By: Adam Aptowitzer
In a report entitled “Donor Beware” the Tax Ombudsman opined on the CRA’s administrative responsibilities regarding charitable donation tax shelters. Perhaps the most surprising thing about the report is that it is dated March 19th, 2014 after years of legislative implementation of tools for the CRA to crack down on tax shelter promoters, charities, directors of charities and donors connected with such plans. As far as we can tell most offensive tax shelters seem to be shut down albeit leaving several large messes still to be cleaned up.
Yet, despite the sense that the Ombudsman is shutting the corral after the horses have bolted there are other elements to report which are illuminating to those of us who practice in the field. First, the report is entirely based on an analysis of the CRA’S responsibilities under the alleged Taxpayer Bill of Rights.
The Bill of Rights was brought in with the reforms of Revenue Canada (as it then was) which took place in the early to mid-1980s. In theory, it is a foundational document governing the CRA’s interaction with taxpayers. In practice, it is probably the most ignored document at the CRA (except for the Ombudsman apparently).
Interestingly, the report focusses on two specific rights contained within the bill of rights. The first is the right to complete accurate, clear and timely information and the second is the right to expect the CRA to warn taxpayers about tax schemes in a timely manner. Both of these ‘rights’ assume that the CRA is not only well apprised of the tax plans developed in the private sector but that it is able to evaluate and predict a court ruling of those plans in advance. The reports recommendations state:
- Continue to develop and apply innovative and effective communication strategies to warn taxpayers about the potential consequences of participating in tax shelter donation schemes, including a determination of key audiences and distribution targets.
- Develop effective communication products that provide clear examples of tax schemes that do not conform to the Income Tax Act as well as warn of the potential consequences of participating in tax shelter donation schemes and distribute as effectively as possible.
- Warn taxpayers about questionable tax schemes in a timely manner by monitoring trends in the structuring of, and investing in, tax schemes and make such information publicly available as soon as possible.
- Explore ways of preventing promoters of questionable tax schemes from using information from the CRA to promote their products and provide clear warnings to the public that by issuing a “tax shelter identification number” the CRA is not approving a tax shelter or confirming that it conforms to the Income Tax Act.
As the report notes, such expectations of the CRA are clearly impractical if not impossible to meet. For example, the report notes that:
the CRA has stated
…[the CRA] cannot inform taxpayers of an audit of a tax scheme because the Income Tax Act prohibits the disclosure of private information about taxpayers. However, according to the Taxpayer Bill of Rights, taxpayers are entitled to be informed in a timely manner about questionable tax schemes that are under scrutiny by the CRA. Thus the CRA needs to find effective ways to warn taxpayers while respecting the confidentiality of taxpayer information.
Recently, as stated above, the CRA has implemented a new national policy whereby it will not process tax returns that include a credit related to a gifting tax shelter scheme unless the taxpayer chooses to remove the donation amount and wait for the outcome of the audit. If the taxpayer needs the assessment in order to receive benefits, for example, the Canada Child Tax Benefit, or social assistance, or for other financial reasons, such as for loans or mortgages, they will have the option of removing the donation claim, having their return processed and waiting for the outcome of the tax shelter audit. Should the tax shelter prove to be legal, taxpayers will be able to resubmit the claim for the donation and receive their refunds plus interest.
It would be laughable if not so sad that the legislative right to receive an assessment with ‘all due dispatch’ is explicitly violated by the CRA to justify violating another right contained within the so-called Taxpayer Bill of Rights. One would have hoped the Ombudsman would have noted the irony. But alas, the report simply states the Ombudsman recommends that the CRA continues to develop and apply innovative and effective communication strategies in order to warn taxpayers about the potential consequences of participating in tax shelter donation schemes. That under the current legislative structure these can only be applied after years such schemes are in place is also conveniently ignored.
The Ombudsman should also remember is that the communications strategies employed by the CRA necessarily prepared to accept legal advice by a 140 character tweet (for example). Most of the tax shelters we have seen were accompanied by voluminous legal opinions by reputable firms ostensibly approving of such plans. While the CRA is entitled to its opinion, the Ombudsman is assuming that the CRA general statements about shelters will carry greater weight than that of a legal advisor commenting on a specific situation. The issue of the specificity of the comments vis a vis particular shelters is, of course, common to any platform used by the CRA to deliver a message. And so, for there to be any efficacy to the recommendations, the CRA would need to have a fundamental shift in its ability to make comments about specific plans.
The recommendations recognize that the CRA is simply in no practical position to warn off taxpayers from schemes that it considers inappropriate. Short of forcing taxpayers to have their planning approved by the CRA in advance, it seems that the CRA will always be behind the private sector in terms of communicating their opinion about tax-planning to various Canadian taxpayers involved in questionable schemes.
Most of the rest of the report will have little effect on professional tax advisors. It deals with alleged CRA requirements for providing information to taxpayers about the CRA’s own opinion on charitable tax schemes. As stated earlier not only are most of these shutdowns but the development of communication strategies which are more effective than the ones the CRA currently employs (including using MPs to communicate the CRA’s information to its constituents) seems the stuff of public relations rather than technical execution. Enforcing the Taxpayer bill of rights against the CRA in any pecuniary way is impossible so one is left wondering exactly what is the point of the report in the first place.
Originally Published in “The Canadian Taxpayer” Volume XXXVI, May 30, 2014, p. 86-88
 Available at http://www.oto-boc.gc.ca/rprts/spcl/dnrbwr-eng.pdf