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Baytex: ABQB Grants Rectification

In Baytex Energy Ltd. et  al. v. The Queen (2015 ABQB 278), the Alberta Court of Queen’s Bench considered whether rectification and/or rescission were available to address mistakes that could result in the taxpayer being taxed on additional resource income of $135 million for 2003-2006 and $528 million for 2007-2010.

The Court determined that the requirements for rectification had been satisfied and thus granted the rectification of certain documents to accord with the parties’ original intention.


Baytex Energy Trust (the “Trust”) was a publicly-traded mutual fund trust (the Trust later converted to Baytex Energy Corp. (“BEC”), a publicly-traded dividend-paying corporation). The Trust wholly-owned Baytex Energy Ltd. (“BEL”), which owned and operated oil and gas properties prior to transferring the properties to Baytex Energy Partnership on January 1, 2010.

The Baytex companies were subject to the pre-2007 oil and gas royalty regime in the Income Tax Act, which required certain additional resource income for an oil and gas producer (referred to in the judgment as “Phantom Income”) and denied certain deductions for provincial Crown royalties and taxes. A 25% resource allowance was available to the producer. The Phantom Income could be transferred by the producer to another party, and a non-deductible and off-setting reimbursement would be made back to the producer. In this case, BEL and the Trust agreed that BEL would transfer 99% of its income and cash flow to the Trust.

In the Budget of February 18, 2003, the federal government announced the phase-out of the oil and gas royalty regime and the elimination of the regime as of January 1, 2007.

Parties’ Agreements

BEL and the Trust executed a Net Profits Interest Agreement (the “Original Agreement”) in September 2003 for the transfer of income and the off-setting reimbursement. However, the written terms of the Original Agreement failed to address the transfer of Phantom Income. A subsequent agreement (the “Collateral Agreement”) – not all of the terms of which were reduced to writing – addressed the transfer of Phantom Income.

The parties intended that the transfer and reimbursement would cease effective January 1, 2007 because of the elimination of the oil and gas royalty regime in the Income Tax Act.

However, from January 1, 2007 to December 31, 2010, the parties continued the practice of transferring and reimbursing the Phantom Income. When this error was initially discovered in 2008, the Baytex companies’ tax professionals advised that the Original Agreement should be amended to provide for the reimbursement beyond 2006 to be consistent with the practice of the parties. The Baytex companies were told this amendment would have no adverse tax consequences. Based on this advice, the parties entered into an Amended Agreement.

The CRA reviewed the Baytex companies’ arrangements and concluded that an additional $135 million was taxable income to BEL for 2003-2006, and that the Trust earned an additional $528 million of taxable income for 2007-2010.


The Baytex companies sought rectification of the agreements. The CRA did not oppose the rectification of the agreements for the pre-2007 period, but did oppose the rectification for the post-2006 period on the basis that the Baytex companies had intentionally amended the Original Agreement, based on professional advice, to reflect the practice of transfer and reimbursement, and thus the parties mistaken assumption about the tax consequences would not meet the test for rectification. The taxpayers argued that the evidence (which consisted of two affidavits of BEC’s Chief Financial Officer) established that the parties always intended to transfer and reimburse the Phantom Income and that no transfers would occur after January 1, 2007.

The Court considered the authorities on rectification and concluded that the test for granting rectification had been met. The uncontroverted evidence was that the parties’ common intention was to transfer BEL’s income to the Trust, and that this practice would cease as of January 1, 2007. The Original Agreement and the Amended Agreement were inconsistent with this common intention. The precise form of the corrected agreement was not in dispute. And there were no other considerations that would limit/prevent the availability of rectification. Accordingly, the Court granted the rectification.

While this determination was sufficient to dispose of the application, the Court did go on to consider whether, if the Court was wrong on rectification, rescission was available to the parties. The Court held that the Amended Agreement triggered an unintended tax consequence that constituted a fundamental mistake that went to the root of the contract. The Court concluded that rescission was available to rescind the Amended Agreement, which would restore the parties to their Original Agreement, which the Crown had agreed should be rectified.

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Baytex: ABQB Grants Rectification

Highlights from the Toronto Centre CRA & Professionals Group Breakfast Seminar – February 19, 2015

On February 19, 2015, at the Toronto Centre CRA & Professionals Group Breakfast Seminar CRA representatives provided an update on two topics: 1) online CRA e-services, and 2) Regulation 102 and Regulation 105 waivers for non-residents.

