In December 2012, the Tax Executives Institute, Inc. (TEI) raised a number of important income tax administration issues in its annual meetings with the Canada Revenue Agency. The agenda for those meetings (which also included the Department of Finance) is here.
We reprint here one agenda item covering activities by CRA’s Large Case File Managers (“LCFM”) for its relevance to our readers:
by Christian Orton of Fraser Milner Casgrain LLP
In order to administer and enforce the self-reporting system of tax assessment in Canada, the Income Tax Act (ITA) and Excise Tax Act (ETA) provide the CRA with the power to demand certain information from taxpayers. Generally, this information is collected for the purposes of auditing a taxpayer, but may also be obtained where no audit is conducted. For example, the CRA may access such information for the purpose of evaluating whether record-keeping requirements have been complied with. Higher statutory thresholds are imposed on the CRA – such as requiring a search warrant issued by a judge – where the information sought would not normally be required for an audit.
by Marc Weisman & Alison Ronson of Torkin Manes LLP
Viewers of detective dramas know that accused persons refuse to speak without their lawyer present. A visit from a Canada Revenue Agency (“CRA”) auditor may not be quite as dramatic but the consequences can be drastic. Let’s create our own fictional case to see why.
Imagine a client of mine, who we will call “Bart,” owns all of the shares of a corporation that builds and sells condominiums. Ever since his mother “Marge” kicked his father “Homer” out of the house, Bart has been letting his dad stay in one of the unsold, unoccupied condominiums in his newest development. Since Marge has the family car, Bart also gave Homer a company vehicle to keep.
It seems like an ideal situation for all parties: Bart is doing a good deed for his father, Marge has the house to herself and Homer has a free place to stay and free transportation. Unfortunately, one day the CRA calls Bart to tell him that they will be auditing his corporation. Regrettably, Bart fails to inform me of the upcoming audit.
by Bryan C. Haynes of Bennett Jones LLP
Previously published in the Canadian Lawyer magazine
Most jurisdictions in Canada require the unanimous consent of all shareholders, including nonvoting shareholders, in order for a nondistributing corporation to dispense with an audit. The requirement is absolute and mandatory — there are no other exemptions or qualifications. The public policy rationale behind the rule is laudable; however, the implementation in practice can be austere. It is time to revisit the universal audit requirement as it applies to nondistributing corporations.
