Inside the charity network that has helped wealthy donors get big tax breaks – and their donations back

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Wealthy business people used a little-known charitable foundation to shelter multimillion-dollar assets and save a fortune in taxes – until federal tax authorities shut it down this year, citing “serious” illegal activity.

Most Canadians have never heard of Theanon Foundation – short for “The Anonymous” – because it stayed under the radar. In specific cases going back a decade, the Vancouver-based charitable foundation “merely acted as a conduit” to provide tax relief to its donors, according to the Canada Revenue Agency.

Federal charity law dictates that public foundations such as Theanon are supposed to bring in donations solely to fund charities, while registered charities are supposed to spend money doing good works. Theanon doled out some $80-million in tax receipts to donors before it was stopped, but the bulk of that wealth did not go to working charities.

One example from the CRA of how Theanon helped clients avoid taxes

1

Corporation acquires preferred shares for $15.

2

The market value of the shares is $550,000.

$539K

3

$550K

Corporation sells the shares to Theanon for $539,000. Theanon then sells them back to the corporation for $550,000. Because Theanon is a charity, the transactions are tax-exempt. The corporation avoids paying tens of thousands in taxes on its half-million-dollar profit.

MURAT YÜKSELIR / THE GLOBE AND MAIL

One example from the CRA of how Theanon helped clients avoid taxes

1

Corporation acquires preferred shares for $15.

2

The market value of the shares is $550,000.

$539K

3

THEANON

CORP.

$550K

Corporation sells the shares to Theanon for $539,000. Theanon then sells them back to the corporation for $550,000. Because Theanon is a charity, the transactions are tax-exempt. The corporation avoids paying tens of thousands in taxes on its half-million-dollar profit.

MURAT YÜKSELIR / THE GLOBE AND MAIL

One example from the CRA of how Theanon helped clients avoid taxes

1

Corporation acquires preferred shares for $15.

The market value of the shares is $550,000.

2

3

Corporation sells the shares to Theanon for $539,000. Theanon then sells them back to the corporation for $550,000. Because Theanon is a charity, the transactions are tax-exempt. The corporation avoids paying tens of thousands in taxes on its half-million-dollar profit.

$539K

$550K

MURAT YÜKSELIR / THE GLOBE AND MAIL

Now a Globe and Mail investigation has discovered that Theanon was part of a cluster of related foundations that are still doing business. They were all set up by one law firm and do little but hold donated assets and transfer them between themselves.

Some bankroll multimillion-dollar projects – including for-profit businesses – supported by the law firm and its clients. Tax returns show that, in a few cases, assets or loan payments actually flow back to the original donors or their private foundations.

The brains behind the operation is Vancouver lawyer Blake Bromley, who calls himself “one of the world’s foremost experts in charity law" and spends much of his time travelling the world, promoting and spreading his expertise.

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Mr. Bromley is no stranger to CRA auditors, who have accused him several times of mixing business with charity. The tax agency told The Globe it rarely penalizes charities that violate the law, preferring to educate them first. However, it went so far as to shut down seven foundations and one registered charity involving Mr. Bromley in the past decade, while he continued to launch new ones.

He and his firm, Benefic Group Inc., are known in Canada’s tight-knit charity sector for helping affluent clients maximize tax breaks by facilitating large, unusual donations such as privately held securities and real estate. Mr. Bromley then bills foundations he’s involved with for managing those transactions.

“My clients have made donations which, at the time, were the largest donations ever received,” Mr. Bromley said in an e-mail.

One client who benefited from Mr. Bromley’s advice was Stewart Blusson, a geologist who struck it rich overnight by discovering diamonds in Canada’s North.

Several years back, the CRA accused Mr. Blusson of receiving massive tax breaks to which he was not entitled, partly because, like other wealthy people, his donations were on paper only: $140-million worth of shares in two companies he controlled – one whose value the auditors questioned, according to correspondence the CRA released to The Globe.

It shows the Benefic-affiliated charities to which Mr. Blusson donated, including Theanon, gave him tax receipts for the full $140-million – worth at least $70-million in possible tax savings – because charities are allowed to accept securities based on their deemed value, just as they would cash.

Crucially, the tax agency discovered that Mr. Blusson recouped many of his shares three years after his initial donation, through a scheme facilitated by Mr. Bromley. In the CRA auditors' view, Mr. Blusson had “prearranged” his gifts for tax breaks, then “ultimately retained possession” of his property after “funneling” it through various foundations.

Mr. Blusson told The Globe the CRA then “got carried away" by going after him for millions of dollars in taxes, but after he paid "big money” to tax experts to fight back, the agency retreated.

“Whether you are dodging taxes or not, they had to admit it was all legal. That’s what happened. It was all resolved,” Mr. Blusson said. He insisted nothing was prearranged and said he bought the shares back simply because they weren’t worth much to the charities unsold.

