Not only is Dec. 31 the deadline for making charitable donations, it’s also the deadline for determined Canadians looking to buy a tax shelter to reduce their 2009 personal income tax.
But a chill has been cast on some tax shelters, especially if they involve donation schemes, as a result of a tax case decided last month.
The case involved a “leveraged” donation tax shelter known as the Donation Program for Medical Science and Technology. It was marketed by Trinity Capital Corporation, which in 2001 took in over $18-million from 118 participants. Max Maréchaux, a real estate lawyer with Miller Thomson LLP, was among them.
Trinity offered similar programs in 2002 and 2003, resulting in total “gifts” in those years of $106-million and $94-million respectively.
The shelter was promoted as producing a “return on donation of up to 62.4%, depending on the donor’s province of residence.” It was supported by a tax opinion “from a firm of respected tax lawyers.”
Mr. Maréchaux was informed of the program by his accountant who advised him that by participating, based on a $30,000 cash outlay producing a $100,000 donation, he could come out ahead by more than $14,000, “subject only to a risk of challenge by the Canada Revenue Agency.” The risk of such a challenge was described to him as “slim.”
Here’s how the program worked: Under the deal, to make a $100,000 donation, Mr. Maréchaux contributed $30,000 of his own cash and received a 20-year interest-free loan for $80,000, $70,000 of which was to go to charity with the remaining $10,000 going to the lender to cover fees, insurance and a security deposit.
The Tax Court had two issues to decide: whether the donation was in fact a “gift,” and whether the general anti-avoidance rule (GAAR) applied.
Under the Income Tax Act, you can get a donation credit only for “gifts” made to registered charities. The term “gift” is not defined in the Act. Quoting an earlier case, “a gift is a voluntary transfer of property owned by a donor to a donee, in return for which no benefit or consideration flows to the donor.”
The judge concluded that there was no gift because a significant benefit flowed to Mr. Maréchaux in return for the donation -- the $80,000 interest-free loan that was given in return for the donation. In other words: no donation, no loan.
David Chodikoff, a tax litigator with Miller Thomson, who represented his fellow partner Mr. Maréchaux in tax court, advised tax shelter donors in a recent firm newsletter to “keep all options open” by objecting to their Notice of Assessment, while at the same time paying any amounts owing. This will stop the interest clock from ticking, allowing donors to “sleep better at night.” If they ultimately prevail, any monies refunded will be a “bonus.”
Asked whether Mr. Maréchaux’s case will be appealed, Mr. Chodikoff replied: “Stay tuned.”
Financial Post
Jamie Golombek, CA, CPA, CFP, CLU, TEP is the managing director, tax and estate planning, with CIBC Private Wealth Management in Toronto
I have an unconfirmed report that the following Aldermen voted FOR the proposed land transfer tax, which was a substancial and unfair tax which targeted only homeowners.
Aldermen Farrell Fox-Mellway Lowe Pincott Ceci Colley-Urquhart Mayor Bronconnier
Don't forget to make a note of this when it next comes time to mark your "X" on the city election balot.
The City of Calgary has dropped its plan to introduce a land transfer tax originally proposed as an initiative to cover the costs of affordable housing.
On Monday February 23, 2009 the council narrowly squashed the consideration of a 1 per cent home buyers’ tax in a vote 8-7. Just prior to the vote the Calgary Real Estate Board’s Governmental Affairs Committee in collaboration with the Alberta Real Estate Association sent a letter to Mayor Bronconnier and the city’s aldermen stating their opposition to the tax.
“A land transfer tax is an unfair tax. It is essentially a home buyers’ tax and singles out a select group of individuals for taxation. It asks home buyers to pay for municipal services which benefi t the entire community,” wrote Calgary Real Estate Board President Bonnie Wegerich in the letter.
“At a time when we are faced with a need for affordable housing, this tax would only compound the problem and further burden an economy under pressure,” added Wegerich. Following its defeat the Board received a number of emails from city aldermen confi rming receipt of the letter and their own opposition to the tax.
The Calgary Real Estate Board will continue to monitor this issue, and take further action should the need arise. The Calgary Real Estate Board would like to thank the Governmental Affairs Committee and the Alberta Real Estate Association for their ongoing work on this important issue.
Land transfer tax, or more appropriately called Home Buyers’ Tax, is a tax that would be paid by the buyer when property is sold. This tax has been discussed in several Alberta municipalities and was recently mentioned in a Calgary Herald article that spoke of additional sources of revenue the City of Calgary was considering to fund affordable housing, one of which was a land transfer tax.
