Leading philanthropists and entrepreneurs alike are realizing more and more that charity pays, that non-profit activities can be extremely profitable, and that capitalist principles of efficiency are compatible with and necessary for innovative fundraising techniques. Due Diligence is key in determining your participation in any Registered Profitable Gifting Arrangement (RPGA).
Shy Kurtz, Motivated Magazine, Canadian Values, Winter 2009, page 33.
[Fall 2010]
Relief Lending Group Inc.
Enabling Responsible Philanthropy
A Registered Profitable Gifting Arrangement Program (RPGA)
Built on Principles of Philanthropreneurship
Doing Your Due Diligence
As responsible promoters, we always advise potential donors and participants in the Relief Lending Group RPGA to exercise their due diligence and check things out for themselves. This document is prepared to assist these individuals in that task, but not replace your own independent review. The following items form a sort of “checklist” of important things to consider as well as some additional relevant information. If you Ctrl/Click on the blue links, it will lead you to the website or documents mentioned.
1. Is the program registered with the CRA as a Tax Shelter?
The Relief Lending Group Inc. is a fully registered TAX SHELTER ID #: TS073262 QUEBEC TAX SHELTER ID #: QAF0801266. The identification number issued for this tax shelter must be included in any income tax return filed by the purchaser and/or donor. Issuance of the identification number is for administrative purposes only and does not in any way confirm the entitlement of a purchaser and/or donor to claim any tax benefits associated with the program. Check their website: RLG Website
There are many programs that offer tax savings but are not registered with the CRA. If a program is not registered but promotes tax savings, the CRA will re-assess all benefits and the taxpayer will lose in court. You can read an article that describes the court precedence that gives the CRA a strong hand to deal with unregistered tax shelters. Blakes Review
2. Is the Charity Involved registered with the CRA and in good standing?
Click here to review the CRA documents and financial data for Help Eliminate Disease and Addiction Canada. HEDAC CRA Data
3. Is the Charity actually doing good work and getting recognition?
The RLG program and any RPGA is “charity centric”, so donors should be confident the philanthropy is actually being done before donating. Here are a few websites to review:
HEDAC’s website www.hedac.ca
MoneySense Magazine Review on top Charities in Canada: MoneySense Article
Mali National Press Article on Drugs received from HEDAC: Mali Article
Major Agent for HEDAC: Aid for AIDS
HEDAC sends relief to Haiti Earthquake victims: Haiti Aid
4. Does the RPGA program have a legal defence fund for the benefit of the participants?
Is this fund held with the promoter or is it actually “In Trust” held by a reputable law firm? Funds held by the promoter will vanish when the promoter runs into trouble. A legal defence fund capped at $1 million is held in trust with Morris and Morris LLP, for the benefit of the RLG participants. A letter from Morris and Morris to RLG stating the defence fund exists is available for viewing and you should ask to see it if you have any doubt.
5. What should I ask my tax professional or account regarding the RLG Program?
When asking for advice from your accountant or tax professional, it is important to follow the legal process that the CRA has to follow. In other words, since you as a taxpayer don’t have to prove that the program works and it is up to the CRA to find a problem in order to re-assess, you must ask the question to your advisor in the negative. Don’t ask “Should I do this?” Ask, “Why should I not do this?” Alternatively, “Tell me specifically the problem with the RLG program that will cause it to fail.” Don’t ask about other donation programs or in general terms, your question should be very precise and specific to the RLG program. The fact that you will be re-assessed is not a problem in itself, since once you file your notice of objection to the re-assessment; you will not have to repay your refund. Your re-assessment will only be valid if the tax courts or any other authority can determine a problem (see item 6 below). Remember, be specific. No one to date has been able to find a valid problem with the RLG program.
