Canadian Humanitarian Trust

[No_Name1]

Are there any Canadian tax lawyers or American tax lawyers familiar with Canadian tax law able to comment on this scheme?

http://www.cdwhiteside.com/login.php

You will notice the website provides no information whatsoever unless you have a password to login. Interesting.

I have 2 coworkers that are involved in this, and after trying to sell me on the idea (knowing I like aggressive investing). I told them it sounded very illegal and liable to get them in very deep doodoo with Canada Revenue Agency, and I don't want any part of it.

(Thanks for fine tuning my fraud radar Quatloos! We need a Canadian chapter up here!)

Basically you donate to a trust, which buys medicine at a discount, donates it to another trust that gives it to the poor in Africa, that evaluates it at full market value and issues you a charitable giving receipt for around 3 times more than what you put in.

I looked on the CRA's website, and it appears schemes like this are not kosher, but they haven't come after anyone yet, but reserve the right to do so with penalty.

CRA seems very vague on the 2003 ruling, (or I don't understand the ruling) the promoters aren't handing out info, and all that is left is bulletin boards with everyone's unprofessional opinion. Apparently this is a huge thing going on, with hundreds, if not thousands of people involved.

Any advice or information would be appreciated.

[jg]

It certainly sounds too good to be true and fits the description of tax shelter gifting arrangements at http://www.carters.ca/news/2007/CRA0604.pdf

Does the organization have a tax shelter number as described at
http://www.cra-arc.gc.ca/tax/charities/ ... t/2-e.html ?

Promoters of such shelters must obtain a tax shelter number from the Canada Revenue Agency (CRA). The CRA uses the tax shelter number to identify the tax shelter and its investors, but offers no guarantee that taxpayers will receive the proposed tax benefits.

The CRA reviews all tax shelters to ensure that the tax benefits being claimed meet the requirements of the Income Tax Act. The CRA has audited many of these gifting arrangements. Generally, the CRA reduces the amount of the tax credit to no more than the taxpayers' cash donation, and in many cases it is reduced to even less than that. In some cases the credit is reduced to zero. The CRA may also charge interest and penalties

At http://www.cra-arc.gc.ca/newsroom/alert ... 031-e.html

Despite these favourable court decisions for the Canada Revenue Agency (CRA), and despite proposed amendments to the Income Tax Act announced by the Department of Finance on December 5, 2003, some donation arrangements continue to be promoted. We have previously reminded taxpayers that the proposed amendments are applicable to years after 2003. They limit donations made under tax shelters and other arrangements to a maximum of the donor's out-of-pocket costs.

According to the material at those links it is not legal to deduct more than the amount paid for the item donated to charity under the Canadian Income Tax Act.

[No_Name1]

According to the material at those links it is not legal to deduct more than the amount paid for the item donated to charity under the Canadian Income Tax Act.

That's basically what I got out of the CRA's website.

I called my accountant today and asked him what the deal with these things are.

His words:

"Any client I had interested in doing this would no longer be my client."

The scuttlebutt around the internet seems to indicate that the only reason most of the schemes aren't shut down is due to lack of manpower. So yes, illegal, just an enforcement issue.

The CRA is very reasonable in most cases, and I informed my two coworkers that they had better call them and start paying the difference before the prosecution starts.

I would imagine if you were involved with this for 3 or 4 years, interest and penalties would get pretty ugly.

I hope they are smart enough to sort it out. They seem convinced it's ok.

Does the organization have a tax shelter number as described at

Unsure.

[Joey Smith]

This is just a variation on what is known as a "High Yield Interest Program" i.e., a bogus investment supposedly giving you both great cash benefits and supporting some charity.

But the investment does neither; all it does is to separate you and your money.

[taxpayer]

There are several provisions in Canada's income tax act that allows a taxpayer to reduce their taxes each year ranging from contributing into a RRSP or IRP, deducting the interest of your mortgage against your income, and yes, you may be allow to do that should you follow CRA rules and donating to charity just to mention a few. A good book to read if you can find it, is "10 Secrets That Revenue Canada Doesn't Want You To Know".

