A helpful guidance on ineligible individuals, but questions remain.

• Author: Broder, Peter

Andrew Coyne recently drew much attention when he mused in the National Post about the merit of abolishing the charitable tax credit so registered charities could have free rein to engage in political activities. However, the credit is arguably at far greater risk from the abusive tax shelters that have been seen over the last decade or so. Those shelters saw the siphoning off of hundreds of millions, if not billions, of dollars in resources from charitable work and into private pockets.

The schemes were structured in various ways, but basically entailed a donor receiving more money from his or her claim of a donation tax credit than the value of what was actually given to a charity or other qualified donee by way of a gift.

The federal government responded to the abuse aggressively. As well as an extensive audit initiative and litigation of cases associated with the schemes, it brought in a range of legislative measures. One key statutory change was a new deeming provision. It set the value of certain donations at the cost to the donor, rather than the fair market value (unless that was lower), if the property donated had been acquired less than three years prior to the donation, or had been acquired with a view toward its being donated.

As well, in its 2011 budget the federal government established the category of "Ineligible Individuals" and provided the Canada Revenue Agency (CRA) with discretion to refuse registration, revoke registration or apply other sanctions where an "ineligible Individual" potentially controlled or managed the resources of a registered charity or group that sought registered charity status.

The definition of Ineligible Individuals includes:

* tax shelter promoters whose schemes have led to a registered charity's status having been revoked within the last five years; as well as

* those who govern, direct or manage a charity that has been subject to revocation for a serious breach of Income Tax Act (ITA) requirements within the last five years.

This makes it an effective tool for CRA to deal pro-actively with tax shelter abuse. That's to the benefit of the sector, since exploitation of the donation credit provisions of the ITA on the scale seen in the early years of the 21st century could undermine public confidence in preferential tax treatment of charities and donations to them. It also massively diverts resources from genuine charitable work.

Unfortunately, the measures extend far beyond just tax abuse...