This is another in a series of charity deduction cases in which the taxpayer lost. The charity donation scheme is similar to other schemes of the past, such as the software partnerships of the 1990s. The basic idea is to give you a deduction based on a falsely inflated valuation of your expense or donation.
You should avoid these schemes. They prey on your belief that certain taxpayers avoid taxes by clever schemes you don’t understand or know about. But, especially if you’re an employee, these false deduction schemes are a poor investment for you and, in the end, they will cost you time and money and you will still pay the taxes you hoped to avoid — if the schemes don’t ruin you completely financially.
Tax Shelter Identification numbers: The taxpayer did win on this point, though he lost on the whole. Promoters of tax shelter schemes must register the program with CRA or the deductions which participants claim will be disallowed. Registration helps CRA track and audit the schemes. The promoters did register in this case but, after registering, they changed the scheme. CRA said the changes invalidated the registration but the Court said that the purpose of registration was simply to alert CRA to the scheme to help with audit. So, this case at least protects your reliance on a tax shelter identification number. (See para. 9.)
These schemes aren’t “gifts”; so you can’t get a donation credit. More damaging for people who relied on these shelters: The Court said that Mr. Bandi contributed to the “charity” because he expected to get tax benefits (tax deductions) that exceeded the cash cost of his donation. So, Justice Hogan said “that the appellant’s expectation in that regard is sufficient to nullify his alleged donative intent.” I.e., Mr. Bandi hadn’t made a “gift”; so he couldn’t claim a charitable gift tax credit. This is generally the basis on which the tax courts have denied taxpayers their tax credits under these schemes. (Paras. 15-19)