An Overview of E-Services for Tax Professionals and Businesses

Maxime Leger and Marc Boisseau, Senior Programs Officers at the Assessment and Benefit Services Branch, provided updates regarding CRA e-services under the My Account, My Business Account and Represent a Client portals. In general, these online portals allow taxpayers, or designated representatives, to submit documents, view and manage various tax accounts online.

My Account

  • Two levels are now required to login and access My Account. In level 1, the taxpayer is required provide personal information (social insurance number, date of birth, postal code, amounts entered on income tax and benefit return) to create a user ID and password. In level 2, the taxpayer receives the CRA security code.
  • After obtaining online access to My Account, Taxpayers can view Notice of Assessment and the status of tax returns. If the taxpayer registers to manage online mail, the CRA will no longer send paper copies. The taxpayer will receive email notifications to check My Account.
  • Taxpayers can register for online mail through NETFILE or EFILE software, by filing a T1 return, online using My Account service or by speaking with an agent.
  • Canadian resident individuals, corporations, and certain partnerships and trusts that, at any time during the year, own certain foreign property costing more than $100,000 are required to file Form T1135 Foreign Income Verification Statement. As of February 9, 2015, individual taxpayers are able to file this form electronically for the 2014 tax year. In the future, electronic filing will be extended to corporations and partnerships.

My Business Account

  • My Business Account has been expanded to allow taxpayers to file returns, Notices of Objection and refunds in regards to excise duties, excise taxes, air travelers security charges and softwood lumber products export charges.
  • This account also permits additional GST/HST elections i.e. GST20-1 Notice of Revocation of an Election for GST/HST Reporting Period by a Listed Financial Institution and RC7220 Election for GST/HST and QST Reporting Period for a Selected Listed Financial Institution
  • Updated options such as payment searches for payments made but not credited to the account and requests to transfer misallocated credits have been added to the Payroll Accounts.
  • Taxpayers can now authorize the CRA to withdraw pre-authorized debits from bank accounts. Taxpayers and designated representatives may manage direct deposits directly through My Business Account.

Represent a Client

  • The CRA noted that business authorization requests can be submitted online and will be reviewed and processed within five business days.
  • A non-resident representative living in the U.S. who wants to access the Represent a Client portal can obtain a non-resident representative number (NRRN) by completing the RC391 Application for a CRA NRRN.
  • Additional changes are expected in April 2015 to permit representatives to register new businesses and add program accounts on behalf of taxpayers.
  • The Tax Data Delivery Service allows authorized representatives to electronically receive information to help client income tax and benefit returns. It delivers tax information including T4 slips (i.e., T4A, T4E, T4A(OAS), T4A(P)), Home Buyers’ Plan, tuition carryover amounts.
  • To use this service, representatives must be a registered electronic filer, registered in Represent a Client, use an EFILE certified product and have a valid Form T1030 Authorizing or Cancelling a Representative.

Mobile Apps

  • In addition to the updated services provided in the online portals, the CRA also introduced new mobile apps.
  • In August 2014, the CRA Business Tax Reminder was released for small and medium sized enterprises with annual revenues of $20 million or less and less than 500 employees. This app allows taxpayers to create reminders and alerts for key dates related to instalment payments, returns, and remittances. See our post here.
  • More recently, on February 9, 2015, the CRA released MyCRA. This new app allows individual taxpayers to view Notices of Assessment, tax return status, and RRSP and TFSA contribution room. In the future it will permit taxpayers to update contact information and enroll for direct deposit.

Non-Resident Taxation in Canada – Regulation 102/105

Claudio DiRienzo, Policy and Technical Advisor at the Specialty Audit Division Compliance Programs Branch, provided an update on issues pertaining to Regulations 102 and 105. In general, these regulations require payors of non-residents rendering services in Canada to withhold and remit tax on the payments subject to treaty-based waivers.

Reduce Red Tape

  • The CRA acknowledged current frustrations among taxpayers and representatives with the cumbersome Regulation 105 and 102 processes and noted that the CRA continues to consult with stakeholders and tax professionals to reduce red tape. However, the CRA emphasized that certain processes were required to comply with existing legislation. The CRA suggested that amendments be made to the current legislation to help streamline the waiver process.
  • Centres of Expertise have been established for the waivers to ensure consistency among waiver requests. To shorten processing times, the CRA advised that comprehensive information be provided and a Business Number (BN) or Individual Tax Number (ITN) be applied for in advance.
  • CRA Document No. IC 75-6R2 states that approximately 30 days are required to review waiver applications. However, the CRA noted in reality the wait time varies on inventory and workload.

