Pushing our national debt to $1.2 trillion, the federal government's deficit for 2022 was $35.3-billion. Next year, it is forecasted to be about the same. As one of many measures needed to reduce our daunting deficit, here’s an offbeat idea:
CRA should audit the issuance of tax receipts for large, non-cash donations, especially real estate properties, life insurance premiums, cryptocurrency and so on. These tax receipts are issued charities, a small number of which are anything but charitable. These should not be allowed to stain the reputation of charity in general.
Of course, charity audits won’t close a billion-dollar budget gap. But stopping the tax dodgers would increase government revenue. Every bit helps. The fairness & integrity of our tax system would also improve.
Under Stephen Harper, almost 800 charities were audited per year. Since 2015, that number has fallen. Only 182 audits were completed last year. By CRA’s own admission, audits account for only 3 percent of the compliance-related activity conducted by the Charities Directorate.
To be clear, I’m not calling for audits of small charities. I call for audits of the big ones, those that issue tax receipts for hundreds of millions of dollars. I arrive at this idea based on three years of intensive research involving more than 50 requests for information from CRA and my review of the CRA audit reports on 19 charities who have had their status revoked by CRA for serious non-compliance.
After the controversy over the political activity of charities, a decade ago, another call for charity audits (especially from me!) is bound to draw groans, moans and eye rolls. But hear me out…
Most of my research and my correspondence with CRA has been about 200 charities set up by a single person, a tax lawyer, now retired.
Over the past year, CRA has revoked (read: closed) a total of 19 charities handled by the same tax lawyer whom I’ve been following for many years. It is important to note that the 19 charities are not typical. Their bad behaviour must not tarnish Canadian charities as a whole.
What is important here is what the 19 CRA audits reveal about CRA.
$21 BILLION
For 2021, charities issued tax receipts for $21 billion (CRA e-mail & Excel spreadsheet). Most of that gets issued by relatively few charities that issue tax receipts for BILLIONS of dollars. The part that concerns me is the NON-CASH gifts because the valuation of these gifts is so open to abuse.
For 2021 and 2022, as few as 20 charities issue tax receipts for non-cash gifts for about $1.7 billion per year. Some of these are not well-known charities, most people have never heard of them. Last year, one foundation alone issued tax receipts for $512 million including $505 million for real estate properties.
Tax receipts translate into billions of dollars in tax credit. That’s revenue that government doesn’t collect in order to incentivize charitable giving. To the extent that charities benefit the public and that these benefits justify the lost revenue, the tax credits make sense.
But here’s the problem:
A growing body of evidence, including CRA audit reports, shows that some of the largest tax-receipted gifts in Canadian history were not true gifts. These gifts are a sham and, therefore, not deserving of a tax receipt.
For a gift to merit a tax receipt, it must be a true gift. In technical terms, this means that the donor must not get any benefit nor advantage from having made the gift. Most certainly, the donor is not supposed to get a tax receipt and then get their gift back too.
As I mentioned earlier, CRA has revoked 19 charities handled by the same guy. I could say his name but lets leave that out for now. Lets focus instead on the CRA’s handling of his charities.
The 19 CRA audit reports, provided to me upon request, indicate that most of the revocations were because of complex schemes that conferred undue tax benefits.
In one case, tax receipts were issued for $32 million for donated shares and then the same shares were returned to their donor via 19 transactions spanning seven years.
In a second case, a charity issued a tax-receipt for (14) $30 million ($30 560 060) for donated shares, also returned to their donor. Two of the three charities involved have been revoked by CRA. One of these is HSEF Renaissance Academy (“HSEF”).
In a third case, the Association for the Advancement of Scholarship (“AAS”) also issued a tax receipt for $30,000,000 and again, the donor got back the donated shares.
TEN YEAR DELAY, ON AVERAGE
The timeline on CRA’s revocation of the 19 charities is appalling.
