CRA Contacts You - What Do You Do?

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 Extensive audit powers
 Increased access to global information
 Not restricted to businesses
 Focus on Canadian residents and non-resident activity in
Canada

 Thousands of auditors & support staff
 Increased funding
 Auditor hiring campaigns
 Increased training
 Commitment to risk analysis – targeted audits

 Informative/educational
 Intent to audit potential
 Pre-audit
 Post-audit

 Limited/Restricted
 General/Unrestricted
 General audits of small and medium private corporations
 Books & Records and other documentation
 Other information – questions, personal and family
 Initial meetings/Interview
 The audit
 Audit results

 Experienced tax team including ex-CRA resources
 History of successful dealings with the CRA
 Assistance in navigating through all aspects of CRA audits
including resolutions

The Case: A
Canadian
subsidiary of a
Foreign Parent –
Restaurant
 Expenses disallowed
– professional fees
 Interest and
Financing expenses
disallowed on
Parent loans
 Part XIII issues
 Foreign Tax Credit
issues
 Unreported income
– projection method
The Result: A
Canadian
subsidiary of a
Foreign Parent –
Restaurant
 Financing
expenses
reversed
 Objection filed
on other issues
 Service
complaint filed

The Case: A
Management
Consulting
business
 Expenses
disallowed
including home
office, auto, cell
phone, etc.
 Shareholder
benefit issues
 Shareholder loan
issues
 Gross negligence
penalties applied
 Statute-barred
year reassessed
The Result: A
Management
Consulting
business
 90% of
reassessments
reversed
 Penalties
reversed
 Statute-barred
year reversed
 Service and
Ombudsman
complaints
filed

The Case: A Restaurant
business began as a
restricted audit to
determine the accuracy
of tax treatment on the
sale of the restaurant.
Expanded to a full scale
audit.
 Expenses disallowed
 Shareholder benefit
issues
 Shareholder loan issues
 Allocating sale proceeds
 Net worth adjustments
and unreported income
 Gross negligence
penalties applied
 Statute-barred year
reassessed
The Result: A Restaurant
business began as a
restricted audit to
determine the accuracy
of tax treatment on the
sale of the restaurant.
Expanded to a full scale
audit.
 90% of reassessments
reversed
 Penalties reversed
 Statute-barred year
reversed

 Coverage For Professional Fees In Dealing with CRA
 Corporate Tax / Personal Tax / HST / Payroll / SR&ED / Other
 Current and All Prior Year Filings
 Annual Fee
 Based on Size of Client
 Tax Deductible for Businesses
 Opt In or Opt Out – Up to the Client
 CRA Info Requests / Audits / Objections / Appeals

Step 1
o Review; or
o Audit
Step 2
o Objection
Step 3
o Judicial
review

 What is a reassessment?
 What is an objection?
 Disputing penalties and interest

Income Tax Act and Excise Tax Act:
 Don’t sign a waiver without counsel
The Taxpayer Bill of Rights:
1. You have the right to receive entitlements and pay no more and no
less than is required by law.
2. You have the right to a formal review and a subsequent appeal.

 Allowed in full
 Allowed in part
 Reassessment confirmed

 2015/16 – 70,352 objections were filed
 In the 5 years between 2011 and 2016 – CRA resolved
223,739 objections
 65% were decided in favour of the taxpayer (partially or fully)
 $6.1 billion in taxes were favourably allowed to the taxpayer
(Auditor General Report Fall 2016 – Income Tax Objections – CRA)

 Deadline for filing an objection
 Extension of time
 Timeline for conclusion of the objection

 Who bears the burden of proof?
 What is the standard of proof?

 Brown envelope phobia
 CRA collections powers
 Objections:
 Income tax
 “Trust funds”
 Interest

 3 years after date of original assessment
 Unless “neglect, carelessness or willful default”
 Burden on CRA

 When do I appeal for judicial review?
 Who handles an appeal?
 The informal procedure vs. the general procedure
 Procedural steps in a general procedure appeal for
judicial review

 Hire great help from the outset
 Multiple levels of oversight
 Keep meticulous books and records
 Ex. Cash deposits, loans, etc.
 Be conservative
 Respect the CRA’s capacities and willingness
 Sales analysis, deposit analysis, net worth assessment
 Be alert to high risk areas

 Cash sale businesses - residential construction,
barbershops, restaurants, convenient stores, etc.
 Intermingling of funds
 Intercompany management fees
 Shareholder benefits
 Real estate
 Assets held overseas
 Tax shelter and donation schemes

 Purpose is to reduce penalties and interest and avoid
prosecution
 Criteria:
 Voluntary
 Complete
 Relates to a penalty
 Involves info >1 year old
 Includes payment of the estimated tax owing

 19,500 voluntary disclosures were filed in 2015-2016
 $1.7 billion in total recovery
 This is a 30% increase over the amount recovered in the
previous year

 Less generous relief in certain circumstances —target the
“sophisticated taxpayer”, active efforts to avoid detection and multiple
years of non-compliance
 Two types of relief: General (criminal prosecution, penalties, 50% of
interest) and Limited (no interest relief)
 Emphasize that VDP is not available for Repeated Uses
 Require VDP payments to be made within 90 days of disclosure
 Mandatory Disclosure of Advisors
 VDP not used to handle improperly filled or incomplete T1135 forms

CRA Contacts You - What Do You Do?

CRA Contacts You - What Do You Do?

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