Murji – Tax Court of Canada finds that the cash portion of a donation made to a charity was reduced by the fees paid by it to the tax shelter promoter

Taxpayers participated in a purported gifting tax shelter in which, in addition to making cash donations to participating charities, they were to receive a donation of shares from a non-resident philanthropist (later discovered to be fictitious) and then donated those shares (which the evidence indicated were worthless but which were treated by the promoter as having a value of up to 12 times that of the cash donation) to the charity. Typically, 90% of their cash donations were paid by the charities to the promoter as fees. Under pressure from CRA, the charities issued revised charitable receipts which showed only the net cash actually retained by the charities as the donation amounts (i.e., the receipt amounts were reduced by almost 99%), and CRA assessed to only allow the revised receipt amounts for charitable credit purposes.

Favreau J dismissed the taxpayers’ appeals from these assessments on various grounds, including that they “had no donative intent as they did not intend to impoverish themselves,” but instead acted as “investors” based on the projected tax credits, and that the arrangement was not registered as a tax shelter. Of perhaps greatest interest, he affirmed that the cash donation amount of the taxpayer was only the net amount (e.g., in the case of Mr. Murji, $1,800 rather than $18,000) on the basis that after Mr. Murji deposited $18,000 with the promoter (“as consideration for participating in the gifting arrangement”), the promoter then “transferred only $1,800 to On Guard [the charity] by depositing $18,000 in On Guard’s bank account and invoicing On Guard for $16,200.”

Neal Armstrong. Summary of Murji v. The Queen, 2018 TCC 7 under s. 118.1(1) – total charitable gifts, Reg. 3501(1)(h) and s. 237.1(1) – tax shelter.