January 23, 2012; Source: National Post | Even in friendly Canada, charitable donors have to be very careful about who’s pitching what. Tens of thousands of Canadians were lured by the Donations for Canada Gift Program, a complex little investment scheme hatched by financial software honcho Edward Furtak that is now the subject of a major class-action lawsuit.
For Furtak’s plan to work, he needed charitable donors who thought that if they made a donation to (and through) Furtak for $2,500, they could somehow receive a $10,000 charitable tax credit—getting something for nothing.
He also needed charities that might have been so desperate for new funding that they signed up to be “beneficiaries” of some of the charitable giving that might ensue, even though the notion of offering donors $10,000 for $2,500 might have raised some eyebrows. In Furtak’s case, charities could only retain one percent of what they received; those who agreed to these terms may have been compelled by the promise that they would somehow benefit from Furtak’s software programs more substantially in the future.
Once he had donors and charities lined up, Furtak’s financial wizardry began. The National Post explained it this way: “When a donor gave $2,500, he would also become the beneficiary of a private charitable trust created by Mr. Furtak, which would then ‘prime the pump,’ as the judge put it, by acquiring units of this trust for $7,500. The ultimate result would be that $10,000 would remain in the possession of a charity for a ‘scintilla juris,’ a legal term meaning a mere instant, and the donor received two tax receipts: one for $2,500 in cash, and one for a $7,500 donation-in-kind, for the trust units.”
The end result is that donors thought they had received $10,000 charitable tax credits for their $2,500 donations, but they ended up with a letter from the Canada Revenue Agency to repay their erroneous tax deductions with interest. Say it with us: if it’s too good to be true… –Rick Cohen