Tax & Trade Blog

When a Canada Revenue Agency (the “CRA”) audit concludes and a Proposed Assessment issued, it is presented in a “Statement of Proposed Audit Adjustment”.  This document outlines the CRA’s Assessment of the additional taxes owed.  At this stage, significant work needs to take place to try and understand the basis for the Proposed Assessment and attempt to rebut the CRA’s Assessment position. 

Because CRA is the “elephant in the room” (and typically does what it wants to do), where an Assessment is finalized and raised, it is a very signification matter, for the following reasons.

If there was such a thing as a “10-Alarm” fire, CRA’s public release of GST Interpretation RITS 202403 would seem to fit that bill.

In this April 2023 Interpretation – issued only a few weeks ago – CRA takes the view that Employers with pension funds invested in an insurer’s segregated funds, are NOT eligible to claim ITCs for the GST/HST payable on the investment management fees (“IM Fees”) paid directly out of those funds.

On one level of analysis, CRA has done an about-face and reversed a prior 2012 Ruling in this area (which seemed to have addressed the same situation).  While CRA may disagree with that statement, this does appear to be a potentially significant “reinterpretation”.

While the government of Canada appears focused on the political hot potato that is our residential housing industry, announcing new rules for rental houses are coming,  the CRA is headed in the other direction, apparently targeting residential home-owners that have recently sold their homes, on the basis that the degree to which they fixed them up prior to sale caused the homes to become “new homes” and subject to full GST/HST on their fair market value.

In Ghermezian v. MNR, 2023 FCA 183, the Federal Court of Appeal may have put the last nail in the coffin for taxpayers trying to dispute the broad reach of the CRA’s audit powers.

CRA’s Use of 3^rd Party Requests for Information

The case revolved around the CRA’s Related Party Initiative, and the CRA’s issuance of various requests and requirements for information under section 231.1 of the Income Tax Act (and parallel provisions in section 289 of the Excise Tax Act (alternatively, the “RFIs” and the “Demands”, and the “ITA” and “ETA”).

As we have blogged about a fewtimes in the past, corporate tax debts are unlike other forms of liability and can pose special challenges for directors and shareholders of corporations that have unmet tax obligations.  This can lead to dreaded director’s liability and third-party assessments, which allow the CRA to effectively “pierce the veil” and go after individuals or other businesses that would otherwise be protected by the screen of limited corporate liability.

A recent decision at the Tax Court of Canada considered this issue, serving as a reminder to businesses and their owners that these debts are not so easily ignored.

Another question that we are often asked is what the CRA means by the term “carousel scheme”.  It is a great question, because the CRA does not define its position on that phrase anywhere, other than in private assessment documents that it sometimes provides to GST registered persons on the wrong end of the CRA’s Notices of Assessment powers.

According to the CRA, and in its simplest form:

We are often asked about “accommodation invoices”, and what the CRA is talking about when speaking about these types of invoices.

This is predominantly a term that is used in the GST context but is not defined anywhere in the Excise Tax Act (i.e., the GST legislation) or relatively speaking anywhere in any published CRA administrative document.

But CRA does disclose what it means by “Accommodation Invoices” when it comes time to assess wary taxpayers: