SOURCE: theGlobeAndMail.com, 2008-11-04
This page last modified: 2020-08-18 14:09:56 -0700 (PST)
The Canada Revenue Agency shut down an alleged tax-shelter scheme last weekend saying a once-small Toronto charity issued hundreds of millions of dollars in inflated receipts for donations of pharmaceutical drugs.
The Choson Kallah Fund of Toronto received donations of malaria and anti-parasitic drugs bought overseas at cut-rate prices, and issued at least $177-million in charitable receipts to the donors, who have not been identified, at the higher Canadian retail value, the CRA alleges in a letter to the charity. The charity kept about 1 per cent of the total as a fee, the document says.
The donors, who were sought out by a company called World Health Initiatives Inc., profited because of the discrepancy between the international and Canadian drug prices, which Choson Kallah never verified, the CRA alleges.
In the letter outlining the allegations, the CRA says that Choson Kallah "promoted" the tax shelter scheme. The CRA alleges that Choson Kallah immediately gave control of the drugs to another Ontario charity -- Toronto's Escarpment Biosphere Foundation (EBF) [local copy (html)] -- which claims the drugs were distributed in 43 countries. But Choson Kallah didn't independently appraise their value before issuing the receipts, the CRA alleges.
As such, the willful promotion of the for-profit scheme violated its charitable status, the CRA alleges.
Eli Gross, the rabbi running Choson Kallah, argued that he didn't promote the scheme as a tax shelter, and wasn't breaking any regulations, the CRA document shows. The CRA didn't agree, and yesterday announced that it had revoked the charitable status of Choson Kallah on the weekend.
"Despite neither being established for the promotion of health nor being involved in international activity, between 2004 and 2005 the charity issued receipts in excess of $177-million or 90 per cent of the charity's total income for donations of pharmaceuticals earmarked for international programs," a CRA letter to Mr. Gross reads, outlining its allegations against his charity.
"The Charity did not see or physically receive the pharmaceuticals. The Charity was informed of the value of the property purportedly donated to it and instructed who to issue receipts to and in what values. The Charity took no steps to determine how participation in this program, beyond being paid for its participation, furthered its mandate," the letter reads. "In this regard, it is difficult to see how the Charity's participation can be characterized in any other way but as being paid to act as the receipt-issuing entity in a tax shelter arrangement."
The EBF, which says it handed out the drugs, had focused on smaller-scale land conservation efforts in the Niagara region before the pharmaceutical donations skyrocketed it to among the biggest of Canadian foreign-aid charities, close behind the likes of World Vision and Care Canada.
EBF executive director Bob Barnett said last night the deal came about when he and Mr. Gross were introduced by friends, and that his charity, although not previously involved in health care or international aid work, agreed to take on the legwork of distributing the drugs.
"We were very happy to get into the world charity work," he told The Globe and Mail last night. "We had the contacts overseas for the medicine, for the medical deliveries and the acquisition of the medicine."
He confirmed EBF received ownership of the drugs from Choson Kallah, as well as money to cover the cost of their distribution. At the heart of the dispute, he said, was how much the drugs were worth. He contended they should be issued receipts at Ontario prices.
"I think the real question is how is the CRA getting its numbers?" he said. "I know that they were appraised when we received them at Canadian values," he added, but said the drugs came from an "international" supplier he couldn't name.
Mr. Barnett said last night that EBF visited 43 countries since 2004, distributing more than $250-million worth of drugs, with the help of Canadian Physicians for Aid and Relief (CPAR). CPAR officials couldn't be reached for comment last night. Photos on the EBF website of the visits are largely of children smiling in rural locations. Little evidence of medical aid appears.
The transactions changed the annual reports of EBF and Choson Kallah significantly.
Choson Kallah in 2003 had about $6-million in total revenues, documents show. It donated the money to Jewish organizations, including schools, in chunks rarely exceeding $25,000.
But over the next three years, Choson Kallah collected more than $300-million in donations. Most appear to be the pharmaceuticals, with about $300-million in unspecified assets being donated almost immediately to EBF.
The EBF's donations also shot up. It received about $74,000 in gifts in 2002; that number rose to more than $78-million the next year, nearly all from Choson Kallah.
Calls to Mr. Gross weren't returned last night. The EBF's charitable status remains active.
Choson Kallah's remaining assets may now be taxed, and it can no longer issue charitable receipts, the CRA said.
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