There are a variety of penalties that can be applied by the Canada Revenue Agency when a taxpayer is involved with an art-donation scheme, and it depends on the role the individual played in the art donation scheme.
The investor purchasing the art and making the charitable donation can have their tax credit claim disallowed or readjusted depending on whether the CRA determines that the donation price is inflated or that it is not an actual gift but rather part of an art-donation scheme. Additional penalties may be assessed by the CRA in such cases.
Third parties involved in this scheme, like promoters and appraisers, also face penalties. As of the year 2000, the CRA has provisions in place to deter third parties from making false statements and claims, like artificially inflating the price of a work of art. Third Party Civil Penalties provide that the amount of these penalties is directly related to the tax amount the false statements allowed the investor to evade. If the charity was aware or could be reasonably expected to have known that false statements and inflated prices were involved, then they too may face these third party penalties, and in some cases may lose their status as a registered charity.
If you are currently suffering the consequences of participating in an art donation scheme, or fear you may be penalized for participating in an art donation or .art flipping. scheme, then call Barrett Tax Law for a free consultation with an experienced tax lawyer and have your questions and concerns addressed at 1-877-8-TAX-TAX or firstname.lastname@example.org