R102J and R102R Waivers

  • The CRA commented on the difference between R102J and R102R waivers. Both are treaty-based waivers used by non-residents to reduce the amount of withholding. The R102J is a joint employer and employee waiver and applies only to amounts less than $5,000 if the other country has a tax treaty with Canada or amounts less than $10,000 if the other country is the US. The waiver is effective for a year. To accommodate employers, the waiver is retroactive for 60 days prior to the date granted and an ITN or SIN can be provided at the end of the year.
  • In contrast, the R102R does not have the 60-day retroactive concession and requires a SIN or ITN at the time the waiver is granted.

Short Waivers Granted

  • The CRA acknowledged concerns that Regulation 102R waivers were being issued for short time periods (i.e., six months). As a result, taxpayers were required to reapply for waivers for the remainder of the taxation year. The CRA explained that this arose out of concerns that the employee would constitute a permanent establishment of the employer under Article XV, the Dependent Personal Services provision of the Canada-U.S. Tax Treaty.
  • The CRA representatives responsible for processing waivers do not make determinations in regards to a permanent establishment at the time of the waiver. This determination is made at the time of filing.
  • The CRA noted that it has now revised its position. If the applicant provides the approximate number of days he or she will be in Canada and approximate remuneration amounts, the waiver applies for a full calendar year.


  • The CRA also commented on the use of secondment arrangements to manage Regulation 102 and 105 issues. A secondment is the temporary assignment of loan of an employee between two entities. The CRA noted that whether withholding is required under a secondment arrangement is a question of fact. In order to waive withholding a genuine employer-employee relationship must exist.
  • No Regulation 105 withholding is required for reasonable reimbursements under a secondment. CRA Document No. IC 75-6R2, which provides guidelines on secondment arrangements, states that administrative overhead of $250 per month per employee constitutes a reasonable reimbursement.

Updates in Case Law and Administrative Policy

  • The CRA noted that it accepts the Weyerhaeuser Company Limited v. The Queen (2007 TCC 65) decision, which generally held that not all payments to non-residents are subject to withholding tax. However, the CRA noted that they would only apply Regulation 105 consistently with this decision if the taxpayer’s information is documented at the time the payment is made.
  • The CRA is currently in the process of developing a set of guidelines and policy directions for Regulation 102 and Regulation 105 and updating CRA Document No. IC 75-6R2. An online portal for waivers is expected to be launched in 2016.

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Highlights from the Toronto Centre CRA & Professionals Group Breakfast Seminar – February 19, 2015

Foreign Charities and the Changing Landscape of CRA Charity Audits

There has been a flurry of recent scrutiny and activity in the areas of foreign and domestic charities – few foreign charities remain on the list of qualified donees since the changes to the definition of “qualified donee” in the Income Tax Act, and the CRA’s Charities Directorate appears to have taken a keen interest in the political activities of certain domestic charities.

Donors and charities would be prudent to monitor these developments and obtain professional advice where necessary.

Foreign Charities

Before 2013, a “qualified donee” under the Income Tax Act automatically included those foreign charities to which the Canadian government had made a gift in previous years (within a certain timeframe). However, that changed when the definition of qualified donee was amended to include only those foreign organizations that have applied to the CRA for registration, which would be granted if the foreign charity received a gift from the Canadian government and the CRA was satisfied that the foreign charity is carrying on relief activities in response to a disaster, providing urgent humanitarian aid, or carrying on activities in the national interest of Canada.

The CRA website lists only one foreign charity that has been registered – The Bill, Hillary and Chelsea Clinton Foundation. The CRA website also lists those organizations that had received gifts from the Canadian government before the changes to the definition of qualified donee.

Political Activities and CRA Charity Audits

The foreign charity changes occurred around the same time the CRA Charities Directorate increased its “political activities compliance efforts”. In general, charities are restricted from engaging in or supporting political activities unless those activities are wholly subordinate to their other charitable purposes. The CRA’s administrative position is that a charity must devote less than 10% of its total resources in a year to political activities.

The CRA focus on charities and political activities sparked many media articles raising the issue of whether the CRA’s auditing practices were themselves inherently politically-motivated (see articles here, herehere and here).

Cathy Hawara, the Director General of the CRA’s Charities Directorate, has denied accusations that these charity audits were politically motivated (see Ms. Hawara’s speech to the CBA Charity Law Symposium on May 23, 3014). The CRA also publicly stated that recent audits of charities were intended to focus on all types of charities and not only those with certain political inclinations. Further, the CRA has recently published a Charities Program Update which (among other things) aims to increase the transparency of its audits in the charitable sector and provide guidance as to how audits for charities involved in political activities are conducted. However, at the same time, the CRA has publicly stated that it will not divulge the guidelines for political activity audits of charities.