“Those shares could have been worth a whole lot more – and then [the charities] would have sold them," he said. "If they couldn’t sell them to anyone else, they could always sell them to me.”

According to the CRA, Mr. Blusson and his family foundation reacquired the company shares, valued at $65.8-million, without paying out of pocket for most of them. In exchange, he pledged $27.5-million worth of future royalties from diamond mining, which Mr. Bromley said paid 1.5 times that much to charity in the end.

The CRA documents note Mr. Bromley was paid $700,000 to arrange one of the deals, which he unequivocally denies.

It’s a type of philanthropy most Canadians could never fathom: a donor pledging millions of dollars' worth of assets, then somehow getting them back. For people who give $50 to the United Way – or even $50,000 to a hospital – it sounds improbable.

Several charity watchers told The Globe they have never seen anything like the deals Mr. Bromley arranges for his donor clients and charities.

“It’s very rare that these sorts of things are happening,” said Mark Blumberg, a charity law expert in Toronto. “I wouldn’t want people to think that it’s normal.”

In audit documents, the CRA criticized Mr. Bromley for, among other things, facilitating illegal benefits in two real estate deals in which clients got their donated assets back, spending charity money to promote his law firm, expensing travel to various destinations and running unrelated business through charities.

Another thing that sets Mr. Bromley apart is that he is a formidable, tireless scrapper who fights the CRA on the charities' dime, often insisting he’s in the right – even when he loses.

“For 40 years almost every fee paid to me has been paid by a charity. Those charities have received expert advice, which has frequently resulted in them receiving many millions of dollars,” Mr. Bromley said. “However, increasingly I advise [donor] clients that the process of being challenged by CRA is so stressful and expensive that they are better not to make the gift.”

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Mr. Bromley used the diamond-mining shares Mr. Blusson donated as leverage to help raise tens of millions of dollars to build a private, not-for-profit university in Squamish, B.C. Quest University had ambitions to become a Canadian version of the elite liberal arts colleges in the United States, but it’s been mired in debt for years, despite charging as much as $34,000 in annual tuition.

Quest founder David Strangway, a former University of British Columbia chancellor, wrote a letter to the editor of Maclean’s at one point, complaining the lawyer “benefited personally to the tune of eight per cent [of the startup budget].”

However, some of Mr. Bromley’s associates contacted by The Globe gave him high praise.

“To his own demise, he can be sometimes a little overly aggressive, but he’s doing it for a charity,” said John Glazema, a realtor who worked with the lawyer on several projects.

Another charity director, Stephen Murgatroyd, called him “a hero of the philanthropy movement.”

Mr. Bromley boasts he has registered more than 700 charities and has brought $2-billion into the sector, much of it gifted as securities or real estate.

“The greatest legacy is the hundreds of millions of undisbursed dollars which remain invested in hundreds of foundations which I have created and will fund activities of operating charities for decades in the future," the lawyer said.

Mr. Blumberg said any charity that holds on to donated securities is taking a risk. “There is a real issue around whether those shares are actually worth the price of the tax receipt, because the real value of securities is when you sell them.”

For example, one foundation where Mr. Bromley is a director issued a tax receipt to a donor for $1.1-million worth of publicly listed stock in 2011 and didn’t immediately sell it. The value of the foundation’s assets has since dropped to $20,000, even though it gave just $83,000 to charities in that period.

Mr. Bromley sits on the boards of two dozen B.C. charities, while the employees of his law firm are or have been directors of more than a hundred, most of them foundations.

“Any time a charity has directors where they themselves or their business are being compensated, there is a general concern,” said Mr. Blumberg, citing the potential for conflicts of interest. “Most of the lawyers I know, they are certainly not sitting on the boards of charities.”

Tax returns show five of those charities – some which do little of anything – spent $500,000 to $5-million on professional and consulting fees while Mr. Bromley or Benefic employees were board members.

The lawyer insists “not all” of those fees were paid to his firm and that some went to outside experts hired for Quest, but he admits his trips to China, Russia and Vietnam were paid for by one charity, which spent $198,000 on travel.

“These governments wanted the particular expertise that Blake Bromley has in comparative international charity law, and few people in the world can offer them as much knowledge and experience,” the lawyer said, referring to himself in the third person.

Vivian Krause is a charity researcher and blogger who thinks the CRA should take a deeper look at Mr. Bromley’s whole operation.

“Anybody like me who has decades of experience in the charitable sector will look at this and know this is fishy,” Ms. Krause said.

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She spent a year compiling data on 105 charities started by Mr. Bromley’s firm, which show they have issued $750-million worth of tax receipts. Just eight of those charities were responsible for a quarter of those receipts. Ninety-five per cent of those donations was retained within the group and not spent on activities most Canadians would consider charitable.

