Latest Appeal Unsuccessful In Huge Tax Scam
February 28, 2020
The latest step in a wide-ranging tax scam came last month when the Tax Court of Canada ruled against the appellant, a taxpayer who was caught involved in the scam. An article in the Globe and Mail described the decision as an aftershock of one of the biggest tax scams in Canada’s history.
$30,526 in Tax Deductions
The appellant was a retired autoworker who had claimed $30,526 in charitable tax deductions in the year 2005. The donations were made to an organization called Global Learning Gift Initiative (GLGI). The Canada Revenue Agency (CRA) began rejecting donations to the GLGI as deductions in 2014 on the basis that the deductions claimed and benefits received were higher than the amounts actually donated. A 2015 decision from the Tax Court of Canada ruled in favour of that decision.
The scam functioned as follows: people would make cash payments directly to a charity called Millenium. They would then apply to be beneficiaries of GLGI, which in turn gave them rights to educational software licenses. The software licenses were assigned market values that were up to eight times higher than the amount of the donation, and more than GLGI actually paid for the software. The final step called for people to donate those licenses to a second charity called Canadian Charities Association, which in turn issued tax receipts for the market value of the licences.
In the decision from February, the appellant was reported to have donated $5,000, which led to a software license valued at $25,056. Under cross-examination, the appellant acknowledged that he saw promotional materials explaining that if he donated $5,000 in cash, he would be shown as a donator of a gift-in-kind worth $15,000, which would lead to a tax return of $9,282.
The Appellant Blames the CRA
The appellant said that he did his due diligence on the program, and relied on the word of politicians who touted the benefits of the work they did. He also blamed the CRA for not warning him in a timely matter about the fact that he had unwittingly participated in a scam. The court disagreed, stating blame should lay at the feet of GLGI, which collected over $60 million, leading to charitable receipts of $340 million.
The appellant was looking to be able to claim at least the $5,000 he donated but was asking to be able to claim the full amount. However, the court found that the appellant did not provide evidence that the amount claimed was correct. The court also sided with the CRA, who didn’t think that a gift had been made by the appellant. The court said the program “defies common sense” and that it would be “impossible not to conclude that the appellant intended to enrich himself by participating in the arrangement.”
Other decisions related to the scam have echoed a similar sentiment, finding that people turned a blind eye to what should have obviously been seen as a scheme to unfairly enrich donators.
We will be sure to keep you up to date on further developments of this and related cases, including a class-action lawsuit currently in progress against those involved in the creation, promotion and operation of GLGI for $800 million.
Contact the experienced lawyers at Feigenbaum Law to develop a custom solution to your personal tax planning needs while looking to avoid traps like those encountered by the appellant in this case. We offer services to clients in the US, Canada and around the world. Contact us online to learn more about how we can help or call us at (905) 695-1269 or toll-free at (877) 275-4792.