The controversy surrounding the CRA’s audit selection process persists. On September 15, 2014 a letter signed by 400 academics was released, demanding that the CRA halt its audit of the Canadian Centre for Policy Alternatives (“CCPA”). This letter was sent in response to the release of a CRA document obtained by the CCPA pursuant to an access to information request wherein the CRA states the reason for audit as follows: “A review of the Organization’s website… suggests that the Organization may be carrying out prohibited partisan political activities, and that much of its research/educational materials may be biased/one-sided.”

In their letter, the academics counter that “critical policy analysis does not equate with political activism, nor is it ‘biased’ or ‘one-sided’.” They argue that there is legitimate concern that charities are now self-censoring to avoid aggravating auditors and this audit activity will stifle sound, effective, and legitimate research.

On October 20, 2014, the Broadbent Institute released a report that adds further momentum to the speculative argument that the CRA is less interested in compliance and more interested in politically-motivated retribution against government critics (see also here).

The report highlights 10 “right-leaning” charities that have apparently escaped CRA audit, despite making public statements that may indicate that such charities are carrying out political activities without reporting them. The report concludes by suggesting that an impartial inquiry into the CRA’s audits of charitable organizations is the only way to come to a clear conclusion on this controversial matter.

The message is clear. The CRA is increasing scrutiny on political activities in the charitable sector. Charities should take active steps to ensure that they are compliant with applicable legislation.

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Foreign Charities and the Changing Landscape of CRA Charity Audits

CRA Update: Aggressive Tax Planning

At the Toronto Centre Canada Revenue Agency & Tax Professionals Breakfast Seminar on June 10, 2014, the Canada Revenue Agency (“CRA”) provided an update on selected CRA Compliance Measures in the Aggressive Tax Planning Division. The update was provided by Len Lubbers, Manager, GAAR and Technical Support, Aggressive Tax Planning Division of the Compliance Programs Branch.

Mr. Lubbers displayed and referred to a collection of powerpoint slides (some of which contained detailed statistics), but unlike previous seminars the CRA did not distribute copies of the slides during or after the presentation.

The CRA provided updates on (i) reportable tax avoidance transactions, (ii) the CRA’s related party initiative, (iii) the T1135 foreign income verification statement, (iv) gifting tax shelters, and (v) third party penalties. Here is a brief recap of some of the highlights from the presentation:

Reportable Tax Avoidance Transactions

  • New subsection 237.3 of the Income Tax Act, which addresses reportable transactions, became effective as of June 26, 2013, with retroactive effect to January 1, 2011;
  • Taxpayers who must report a transaction under subsection 237.3 must file form RC312 “Reportable Transaction Information Return“;
  • The deadline for 2012 and earlier years was October 23, 2013, and for subsequent years the RC312 information return is due by June 30 of the year following the transaction;
  • The CRA is currently reviewing the forms filed as of October 2013. The CRA did not disclose the number of RC312 forms that have been filed.

Related Party Initiative/High Net Worth Individual Program

  • The related party initiative program was piloted in 2005 and fully adopted in 2009;
  • The CRA considers that the title “Related Party Initiative” was “not particularly descriptive” of the program;
  • Initially, the program was targeted at individuals with a net worth of $50 million or more and where a taxpayer had 30 or more entities in a corporate group;
  • Several recent changes have expanded the scope of this initiative – namely, the CRA eliminated the requirement that the taxpayer’s wealth be held in 30 or more corporate entities;
  • Additionally, the $50 million threshold for individuals will be relaxed to include corporate groups where there are significant assets held by a group of individuals. For example, consider three individuals that own companies valued at $100 million. Separately, these individuals would not meet the $50 million threshold, but under the new parameters these individuals will be included in the audit program if there is sufficient “economic interdependence”;
  • Further, the long-form “questionnaire” issued by the CRA to taxpayers under audit in the program will now be used by the CRA to gather information from high-net worth individuals who are not under audit;
  • The CRA has formed audit teams in the Aggressive Tax Planning Division to handle these files (previously, these files were handled by audit teams in the Large Business Audit Division).