“If you want to have charitable impact, this is not how you spend your money,” Ms. Krause said. “Directors of charities have a responsibility to make sure the charity benefits charity.”

Under the law, foundations can give money to each other and count that as part – or all – of their annual quota for giving to charitable causes. That legal minimum – which some critics say is too low – is just 3.5 per cent of the charity’s assets. (Mr. Blumberg has crunched numbers, however, that show most large foundations outside Mr. Bromley’s circle give much more than the legal minimum to outside charities.)

The Benefic-affiliated charities the CRA has shut down represent 10 per cent of the agency’s revocations of foundations. It cited serious breaches of the law in two decisions released this year. Directors involved in a serious breach can be barred from other charity boards at the CRA’s discretion. Even so, Mr. Bromley and his firm carry on.

“It’s highly unusual. You have one individual at the centre of this … and one gets shut down, and then it’s whack-a-mole,” said Kate Bahen, who runs Charity Intelligence, a registered charity that rates charities.

In one of several examples cited by tax auditors, Theanon bought $539,000 worth of preferred shares from an unnamed corporation, which it had acquired for just $15. If the shares were sold to anyone other than a tax-exempt charity, the corporation would face a hefty tax bill on its profit. Instead, the foundation sold the shares back to the company for $550,000, allowing it to retain the assets plus avoid getting taxed. Theanon made $11,000, but in the CRA’s view it was simply charging the company a fee for “significant tax savings.”

Some of Mr. Bromley’s supporters told The Globe they think the tax agency targets him unfairly to squeeze out more tax dollars.

“There is a lack of knowledge of what he actually does,” Mr. Glazema said. “And CRA wants their pound of flesh.”

Mr. Bromley says only five of his donor clients have had their charitable tax credits reassessed by the CRA. He says two fought back and won, two others gave in, and the fifth is still fighting.

“I am not CRA’s favourite charity lawyer,” he said. “My willingness to challenge CRA’s administrative policies … is based in decades of watching clients choose not to make the gifts originally intended because they were afraid of CRA’s aggressive attacks."

Mr. Bromley’s run-ins with the tax authorities go back many years. He was charged with 23 counts of tax evasion in 2002, after he and his family members received $375,000 in donor tax breaks for personally paying down a charity’s debt using a client’s money. Mr. Bromley’s family gave $250,000 of their tax savings to the charity and pocketed $125,000. He was acquitted on all charges after a B.C. provincial court judge found he had no intent to deceive.

Foundations are allowed to give and receive loans, provided they are for charitable purposes and not “self-serving.” Loans are a key part of the structures arranged by Mr. Bromley, often to finance projects his clients support.

Scott Cousens is another of those clients. A venture capitalist in the mining industry, he initially donated $13-million worth of publicly listed stock to a foundation set up by Benefic to finance his dream of building a cutting-edge athlete development centre, which he called Fortius Sport & Health.

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The donation receipt saved him millions in income and capital gains taxes, as the stock had soared in value since Mr. Cousens became an insider working with the mining companies.

He said Mr. Bromley arranged to convert those liquidated shares, plus others, into loans that Fortius would repay to Mr. Cousens’s private family foundation once the Burnaby, B.C., facility was making money. With interest, Fortius now owes the Cousens’s charity $28-million.

Mr. Cousens said getting donated assets off the books was the only way the foundation that runs Fortius could max out construction financing, without having to give money to other charities, to meet its legal disbursement quota.

“The value of the loan structure was [that] all of the dollars were available to be put into the investment,” he said.

The Toronto Raptors and other NBA players now pay Fortius to train and recover from injuries there. It also helps amateur athletes and runs charitable programs for children and youth. Mr. Cousens says it’s his dream come true – but he never would have backed it as an investor.

“Not even close. Because there is no margin in it,” said Mr. Cousens, who also credits Mr. Bromley for arranging additional financing through his other charities.

“He thinks like a venture capitalist. He’s a lawyer first. And he’s a charitable lawyer … wired as a venture capitalist.”

Ms. Bahen of Charity Intelligence views that differently. “Charity is not a playpen for people to do innovative financing.”

Another project Mr. Bromley cites as a success is a venture started by his son, John Bromley, who is following in his father’s footsteps. It’s another Vancouver-based enterprise called Chimp. Mr. Bromley helped his son by encouraging his clients to move millions of dollars in donated assets into Chimp to get it off the ground. In essence, it’s an updated version of the Benefic system.

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Chimp is an online service that allows anyone, including Benefic’s wealthy clients, to deposit cash or other assets into a “donor advised fund.” Chimp issues a tax receipt immediately. Clients decide later how they want to donate the assets.

