Ontario Judge's Tax Shelter Donation Claim Fails In Tax Court - Crane v. The King, 2022 TCC 115 (CanLII)

Published date09 November 2022
Subject MatterCorporate/Commercial Law, Tax, Charities & Non-Profits , Income Tax
Law FirmSpenceDrake Tax Law
AuthorMr Cris Best

Pursuant to subsection 118(1) of the Income Tax Act, RSC 1985, c 1 (5th Supp), if a taxpayer donates to an eligible charity, a tax credit can be claimed for the amount of the donation. However, there have been many widely marketed charitable donation tax shelters that in some form or another have been found to abuse the tax credit. Most involve inflated donations, by a large number of sometimes unwitting taxpayers, to otherwise defunct charities.

Charitable donation tax shelters come in multiple forms. Some involve the gift of items with an inflated valuation, for instance comic books. The comics are valued higher than the purchase price and donated to an organization with charitable status, one which the promoters directly or indirectly control. The donation tax credit claimed is matched to the inflated value. Others, as in the case of Crane v. The King, 2022 TCC 115 (CanLII) (Crane), are more complicated and a leveraged donation is used to inflate the actual amount donated. This is achieved by the use of what is referred to as a limited recourse debt.

According to the Canada Revenue Agency ("CRA"), not a single gifting tax shelter scheme has been held to be in compliance with the Income Tax Act, RSC 1985, c 1 (5th Supp). In fact, if CRA and/or the courts were to ever consent to the authenticity of a typical donation tax shelter, the result could be billions in lost tax revenue. CRA estimates that more than $7 billion in tax shelter donation claims have been disallowed.

At one point, because of the multitude of shelters being promoted, CRA began assigning identification numbers. They were exploited by tax shelter promoters as an indication of legitimacy. As in the case of Crane, the shelters were also supported by legal opinions with broad disclaimers. In the present case, the key sentence of the disclaimer being "[n]o assurance can be given that the [CRA] will agree with the opinions expressed in this letter..."

The appellant in Crane was a self-represented former judge of the Ontario Superior Court of Justice. The judge argued that his donation, one of many related to a single charitable donation tax shelter, was valid, despite the mechanics of the shelter being ruled illegitimate in the preceding lead case of Herring v. The Queen, 2022 TCC 41 (CanLII) (Herring).

The judge received a charitable donation tax receipt for $100,000 that resulted in a tax reduction of $46,409. This was accomplished through a series of transactions in the 2004 tax year. He...

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