• Samer Tohme

CRA Auditing: Areas The Canada Revenue Agency Is Inspecting

The Canadian Revenue Agency (CRA) received an extra $304.1 million in the federal budget for 2021 to assist it in combating tax avoidance and active tax evasion with auditing. The federal government anticipates a five-year revenue recovery of 810 million dollars.


In accordance with public documents and information obtained from the CRA and the Department of Justice, we have compiled the following list of current CRA audit activities. This will continue to grow over the next several years and is based on public documents and information obtained from the CRA and the Department of Justice.


A taxpayer is not wholly engaged in any unlawful activity. However, persuading overly cautious auditors that the taxpayer follows all applicable laws and regulations may be required.


Here are seven areas that the Canada Revenue Agency is scrutinizing:

1. Cryptocurrency transactions gains or income


The Canadian Revenue Agency (CRA) is pursuing individuals who have traded bitcoin to ensure that sufficient taxes have been paid. The Federal Court recently granted the Minister of National Revenue's request that a central cryptocurrency trading platform gives the Canada Revenue Agency a list of customer accounts, including information on bitcoin transactions. The Canada Revenue Agency (CRA) generally treats bitcoin as a commodity for the Revenue Tax Act. Revenue from cryptocurrency transactions is taxed as either business income or capital gain, depending on the facts and circumstances.


2. Applications of the CEWS


Since around March 25, 2021, over 2.7 million Canada Emergency Wage Subsidy (CEWS) applications were reviewed and granted by the CRA for enterprises, good causes, and non-profit organizations in the sector. It offers more than $71 billion in payments supporting over five million employees. The Canadian Revenue Agency (CRA) began conducting CEWS post-payment audits in August 2020 and is looking for evidence of deliberate non-compliance. The consequences may be severe for misappropriation of CEWS funds, including forfeiture of the wage subsidy, an additional 25 percent penalty, and even imprisonment for fraud. It is a new audit subject, so that CRA auditors may be inexperienced with and skeptical of the findings. A taxpayer who does not want to comply will need help convincing the Canada Revenue Agency (CRA) that mistakes were made in good faith.



3. Pricing transactions transfer


The federal government wants to ensure that a sufficient amount of profit is reported in Canada, and it plans to tighten the rules governing transfer pricing. As part of its ongoing transfer price examinations, the Canada Revenue Agency (CRA) closely scrutinizes Canadian taxpayers' transactions who purchase or sell products or services from another company within the same multinational group to determine whether these transactions are appropriately priced. All such transactions must be conducted according to the conditions of an arm's length transaction, and Canadian taxpayers must preserve all relevant documentation. Taxpayers who engage in non-length arm's length cross-border transactions should exercise caution in setting appropriate pricing and maintaining accompanying documentation.


4. Transactions Involving Treaties


For more than a decade, the media has focused attention on using and using international tax treaties to reduce or avoid paying taxes. The international tax community has sought to close the loopholes and improve the language of the Treaty, to decrease aggressive tax evasion and avoidance of taxes. International transactions, particularly the execution of treaties resulting in unbalanced and questionable tax circumstances, are scrutinized more closely by the Canada Revenue Agency (CRA).


5. GST/HST Avoidance and Evasion


The Canada Revenue Agency is currently investigating applications for GST/HST refunds and rebates that are unjustified or fraudulent. There are plans to broaden the scope of its audits to include large corporations that have been identified as having a high risk of non-compliance and other businesses that engage in high-risk industries such as the real estate development industry and others. Ever since it was first established in 2009, the Canada Revenue Agency (CRA) has been conducting an active investigation into the GST/HST New Housing Rebate on an ongoing basis.


6. Benefits to Shareholders


The Canadian Revenue Agency (CRA) has recently revised its sample test concerning business assets that officials and employees use for personal purposes, such as private aircraft and yachts. The taxpayer must gather contemporaneous documentation and maintain accurate logbooks whenever businesses utilize these assets to support their tax-filing claims.


7. Implicating trust and confidence for tax evasion


The Canadian Revenue Agency (CRA) is improving its capacity to identify tax evasion via the use of trusts, particularly in non-length arm's length transactions, cross-border activities, and low- or no-tax transactions.


Frequently Asked Questions (FAQS)


Is it possible to have your tax return audited after it has been approved for processing?

If you have received a refund after completing your tax taxes, your returns may be audited... If an audit results in an increase in your tax liability, you may be subject to extra penalties and interest costs due to the rise.


For what reason is it possible for the CRA to place a hold on your bank accounts?

You have the legal right to have your bank accounts frozen by the Canadian Revenue Agency (CRA) without being informed in advance or taken to court. It will also freeze and report any future deposits to the Canada Revenue Agency (CRA) until your debt is completely paid off or until the bank gets a court order to stop blocking your money from being used for other purposes.


How long can you be audited by the Canada Revenue Agency (CRA) before you have to pay a fine?

To conduct an audit of your account and determine your tax liability, the Canada Revenue Agency (CRA) has four years from the date on which you receive a Notice of Assessment. This means that if you file your 2017 tax return in April 2018 and get your assessment in June 2018, the Canada Revenue Agency (CRA) will have until June 2022 to perform an audit of the return.


Suppose you do not pass the Revenue Canada audit. What would be the ramifications?

Individuals who file their returns late will be subject to penalties and interest on any taxes that are not paid in full by the due date, in addition to any penalties and interest imposed by the IRS. Additionally, a late filing penalty of five percent of any unpaid tax, with interest compounded at a rate of one percent per month for twelve months, is now in effect. If it is found that you have been filing your taxes late regularly, or if it is proven that you have participated in deliberate tax evasion, the penalties become much more severe.


Is it possible to access the Canada Revenue Agency via My Service Canada Account?

You may get secure access to your income tax and benefit information by selecting Access CRA from the MSCA drop-down menu. Without logging in or giving any further identity verification information, you will be automatically linked to your CRA account.


What exactly is a Notice of Reassessment from the Canada Revenue Agency?

Taxpayers get a notice of assessment (NOA) from the Canada Revenue Agency (CRA) every other year, which details the amount of taxes and how much they owe. It contains information, including the total amount of their tax refund, credits, and past-due taxes.


How does the government respond if a taxpayer feels that the government has not respected their rights?

Taxpayers will continue to seek redress via the legal channels established by the legislation, which may include filing appeals with the court system as a last resort in certain situations.


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