had donative intent. They meant to counterpoint the lives of deprived Canadians via charitable giving.”

However the decide wasn’t shopping for it.

“The Malones be a part of the ranks of a whole bunch, even 1000’s of GLGI contributors, stripped of their money, denied their inflated ‘charitable donation quantities’ as a result of the items weren’t charitable and, due to this fact, not eligible for the promised charitable deductions,” Bocock mentioned. “They now face arrears of debt comprised of tax and curiosity arrears … That is most unlucky.”

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In 2020, attorneys advancing a category motion case towards CLGI mentioned that “as many as 50,000-60,000 Canadians participated on this charitable donation tax scheme, and paid in extra of $500,000,000 in what they thought had been charitable donations.”

If one thing is “too good to be true … it invariably is,” Bocock mentioned in his current resolution.

He cautioned that “if one features one thing greater than a charitable receipt equal to (and never larger than) the worth of the money and/or correctly valued gift-in-kind, then the transferred property will not be a charitable present, at legislation, and doesn’t qualify … as an eligible charitable deduction.”

If a donor is “requested to signal an Data Sheet, Deed of Reward, Deed of Reward of Property, Path One, Path Two, Utility and Waiver, there are numerous authorized outcomes, one in every of which is probably going not that of a professional charitable present warranting an eligible charitable tax receipt,” mentioned the decide.

“Usually, a tax shelter quantity is much less of a gold star and extra of a pink flag for the CRA.”

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