Here’s the good news – in Canada, we have a Taxpayer Bill of Rights, a Canada Revenue Agency Fairness Pledge, and we have a Taxpayers’ Ombudsman.
Those really are good things, and in a minute we talk about how you might use them if you have issues with Canada Revenue Agency.
At the same time, CRA is looking at proposals to make it easier to tighten its surveillance on what it terms “aggressive tax planning” and has recently won some court cases that give it more latitude to reassess taxpayers after the normal reassessment period of three years.
OK, one thing at a time – first, good news.
After I started writing this article, the Minister of National Revenue showed that he may actually be listening to the new Taxpayers’ Ombudsman, when he directed CRA on November 9 to develop a plan so that its appeals branch always gives reasons to taxpayers for its decisions when taxpayers lose appeals.
This directive came within hours of a special report on the website of the Office of the Taxpayers’ Ombudsman, J. Paul Dubé. In it, he said CRA’s failure to outline why Canadians lose appeals of their tax objections means the agency isn’t meeting its commitments to fairness, openness and accountability.
Both the details of this announcement and the big picture are encouraging.
Visit the CRA website www.cra-arc.gc.ca/gncy/frnss/menu-eng.html to view their Fairness Pledge and the 15-point Taxpayer Bill of Rights.
After that, you may want to visit this page: www.cra-arc.gc.ca/gncy/lrt/vtp-eng.html if you are planning on pushing the envelope with your tax strategy or filings. This covers “aggressive tax planning”, and talks about potential tax shelters, tax havens and CRA’s new “centres of expertise” being set up to combat tax evasion.
Two things on the first page encourage me. CRA reminds taxpayers about their right to arrange their affairs to minimize their tax liability, and they strongly urge people who are approached by tax shelter salespeople to consult a knowledgeable and trusted tax advisor. Both are good points to remember.
But wait – more initiatives are coming.
We have talked about inflated-receipt donation schemes and how taxpayers have been caught by these. A legitimate criticism is that these schemes have been operated by groups with a government charity registration number, and sometimes a tax shelter registration number. That gives them an air of legitimacy.
A criticism of CRA is that they are only catching these schemes after the fact, and then reassessing and punishing the taxpayers who participated, rather than preventing these things from happening in the first place.
The 2010 federal budget proposed a new regime to combat “aggressive tax planning” and the government is now attempting to implement this and sharpen the teeth of CRA, with a new proposed Income Tax Act Section 237.3. In broad terms, it will compel tax shelter promoters, professional advisors and taxpayers who participate in “reportable transactions” to file an information return by June 30 of the year after they enter into such a transaction. If they don’t file, then the tax benefits can be denied automatically.
Such transactions would generally be any situation where a fee is paid contingent on a tax benefit accruing to someone, but not flow though shares or a tax shelter for which the information has already been filed. A scary part of the proposal is that it would even apply to contracts entered into before March, 2010, the date of the budget.
In the meantime, remember that CRA has three years from the date of your initial tax assessment, to reassess your tax return. After that, the previous years are “statute barred” UNLESS misrepresentation or fraud is suspected. If the CRA suspects a misrepresentation that is “attributable to neglect, carelessness or wilful default,” then they can reassess an unlimited number of years. If a transaction involves a “non-arm’s length” person or entity, then CRA can go back six years, instead of the three.
Three recent court cases – Labow v. The Queen, Kebet Holdings Ltd. v. M.N.R. and Shaw-Almes Industries Limited v. M.N.R – are instructive on these definitions and the conditions under which CRA can go back beyond the normal reassessment period. The PricewaterhouseCoopers LLP website www.pwc.com/ca/taxmemo has more detail on this.
Finally, I regret to inform Manitoba residents that summer is now officially over, and fall has unfortunately arrived. Let’s see if we can hold off winter a while longer.
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This information is meant as an introduction to this topic and should not in any way be construed as a replacement for personalized professional advice.