New in Canada's Economic Action Plan
Warning: If you donate to a gifting tax shelter, expect to be
audited
Each year, Canadian taxpayers participate in gifting arrangements
that result in donation receipts worth three or four times the
actual amount donated by the taxpayer. The Canada Revenue Agency (CRA)
continues to warn Canadians against these gifting arrangements and
audits those who participate.
To date, the CRA has denied over $4.5 billion in tax shelter gifting
arrangement donations and reassessed over 130,000 taxpayers who have
made donation claims through a gifting scheme.
For most claims, the CRA has denied the gift entirely. The CRA
audits gifting arrangement tax shelters that provide donation
receipts three or four times the out-of-pocket cost.
Decisions in recent court cases have concluded that the “donation”
made by the taxpayer was not a gift or, where it was a gift, the
amount did not exceed the out-of-pocket cost to the taxpayer. In the
Maréchaux case, the Federal Court of Appeal upheld the Tax Court of
Canada (TCC) decision that there was no gift given as a result of
the defendant’s participation in a leveraged cash donation scheme.
In the Lockie case, the TCC concluded that the gift in a
buy-low-donate-high scheme was the amount paid by the taxpayer.
Tax shelter identification numbers
The CRA reminds taxpayers that tax shelter numbers are used for identification
purposes only.
Just because a tax shelter has an identification number does not
mean that donations made to it will result in tax benefits.
Independent professional advice
Packages from promoters will often claim to have legal or tax
opinions from a law firm. You may find that these opinions contain
very general comments and do not provide unconditional support for
the scheme. Ask to see the opinions, and have them reviewed by an
independent professional.
If the CRA has reassessed you for participating in a tax shelter
donation scheme in the past, you may also wish to obtain independent
tax advice to determine your best options.
Current promotions
Some promoters of gifting arrangements are acknowledging that you,
the taxpayer, will be audited and reassessed as a result of
participating in these arrangements, but they contend that they have
a defence fund to challenge a CRA reassessment.
As well, some promoters claim that even if you lose when you
challenge the CRA, you can consider your tax refund a low interest
loan from the CRA. In fact, any cash paid to the promoter or charity
is gone for good and, when the entire donation claim is denied, you
will have to repay the full tax refund plus interest. These cases
can take years to get to court.
Employment Insurance Special Benefits for Self-Employed People
Beginning in January 2011, self-employed Canadians will be able to
access Employment Insurance (EI)
special benefits. There are four types of
EI
special benefits:
-
maternity benefits;
-
parental benefits;
-
sickness benefits; and
-
compassionate care benefits.
Eligibility information
You can enter into an agreement, or register, with the Canada
Employment Insurance Commission through Service Canada if you:
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operate your own business, or if you work for a corporation but cannot access EI benefits because you control more than 40% of the corporation’s voting shares; and
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are either a Canadian citizen or a permanent resident of Canada.
Application information
There are a few steps to take before being able to receive
EI
special benefits for self-employed people: You have to register with
the Canada Employment Insurance Commission, complete a one-time
12-month waiting period (unless you registered on or before
April 1, 2010), and finally, apply for
EI
special benefits and meet the eligibility criteria.
Dates and deadlines
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You can register to participate in the EI program through My Service Canada Account at any time.
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As stated above, you will have to wait 12 months from the date of confirmed registration before you will be able to apply for EI special benefits.
