A popular scam involving charitable donations and tax shelters has led to Revenue Canada assessing the returns of more than 200,000 Canadians, resulting in the agency denying over 7 billion dollars in tax credits and deductions. Those affected are not only losing a substantial tax break, but are also facing massive interest charges and penalties on taxes owed.
The scheme promised Canadians tax breaks equal to, or larger than, the charitable donations that they made. These so called “tax shelter scams” promised they would boost the original amount of the donation through complicated financial schemes. That, in turn, supposedly allowed the donator to receive a tax receipt that can be several times larger than the initial gift. In most cases, very little of the donations ever made it to a charitable organization. For example, an organization may offer a charitable donation tax receipt for $20,000, and only asks for a $2000 donation.
As is the case with many scams and schemes, if it’s too good to be true, it probably is.
Under federal tax law, Canadians can get tax receipts for their donations to registered charitable organizations and can use those receipts to claim a tax credit equal to a percentage of the amount gifted, however, Revenue Canada takes a very negative stance on charitable donations made strictly on the basis of reducing the personal tax burden.
Unfortunately for those affected, there is little to no recourse on the money donated, and the Canada Revenue Agency is now looking to collect on the outstanding debts and penalties. An upcoming court date in Calgary for affected tax debtors will likely see many in our province facing massive tax bills as a result, leaving them with few options to turn to. However, a Licensed Insolvency Trustee can help to mitigate the situation through a Personal Bankruptcy or Consumer Proposal.
How BNA Debt Solutions Can Help If You’ve Been Scammed
The Canada Revenue Agency inspires fear in Canadian debtors for a reason. They have the ability to garnish your wages, freeze your bank accounts, seize funds on deposits, withhold tax credits, and file a lien on any of a debtors’ properties. They possess a seemingly limitless arsenal of methods to get payments on outstanding tax debts and penalties, which can seem even scarier if those debts have been incurred due to a scam such as a tax shelter scheme.
A debtor trying to make a payment arrangement with the CRA will have to fill out a questionnaire requesting monthly living expenses. This allows the government to assess how much can be repaid on a monthly basis. If the debtor isn’t able to make the payments, or the time for negotiation has expired, they will need to consider the next steps that will provide legal protection of wages and assets. This is where a Licensed Insolvency Trustee can provide assistance via a consumer proposal, or a personal bankruptcy.
A consumer proposal is a formal method to settle tax debts where you can negotiate an agreement with CRA to pay less than the full amount owing.
The Canada Revenue Agency will consider factors like budget, a prior proposal or bankruptcy, previous payment efforts, if tax returns were filed on time, and the risk of tax debts in the future. A proposal is binding on all creditors, including the Canada Revenue Agency, as long as the majority, by dollar value, accept the proposal. Even if the CRA votes no, if more than 50% of creditors who make a claim in the proposal vote yes, the proposal is accepted and the tax debts are included.
If the tax debts and penalties are high and form a large percentage of the creditors on the proposal, the Canada Revenue Agency may request further consideration. In this case, your Licensed Insolvency Trustee at BNA Debt Solutions can offer advice on what the CRA is likely willing to accept and how much to offer as a tax settlement.
For a complete rundown of what happens under personal bankruptcy, you can visit the bankruptcy section of our website.
If tax debts and penalties are $200,000 or more and represent 75% or more of the total debts, a court hearing will be required to establish the terms of discharge from bankruptcy. The court will consider factors like conduct, prior bankruptcies and ability to make payments. It’s common that the outcome of such a hearing would be a court order to pay a specified percentage of the debt.
Being discharged from bankruptcy does not remove a tax lien from affected property, as the Canada Revenue Agency has the ability to register a lien against property without the debtor’s consent. If most or all of the tax debt has been registered against the property, it probably would not make sense to proceed with filing bankruptcy unless you had other significant debts, however, the CRA cannot file a lien after you have filed bankruptcy. As always, our advice is to be proactive before the CRA places a lien on your property.
Regardless of whether tax debt and penalties have been acquired through a scam, or through personal misfortune, the Canada Revenue Agency will be relentless in its efforts to recover what is owed. If you’ve been affected by a Tax Shelter Scam and are now facing serious CRA action, a Licensed Insolvency Trustee from BNA Debt Solutions can help. Contact us today for a free consultation.