CRA Updates : Tax tips

CRA has extensive powers of enforcement

CRA (the Canadian income tax department) has extensive powers of enforcement to ensure that taxpayers comply with the Income Tax Act. These include the power to inspect and the power to require a person to produce information or documents.

“Jeopardy Order” Collection

If CRA (the Canadian income tax department) believes that a taxpayer may dispose of assets and it may not be able to collect amounts owing to it, it can apply to a court without notice to the taxpayer for a “jeopardy order” allowing it to take collection action at the same time as it issues an assessment.

CRA is aggressively auditing taxpayers

CRA (the Canadian income tax department) is aggressively auditing taxpayers who purchase art at a discounted wholesale price and soon afterwards donate it to a charity at an increased retail value.

CRA guidelines, dealing with charities and political activities

CRA (the Canadian income tax department) has released a proposed guidelines dealing with charities and political activities. The guidelines can be viewed and commented on at the CRA charities web site .

Criminal investigation of a taxpayer

Once CRA (the tax department) commences a criminal investigation of a taxpayer they must act in accordance with the Canadian Charter of Rights and Freedoms.

CRA formal written demand

If CRA (the Canadian income tax department) serves you with a formal written demand for information or returns you must comply or risk prosecution under the Income Tax Act.

CCRA became CRA

On December 12, 2003, the Canada Customs and Revenue Agency (CCRA) (the Canadian tax authority) became the Canada Revenue Agency (CRA).

CRA can reallocate amounts to a non-competition or other restrictive covenant

Draft technical amendments to the Income Tax Act, released on February 27, 2004, BUT NOT ENACTED AS OF OCTOBER 2009, provide CRA (the Canadian Income Tax department) with the ability to reallocate amounts to a non-competition or other restrictive covenant. Last fall, the Department of Finance released proposals whereby non-competition and other restrictive covenants could be fully taxable, thus reversing the former tax advantage, based on case law, that was available in certain circumstances.

New valuation service of CRA

To accommodate valuation-related issues on proposed transactions, the CRA (the Canadian income tax department) plans to provide a new valuation service and has issued an exposure draft.

Single purpose Canadian corporation

The Canada Revenue Agency (the Canadian income tax department) has announced that effective May 25, 2004 it will no longer accept a single purpose Canadian corporation that would previously been set up to hold United States personal use real property with the objective of avoiding US estate tax on death of the individual. The previous policy will continue to apply to arrangements in place on May 25, 2004.

Employer reimbursement of the cost of a PDA

The Canada Revenue Agency (the Canadian income tax department) issued a technical interpretation in response to a taxpayer enquiry and confirmed that any employer reimbursement of the cost of a PDA (personal digital assistant such as a Palm Pilot) will be a taxable benefit to the employee.

CRA to accept rectification, where the purpose of the order is to put into effect the original intention of the parties

The position of the Canada Revenue Agency (Canadian income tax department) is that they will accept a court ordered rectification order of a transaction where the purpose of the order is to put into effect the original intention of the parties.

CRA warning about participating in “gifting trust arrangements” and “leveraged cash donation” tax shelter plans

The Canada Revenue Agency (Canadian income tax department) has just issued another press release warning Canadian taxpayers about participating in “gifting trust arrangements” and “leveraged cash donation” “tax shelter” plans. The position of CRA is that these plans are contrary to the Canadian Income Tax Act and that CRA will deny deductions to participants. While CRA may or may not be correct, and many of the plans being offered have supporting tax opinions, any participant should expect to be reassessed and have a fight with CRA, possibly in the Tax Court of Canada and Federal Court of Appeal, before the deductions are ultimately allowed or disallowed.

Taxpayer Bill of Rights and Taxpayers' Ombudsman

The Canada Revenue Agency (the Canadian income tax department) announced two new initiatives, a Taxpayer Bill of Rights and aTaxpayers' Ombudsman, to ensure CRA is more accountable to Canadians.

Subsection 18(12) of the Income Tax Act generally applies to Bed and Breakfast (B&B) Businesses

The Canada Revenue Agency (the Canadian income tax department, "CRA") recently confirmed its view that subsection 18(12) of the Income Tax Act (which deals with home business expenses) generally applies to Bed and Breakfast (B&B) businesses. The CRA recognizes that an exception occurs in situations that fall within the same fact pattern as that in Sudbrack (2000 DTC 2521), a decision heard under the general procedures of the Tax Court of Canada, in which that Court ruled that subsection 18(12) did not apply.

Corporate Tax Returns: Incorporated non-profit organizations

After a year of grace, commencing April 1, 2008, the Canada Revenue Agency (the Canadian income tax department, "CRA") is now ready to apply an indirect penalty to incorporated non-profit organizations which have not filed their corporate tax returns. Failure by these entities to file T2 returns by their due dates for the taxation years ending April 1, 2008, and forward will result in a compliance refund hold on their refunds or rebates.

Disclaimer:
"This article provides information of a general nature only. It may no longer be current. It does not provide legal advice nor should it be relied upon. If you have specific legal questions you should consult a lawyer."