The Canada Revenue Agency is adopting a new approach to making sure large corporations are paying their share of taxes, changing the way it selects which firms to audit. The CRA\u2019s more targeted approach to auditing this business segment will also affect individual taxpayers, particularly high net-worth individuals who have interests in trusts or partnerships.
\u201cThe new approach has been developed to respond to emerging compliance concerns identified by CRA in the large-business sector,\u201d says Philippe Brideau, spokesman for the CRA. \u201cThe large-business population includes any entity for which the large-business team audit approach would be effective.\u201d
Those entities would include trusts and partnerships, Brideau confirms.
According to a tax memo pub–lished in October by Pricewater-house Coopers LLP<\/b>, the CRA\u2019s previous approach had involved assigning large corporate files \u2014 those with gross income of more than $250 million \u2014 to a team of auditors, including international or tax-avoidance auditors. Smaller firms would be chosen on a case-by-case basis and assigned to a single auditor. Partnerships and trusts were not a focus and were rarely audited.
HISTORY OF COMPLIANCE<\/b>
The CRA is saying it now will look at a variety of factors as part of its new risk-assessment model for corporations, trusts and partnerships. These factors include the taxpayer\u2019s history of compliance; data gathered from internal databases; and information received from tax treaties, the CRA\u2019s participation in international forums and from the CRA\u2019s own research and detection.
\u201cUnder this new approach,\u201d Brideau says, \u201clarge taxpayer groups will continuously be graded as having a high, medium or low risk of non-compliance.\u201d
He adds that the low-risk group might experience limited audit coverage, while higher-risk groups will undergo more rigorous scrutiny.
Additional information will come from the relatively new taxpayer disclosure requirements for aggressive tax-planning arrangements and from reporting requirements on partnerships, which have been recently revised.
As part of the CRA\u2019s new initiative, the agency will also take a closer look at high net-worth individuals, explains Nick Pantaleo, international tax services partner with Pricewaterhouse Coopers in Toronto: \u201cThe CRA is expanding its focus so that when it looks at a particular company, it\u2019s not just focusing on the entity itself; but where the firm is owned by a series of trusts, or a partnership, it will also look at the nature of those entities.\u201d@page_break@The CRA, in changing its approach, is trying to focus its auditing activities, making sure it best uses its resources and to get cases settled sooner, Pantaleo suggests. On the whole, he adds, this is a positive change for the agency and taxpayers alike.
\u201cI applaud them for doing this. I think it\u2019s the right approach to follow,\u201d Pantaleo says. \u201cCases will be resolved more quickly if the CRA is able to focus on the ones that should be of the greatest concern to them.\u201d
In recent years, the CRA has taken a more proactive approach in terms of compliance. That development mirrors global trends toward both better detection of non-compliance and enforcement.
\u201cGovernments are fighting huge deficits and doing the best they can to tighten up their tax system to make sure that people are compliant,\u201d Pantaleo says. \u201cTaxpayers are demanding that everyone pays their fair share.\u201d
In the past, the CRA\u2019s approach to auditing high net-worth individuals tended to be more disconnected, with the CRA looking at only one particular part of an individual\u2019s holdings at a time, says Robin MacKnight, tax partner with Markham, Ont.-based Wilson Vukelich LLP<\/b>. Now, MacKnight adds, the CRA will be looking at all of an individual\u2019s holdings at once.
NO PLACE TO HIDE<\/b>
The CRA\u2019s new focus will be bad news for those individuals who may not have kept up with their reporting requirements, or those who may have been \u201cplaying fast and loose\u201d on the assumption that the CRA isn\u2019t going to be looking everywhere. Says MacKnight: \u201cThe risk of the CRA finding these obscure little things is going to go up, which is exactly what the CRA is after.\u201d
The new audit-selection approach is already being used by the CRA, but full implementation will take years \u2014 particularly as auditors are trained in the new regime and as taxpayers are contacted.
Taxpayers should be aware of the CRA\u2019s new focus, Pantaleo says, and be prepared to defend their positions. Some taxpayers with investments in partnerships or trusts may choose to contact the CRA proactively to ensure they are onside.
Says Pantaleo: \u201cIf you\u2019re a taxpayer with, say, a lot of partnerships and you want to try to head off being viewed as a high-risk taxpayer \u2014 because you feel you\u2019re using partnerships under very normal business circumstances \u2014 you might consider talking to the CRA first, in order to establish a more open, transparent discussion.\u201d\t IE<\/b><\/p>\n","protected":false},"excerpt":{"rendered":"
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