Background Home Buyer Impact:
The following examples show potential costs, over and above the price of the home, a buyer would face if a Home Buyers’ Tax was implemented in Calgary. NOTE: an average MLS® sale price in Calgary of $362,557 was used in these calculations which show the additional cost to the buyer if a land transfer tax was implemented at 0.5%, 1.0% and 2.0%.
0.5% land transfer tax = $1812.79 1.0% land transfer tax = $3625.57 2.0% land transfer tax = $7251.14 Already Implemented Elsewhere:
Home Buyers’ Tax has already been implemented in British Columbia, Manitoba, Ontario, Quebec and in several Nova Scotia municipalities.
Origin in Alberta:
Land transfer tax was originally discussed in the 2007 Report of the Minister’s Council on Municipal Sustainability, authored by Mandel, Bronconnier, Hawksworth and Johnson on behalf of Edmonton, Calgary, AUMA and the AAMDC and delivered to the Honourable Ray Danyluk, Minister of Municipal Affairs. The report highlighted difficulties municipalities are experiencing in adequately funding public services and recommended municipalities use land transfer tax to stabilize operational funding or to fund capital projects. While the land transfer tax recommendation was put aside, the topic has since been raised by a number of Alberta municipalities, including Lethbridge and Calgary.
Alberta REALTOR® Position
REALTORS® oppose the implementation of a Home Buyers’ Tax in Alberta municipalities because the tax is unfair, hinders housing affordability and negatively impacts the economy:
• Unfairness: forces homebuyers to pay for services that benefit the community-at-large. • Affordability: adds additional cost to a home purchase, expenses that must be paid in full at closing. • Negative economic impact: fewer property transactions: reduced economic spin-off from property sales, including reduced spending on renovations, appliances, furniture, etc.*
Alberta REALTORS® urge elected officials to pursue more equitable means of achieving municipal sustainability.
I personally recommend that you contact your alderman immediate to request in writing what their position is on this tax. Speak up against continued mismanagement of public funds and unending demands placed upon the tax payer who can little afford their excesses. Tacked on to the mortgage and compounded, over the term of your mortgage these fees could well exceed $10,000!
Saturday, February 14, 2009 They're persistent, you gotta give them that.
Certain members of council, along with Mayor Dave Bronconnier, have again regurgitated the idea of slapping a one-per-cent tax on the sale of new homes--and to go along with that, a second part of the idea is slapping the land development industry with another levy on new and redeveloped property.
A city committee, though, has asked for more study of the available options. Word is the issue will be discussed and batted around until sometime this fall.
But about the one-per-cent solution (and it could be higher than that).
It was galling when it was suggested last summer, but it's even more galling now given that house prices have declined, council has already approved tax hikes--and when some semblance of housing affordability has wiggled its way back into the marketplace after being absent for a few years.
We're at a point where first-time buyers can now afford to buy their own places.
Then the gang at city hall drags this plan off the shelf, puts the Swiffer to it and drops it on the table for consideration.
But those behind this scheme, and it is a scheme, were at least smart enough to try to get it passed by putting a different spin on the whole thing.
Not wanting it to look like a flat-out tax grab, the gang flowered it up by saying it is a stable source of revenue to deal with the affordable housing crunch.
Yeah, right, a rose by another name ...
I support the need for affordable housing, but when the city's economy isn't as strong as it was a year ago, when consumer confidence is already negatively affecting activity in both the new and resale housing market, and when council's reputation with the public is already in the tank, this is not the time for another cash grab. A city report suggests something like 18 per cent of Calgary households are in need of affordable housing because their income is below$44,000, and nine per cent are in critical need. Help is needed, no doubt. But why from the city taxpayer? If the municipal government needs some extra money for affordable housing, there is federal infrastructure money -- I think that's what the fund is for. Last July, council approved an intergovernmental affairs report, a move that would have brought about a request from the city to the provincial Stelmach government for changes to the Municipal Government Act. The request would have allowed additional income sources for the city, including the land transfer tax. What council was looking for then was the province's blessing to put the tax in place. The city would then have the power to impose and collect the tax--and homeowners would again be dressed up like cash cows and told they have to shoulder more of a financial burden. But what it's doing is making existing housing less affordable, which is a bad thing. The Calgary Real Estate Board says the average selling price at the end of January was just over $413,000 for detached resale homes inside Calgary's city limits, so the tax would be $4,100 right off the top, increasing the cost of selling a home. For condos, the tax would amount to about $2,700, based on January numbers from the board. An aside here. A few years ago, a national study found that more than 16 per cent of the cost of homes was due to various taxes, fees, levies and charges dumped on buyers by the various levels of government. I'm sure that figure has grown since. There was one other suggestion that was aired, and this one makes a whole lot more sense. It was a suggestion that a portion of new developments be dedicated to affordable housing.