6. Do I fully understand the processes involved in participating in the RLG program or any RPGA?
The CRA have openly stated they will audit and re-assess all tax shelters in Canada. This statement is made, regardless of compliance to the law. Here is a document that describes the process participants will be embarking upon: AUROBA
7. What does the Minister of National Revenue say about preparers and promoters of these types of programs?
“Canadians should know that honest tax preparers and promoters are an important part of the tax system, and that the vast majority are professionals who fully respect tax laws.” He goes on to warn against fraudulent activity from a minority, as do we. Minister Ashfield Press Release
8. What warnings does the CRA have regarding registered gifting arrangements?
The CRA have specifically warned against certain types of tax shelters. They have also issued general warnings regarding gifting arrangements. They have not specifically warned against the RLG structure. The latest warning can be seen here CRA Warnings
9. What are the specific issues the Canada Revenue Agency has with RPGA programs?
The following two slides give an overview of these issues and how the RLG program has been structured to comply with these concerns. The number one CRA issue is donation receipts that are inflated, more than your actual cost.
10. What does the National Press have to say about these types of programs?
Do you believe everything you read in the newspaper or online? In most cases, it is important to educate yourself a little so that you are prepared to filter through the incredible contradictions. If you click on the following link, you will see an example of how the Press can distort the truth to the disadvantage of the taxpayer. Press
11. What have the Tax Courts said about these issues and elements of the RLG program?
a) Is Tax Avoidance Lawful in Canada? YES... Duke of Westminster vs. the Queen in 1935, Lord Tomlin ruled: “any man, if he can, is allowed to order his affairs so that the tax attaching under the appropriate Acts is less than it otherwise would be” This has been binding in Canada ever since. An example of a recent Canadian case affirming this right even in the light of the General Anti Avoidance provisions of the Income Tax Act is the 2005 Supreme Court Case here: Canada Trusco vs the Queen
b) You are entitled to a tax credit for a charitable donation for a gift in kind for the fair market value of the gift or what you actually paid for the goods, whichever is lower. Lockie v. The Queen
Document Excerpt:
Lockie v. The Queen (Informal Procedure), Tax Court of Canada, March 18, 2010. Neutral Citation: 2010 TCC 142. Court File No. 2008-2997(IT)I. Webb, J. Charitable donation tax credits - Fair market value of gifts - At a cost of $2,850 the taxpayer acquired gel pens, tooth bushes and school packs (the "Products") at a cost of $2,850 and purported to donate them to a registered charity, In Kind Canada, which issued him with a receipt in the amount of $15,078 for charitable donation tax credit purposes. The taxpayer also purchased a separate group of Products for $3,800, transferred them to his wife at an elected fair market value of $20,043 under s. 73(1) of the ITA, and reported a capital gain of $16,243 (i.e. $20,043 less $3,800). His wife, whose marginal tax rates were higher, than purported to donate this second group of Products to In Kind Canada in return for a charitable gift receipt in the amount of $20,043. Both groups of Products forming the subject matter of the taxpayer's and his wife's so-called "gifts" to In Kind Canada were obtained through an importer, CEI, which had an arrangement with In Kind Canada. The Products were low cost ones imported by CEI from China, and shipped directly to In Kind Canada. The Minister reassessed the taxpayer for 2003 on the bases that the value of his "gift" to In Kind Canada was $2,850 (as opposed to $15,078) and that he realized no capital gain on the transfer of the second group of Products to his wife, since the fair market value thereof was not $20,043, but $3,800. After filing an Amended Reply to the taxpayer's Amended Notice of Appeal to the TCC, the Minister added a new argument (beyond the normal reassessment period) to the effect that the taxpayer had no donative intent, so that he made no gift at all to In Kind Canada - Appeal allowed - The TCC concluded that: (a) the Minister was entitled under s. 152(9) to make his new argument, but the onus of proof then lay upon him (as opposed to the taxpayer), and if the Minister were successful, the taxpayer would still be entitled to the charitable donation tax credit allowed to him for 2003 in the reassessment under appeal (see The Queen v. Anchor Pointe Energy Ltd. (FCA) and The Queen v. Loewen (FCA); (b) despite the fact that the taxpayer was seriously interested in the financial benefits to be obtained from In Kind Canada's published donation scheme, he still had a true donative intent; (c) the value of the taxpayer's charitable gift to In Kind Canada, however, was the $2,850 that he actually paid for the Products (for the reasons given in The Queen v. Nash (FCA)), and not the retail value thereof in the Canadian market, as he had alleged; and (d) the value of the Products transferred by the taxpayer to his wife was also his cost thereof for the same reasons - I.T.A. ss. 73(1), 118.1(1), 152(9).