Gift in kind charitable giving has been around for nearly a century. All you have to do is google "gift in kind" and you will need a millinium to read the material. When New Orleans was struck by hurraine Katrina, it was President George Bush that said in a live televised broadcast for Americans not to forget about their Gift in Kind Donations. The UHT donation program even had congratulatory letters regarding their charity work from both Paul Martin, the Prime Minister of Canada and Dalton McGiunty, the Priemer of Ontario.

The information that you are requesting is displayed on CRA's own website under the article RC4142 where CRA states that "...Generous Tax Incentives has been created to encourage gifts from individuals". They give explicits examples of what is a gift in kind, fair market value, and by using this one provision, you are allowed a refund of 75% of the taxes of your net income and should the donation occur during the period a person dies, then that deceased individual is allowed a refund of 100% of thier taxes for the current and prevous year. This is a actual quote from their brochure and website, so why wouldn't you contribute?

It is an unfortunately fact that the uneducated will continue to be burden with the high tax little refunds while the educated and wealthly will not.

[Demosthenes]

In order to qualify for a charitable deduction, you have to give your money to a real charity, not a fake one.

[Demosthenes]

it was President George Bush that said in a live televised broadcast for Americans not to forget about their Gift in Kind Donations.

In the US, a "gift in kind" donation is a non-money donation. For example, if you give your extra blankets to the red cross after a flood, or your old winter coats to Goodwill to give to the poor, you're making gift in kind donations. This has nothing to do with a complicated charity investment scheme.

http://en.wikipedia.org/wiki/Gifts_in_kind

[Demosthenes]

The information that you are requesting is displayed on CRA's own website under the article RC4142 where CRA states that "...Generous Tax Incentives has been created to encourage gifts from individuals".

Here's another cool quote from the CRA website:

Taxpayers should be aware of the risks associated with participating in certain tax-shelter gifting and donation arrangements, including gifting trust arrangements, leveraged cash donations, and buy-low, donate-high arrangements.

This is a actual quote from their brochure and website, so why wouldn't you contribute?

It is an unfortunately fact that the uneducated will continue to be burden with the high tax little refunds while the educated and wealthly will not.

Interesting irony there.

Here's an exceprt from a recent article from the Vancouver Sun.

Despite these warnings, these schemes are still being openly marketed, and people are still buying into them. One is the Canadian Humanitarian Trust Donation Program, based in Mississauga, Ont.

Investors in this scheme make a cash donation to a registered charity and get a receipt for that amount. Then the donor applies to become a beneficiary of something called the Canadian Humanitarian Trust.

From there on, things get a bit fuzzy.

The settlor of the trust, who is domiciled in the British Virgin Islands, buys pharmaceuticals at a bulk discount. Where he gets the money is not clear.

The donor applies to become a beneficiary of the trust. If he is accepted (is there ever any doubt?), ownership of the drugs is transferred to him.

The fair market value of the drugs is deemed to be far more than their cost (apparently because they were acquired at a volume discount). This enables the investor to donate them to a registered charity at a value amount far exceeding the amount of his donation.

This generates a handsome return. According to a donation schedule prepared by program, a donation of $26,100 will generate a tax receipt worth $99,900 and a tax refund of $43,656, for a net return of $17,556, or 67 per cent.

Terence David, who markets the program in Vancouver, said that over the five-year life of the program, about $700 million worth of pharmaceuticals have been distributed to developing countries.

"This is probably the most effective charitable humanitarian trust going," he said.

He said the fair market value of the drugs is determined by an independent appraiser who uses the Ontario health ministry's wholesale price.

"This has been set up strictly in compliance with the Income Tax Act," he said.

He said all deductions claimed by investors have been allowed: "People are initially very skeptical, as you are. Fair enough. I expect people to think it's too good to be true. But when they receive the tax refund, they are satisfied with the results and they tell their friends."

To allay investor concerns, the promoter has set up a $500,000 "defence fund" to fight any reassessment. This would pay for legal costs if CRA attacked the scheme, but if investors lost, it certainly wouldn't pay for the millions of dollars of reassessments that would ensue.

David concedes that CRA doesn't like these sorts of programs:

"If you phone the tax department and ask whether they like this program, they will say they hate it. Actually, they will probably not say anything on the record, but they will not express a positive view on it."

