Trying to Simplify the Whole Debt Settlement Discussion.

Dear Reader

There appears to be so much confusion now regarding the activities of the RPGAs under PGC investigation, that I thought I would try to write a summary of my knowledge and experience in a short and simple message.  All the different email messages, demands for money, PGC ALERTs, Bulletins, etc are very confusing for the average person, so I will try to use the simplest terms possible in this testimonial.

I have been a member of Profitable Giving Canada for about 3 years now and participate on several of their committees.  I also was a major participant and independent promoter for 3 out of 4 of these RPGAs.  It was my complaints to PGC, along with many others, that initiated the investigation underway by PGC.  I will tell you why I was complaining:

I was very happy to participate in and promote the first three of these programs, due to their compliant open market structure and the life saving charity being done.   I am still today enthusiastic about these programs, however, the way the owners have changed them is disturbing.   I, along with  many other independent representatives, no longer have any affiliation with the few individuals who run all the programs.   They have turned it into what I can only refer to as a money grabbing SCAM that will cost me a fortune if I follow their plan.

To participate originally, I took out a loan and used it to buy pharmaceuticals which I then donated to charity.   The pills saved countless lives in Africa, Haiti and other parts of the world.  For this, I deserve and am entitled to a generous tax credit.   It was hoped that after 3 years, the promoters of the program would put me in touch with an independent drug vendor, transfer or refund to me some of my prepaid interest to that vendor, and he would help me purchase replacement pharmaceuticals to settle my debt according to the terms of my contract.   Nobody was there to help me with that task.    In fact,  all my requests were ignored or I was given impossible instructions.  It was only after all of my prepaid interest was almost gone, that they sent me a request to pay more interest.  Still no mention of settling the debt, just pay more interest, 1 or 3 years worth.  I would still owe the principal. 

So I found a company who would sell me the pharmaceuticals to settle my debt compliantly.  They provided all the legal services, storage, shipping, and everything else that I needed for one package price.   I have now delivered the pharmaceuticals for my 2008 debt, they have full title to them, and my debt is settled.  I have a letter from my lawyer confirming my debt has been settled.   I will soon be delivering pharmaceuticals for my 2011 and 2012 debts.  They will owe me a refund of most of my original interest paid.

When the management of the RPGAs found out about my solution,  they miraculously found their own debt settlement solution and are presenting it to all the earlier donors and at a cost lower than what I paid.  Or in the case of COIP,  you don’t even have to buy pills, just send in some more money and get “Paid in Full".   This is in spite of the fact my COIP loan, now with PanAggregate Financial (supposedly transferred to SunRX) can only be settled using pills, as per its terms.   In contract law, it may be possible for a lender to allow a borrower to settle on different terms and for different amounts.   This is done quite often, especially after the recent financial crisis.   So from that perspective,  their offer may look attractive to people compared to what I did.  However, tax law is very much different than contract law and if I want to keep my tax credits,  I need to settle my debt according to tax law and regulations.   That is what is wrong with all the money demands  and settlement proposals from these RPGAs.  They are not worried about protecting the donor tax credits.  They just want more money from me.   If I followed their solutions,  I would not only pad their pockets, but I would certainly be writing a big cheque to the CRA in a couple years.  I would also not be absolutely certain my debt was actually settled and they wouldn't come after me again. 

Why do I say  this?   And why all the talk about “arms length” transactions?   In tax law,  a loan must be a full recourse loan in order to qualify as valid payment for a donation.   It cannot be forgiven, or settled for a few cents on the dollar  directly or indirectly by any of the original entities or their associates.  Entities are not arms length if they have common “directing minds” or "defacto directors".  It doesn't really matter who the nominal shareholders or officers are,  the question is: Who is really controlling these companies?  The control comes from business partnerships, ancillary agreements and contracts, family relationships, etc.    So when I see the same few top management people controlling all the actions of all of these companies,  it is hardly arms length.   I can therefore not rely on them to settle my debt if I want to keep my tax credits.

The CRA vigorously audits every registered tax shelter.  Each donor receives the results of that audit in the proposal letters they send out.   In the case of  COIP/RLG/MLF,  the proposal letters revealed the non-arms length relationships they discovered.  The RPGAs were unable to prove their arms length relationship, even though the burden of proof is on them when they use offshore entities, not the CRA.   The law is very clear on this topic.   This did not bother me with my original donation, since I received the receipt for the amount I paid, which was below Canadian market price and I was totally arms length from the vendor.  The non-arms length relationship was a huge problem for the RPGAs, however,  since the CRA reassessed many of their internal transactions and they owe a huge amount of corporate tax.   Their non-arms length relationships, however, will create a huge problem for me if I use them to settle my debts.    For those of you who are really detail oriented, you can review the CRA proposal letters, the PGC ALERTS and Technical Bulletins for more information.   Also,  look at the CRA Bulletin Meaning of  Arms Length, especially sections 23,24,25,26, and 33.   Or Review ITA Proposed Section 248 (34)b on borrowing to donate.

Why do I go so far as to cry SCAM?   I ask myself the following questions:

1.  What happened to the prepaid interest that I paid for the original 4 years.   Why was there nothing left in year 3 to settle my debt? Why didn't’ they even try?

2.  Why did the RPGAs continually ignore my requests to settle for more than 10 months, only asking for more interest?  

3.  Why did they only come out with their solution when they found out about mine?

4.  Why does their solution not come with any documents, agreements, all the proof needed to defend against CRA?   There is not even any  kind of agreement to protect my rights,  just send in money.

5.  Why are they not proposing their solution to anyone who participated in 2011 and 2012 and 2013?  Is it possibly because they would have to refund most of the donor's original interest paid?

6.  And most importantly,  why are they not providing any proof of their non-arms length relationships?  Actually, I know the answer to this question.....  so does the CRA.

So here are the steps I recommend to anyone who wants to follow my example:

1. Do not send any more money to any of these companies.

2. Do settle your debts in the proper manner using the Justice Pharma program.

3. Become of a member of PGC to obtain the protections offered.

If you do this, as I have done,  I believe we have the best chance possible to maintain our original tax benefits achieved.  I hope this helps explain things in simpler language.

David Whidden P Eng, PGS

PS  If you have the time, I have written a full and complete overview of Profitable Giving in Canada and more details of the specific RPGA's currently under PGC investigation.   You can see it here:  The Whole Story