The Canada Revenue Agency has been focusing efforts on alerting taxpayers to issues surrounding the use of tax shelters and, in particular, gifting tax shelters.  In a news release dated October 30, 2012, the CRA stated the following:

As a result of the CRA’s ongoing compliance activities, the number of returns filed per year nationally that include gifting tax shelter donation amounts has been steadily declining, from a peak of approximately 50,000 participants in 2006 to approximately 10,000 in recent years. While this amounts to an 80% decrease in the number of participants in these arrangements, it still represents an estimated $300 million in “donations” and $85 million in federal tax refunds annually.

As part of its initiative to deter taxpayers from participating in gifting tax shelters, the CRA has announced a change in its assessing practice starting with the 2012 tax year.  The CRA will put on hold the assessment of returns for individuals where a taxpayer is claiming a credit by participating in a gifting tax shelter scheme. This will avoid the issuance of invalid refunds and discourage participation in these abusive schemes. Assessments and refunds will not proceed until the completion of the audit of the tax shelter, which may take up to two years. All gifting tax shelter schemes are audited and the CRA has not found any that comply with Canadian tax laws. A taxpayer whose return is on hold will be able to have their return assessed if they remove the claim for the gifting tax shelter receipt in question.

As well, the CRA noted that since June 2000, it had assessed $63.5 million in third-party penalties against promoters and tax preparers.  The third-party penalties may be applied to “tax advisors, planners, promoters, and charities that make false statements involving tax shelters and other schemes.”

For further advice or assistance with these or any other financial issues, please contact a Millards representative at (519) 759-3511.