I think the CRA website is sending a very clear message: If you play insist on playing in the swamp, don't be surprised if an alligator bites you.

And rightly so. As it now stands, taxpayers are reimbursing investors for their "donations" and providing them with handsome returns to boot.

[Burzmali]

Sounds a lot like the used car schemes we had going on here in the states a few years back. Deal was simple, you acquire a used car and donate it to charity. The trick was that you would pay far less than market value for the car and then write off the car's blue book value as the donation.

[Leftcoaster]

Sounds a lot like the used car schemes we had going on here in the states a few years back. Deal was simple, you acquire a used car and donate it to charity. The trick was that you would pay far less than market value for the car and then write off the car's blue book value as the donation.

This is something like that, but increased by an order of magnitude. It really is a classic "money for nothing" scheme.

The participants make their donation of $10k, but are given a receipt for a $50k donation. That usually parlays into a $15-20k refund when the return is filed. The tragic part is when they use that refund to participate in the next years round of donations, and then the next years.

And then the reassessments happen...In some cases the actual donation has been disallowed, not just the leveraged portion, because it hasn't been verified that the money went to charity. Ouch

CHT is just one such outfit. Global Learning Gift Initiative (GLGI) and Banyan Tree are others.

[Demosthenes]

Canadian Group's Charity Status Revoked After Tax-Shelter Allegations

A Toronto charity has lost its nonprofit status after the Canada Revenue Agency accused it of acting as a tax shelter for donors, reports The Globe and Mail, in Toronto.

The Choson Kallah Fund allegedly issued inflated receipts to donors who gave pharmaceutical drugs bought overseas at cheap prices. The nonprofit group issued the receipts for the drugs, assigning them the much higher Canadian value without independently appraising the value of the drugs, says the federal agency.

Eli Gross, who runs Choson Kallah, said he did not break any regulations and did not promote the charity as a tax shelter, reports the newspaper.

[ontarioresident]

My husband and I 'donated' in 2006. We are typically very conservative people and I still can't believe we actually got involved in this. We donated or invested 20 grand into CHT and then received $34,000 back on our income tax. By July 2009 we had been audited, the donated was disallowed and we paid back the $34,000 in one chunk to avoid any future penalties. We received notification about the court case and the local representative was to advise us by e-mail of any news. We've heard nothing and there is really no info to be found online. I've kissed the money goodbye but I'm still curious about how this is playing out in court. Does anyone know of anyone who has received money back or won in court? Any news at all?

[JDHalifax]

We too joined in 2006. Just received a letter from CRA looking to settle for a cash amount equivalent to a charitable deduction on the cash donation. Included a waiver to sign and that's it. Anyone else receive this.

[JDHalifax]

Does anyone have an email or website fot CHT

[wserra]

These guys appear to have changed their names; now they're the "World Health Initiatives". Their blog is highly informative. Still can't get any info without a login. Can't imagine why. In addition to the sources cited in the thread already, last year the CRA revoked the charitable status of something called "Escarpment Biosphere Foundation Inc", due to their conclusion that it "received cash and pharmaceuticals with a purported value of over $407 million as a result of its participating in the Canadian Humanitarian Trust tax shelter gifting arrangement (Donation Program) . . . the Organization agreed, for a fee of approximately $1 million, to lend legitimacy to the Donation Program by representing that it had received and distributed the properties in its own charitable programs." And see the CRA's specific warning:

Mass marketed gifting tax shelter arrangements are made for the primary purpose of avoiding the payment of the required taxes rather than raise funds for charities. Mass marketed gifting tax shelters include schemes where taxpayers receive a charitable donation receipt with a higher value than what they paid. This can typically be four or five times their out of pocket cost.

The Canada Revenue Agency (CRA) audits every mass-marketed tax shelter arrangement and no arrangement has been found to comply with the Income Tax Act.

With the CRA reaching such conclusions, I'm surprised they're still around in any form. Caveat: I have far better sources in the U.S. than in Canada.

Oh, and if you were thinking about getting any money back from them:

[Burnaby49]

Wssera - .

[wserra]

I appreciate the concern. Not only am I satisfied but, as I wrote Burnaby in a return PM, I think it's very cool.