“The only thing Chimp does is work for you as the donor – whether you have a million bucks in your account, $10-million in your account or $10 in your account,” said John Bromley.

“The donor-advised fund tool is the best chance in my mind to reverse the over-a-decade-long declining participation in the charity sector, [which is] more and more reliant on big donors, their non-cash assets and the complex planning required or requested to optimize outcomes.”

Data compiled by Ms. Krause, however, show that up to the end of last year, $92-million was transferred from Chimp accounts back into Benefic-affiliated charities, while outside charities received much less – $35-million.

She also discovered 2,206 payments to other charities of $20 or less, including $10 to the Autism Society of B.C. and $9 to the Toronto Rape Crisis Centre.

“From the pittance of money that is going to truly needy charities, it is clear that the Bromleys have put themselves first,” she said.

Flow of grants from select charities set

up by Benefic, by recipient affiliation

In millions of dollars

Gifts to Benefic-affiliated charities

Gifts to Chimp Foundation

Gifts to outside charities

$57.6M

$147.1M

Global

Charity Fund

38.8

Zawadi

Foundation

29.5

Global View

Foundation

27.6

Association for

the Advancement

of Scholarship

47.8

20.4

New Dimensions

Foundation

18.8

Almoner

Foundation

10.2

7.7

Imladris

Foundation

Paraklesis

Foundation

4.9

MURAT YÜKSELIR / THE GLOBE AND MAIL,

SOURCE: VIVIAN KRAUSE

Flow of grants from select charities set

up by Benefic, by recipient affiliation

In millions of dollars

Gifts to Benefic-affiliated charities

Gifts to Chimp Foundation

Gifts to outside charities

$57.6M

$147.1M

Global

Charity Fund

38.8

Zawadi

Foundation

29.5

Global View

Foundation

27.6

Association for

the Advancement

of Scholarship

47.8

20.4

New Dimensions

Foundation

18.8

Almoner

Foundation

10.2

7.7

Imladris

Foundation

Paraklesis

Foundation

4.9

MURAT YÜKSELIR / THE GLOBE AND MAIL,

SOURCE: VIVIAN KRAUSE

Flow of grants from select charities set up by Benefic,

by recipient affiliation

In millions of dollars

Gifts to Benefic-affiliated charities

Gifts to Chimp Foundation

Gifts to outside charities

$57.6M

$147.1M

Global

Charity Fund

38.8

Zawadi

Foundation

29.5

Global View

Foundation

27.6

Association for

the Advancement

of Scholarship

47.8

20.4

New Dimensions

Foundation

18.8

Almoner

Foundation

10.2

Imladris

Foundation

7.7

Paraklesis

Foundation

4.9

MURAT YÜKSELIR / THE GLOBE AND MAIL, SOURCE: VIVIAN KRAUSE

Chimp is a charitable foundation, but the operation is run by a private company owned by Blake and John Bromley. Chimp Technology Inc. has charged the foundation more than $10-million in fees for services so far.

“I would argue that the $10-million that Chimp [Technology] has received is over the top,” Ms. Krause said. “The way Chimp pays its employees through Chimp Technology obscures the amounts that employees, including John Bromley, are actually being paid.”

John Bromley acknowledges the company should be more transparent. He said Chimp Technology also sells its software to clients in the United States, which means it has grown with help from charity.

“We are on the leading edge,” he said. “We earn revenues from people other than Chimp Foundation.”

Russ Grant was surprised to get one of the grants Chimp sent to outside charities. He runs a private family foundation that received a form letter this year declaring, “Congratulations, you’ve been Chimped!”

Enclosed was a $97.20 cheque from an anonymous donor.

“Because we are private and don’t do anything in the public eye, for some anonymous person to decide they wanted to donate to us out of the blue was kind of curious,” Mr. Grant said.

He wrote to Chimp saying, thanks but no thanks, because his family does not solicit donations. He said he wondered if the anonymous donor was real or if Chimp sends random payments to other charities to obscure how most of the money stays in the Benefic-related group.

“I think it’s a smokescreen,” Mr. Grant said. “The whole purpose of foundations in the Canadian milieu is to use their assets to support active registered charities.”

John Bromley insists every donation is genuine and says Chimp now manages 75,000 funds in which donors have deposited money.

One charity that received millions through Chimp is now funding another for-profit company, where he is a director. Virtual Vancouver Foundation was given $10-million by Chimp and other Benefic-related charities. It’s using that to pay GeoSim Cities Inc. to develop a 3-D digital model of Vancouver.

“I have been involved advising GeoSim [as a director] partly because we have helped create some financing for it,” John Bromley said, adding that the company may donate the software to the City of Vancouver and also sell it to Vancouver real estate developers.

“This is when the world has gone upside down,” Ms. Bahen said. "Now you have charities subsidizing business.”

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