Appeal dismissed in Canadian ‘leveraged donation scheme’

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The Canadian Tax Law Court issued a series of public warnings in cases involving the “leveraged donation program” in which potential donors were attracted to promise that their tax breaks would deprive them of their donations, but in reality, they were ultimately ineligible for a charitable donation tax credit.

Justice Randall Bocock wrote in Ottawa’s latest decision: “Avoid quick conversations and smooth conversations with ‘business people’ promoting charitable donations’ schemes,” wrote Justice Randall Bocock in his latest decision.

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The case involves the unsuccessful attraction of a family’s decision to deny their contribution to the global learning and gifting program (also known as GLGI).

“GLGI may be vying for the title of the most litigated charitable donation program/initiative/SHAM (depending on one’s perspective) in front of the tax court,” Bocock said. “The lifespan of the program is also worth noting; the groundbreaking lead case about Glgi was heard and decided ten years ago.”

In the recent ruling, the judge dismissed Barry, Barbara and Brandon Malone’s appeal against the Canadian Revenue Agency, which claimed thousands of dollars in donations during the tax years 2006, 2010, 2011, 2011 and 2012 because they “have no legal intention to donate to make charitable gifts.”

Avoid quick conversations, smooth “business people” promote charitable donations “programs”

Bocock explains how GLGI donations work in the March 27 decision.

The process involved “Glgi’s offshore company Phoenix Learning Corporation (Get) software license, which consists of several course titles of the nominal value of Florida company Infosource Inc.; Phoenix then gave away most of the licenses to Canada Trust, Global Learning Trust in 2004,” Bocock said.

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After writing a letter to a check for a related charity called Millenium, participants were “accepted as capital beneficiaries of the trust”.

After the check was cashed, “the trust in turn puts the taxpayer’s right to obtain an educational software license to many licenses that are proportional to the taxpayer’s cash donations.”

Those who enjoy taxpayer rights then donate these licenses to one of several other participating charities and receive original cash donations and tax revenues of “theoretical conscious market value.”

“Due to the permission of cash donations and in-kind donations, the taxpayer received a donation receipt for the donation amount, several times the amount of the donation, resulting in a charitable tax credit that is much higher than the initial cash donation,” the judge wrote.

As far as the Malvern Rouge Valley Youth Services, they donated a software license to the Toronto-regional organization. The Canadian Revenue Agency revoked Malvern Rouge’s charitable status in November 2011, after an audit showed that “the organization devoted most of its resources to promoting the Global Learning Grants Initiative Tax Refuge Gift Arrangement.”

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The agency said at the time that between May 1, 2008 and April 30, 2009, Malvern Rouge “received more than $17 million in cash. The amount in this payment exceeded $8.3 million and received tax contributions from tax shelter participants,” the agency said at the time. “The organization received $8.7 million in $8.7 million from another registered charity. Our audit showed that of the approximately $17 million in cash received, the organization paid more than $14 million to the sponsors of the tax shelter.”

Barry Malone argued that he, his spouse Barbara and his son Brandon “have a donation intention. They intend to enrich the lives of disadvantaged Canadians through charitable donations.”

But the judge did not buy it.

“Marron joined hundreds, even thousands of GLGI participants, deprived them of cash, denying their exaggerated ‘charitable donations’ because the gifts were not charitable and therefore did not qualify for the promised charitable deduction,” Bocock said. “Now, they are facing debt owed by taxes and interest owed … which is the most unfortunate.”

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In 2020, lawyers advanced a class action lawsuit against CLGI and said: “As many as 50,000-60,000 Canadians participated in this charitable donation tax program and paid what they believed to be charitable donations for more than $500 million.”

If something is “too good, incredible…it’s always the case,” Bocock said in his recent decision.

He warned: “If people receive more than (not more than the value of cash) and/or charitable receipts that pay due attention to cash, then the transferred property is not a legal charitable gift and is not eligible for … as a qualified charitable deduction.”

If “the donor is asked to sign an information form, gift deed, deed of property gifts, instructions first, instructions, application and exemption, there are many legal outcomes, one of which may not be a qualified charitable gift, guaranteeing that there is a qualifying charitable tax collection,” the judge said.

“Generally, tax shelters are not as numerous as the Golden Star, but more of the CRA’s red flag.”

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