Posts Tagged tax
Jewish organization loses charitable status
The Canada Revenue Agency (CRA) has stripped a Jewish organization of its charitable status after finding its primary purpose was to serve as part of a tax-avoidance scheme.
In a letter to the Choson Kallah Fund of Toronto, Terry de March, director general of the CRA’s charities directorate, stated that the organization’s charitable status will be revoked, preventing it from issuing official donation receipts. Choson Kallah is no longer exempt from paying tax, unless it qualifies as a non-profit organization, and it may be taxed on its remaining assets, CRA stated.
“It remains our view that the charity has willingly lent its name and tax-receipting privileges to the tax shelter in exchange for monetary compensation. In our view, the charity has participated in a program designed to abuse the charitable gifts incentive provisions of the Income Tax Act,” stated a CRA document outlining the reasons behind the revocation.
“Between 2004 and 2005, the charity issued receipts in excess of $177 million, or 90 per cent of the charity’s total income, for donations of pharmaceuticals earmarked for international programs… In 2006 alone… the charity issued receipts totalling over $131 million,” far above the charity’s previous average of between $4 million to $6 million per year, the CRA said.
In receiving the pharmaceuticals and issuing tax receipts “the charity was merely operating as the receipting agent in this arrangement – issuing receipts for property it did not see, need or want and passing this property to a third-party organization,”the CRA said.
In exchange, Choson Kallah received a little more than one per cent of the value receipted, from which it paid a fee to an administrator, the letter stated. The charity did not attempt to independently verify the values of the donations for which it issued receipts, the agency said.
The CRA noted the charity netted only .05 per cent of the value of the donation receipts after expenses, and it failed to maintain the documentation necessary to prove recipients of allocated funds met the definition of charity required by law. Some recipients were not suffering poverty, but received money for wedding assistance, fertility treatments and to pay private debts.
Rabbi Eli Gross, president of Choson Kallah Fund, said the decision will be appealed.
“Right now, I don’t think I will be able to continue our good works,” Rabbi Gross is quoted as telling the Toronto Star. “I don’t know the mechanics of the tax fund, the legality of it or how it works.”
He told the Star that Choson Kallah has been operating for more than 20 years. It started as a small operation that helped people get married, but grew to provide $4 million in poverty relief, mostly to Israel.
Choson Kallah did not return calls from The CJN.
The CRA stated it is “reviewing all tax shelter-related donation arrangements (for example, schemes that typically promise donors tax receipts worth more than the actual amount of the donation)” and it “plans to audit every participating charity, promoter and investor.”
In the past few months, the International Charity Association Network and the Banyan Tree Foundation were stripped of their charitable status. Last week, the CRA stated in a news release it had “revoked the status of the Canadian Amateur Football Association as a registered Canadian amateur athletic association,” with the power to issue tax receipts for gifts or donations.
reviewed by Moishe ALexnader, CFC CEO
Charity loses status over tax-shelter scam CRA says area group took in $2.8 million, but spent just $282,000
The Canada Revenue Agency has stripped an Ottawa-area charity of its charitable status after a damning two-year audit showed it was a front for a tax shelter scam offering big receipts for small donations.
The CRA ruling found that Healing and Assistance Not Dependence Canada expended a “proportionally negligible amount” of its income on charitable activities, making it ineligible to grant tax receipts.
The law says a charity must act exclusively for a charitable purpose to give tax receipts.
The charity purports to “encourage and assist and serve alcoholics, chemically dependent persons and their families, friends and associates primarily, but not exclusively within the Jewish community.” It has no website and no listing in the Yellow Pages.
Tax shelters allow people to avoid paying income tax. Tax-free savings accounts and RRSPs are examples of legal tax shelters.
Illegal, so-called aggressive shelters promise inflated tax receipts for nominal donations.
A company might ask you for a donation of $100 and promise you a tax receipt for $1,000. The company might claim your money is buying bulk supplies that,
if purchased individually, would be worth $1,000.
Aggressive tax shelters essentially sell receipts, pocketing the donations and bilking the federal government out of millions.
CRA spokeswoman Caitline Workman said tax receipts can be revoked if the government believes the donor should have realized the return was too good to be true, however, she would not say if the agency would revoke receipts donated to Healing and Assistance Not Dependence Canada.
The CRA audit, which took place between Sept. 1, 2006, and Aug. 31, 2008, showed the charity received almost $2.8 million from the Canadian International Aid Program, a registered tax shelter fronted by the Canadian Organization for International Philanthropy (COIP). Healing and Assistance Not Dependence Canada transferred 70 per cent of the money it received to other participants in the scheme, keeping $900,000 for itself. Of this, only $282,000 was devoted to charitable programs.
Even this figure is doubtful. Healing and Assistance Not Dependence Canada claimed to contract out its treatment services to American and Swiss treatment centres, but the CRA found there were no descriptions of how programs were to be delivered on the charity’s behalf.
The auditor wrote “the charity did not, in fact, deliver any of the charitable addiction counselling, treatment, or education programs for which it was ostensibly raising funds.
The CRA also found that 79 per cent of the charity’s income was spent on fundraising, which far exceeds the “reasonable” amount proscribed by law.
The true purpose of the charity, said the CRA, was to receive and transfer donations on behalf of the tax shelter program.
The money the charity funnelled out landed in questionable pockets. Almost $2 million was transferred to the Orion Foundation and PanAggregate Financial Corporation. Orion was the subject of an investigation by the Toronto Star, which found that its head, James Arion (who has gone by many other names), was giving $2,000 tax receipts for $1,000 donations. The CRA is challenging many of those receipts.
The Star showed the Orion Foundation is also connected to the Canadian International Aid Program and COIP, which claims to provide AIDS drugs to infected Africans.
No one from Orion, PanAggregate or COIP would provide comment to the Citizen.
http://www.ottawacitizen.com/business/fp/Charity+loses+status+over+shelter+scam/1675746/story.html
Reviewed by Moishe Alexander
New book review: The Law of Fundraising, 2008 Cumulative Supplement, 3rd Edition
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The 2008 Cumulative Supplement contains updates on the following subjects:
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