The federal government, stung perhaps by the charge that it goes after little fish (who can’t defend themselves) rather than the big fish (who can afford high-priced talent), has announced a significant expansion of the CRA’s audit capabilities for “suspected tax evasion and aggressive tax avoidance”, “high-risk taxpayers” and “high-risk multinationals”. Neal Armstrong’s post on taxinterpretations.com has the headline “Lebouthillier announces major boost to tax practitioners’ dispute resolution practices”.
The CRA has responded to some Bad Press regarding the KPMG case, which I wrote about yesterday.
From the “what the hell were they thinking” file: the CBC reports that the CRA offered VD treatment (no prosecution, no penalties) to high net-worth participants in an offshore tax shelter marketed by KPMG. I wonder what change in policy or law will result from this fiasco that will make life more difficult for ordinary Canadians?
Summary of “Business Valuation—CRA and Professional Advisor Perspectives”, a presentation given by Mark DeMarco, Team Leader, Business Equity Valuations Unit, Toronto Regional Valuations Unit, to a workshop held by The Canadian Institute of Chartered Business Valuators in Toronto on December 2, 2015. Continue reading
I have heard recently about a number of taxpayers who received voicemail messages purporting to be from the CRA. The caller left a message threatening the seizure of assets or the immediate imposition of criminal or severe civil sanctions if the recipient didn’t call back right away and make arrangements to pay a tax debt. The calls were bogus, of course, but apparently some poor taxpayers have fallen for these schemes and sent money to satisfy liabilities that didn’t exist (or that did exist but weren’t satisfied by sending money to the scammers). The CRA has warned taxpayers about these kinds of scams.
How should taxpayers respond to a threatening call from the CRA? If you have an authorized representative, refer the caller to the representative. Don’t engage with the caller. Insist that the caller deal with your authorized representative. A CRA agent will respect that request (on this, see section 15 of the Taxpayer Bill of Rights). Alternatively, ask the caller for a name, a badge number and a phone number, with an extension. Tell the caller you will call back. You can then call the CRA on one of the toll-free numbers listed on its website (eg 888-863-8657 for individuals wanting to make payments). After providing ID to the CRA agent, you can check whether you have a balance owing, whether it has been referred to Collections and the name and badge number of the person who called you to verify their identity.
If you do owe money, and it is being collected, then you should seriously consider getting help from a competent tax professional.
I’ve complained before about crooked preparers who file false expense or donation claims for (sometimes) clueless taxpayers. The taxpayers get the refund, pay the preparer’s fee (which is often pretty generous) and then are reassessed for the bogus claims (with gross negligence penalties being thrown in for good measure). I’ve complained that the preparers seem to get away with it. They take off for parts or countries unknown with their ill-gotten fees, and the (sometimes) clueless taxpayers are left holding the bag.
Of course, the CRA likes to publicize the cases where it does chase the crook successfully. Here’s a case where the CRA extradited a preparer from Italy so that she could serve her 10-year sentence and pay her $699,608 fine.
When a charity invites comments on its website, blogs, or on social media, it should monitor them for partisan political statements and remove, edit, or moderate such statements within a reasonable time.
There’s got to be a Charter challenge in their somewhere.
Anyway, I can’t blame Craig for being incensed. The idea that charities must police their own message boards to ensure they reflect, not the free speech of interested parties, but the sanitized version demanded by the CRA (or its political masters) would be mere nonsense if weren’t also insidious.
From technical interpretation 2015-0579031I7:
Depending on the facts and circumstances, monies received by a taxpayer under a crowdfunding arrangement could represent a loan, capital contribution, gift, income, or a combination thereof. However, since the terms and conditions of these types of arrangements may vary greatly from one situation to another, the CRA’s approach is to evaluate each situation on a case-by-case basis before making a determination on the income tax consequences of a particular crowdfunding arrangement.
Notwithstanding the above, where funds are received by a taxpayer as a result of a crowdfunding arrangement for the development of a new product and that taxpayer carries on a business or profession, the CRA generally considers such funds to be taxable income (i.e., income from a source) unless it can be shown that the crowdfunding arrangement otherwise clearly represents a loan, capital contribution or other form of equity. Of course, any reasonable costs incurred by the taxpayer that are related to such a crowdfunding arrangement would likely be deductible in computing that income.
BP Canada Energy Company, for its audited financial statements under GAAP, had to “calculate reserves to account for contingent tax liabilities. Those calculations [had to] include an estimate of the liability BP would face if the Minister were to challenge uncertain positions on BP’s self-assessed tax return.” The Minister, in the course of an audit, demanded to see the working papers because they identified “the issues … which BP knows may merit adjustment” and “BP’s list of uncertain tax positions would identify the areas at highest risk for loss of tax revenue.” BP refused to produce the working papers, and so the Minister applied to the Federal Court for an order compelling their production for audit purposes.
The Court ordered the production of the working papers. The Court acknowledged the CRA’s long-standing policy in this area not to “routinely request audit files from accountant’s for inspection”, but it pointed out that the Minister herself, in 2010, stated clearly that the policy was subject to an overriding power to compel the production of such files. The Court also dismissed the notion, advanced by BP, that the CRA’s demand, in effect, created a “self-audit system”. The Court noted that the taxpayer had prepared the working papers in issue not because of a CRA demand but because of the requirements of GAAP. It also didn’t matter, in the Court’s view, that the working papers were not required to be prepared under the Income Tax Act or that they contained subjective judgments about BP’s potential liability. The papers were relevant to BP’s liability for tax, and so the Minister had a right to see them.
Interestingly, the Court rejected BP’s argument that granting the order would not be good public policy because “The Minister is taken to know the ramiﬁcations of a successful outcome on the legal issue in the present Application. The public and industry interest is within the Minister’s purview, and not the Court’s.”
Some tax preparers are reporting that brokerage statements are often inadequate for the purposes of preparing T1135s.
An accountant told me that it often takes as long to prepare the T1135 as it does the T1 to which it relates.
One hopes these are teething problems that will be ironed-out by next year.