Audit Agreements

In February 2019, the Canada Revenue Agency (CRA) published Audit Communique AD-19-01 “Audit Agreement and Waiver of Objection Rights.”[1]  The purpose of the document is to provide guidance on negotiating an audit agreement with taxpayers and obtaining a waiver of objection rights.   Audit Agreements   According to the document an audit agreement is “an agreement between the CRA and …

Net Worth Audits

Subsection 152(7) of the Income Tax Act[1] provides that the Canada Revenue Agency (CRA) is not bound by a tax return provided by a taxpayer in making an assessment and notwithstanding whether a tax return has been provided the CRA may raise an assessment.  This provision permits the CRA to assess a taxpayer for any amount at any time (subject …

Pre-Assessment Review? Consider Jumping Straight to Tax Court.

Many taxpayers experience delay in having their tax return processed as a result of the Canada Revenue Agency (CRA) conducting a “pre-assessment review.”  Practically, a pre-assessment review is not much different than a mini audit.  In some cases, the CRA reviews a return before processing it and issuing an assessment.  Unusual refunds, donations, medical expenses, professional fees, and substantial interest …

The CRA’s Civil Liability

The tax system in Canada is a self-reporting system.  Taxpayers are expected to calculate their taxes and pay as necessary and the  Canada Revenue Agency’s (CRA) role is to administer Canada’s tax laws. Lately, taxpayers have achieved some success in the civil courts holding the CRA liable for abusive audits and tax collection practices.  The (limited) success ought to serve …

Interest and Penalties – Is There Any Relief?

The Canada Revenue Agency (“CRA”) often applies penalties when a taxpayer has failed to comply with their obligations under the Income Tax Act, Excise Tax Act and other acts which the CRA administers.[1]  The CRA can apply penalties for late-filing returns, repeatedly late-filing returns, failing to report income, deficiencies in foreign reporting obligations, for being grossly negligent, etc.  Interest (currently, …

Effective Dating Vs. Backdating

As a result of the new income splitting legislation released on December 13, 2017 , 2017 is the last year for many taxpayers in which dividends could be “sprinkled” to adult family members without attracting tax on split income (“TOSI”).  As a result of the new rules, income sprinkling using dividends will likely attract more attention from the Canada Revenue Agency’s (“CRA”) …

Condo Flippers Beware

With the real estate markets in Toronto and Vancouver growing robustly with prices reaching historical highs, speculators have pounced on the opportunity to realize quick returns on buying and selling condos and other real estate.  The Canada Revenue Agency (“CRA”) has taken notice of this activity and is aggressively looking into whether these sales are being reported and, if they are, whether they are being …

Spectrum’s Selection of Tax/Federal Court Decisions in 2017

Notable Tax Court and Federal Court (tax related) decisions released in 2017.   Tax Court   Hurd Dentistry v HMQ, 2017 TCC 142 – This case concerned the tax treatment of orthodontic supplies under the Excise Tax Act.  Specifically, whether there is one supply of orthodontic treatment to a dental patient or two supplies—the orthodontic appliance and the orthodontic service.  …

160 Assessments – Can CRA Take Back My Gift?

Subsection 160(1) of the Income Tax Act (the “Act”) is a powerful tool that allows the CRA to go after family members and other non-arm’s length persons who have received gifts (and other transfers where fair market value consideration is not paid) from a non-arm’s length person who has an outstanding tax debt. Subsection 160(1) of the Act applies to transfers …

New Rules for Claiming the Principal Residence Exemption

Canadian residents who dispose of their family home and realize a gain may be eligible to claim an exemption when computing the tax on that gain.  The exemption can eliminate all or part of the taxable capital gain, depending on the circumstances.  This is known as the “principal residence exemption” (PRE) which has been a part of the Canadian tax system for many …