Donation tax shelter schemes are arrangements where you get a donation receipt for more than the amount you donated. Tax shelters provide little or no benefit to the charities involved or to the people you think you might be helping. Instead, many of these arrangements take advantage of a charity’s ability to issue receipts for the private gain of the promoters and participants.

If a tax shelter promoter offers a tax receipt for a larger amount than the out-of-pocket cost, then it is likely not valid.

The Canada Revenue Agency (CRA) strongly suggests that taxpayers seek advice from an independent tax professional before participating in any aggressive or high-risk activity where all or most of the return on investment is derived from a tax benefit. Independent advice should be from a tax professional who is not connected to the scheme or promoter.

Reasons to avoid donation tax shelter schemes

The CRA audits every donation tax shelter scheme and, so far, not a single arrangement complies with the Income Tax Act. Every audit has led to a reassessment of tax and interest for the participants. The CRA has disallowed billions of dollars in donation claims and has reassessed hundreds of thousands of taxpayers who took part in the schemes.

The CRA can reassess your income tax return up to three years after the date of your initial notice of assessment. In some cases, we can go beyond the three-year limit. The fact that your tax shelter donation claim was not denied on your first assessment does not mean the CRA accepts the claim. It may take more than one year to complete an audit of a donation tax shelter scheme. The CRA can also charge penalties in addition to interest.

Tax shelter identification number

Tax shelter promoters must get a tax shelter identification number from the CRA. The CRA uses this number to identify the tax shelter and its participants. It is for administrative purposes only and does not entitle the participants to any advantages associated with the tax shelter.

If it sounds too good to be true, it probably is. Think twice before participating in a donation tax shelter scheme or any other donation scheme.

For more information about tax shelters and how you can protect yourself, go to Tax shelters.