[Burnaby49]

Well, if you've never heard of the "Escarpment Biosphere Foundation Inc" how about something as apple pie All-American as the Little League?

http://www.thestar.com/sports/2009/01/1 ... tatus.html

http://m.theglobeandmail.com/sports/tax ... ice=mobile

The Little League of Canada had its tax donation status revoked for participating in one of these schemes. They went from writing a couple of hundred thousand a year in tax deductible donation receipts to $82,000,000 in total for the scheme. While they whined about how it wasn't fair they participated voluntarily. And they weren't alone. The Canada Revenue Agency revoked the charitable status of the Canadian Lacrosse Association ($60,700,000 in receipts), the Canadian Amateur Football Association ($20,000,000 in receipts) Wrestling Canada, and Biathlon Canada ($26,000,000 in receipts) for participating in the same scheme.

The charities thought they had found a gold mine but it all ended in tears:

http://www.canadianclassactionslaw.com/ ... ss-action/

There were dozens of these schemes, big bucks overall, and were all essentially the same. Parklane, which promoted the Trafalgar scheme, was particularly high profile. While the scheme was technically very complex (check above link) at heart it was very simple. Joe taxpayer would give a charity say $1,000 cash. In addition he would give the charity rights to a software program that Joe Taxpayer had received for free as the recipient of a trust. The charity would write a donation receipt for the $1,000 cash and a separate receipt for the claimed $3,000 value of the software program. Joe gets $4,000 in receipts for a $1,000 cost so his tax refund is well over his cash cost. The charity passes the funds on to the scheme promoters and gets a pittance for facilitating the scheme by writing the fake receipts. As the article above says:

The donor would write a cheque or make a pledge to a charity enrolled in the program. At the same time, the donor would apply to become a beneficiary of the Donations Canada Financial Trust (a private charitable trust created by Mr. Furtak). An escrow agreement would be executed by the donor appointing ParkLane (an Ontario corporation incorporated by Mr. Furtak for the purposes of promoting leveraged charitable donation programs, including the Gift Program, to Canadian taxpayers) to hold the trust units and to donate them to the designated charity on the donor’s behalf. After receiving the donor’s application, the Donations Canada Financial Trust made an “investment” in a sub-trust and was issued two units in the sub-trust which were then issued to ParkLane as escrow agent on behalf of the donor. The donor was given a confirmation of issuance of the “discretionary” interest in two sub-trust units with a perceived value of three times the donated amount. The sub-trust units would then be donated to the charity at which point the charity would have the original donation in cash and a piece of paper representing the value of the sub-trust units. The charity, under the terms of its agreement with the Gift Program, was then required to “redeem” the sub-trust units. The funds for the redemption were provided by the Bermuda Trust which “primed the pump by indirectly acquiring the sub-trust units, through Donations Canada Trust”. At this point the charity would have a total of four times the original donation in cash. Finally, in return for the donor’s total donations, he or she would receive two charitable donation receipts. A cash receipt for the amount donated and a donation in-kind-receipt for the stated value of the sub-trust units.

The CRA reassessed all of them and revoked the charitable status on a huge number of participating accommodating charities.

The suckers who participated in this were just average every-day taxpayers. Plumbers, cops, mailmen etc. There was absolutely no way they could have understood the complexities of the schemes. I dealt with this professionally as a CRA employee and I had problems figuring some of them out. The schemes at least partly relied on opinion letters from major Canadian law firms saying everything was A-OK under tax law. Turns out it wasn't and the screwed taxpayers got class-action certification in a few cases to go after the law firms. There have been some settlements but I haven't kept up with the status of them all.

http://www.canadianclassactionslaw.com/ ... ss-action/

[wserra]

For unscrupulous "charities" overvaluing in-kind contributions (and distributions generally) is a win-win proposition. As we've been discussing, it draws in the donors, because they get inflated deductions. At the same time, it looks good on the "charity"'s books. "We took in $100M and distributed $90M of that" sounds a lot better than "we took in $100M and distributed $20M of that".

The only losers are the taxpayers.

[Hilfskreuzer Möwe]

As always, thank you for that excellent review of the subject area, Burnaby49.

One question: are you aware of criminal proceedings against any of the promoters of these tax evasion schemes?

SMS Möwe