You know it must be the season because the CRA has issued another warning about investing in tax shelters.
The fact is, the wrong shelter—that is, one that doesn’t work—can cause significant grief for its investors. One wonders, however, whether the CRA’s well-meaning advice has much impact. Even a tax lawyer can imagine the many strategies a clever salesman will employ to disparage such warnings from the tax collectors.
That said, an investor could do worse than to pay attention to the CRA’s cautions, especially the following “tips” on how to assess the risks of a shelter:
Anyone considering entering into a tax shelter arrangement should obtain independent professional advice from a tax advisor before signing any documents. In addition, they should:
- know who they are dealing with, and request the prospectus or offering memorandum and any other documents available in respect of the investment and carefully read them;
- pay particular attention to any statements or professional opinions in the documents that explain the income tax consequences of the investment. Often, these opinions will tell the investor about the problems that can be expected and suggest that the investor obtain independent legal advice;
- not rely on verbal assurances from the promoter or others—get them in writing; and
- ask the promoter for a copy of any advance income tax ruling provided by the CRA in respect of the investment. Read the ruling given and any exceptions in it.
See also the “Taxpayer Alert” page and the page about donation arrangments.
