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

• Published date: 09 November 2022
• Subject Matter: Corporate/Commercial Law, Tax, Charities & Non-Profits , Income Tax
• Law Firm: SpenceDrake Tax Law
• Author: Mr 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...