Is your business prepared for a visit from the CRA?
TAX ALERT |
In several successive federal budgets, the Canada Revenue Agency (“CRA”) has been increasingly funded by the Federal government to combat tax leakage across the spectrum of direct and indirect taxes that it administers, from base erosion profit shifting to GST/HST audits. In the last two years, we have clearly seen the effects of this funding through the CRA’s hiring of many new auditors, many of whom are straight out of university or college and highly proficient in the use of technology and researching tax laws. In other words, the CRA has many more auditors than ever before, and they are keener and arguably more proficient and efficient than ever before.
For example, we have seen this firsthand translate into a 300-400 per cent increase in the number of GST/HST desk and field audits of clients across many industry sectors. More recently, the CRA has been getting more aggressive with their tax positions during the course of their audits. Examples of this include situations where clients being audited don’t provide the necessary information in a timely manner, the CRA’s auditors are now automatically assuming all sales and taxable supplies reported on the return, are subject to 5 per cent HST and denying all input tax credits (“ITCs”) during their preliminary reviews. These assessing positions have translated into much larger preliminary audit adjustment risk than we have seen in the past. This tactic is intended to get registrants’ attention to comply with the information requests in a timely manner, and it is clearly working.
In several of these cases, clients were wise to get tax professionals involved early on to help them prepare for the audit and in some cases, help them manage or undertake the audit with the CRA from start to finish. In other cases, RSM's tax team was able to work in the background and coach clients through the audit process. Often, the audit preparation phase resulted in “no-change” audits, or with very few changes where the CRA’s auditors were much easier to work with, and there were no surprises for the client.
We have also seen clients request assistance after submitting the information themselves and receiving a large adjustment in their proposal letters. In these situations, we worked to assist the client in reducing the initial proposal by the CRA; however, in our experience, once the CRA finds a position with their audits it can often be difficult to change their stance.