Saturday, September 20, 2008

Canada Revenue Agency Revokes Banyan Tree Foundation's Charitable Status

The Globe and Mail has reported here that the Canada Revenue Agency has revoked the Banyan Tree Foundation's charitable status. Canada Revenue Agency is also, according to the report, disallowing the donors' tax credits.

My understanding from reading this and other media reports is that Canada Revenue Agency has alleged that this organization engaged in sham transactions in which donors were given tax receipts for amounts in excess of what they actually contributed. The donors would give cash and would agree to contribute borrowed money, but the loans were not genuine loans. The donors were not required to repay the loans, for which they received tax receipts. The cash contributions went to finance the Foundation's operations.

The Hamilton, Ontario, law firm of Scarfone Hawkins LLP is acting on behalf of donors in a class action suit against the promoters of the Banyan Foundation and against others alleged to have been involved with the Foundation. Information on the class action suit is available here.

The notice of revocation in the Canada Gazette is here. But I checked the Canada Revenue Agency online listing of registered charities, and as of today's date, the Banyan Tree Foundation is still listed as a registered charity. Surely, Canada Revenue Agency ought to be ensuring that any charity whose charitable status is revoked is shown as having been revoked immediately.

I don't think anyone reading about the Banyan Tree Foundation should fear giving money to legitimate charities. I think this falls under "if it sounds to good to be true...." There are many tax advantages to making a charitable gift, and there are some good tax planning opportunities. But if someone presents you with a proposal under which you are going to end up with more money in your pocket after you make the contribution than before, something is wrong.

Give to charity because you want to give. The tax credits are a bonus. I don't think it makes sense to give just for the tax credits.

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