T1135 Foreign Income Verification Statement

  • The T1135 Foreign Income Verification Statement was introduced in 1995 as a response to concerns about the growing popularity of the use of international tax havens;
  • A revised T1135 form was issued in June 2013;
  • Given the severity of penalties which result from failure to file the T1135 information form, the CRA recommends a voluntary disclosure be made by taxpayers.

Gifting Tax Shelters

  • The CRA continues to monitor and reassess gifting tax shelters;
  • As of 2014, the CRA has reassessed 189,000 taxpayers and denied more than $3 billion of donation tax credit claims;
  • The CRA has revoked the registration of charities that were involved in gifting tax shelters, and the CRA has imposed $162 million of third-party penalties;
  • The CRA noted that the number of participants in tax shelters has been decreasing (i.e., 2012: 8,410 participants vs. 2013: 2,517 participants). The total donations to gifting tax shelters has also decreased (i.e., 2012: $266,675,953 vs. 2013: $7,518,712);
  • The CRA noted the new rule in subsection 225.1(7) that requires a taxpayer to pay 50% of the amount assessed (or the amount in dispute);
  • As of 2013, for taxpayers who participate in a tax shelter, the CRA will not assess a taxpayer’s return until the CRA has audited the tax shelter. In such cases, the CRA will assess a taxpayer’s return if he/she agrees to have the tax shelter credit claim removed from the return.

Third-Party Civil Penalties

  • Section 163.2 was introduced in 2000 (section 285.1 of the Excise Tax Act contains a similar penalty);
  • The CRA’s views on third party penalties is found in Information Circular IC-01-1 “Third Party Civil Penalties” (September 18, 2001);
  • Under section 163.2 there are two types of penalties: a tax planner penalty (under subsection 163.2(2)) and a tax preparer penalty (under subsection 163.2(4)). The CRA noted that both could apply to a taxpayer, but the maximum amount of the penalty in such a case would be the greater of the two amounts (i.e., the penalties are not combined (see subsection 163.2(14));
  • The process for the (potential) application of a penalty under section 163.2 is as follows: The local CRA auditor will gather facts of the taxpayer’s activities and circumstances. If a third party penalty may be applied, the auditor will refer the file to his/her senior manager in the local office. If the senior manager agrees that a penalty may be applied, the file will be referred to the CRA’s Third Party Penalty Review Committee at the CRA’s Ottawa headquarters. A third party penalty will only be applied upon the approval of the Third Party Penalty Review Committee;
  • 195 files have been referred to the Third Party Penalty Review Committee. Of these files, the CRA has applied a penalty in 92 files (for penalties totalling $181 million), has declined to apply a penalty in 87 files, and 16 files remain on-going;
  • The CRA awaits the Supreme Court of Canada’s decision in Guindon v. The Queen (Docket # 35519), which is tentatively scheduled to be heard on December 5, 2014. See our earlier blog posts on the Guindon case here and here.

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CRA Update: Aggressive Tax Planning

David: Charitable Tax Credit Allowed for Amounts Paid for Inflated Donation Receipts

Where a taxpayer receives an inflated donation receipt, may the taxpayer claim a charitable donation credit for the cash amount of the gift?

According to the Tax Court of Canada in David v. The Queen (2014 TCC 117), in the absence of any extraordinary circumstances, the answer to that question will be yes.


In David, the taxpayers paid certain amounts to a tax return preparer as cash donations to a registered charity. In exchange, the taxpayers received donation receipts from the charity in amounts the Minister claimed were ten times greater than their cash donations. The taxpayers subsequently claimed charitable donation tax credits under subsection 118.1(3) of the Income Tax Act (Canada) (the “Act”) based on the inflated donation receipts.

The Minister disallowed the full amount of the donation tax credits claimed by each taxpayer. The taxpayers appealed the Minister’s reassessments on the basis that at least a portion of the credits should be allowed.

Decision of the Tax Court of Canada

The Court determined on the evidence that the amount that each taxpayer paid as a donation to the charity was 10% of the face value of their donation receipt.

The Minister argued that the donation amounts were not true “gifts” and could not therefore give rise to a claim for charitable tax credits by the taxpayers. The basis for the Minister’s argument was that the amounts were paid on the expectation of receiving a benefit: an inflated charitable donation receipt.

The Court disagreed, stating that “the issuance of an inflated tax receipt should not usually be considered a benefit that negates a gift”. However, there may be extraordinary circumstances that should be taken into consideration. Accordingly, the Court concluded that the taxpayers were entitled to claim a charitable tax credit in respect of 10% of the face value of their donation receipts. The Tax Court did not consider the Minister’s argument that the taxpayers lacked donative intent as it was not raised in the Minister’s pleadings. The Court ordered the cancellation of the penalties (if any) imposed against the taxpayers.


