Updated: Gifting tax shelters – Protecting clients, reputations and the public interest

From time to time, tax preparers are called on to advise taxpayers who have or are considering taking part in gifting tax shelter or other tax shelter schemes. As tax professionals, this is an area where we need to tread with great care.

Gabe Hayos, Vice-President, Taxation, Chartered Professional Accountants of Canada (CPA Canada)

Update:  Some people commenting on this blog were interested in finding out where they could get information on Canada Revenue Agency (CRA) views on questionable tax shelters. In response, CRA, invited tax preparers to review its Mass-Marketed Tax Shelters webpage. The page features cautionary steps for participants in tax shelter arrangements and links to CRA fact sheets and alerts on specific tax avoidance schemes.

From time to time, tax preparers are called on to advise taxpayers who have or are considering taking part in gifting tax shelter or other tax shelter schemes. As tax professionals, this is an area where we need to tread with great care. Association with tax shelters that Canada Revenue Agency (CRA) or the tax courts find offensive may harm the tax practitioner’s reputation, contradict our commitment to act in the best interests of our clients and the public and potentially tarnish the reputation of our profession overall.

On the other hand, by educating our clients about the risks and penalties of these tax shelters and by doing sufficient due diligence to steer them clear of the creators and promoters of unscrupulous schemes, we can protect our clients from harsh reassessments and penalties while helping to improve the integrity of Canada’s tax system.

Some taxpayers believe that as long as a tax shelter number has been provided, they are safe to claim the related benefit. It is important for us to make taxpayers know that no such certainty exists. All the tax shelter number does is allow CRA to track and potentially audit these types of arrangements.  Going forward, I understand that CRA plans to audit all gifting tax shelter schemes and has challenged all of the ones it has audited to date.

In fact, CRA has denied more than $5.9 billion in donation claims related to gifting tax shelters and reassessed over 182,000 taxpayers to date. CRA has revoked the charitable status of 47 participating charitable organizations and assessed $137 million in third-party penalties against the promoters and tax preparers involved.

Unwary taxpayers have been hit hard by these reassessments. CRA is so concerned about the effects of gifting tax shelters that they have continued an administrative policy for the 2013 tax year. Under this policy, which is unchanged from 2012, CRA will not assess taxes owed or provide a refund to taxpayers who claim a tax credit under a gifting tax shelter scheme until the tax shelter has been audited. Taxpayers can still have their tax return assessed before the tax shelter’s audit but only if they agree to remove the claim from their return.

Further, the 2013 federal budget introduced legislation that affects taxpayers who have been denied all or part of a tax credit for donations to a gifting tax shelter and who have filed an objection or appeal. In these cases, the new legislation allows CRA to collect 50 per cent of the amount in dispute or 50 per cent of the refund of the amount in dispute.

CRA is urging Canadians to obtain independent advice from tax practitioners about these gifting tax shelter arrangements. In doing so, CRA is recognizing the key role our profession plays in protecting interests of our clients and the public.

To this end, I believe all tax professionals should do their part by doing adequate due diligence and by explaining and helping their clients avoid the risks associated with donating to or investing in unscrupulous arrangements. CPA Canada has been proactive in this area, by liaising with CRA on our members’ behalf and through our March 2013 roundtable briefing on the topic featuring CRA officials and some of Canada’s leading tax professionals. We invite all tax professionals to join in these efforts to highlight the tremendous downside for Canadians who may be tempted to participate in such schemes.

Join in the conversation

Have you had any experience with questionable tax schemes? What steps might CPA Canada take to help practitioners mitigate personal risk, risk to their clients and reputational risk to the profession? What measures could CPAs take in their own practices to avoid association with unscrupulous schemes?

Post a comment below.

Conversations about Tax is designed to create an exchange of ideas on tax policy and practice developments and issues and their impact on Canadian accountants who practise tax. Comments received can provide helpful input to the public interest advocacy positions developed by the Chartered Professional Accountants of Canada.

About the Author

Gabe Hayos, FCPA, FCA, ICD.D

Vice-president, Taxation, CPA Canada