Canada Revenue Agency (CRA) interprets the tax laws to identify potential under-payers. If you make the list, they’ll let you know. You can appeal their decisions and ultimately the courts decide who is right. CRA has a huge advantage since few are willing or able to go to court.
INSIDERSHow does CRA operate? Two insiders shared their insights at a CALU technical session last week:
- Susan Gulliver worked at CRA for 36 years — her last 23 in Aggressive Tax Planning. She spent 15 years on the GAAR (General Anti-Avoidance Rule) Committee. She's now a Senior Tax Advisor at PricewaterhouseCoopers.
- Dan Rivet has been at CRA for 17 years. He's on the GAAR Committee. He is the Manager of the GAAR, Inter-Provincial Tax Avoidance and Technical Support Section. How do you fit that on a business card without abbreviations?
Identifying IssuesHow does CRA identify the issues which concern them? There are five key ways:
- requests for rulings
- conducting regular compliance audits and finding practices of widespread concern
- attending conferences and seminars
- reading published articles
- participating internationally; e.g., in the OECD and the Joint International Tax Shelter Information Centre (JITSIC)
Ruling RequestsIf you ask for a ruling, you might change your mind and withdraw your request if you sense the decision might be unfavourable. While ignorance can be better than knowing for certain, CRA does not forget. Withdrawn requests go to the GAAR Committee for review. Lesson: If you'd rather not know, don't ask.
Ruling requests could be misused. Apple and Samsung are busy suing each other and already have 21 lawsuits pending around the world. Let’s turn to tax strategies. Suppose your company is a laggard losing sales to competitors or a leader staving off competition. Maybe you could get request a ruling anonymously (e.g., through a lawyer?) and withdraw your request to trigger a GAAR review. That’s nasty but might work, if structured properly.
Public SourcesCRA has been accused of not understanding industry practices, violating the 5th habit of the highly effective: seek first to understand and then to be understood.
Professionals require continuing education credits to maintain their designations (100 hours every two years for actuaries). Why not attend industry conferences and seminars? CRA staff are doing that and reading articles. While this may look like snooping, the purpose is to learn.
There are also internal courses. Some advanced courses are taught by outside instructors who don't have biases or conflicts of interest. That’s ideal. If you rely on financial advice from commissioned salespeople, be wary (e.g., read the wealthy reveal how their advisors fail them).
OutcomeWe might not like what CRA does but now we have a better understanding of the inner workings. Before using a strategy that looks “too good to be true”, ask yourself how CRA may react (and these 13 questions). Happy tax planning!
- How effective are tax auditors?
- Surviving an audit: two lies and three tips
- Warren Buffett’s very strange tax argument (Forbes, Aug 2011)
- Secret 7: The best tax-sheltering in Canada
- The four steps in wealth management
- Three steps to keeping financially solvent
- Mope, gloat or move: How tax compares by province
- How you comply with the taxman makes all the difference: The Related Party Initiative (Globe and Mail, May 2011)
- The tautology of Canada's GAAR: A tax haven for uncertainty
- Sharon Gulliver (PWC website)
- image courtesy of Kamil Dratwa (Poland)
Podcast 141 (5:23)
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PS Has your opinion of CRA changed over the years?