Briefly:

Previous Brieflies this week: | MON | TUE | <ahref=”XXXXXXXXXXXXXXXX” title=””>WED | <ahref=”XXXXXXXXXXXXXXXX” title=””>THU |

(November 1, 2006) For the fourth consecutive year, the CRA has issued a statement warning taxpayers to be aware of the risks of “gifting trust arrangements” or “leveraged cash donations.” In this case, it was art-flipping.

On Tuesday, the Supreme Court of Canada refused to hear an appeal relating to one of these schemes, which involved buy-low, donate-high arrangements in which the taxpayers purchased artworks and donated them to charities. The charities issued donation receipts for three or four times the donors’ costs, so that the tax refunds exceeded the costs to the donors.

The upshot was that the value of the donations was limited to the amount of cash that the taxpayers paid for the artworks.

“Despite these favourable court decisions for the Canada Revenue Agency and despite proposed amendments to the Income Tax Act announced by the Department of Finance in 2003, some donation arrangements continue to be promoted,” the CRA stated. “We have previously reminded taxpayers that the proposed amendments are applicable to years after 2003. They limit donations made under tax shelters and other arrangements to a maximum of the donor’s out-of-pocket costs.”

For donations made prior to 2002, the CRA has reassessed about 6,700 taxpayers, disallowing about $490 million in donations. For the 2002 tax year, a further 5,700 taxpayers, with donations of $360 million, have just been audited and reassessments were issued in all arrangements. For the 2003 tax year, about 1,800 taxpayers have been audited, with some $66 million in donations disallowed.

“Generally, the CRA reduces the amount of the gift to no more than the cash paid by the taxpayer, and in many cases it is reduced to less than that. In some cases it is reduced to nil, when the donation is not a true gift.”

Be vary careful in this area. While the CRA has not reassessed all tax-shelter gifting plans, the agency points out that it has three years from the date of assessment to reassess taxpayers. These audits can take over a year to complete.

• • •

IA Clarington offers new dividend fund

(November 1, 2006) IA Clarington has launched a global dividend fund that aims to provide a combination of income and long-term capital growth through investments in a diversified portfolio consisting primarily of worldwide equities.

The initial target for the fund’s monthly distribution is $0.05 per unit. “We continue to see a strong investor appetite for dividend-paying equities,” said IA Clarington president David Scandiffio. “[The fund is] another option that can help investors diversify beyond domestic equities.”

The Clarington Global Dividend Fund, which is available in both Canadian and U.S. dollars, is advised by ABN AMRO Asset Management Canada, with three affiliates acting as sub-advisors. Those sub-advisors, located in Europe, Asia, and North America, are currently managing over $2 billion of assets. ABN AMRO manages $255 billion worth of investment assets for more than 2,000 institutions and is wholly owned by ABN AMRO Bank N.V. IA Clarington Investments is a subsidiary of Industrial Alliance and managed over $6 billion in mutual fund and closed-end fund assets as of September 30.

• • •

Manulife unveils F-Class version of investment savings account

(November 1, 2006) Manulife Bank announced Wednesday the launch of an F-Class version of its investment saving account, available only through fee-based financial advisors.

The new account offers a higher interest rate than Manulife’s standard investment account (4.1% compared to 3.85%), and both can be used for registered plans such as RRSPs, RRIFs, RESPs and LIFs, as well as non-registered investment accounts.

“Canadians want a safe place to grow their cash,” says Manulife Bank president J. Roman Fedchyshyn. “Our investment savings accounts give people the ability to let their short-term savings earn a great rate of interest, without locking them in for an extended period of time.”

• • •