On average, my research finds that there was a ten year delay between the audited transactions and revocation. In the case of HSEF, the delay was 21 years. The shares were donated in 2001 and HSEF was finally revoked last fall.
For AAS, the audit report was finalized in 2012. CRA sent the notice of intent in 2013 but then it took another 10 years before revocation as of March 25, 2023.
A fourth, more recent case, involves a charity whose founder claimed that he made "the single largest philanthropic gift in Canadian sports history.” This foundation built a sports centre and owned it until the centre was sold to the municipal government, the City of Burnaby. The name of it is Fortius.
As The Vancouver Sun reporter, Dan Fumano has reported, Fortius had an "unwritten expense sharing agreement" whereby it paid the salaries of staff at a for-profit business owned by Fortius Foundation's president. A CRA audit discovered that Fortius leased its sports centre to the for-profit business but then didn’t collect any rent for six years in a row. Effectively, the business got almost $12 million worth of free rent, according to CRA. In CRA’s terminology, this is called “undue benefits.”
LEGAL ACTION
Now, full disclosure:
Two years ago, Fortius’ founder filed a defamation claim against me after I tried to warn the City of Burnaby against paying $26.6 million in cold hard cash for the purchase of the sports centre. Under the Strategic Litigation Against Public Participation Act (“SLAPP”), I have filed a motion for dismissal, along with an affidavit and 600 pages of exhibits. Court is scheduled for December.
On the grounds that CRA had allegedly been "influenced" by me, an application was filed with the Federal Court of Appeal for an injunction to stop CRA. That request was dismissed. An application was also made to the Supreme Court of Canada and again, it was dismissed.
My main concern with Fortius is that it got one of the biggest gifts in Canadian history, a gift of $74 million. The problem is, this so-called “gift” was effectively unwound or reversed. In the end, the donor charity wasn’t out by a dime.
CHIMP'S $74 MILLION "GIFT"
This part is a bit complicated so bear with my will I try to explain…
As I have shown with the exhibits that accompany my affidavit, the entire $74 million and more was returned under the banner of the payment of “loans” involving seven, affiliated charities. Three of the seven have recently been revoked by CRA (Fortius, AAS & Homestead) meanwhile the charity that made the $74 million gift, CHIMP, and three more remain active.
One of the revoked charities is Homestead on the Hill Foundation (“Homestead”). A CRA audit of Homestead found that “a gift made by the Foundation (Homestead) to CHIMP for the 2018 fiscal period was not a gift made to a qualified donee in support of its charitable activities but rather a series of predetermined transactions used to artificially inflate tax benefits for certain corporations and/or individuals to allow other charitable entities to falsely meet its disbursement quota so that they may avoid revocation.” So there we have it.
The charity that made the $74 million gift is Charitable Impact Foundation, known as “CHIMP.”
Its not as if CHIMP is a small charity run by volunteers. CHIMP boasts that it is the“fastest-growing" charity in Canada. CHIMP claims that it has received $1.2 BILLION in donations. Tax returns show that CHIMP has issued tax-receipts for $800 million. Last year alone, CHIMP issued tax receipts for $196 million.
RED FLAGS
Its not as if there have been no red flags. Three years ago, Deloitte, CHIMP’s independent auditor, warned that Deloitte could not vouch for $193 million of CHIMP’s unlisted securities. Shortly after that, CHIMP’s entire board resigned.
For 2021, CHIMP ranked 11th out of all 86,000 Canadian charities in terms of tax-receipted gifts, according to CRA. For non-cash, CHIMP ranked 5th.
FIFTH. Think about that.
Surely such a large charity is on CRA’s radar… or is it?
What does it tell us about CRA that by CRA’s own admission, a $74 million gift, one of the largest in Canadian history, was a sham, and yet, six years later, the charity that made that sham gift is issuing tax receipts for hundreds of millions of dollars? In fact, since 2018, CHIMP has issued tax receipts for $700 million.
