Beware of tax shelter donation arrangements, and gifts of property

Taxpayers who participated in "buy-low, donate-high" donations can expect to be audited by Canada Revenue Agency (CRA).  As of December 2010, over 135,000 taxpayers have been reassessed, and denied about $4.5 billion in donations claimed.  For most claims, the "gift" has been entirely denied.  Many organizations have had their charitable status revoked.  See the CRA Tax Alert issued December 2010. Anyone wishing to participate in these types of arrangements should get independent professional tax advice, from someone not associated with the "arrangement". If you have been reassessed by CRA and owe them money, you can pay the tax bill to avoid racking up expensive interest charges.  You can still appeal the assessment.  If you win, you will get your tax money refunded with interest.  For more information about appealing an assessment, see the CRA web page regarding resolving disputes. If a tax shelter donation arrangement has a tax shelter number, this does not mean that the tax shelter is approved by CRA.  This number is for identification purposes only. Changes to the Income Tax Act took effect at 6pm EST on December 5, 2003.  The changes specify that where a donation is made by way of a gift of property, the allowable charitable donation amount will be limited to the taxpayer's cost of the property if the property was acquired under a "gifting arrangement" as referred to above.  Thus, if the item donated was acquired by the taxpayer for $100, then $100 will be the maximum allowable charitable donation amount.

For other non-cash donations, the allowable charitable donation amount will be limited to the taxpayer's cost of the property, if: the taxpayer acquired the property less than 3 years before the date the property was donated, or it is reasonable to conclude that, at the time that the taxpayer acquired the property, he/she expected to donate the property. If the non-cash donation was made as a result of a taxpayer's death, then the donation is considered to be made at fair market value.

The above changes do not apply to donations of: inventory real property situated within Canada cultural property, the value of which has been certified by the Cultural Property Export Review Board publicly traded securities ecological gifts Only donations to registered charities can be claimed as charitable donations.  CRA has a web page, Charities and Giving where you can search charities listings to see if a particular charity is a registered charity. Source: Taxtips.ca