Tax Court Ruling re "leveraged donation"

Beware of aggressive tax shelters. If it sounds too good to be true, it usually is.

I came across many “aggressive” tax claims while a sub-contractor to mid sized CPA firms and when moving out on my own.

Amongst these were “leveraged donation” schemes. These were already in an active CRA Calgary TSO program in the mid 2000’s as part of a cross Canada action.

These CRA programs required an audit or pre-assessment review each taxpayer as well as an audit of each Charitable Trust involved.

I am surprised to see that in 2019 we are still seeing decisions on these matters. However, I am not surprised at the outcome.

626468 New Brunswick v. The Queen.
Federal Court of Appeal,
Markou et al. v. The Queen.
Federal Court of Appeal, December 5, 2019.
Neutral Cite: 2019 FCA 299.
Court File Nos. A-135-18, A-132-18, A-133-18, A-134-18.
Noël CJ (Rivoalen and Locke JJA concurring).

Charitable donations tax credits —
Appeal from denial of claim for charitable donation tax credits —

The taxpayers, who had invested in a “leveraged donation” scheme, each made claims for a charitable donation tax credit. Those claims were denied on assessment and the taxpayers appealed from that denial to the Tax Court of Canada. Their appeals were dismissed, with the Tax Court finding that the appellants had lacked the necessary “donative intent” to support their claims for a charitable donation tax credit.

They then appealed from that decision to the Federal Court of Appeal. The appellate Court held that the issue before it was whether the Tax Court judge correctly held that he was bound to follow the rule with respect to similar gifts as stated in previous jurisprudence of the Tax Court and the Federal Court of Appeal. Such jurisprudence provided that the contractual arrangements pursuant to which the appellants made their alleged gifts could not give rise to a split gift as the two portions of the gift were inextricably tied. In the appellate Court’s view, the conclusion reached by the Tax Court judge was correct with respect to both the need to follow precedent and was also the conclusion which necessarily flowed from the applicable provisions of the contractual agreement outlining the terms and conditions of the charitable donation. Such agreement made each of the appellants’ entire donation conditional on a loan being approved by the lender. As a result, in the appellate Court’s view, the participants envisaged making only one gift, and it was in that context that their donative intent was to be assessed. The appeal from the Tax Court decision was therefore dismissed. —
Income Tax Act, RSC 1985, c. 1 (5th Supp.), s. 118.1.

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