Bill C-31: Royal Asset and New CRA Powers Could Come Soon

Geoff Currier and Evelyn Jacks

Changes are coming to the Income Tax Act and both you and your clients will all be affected with new tax risks including longer tax audits. Bill C-31, which passed second reading in the House of Commons on June 3 and is now at committee stage, contains elements of previous Federal Budgets that will expand the CRA’s compliance and enforcement powers. Here’s what you need to know and pass along to your clients:

The Issue – New Audit Powers: This Bill, when passed, will grant the Canada Revenue Agency new powers which include increasing the penalties for non-cooperation, and expanding CRA’s ability to gather information. But, as we reported in Knowledge Bureau Report in May, the proposal to allow CRA to compel the taxpayer to provide information under oath has been removed from the legislation.

CRA, would however, gain greater authority in some areas. The agency will be able to issue a Notice of Non-Compliance to any taxpayer who fails to provide information or “reasonable” assistance. But the Minister will have to obtain a court order before issuing a notice to a third party if the non-compliance is related to an unnamed persons requirement or if the CRA requires information regarding a person who is not related to the third party.

The penalties for non-compliance can be severe. The daily fine can be up to $50 to a maximum of $25,000. There is some additional protection for taxpayers though. Bill C-31 now allows for exemptions in the case of solicitor-client privilege.

Bill C-31 allows for the normal reassessment period to be suspended while a non-compliance notice is outstanding or when the taxpayer requests judicial review of a domestic audit requirement. CRA will have more time to reassess tax liabilities in non-compliance disputes.

If the tax owing exceeds $50,000, the taxpayer could face an additional 10% of the aggregate tax payable for each taxation year in which the compliance order could be imposed. Third parties, such as financial institutions fall under this umbrella as well.

The Minister can impose a lesser fine or none at all and if it’s determined that solicitor-client privilege must be considered.

Foreign Holdings and Crypto: If you have clients who have foreign holdings, they should also be updated. C-31 empowers the CRA to require Canadian residents and non-residents to provide documents located outside of Canada if they are relevant to the enforcement of an international treaty or agreement.

If your clients have crypto-assets they need to be aware that C-31 allows the CRA to compel crypto platforms to share user information with the Agency. This represents a move to limit tax evasion using crypto currency.

The Bottom Line: Canada’s income taxation system is based on self-assessment and compliance, and the burden of proof is on the taxpayer to provide evidence of reporting accuracy. It is critical, therefore to file an “audit-proof” tax returns. A big take-away? CRA now will have the power to extend audits and reassessment periods when a Notice of Non-Compliance is issued to a taxpayer or non-arm’s length third parties. It is a situation to be avoided.

Communicate with your clients how vital it is for them to keep accurate records and to have them ready in the event of an audit. Good record keeping, digitally stored, will save them time and money, a role you can help with during tax season and beyond. There is no need to stress about potential penalties when the taxpayer is ready to meet the burden of proof. And, properly guided, this critical requirement of our taxation system will also make your job much easier at tax time.

For more information, and a deep dive on new audit powers be sure to register for the September 23 CE Savvy Summit on Audit Defence. You’ll learn about:

• Taxpayer Appeal Rights: Know exactly what protection is available to taxpayers under their rights to appeal and what deadlines need to be met to obtain them.
• Identifying Auditor Boundaries: Learn when and how CRA auditors can overstep their authority and how to correspond with them effectively.
• Navigating Voluntary Disclosures: Understand the latest rules, penalty relief, and VDP (Voluntary Disclosures Program) applications.
• Handling Complex Assets: Manage audits involving complex transactions involving real estate and capital gains taxation, rules for intergenerational business transfers, trust reporting and more.

Until June 15, early bird registrations apply to multiple CE Summit registrations and the DMA-Tax Services Specialist designation. 

Check out the new video that introduces the six courses in the program,

We also invite you to weigh in with your thoughts on the following question:

“According to CRA, Canadians experience improved service delivery and responsiveness from the CRA this tax season Do you agree?”

Finally, be sure to tune into Real Tax News With Evelyn Jacks and Friends wherever you listen to your favourite podcasts for interpretations of the latest tax news.