One last look back at the 2008 resale market, this time at the national level.
Some 434,477 homes traded hands via the MLS systems of real estate boards in Canada in 2008, down 17.1 per cent from the record 523,855 properties sold in 2007.
"There is a difference between a dead market and a quiet market, and residential real estate markets in Canada are anything but dead," says Calvin Lindberg, president of the Canadian Real Estate Association. "These results represent the sixth highest annual sales totals for MLS residential properties on record, just half a per cent below 2003 levels."
Seasonally adjusted sales activity declined in every quarter last year, marked by a sharp drop in the fourth quarter.
Sinking activity in the fourth quarter accounted for over half of the decline in transactions since the peak in 2007.
Lower activity in Canada's priciest housing markets, particularly B. C. and Alberta, "weighed heavily" on the national average price in 2008, says Lindberg.
This caused the national average price to edge lower, despite reaching record highs in every province except Alberta--and I do mean edge.
It was down just seven-tenths of one per cent in 2008, to $303,594.
Re: "When it comes to taxes, city hall isn't so bad. Really!" Paula Arab, Opinion, Feb. 5.
Paula Arab writes that she doesn't fully understand the market value assessment system and that Stuart Dalgleish sold her on its "high accountability and transparency." Her $78 tax reduction, and several more like it, will be paid for from the tax increase on our home in Mount Royal despite the recent drop in Calgary real estate values.
My wife and I are retired and make limited use of the services and facilities that are financed by our taxes, but our tax load continues to increase under MVA. Anyone trying to justify the market value system usually resorts to the rationale that "if your house is worth so much, you can afford it" or "look at how much your house has increased in value."
The tax under MVA is thus shown to be either an income tax or a capital-gains tax based on the unrealized increase in a home's value. We pay about eight times as much tax as we paid 30 years ago, while our load on the system has dropped significantly.
It is not surprising that Dalgleish is an enthusiastic champion of the MVA system he is paid to administer. Those of us paying more every year for the same or fewer services have much less to feel good about.
Did you know that the City of Calgary offers financial assistance to low income homeowners, regardless of age, who may be experiencing an increase in their property taxes?
The Property Tax Assistance Program (formerly called the Residential Property Tax Social Support Program) has been providing assistance to low income homeowners since 1994. It is designed to help those individuals who are experiencing financial hardships as a result of an increase in their property taxes.
Spread the word about this program to family members and friends who might benefit from this City of Calgary program. Even if a person does not meet the eligibility criteria for the Property Tax Assistance Program, the applicants can still learn about other programs and resources they may find beneficial.
For example, homeowners who have applied in the past received help with information and referrals to a variety of agencies/grant programs that assisted them with accessing resources that improved their quality of life.
To be eligible for the property tax credit, the applicants must:
Experience an increase in municipal property taxes from 2007 to 2008 Meet revised minimum income guidelines of $21,666/single or $26,972/couple (Line 150 - total income from your 2007 income tax return) Own the property for a minimum of one year Live in the residence Own no other property Provide proof of income (copy of 2007 income tax return is required) All information received by the program is handled in a confidential manner.
To apply or for more information on the Property Tax Assistance Program:
Business Hours: Monday to Friday, 8 a.m. - 4:30 p.m. Visit: 3rd Floor, Calgary Municipal Building (City Hall), 800 Macleod Trail S.E. Phone: 3-1-1 (24 hours a day, seven days a week) Fax: 403-268-3550 Email: propertytaxassistanceprogram@calgary.ca
Applications must be made by December 1, 2008. Whether you apply to the program or not, property taxes must be paid in full by June 30, 2008.
The City of Calgary relies on property taxes to fund many of the day-to-day city services, programs and infrastructure that we all rely on. In terms of your tax dollars, the federal government takes 66 per cent, the provincial government takes 29 per cent, leaving just 5 per cent for The City of Calgary.
I was born right here in Calgary and have been a full-time member of the Calgary Real Estate Board since April of 2000. I consistently outperform the industry averages and am a member of CIR Realty's "Executive Platinum Award Club", a notable achievement which is approximately equivalent to the Real Estate Boards MLS® Million Dollar Award Club.