c) Tax Court of Canada has further clarified how donation receipts are issued for gifts in kind, despite factual variations that may exist between arrangements...AT COST, no matter what price it is possible to have purchased items for in other markets, and whether or not one can resell them, and whether or not they have even been seen by the donor upon acquisition. Where there is no direct comparison, the actual tax shelter market is the indicative cost factor. There is no business being carried on that permits capital gains, etc... Elizabeth Russel vs The Queen
Document Excerpt: Elizabeth M. Russell, William E. Russell, Vivian M. Russell, Bruce Russell, Adrienne Russell-O'leary, Sarah Russell, John Mazgola, Peggy Murre, Daniel Despres, Karen Despres, John Bilodeau, and Angelo Epifani, v. The Queen (Informal Procedure), Tax Court of Canada, October 26, 2009. Neutral Citation: 2009 TCC 548. Court File Nos. 2006-2757(IT)I, 2007-3231(IT)I, 2007-3232(IT)I, 2007-3234(IT)I, 2007-3235(IT)I, 2007-3236(IT)I, 2007-3309(IT)I, 2007-3589(IT)I, 2007-3597(IT)I, 2007-3599(IT)I, 2007-3619(IT)I, and 2007-4298(IT)I. Miller, J. Charitable donation tax credits - Works of art - Fair market value ("FMV") - The twelve taxpayers in this case were representative of some 70 other taxpayers who had all participated in an art donation program being marketed by the Canadian Art Advisory Services Inc. ("CAAS"). This program involved the taxpayers buying art at a certain amount, and on the same day donating it to a registered charity and obtaining a charitable receipt for an amount equal to three to five times greater than what the taxpayers paid for the art. The taxpayers neither chose nor researched the art, and felt no need to actually inspect it at any time. For years from 1999 to 2004, the Minister reassessed the taxpayers on the basis that the charitable donation tax credit to which they were entitled was limited to the actual amount paid by them for the art donated by them, as opposed to allowing them the amounts shown in their respective charitable receipts. For some taxation years, however, the Minister included in his reassessments taxable capital gains based on the amounts which the taxpayers had reported. The TCC dismissed the appeals of some taxpayers and allowed the appeals of others in part - The TCC concluded that: (a) in Nguyen v. The Queen the TCC was faced with the same art donation program being promoted by CAAS; (b) in Nguyen v. The Queen Campbell, J. concluded that the FMV of the art donation involved was in effect the amount paid for by the taxpayer at the time of its donation; (c) in Nash v. The Queen the FCA addressed the issue of purchases of art in bulk, and concluded that bulk purchases take place in the wholesale market while individual art purchases take place in the retail market; (d) in Nash v. The Queen the FCA also concluded that there is no market that permits a direct comparison for the purchase and sale of groups of original contemporary art, and there is no market in which buyers or donors can sell to the public; (e) in such a situation, as the FCA said in the Nash case, the best evidence of value is to examine what the donor paid for the art forming the subject matter of the donation; (f) there was no distinction between the facts in the Nash case and the facts in the present case; (g) the Minister's reassessments, limiting the charitable donation tax credits to the taxpayers' cost of the art donations involved, should therefore be affirmed; and (h) the Minister, however, should be ordered to reassess to eliminate any taxable capital gains shown in the reassessments under appeal, on the ground that there were no gains in excess of the cost of the art donations involved - I.T.A. ss. 39(1), 118.1(1), 118.3(1).
The next issue of this document will expand upon the Court precedence’s that exist to support the RLG program. Many programs, including the RLG program have legal opinions available for clients to look at, but far more important is what the Courts have said about the key elements.
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