By beefing up compliance procedures and adding a new group of auditors to the tax planning group, the Canada Revenue Agency is applying more muscle to the job of ensuring that Canadians pay their fair share of taxes.
\u201cThe CRA [is] looking at just about everything and asking more questions,\u201d says Teresa Gombita, an executive director and industry leader of the private-client services group with Toronto-based Ernst & Young LLP<\/b>. \u201cIt has made me more cautious, and [I] make sure my clients are dotting their Is and crossing their Ts.\u201d
In February, the CRA began to target tax fraud with the launch of Project Trident, a nationwide enforcement and awareness project that targets identity theft, charities-related fraud and tax-preparer fraud. Project Trident is just one among the tools and methods the CRA is using to identify non-compliance and cheating on taxes, as well as to help Canadians correct honest mistakes made in filing their taxes.
More and more clients are being asked to provide documentation for medical services, foreign tax credits, tuition credits and support payments.
Here are some of the things the CRA is paying particular attention to this year.
> RRSP\/RRIF Schemes. <\/b> The CRA is finding an increasing number of RRSP\/RRIF tax-free withdrawal schemes that claim to allow an investor to withdraw funds from an RRSP or RRIF without paying taxes. These schemes could result in the loss of retirement savings and the reassessment of a client\u2019s tax return. Schemes that allow immediate access to locked-in RRSPs\/RRIFs, provide income tax receipts for three or more times the amount invested in an RRSP or show unrealistic investment returns should all be red flags, says CRA spokesman Phillipe Brideau.
To date, the CRA has reas-sessed more than 5,000 investors who have participated in these schemes, resulting in combined additional taxable income of approximately $250 million.
> Charitable Donations. <\/b> Al-though the infamous \u201cbuy low, donate high\u201d tax shelters have received abundant attention over the past few years, the CRA continues to monitor charitable donations. Since January, the agency has revoked the charitable status of more than 10 Canadian charities. As a result, they can no longer issue donation receipts for income tax purposes.
In 2008, 845 charities were audited, resulting in 38 organizations losing their charitable status for serious infractions of the law.
> Credits For Dependents. <\/b> There has been an increase in queries asking for proof that a dependent child lives with a divorced or separated parent who is claiming the equivalent-to-spouse tax credit, says Jason Safar, a partner in the tax services practice of PricewaterhouseCoopers LLP<\/b> in Mississauga, Ont. Parents who have split up need to ensure that only one is claiming the credit, which can create substantial tax savings. Often, the CRA will ask for copies of child support agreements to support the claim, Safar says.
> Repeated Failure To Declare Income. <\/b> Forgetting more than once to report a tax slip that covers income \u2014 such as a T4 or T5 \u2014 could result in a much bigger penalty than you may think, says Safar. Clients who failed to report an amount on a tax return for 2006, 2007 or 2008 may have to pay a penalty if they fail to report again on their 2009 return.
\u201cI would expect that because the personal tax season is becoming more and more compressed,\u201d says Safar, \u201cbecause of income trusts and partnerships that people are investing in now, a lot of the time, tax slips aren\u2019t reaching taxpayers until the first or second week of April.\u201d
Under the Income Tax Act, a person who has failed to report an amount in income for the current year, and who also had failed to report such an amount in any of the three preceding years, could face a penalty of 10% of the current year\u2019s unreported amount. That could double to 20% under some provinces\u2019 tax rules.
> Ebay Sellers. <\/b>EBay sellers will also have to be careful this year after a Federal Court of Canada decision resulted in EBay Canada handing over a seller\u2019s contact information as well as sales records to the CRA. This means individuals who may have avoided reporting this income in the past should think twice this year. The CRA will be able to determine if EBay sellers have properly reported the income they have earned from sales, and if the agency finds that an individual or a business did not comply with the tax laws, necessary action will be taken \u2014 including paying any outstanding tax plus interest, penalties or legal prosecution.
@page_break@\u201cEven if [the CRA doesn\u2019t] come to you, anyone who is making money,\u201d says Jamie Golombek, managing director of tax and estate planning with Canadian Imperial Bank of Commerce<\/b>\u2019s private wealth-management group in Toronto, \u201cas a business is still at risk.\u201d \tIE<\/b>
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