David is a helpful decision for taxpayers whose claims for charitable donation tax credits have been entirely disallowed by the Canada Revenue Agency (“CRA”) on the basis that the provision of an inflated donation receipt vitiates a gift. As of the writing of this article, the David decision had not been appealed to the Federal Court of Appeal. If appealed, the Court of Appeal may clarify the law on gifts, donative intent and inflated donation receipts. For example, in reaching its conclusion, the Tax Court relied on the Federal Court of Appeal’s decision in The Queen v. Doubinin (2005 FCA 298), in which the Court of Appeal held that the issuance of an inflated tax receipt was not a benefit that negated the taxpayer’s gift. In Doubinin, the taxpayer had no knowledge of any wrongdoing and there was no expectation of a benefit when he made the donation. It is not clear whether or how much weight the Tax Court in David placed on these facts or if these facts are examples of “extraordinary circumstances” that should be considered by a court.

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David: Charitable Tax Credit Allowed for Amounts Paid for Inflated Donation Receipts

International and Transfer Pricing Audits: Toronto Centre Canada Revenue Agency & Professionals Breakfast Seminar

International and Transfer Pricing Audits

At the Toronto Centre Canada Revenue Agency & Professionals Breakfast Seminar on February 18, 2014, the CRA provided an update on international and transfer pricing audits. The slides can be found here. The discussion was led by Paul Stesco, Manager of the International Advisory Services Section, International and Large Business Directorate, Compliance Programs Branch of the CRA and Cliff Rand, National Managing Partner of Deloitte Tax Law LLP.  Here is a brief overview of some of the highlights from the presentation on how such audits are performed:

  • Research and Analysis Stage: the CRA uses the internet extensively for research (e.g. industry analysis, competitor analysis, etc.) as well as prior audit reports, tax returns and annual reports of taxapyers to identify transactions and the appropriate transfer pricing methods applicable to those transactions.
  • Mandatory Referrals to Headquarters: mandatory referrals by the field auditor to the International Tax Division (“ITD”) are required in several situations including: cost contribution arrangements, reassessments that could be issued after the tax treaty deadlines, transfer pricing penalties under subsection 247(3), recharacterization under paragraphs 247(2)(b) and (d), the application of subsection 95(6) and downward pricing adjustments under subsection 247(2) and (10). Situations which involve the use of “secret comparables” to reassess the taxpayer (i.e. comparables used by the CRA that cannot be found in a public database) will automatically be forwarded to the ITD; the CRA will not forward audit issues to the ITD if the “secret comparables” were used only for risk analysis.
  • Access to Taxpayers: during an audit, the CRA may request access to certain individuals involved in the taxpayer’s business. The CRA does not necessarily require physical access to non-resident taxpayers; a telephone interview may suffice. An interview with operational personnel is likely to streamline the audit and, as such, is in the best interests of the taxpayer. Taxpayers are permitted to record such interviews (even including the use of a court reporter to produce a transcript).
  • Currency of Auditsinstead of proceeding on a year by year basis, audits will now generally begin with the most current risk-assessed taxation year (and one back year) and may then move back to other open years in respect of the same issue.  Having said that, there are still “legacy files” within the CRA’s system.
  • Concerns/Complaints: a taxpayer who wishes to express concerns about a transfer pricing audit should follow the appropriate local chain of command: first contact the auditor, then the Team Leader and the relevant Section Manager at the local TSO. Taxpayers should refrain from directly contacting Head Office. The CRA stressed the importance of communicating with the audit team on a regular basis.
  • Contemporaneous Documentation Requirement in subsection 247(4): the CRA acknowledged that transfer pricing studies have been accepted even if they were prepared after the period to which they relate.
  • Transfer Pricing Review Committee (TPRC): two types of referrals proceed to the TPRC: (1) penalty referrals under subsection 247(3) which involve transfer pricing adjustments in excess of 10% of gross revenue or greater than $5,000,000; and (2) referrals of recharacterization as an assessing position under paragraph 247(2)(b).
    • As of October 31, 2013, penalty referrals made up 86.5% of all referrals while recharacterization referrals accounted for 13.5% of all referrals.
    • The taxpayer does not have direct access to the TPRC to make submissions. However, minutes of committee meetings may be obtained by making an Access to Information request.

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International and Transfer Pricing Audits: Toronto Centre Canada Revenue Agency & Professionals Breakfast Seminar