Headwaters Foundation was a registered charity with designation as a public foundation. According to its application for registration, its founding directors were Christopher Richardson, Leslie Brandlmayr and Darian Kovacs. All three were employees/consultants to Blake Bromley.
Most of the Bromley charities have no outside directors and therefore, no independent oversight. In the case of Headwaters Foundation, along with Mr. Richardson, the other directors of Headwaters at the time that it lost its charitable status were Leslie Brandlmayr and Sheila Britton. Both are long-time employees of the Bromley charity business. Ms. Brandlmayr has been a director of 38 Bromley charities while Ms. Britton has been a director of at least 45. (Yes, forty five, not four or five). This is significant because it indicates that the individuals with whom Mr. Richardson has been a director for 12 years are part of a large web of charities that are under the direction of the same people, and run out of the same offices.
At Headwaters, here’s what happened, according to the CRA audit report:
In 2015, a private company donated shares to CHIMP. The same company also sold land to Paraklesis Foundation, another charity set up by Bromley. As payment for the land, the company took a mortgage from Paraklesis Foundation but it wasn’t a typical mortgage. Instead, the mortgage specified that it was to be paid with shares of a specific company and in series of transactions, the shares were transferred to CHIMP.
CRA found that ultimately, the shares “both started and ended in the hands of a private company” and that the purpose of the transactions was to allow the company to receive a tax credit for a donation to CHIMP that was eventually returned to the company. The “tax plan,” as CRA described it, kicked off on July 14, 2015 with payments to Headwaters via two charities, both set up by Bromley: $2.5 million from Timothy Foundation and $2,250,000 from Association for the Advancement of Scholarship (“AAS”).
The very next day, on July 15, 2015, Headwaters used the money to buy shares of a publicly traded company. Nine days later, Headwaters transferred the shares to Paraklesis Foundation as a “gift.” Six days after that, Paraklesis sent Headwaters a wire transfer for the exact cost of the shares (plus a $15 fee) and Headwaters then sent $4 million to CHIMP.
Since Headwaters only held the shares for 9 days, CRA concluded that it didn’t purchase them as an investment but rather, as part of pre-planned, circular transactions. Furthermore, CRA ruled that the transaction was a sale, not a gift.
Going back to 2014, CRA found that Blake Bromley was paid to “hatch this plan.” “I have foundations which are willing to front the cash,” Bromley wrote in an e-mail, cited in a letter from CRA, dated March 8, 2021.
CRA auditors also found that Bromley was behind the $2.5 million “donation” from Timothy Foundation. In fact, Bromley signed the cheque. And although he is neither a member nor a director of Headwaters, Blake Bromley also signed the two cheques for $4 million that Headwaters sent to CHIMP.
To understand the significance of these transactions, it helps to consider them in light of the total revenue of Headwaters Foundation. Since 2014, Headwaters received donations for a total of $16.7 million. These donations originated solely from other Bromley charities. Of the $16.7 million, only $15,000 remains, according to Headwaters' tax return for 2021. So what happened to the money? Headwaters wrote-off $7 million and made three gifts for a total of $9.8 million. However, not one cent went to a legitimate, hands-on, working charity. This is one of the reasons why Headwaters lost its charitable status.
The three gifts that Headwaters made were all to Bromley charities, as follows:
- $4.7 million to Paraklesis Foundation
- $4 million to CHIMP
- $845,000 to Hope Springs Eternal Foundation
CRA deemed that the “gift” of $4.7 million to Paraklesis Foundation should have been characterized as a sale, not a gift. The gift for $4 million to CHIMP was also deemed by CRA to be an “artificial gift” since it was tantamount to the indirect re-payment of the funds that Headwaters received from Timothy Foundation and AAS at the beginning of the series of transactions. The gift for $845,000 fell outside the audit and was not assessed.
By law, charities are required to give a minimum amount per year, called the “Disbursement Quota” or “DQ.” Since the gifts that Headwaters made were deemed “artificial” by CRA, they don’t count towards the DQ. As a result, Headwaters did not meet its DQ.
CRA also found that Headwaters improperly paid fees to mining company, Archon Minerals Ltd. and another private company involved in the business of water turbines. These payments had nothing to do with the charitable purposes of Headwaters, CRA found.
Noting that the sole member of AAS is John Bromley, that he is also CHIMP’s CEO and that Bromley business is the employer of most of the directors of all five charities involved, CRA concluded that the transactions between the five charities were not at arms length. As such, the gifts between these charities don’t qualify towards meeting the DQ. Not only that, CRA found that Headwaters entered into these transactions in order to delay giving money to legitimate charities.
CRA informed Headwaters that it could be sanctioned 110% of the amount of the required disbursement that was avoided or delayed, a potential penalty of $5,183,750 under Subsection 188.1(12) of the Income Tax Act. CRA also told Headwaters that it may also be subject to a penalty equal to 110% of the gifts not made to an arm's length entity. Those gifts total $5,225,000. Thus, Headwaters could be subject to two potential penalties for a total of approximately $10.3 million. However, now that CRA has revoked the charitable status of Headwaters Foundation, it is not clear from publicly available information whether CRA will go ahead with the penalties.
Financial statements for Headwaters Foundation indicate that the $845,000 gifted to Hope Springs Eternal Foundation was precisely half of an investment. Headwaters wrote off $845,000 and gifted $845,000 to Hope Springs Eternal Foundation. Since one half of the investment was entirely written off, it stands to reason that the other half may also be entirely written off by Hope Spring Eternal Foundation.
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