Tag Archives: Canadian Revenue Agency (CRA)

Search warrant’s validity does not need to be confirmed for CRA to examine items seized as part of criminal investigation

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Originally published on Fasken’s White Collar Post blog, under the title “CRA Can Examine Items Seized During Criminal Investigation Before Validity of Search Warrant Confirmed“.

By Jenny P. Mboutsiadis and Anastasia Reklitis

The Canada Revenue Agency (“CRA”) can examine and make copies of items seized by the Royal Canadian Mounted Police (“RCMP”) pursuant to search warrants issued during a criminal investigation without having to wait for a determination of whether the warrants were valid.  This was confirmed by the British Columbia Supreme Court in Canada Revenue Agency v. Royal Canadian Mounted Police, 2016 BCSC 2275.  The CRA has not appealed the decision.

In this case, the CRA applied to the court under subsection 490(15) of the Criminal Code, RSC, 1985, c. C-46, for access to items obtained by search warrants.  The search warrants had been issued based on the belief that those named in the warrants (“Named Persons”) had committed criminal offences, such as laundering proceeds of crime, possession of property obtained by crime, and importing and trafficking in a controlled substance.  The items seized included large amounts of cash, numerous documents and computers, and other electronic devices and media containing business, accounting, and tax records.

The CRA argued that it was permitted access because it is a person “who has an interest in what is detained”, thereby satisfying the applicable Criminal Code provision.  The Named Persons opposed the CRA’s application on numerous grounds.  The RCMP took no position.

The Named Persons’ first argument was that a determination that the seizure is lawful is a pre-condition to the CRA’s entitlement to access any materials.  The Named Persons had already commenced the process in the Provincial Court that could possibly lead to the quashing of some or all of the search warrants and argued that, therefore, the CRA’s application should be adjourned until the validity of the warrants is determined from that process.  The court rejected this argument and explained that the warrants were presumptively valid and the Named Persons have the burden to establish otherwise.  A mere challenge with vague possibilities was not enough to satisfy the court that the warrants were invalid.

The Named Persons’ second argument was that the CRA’s application should fail because it did not have an interest in the seized items.  The court found to the contrary:  the CRA did have an interest because the items could be relevant to various tax investigations in which it was involved, which were independent of the RCMP investigations.  In particular, the items were relevant to determining potential tax offences involving some or all of the Named Persons, including tax evasion and the filing of false tax returns.

The Named Persons’ third argument was that any order allowing the CRA access should contain specific restrictions relating to privacy, privileged material, and relevance.  The court refused to place any restrictions as it did not find it appropriate to limit the examination of the evidence.

The CRA’s application was allowed and access to the seized items was granted.  In doing so, the court stated that there is nothing inherently wrong with law enforcement officials cooperating and sharing legally-obtained information.  Preventing the CRA from accessing the RCMP gathered information would delay the CRA’s investigation, thereby prejudicing its effectiveness and the likelihood of charges arising from it.  The court’s view was that it is in the public interest that the RCMP and CRA investigations proceed concurrently as they concern offences arising from the same search warrants.

 

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GST/HST burden, insolvent suppliers, and the pros & cons of credit notes

lab-316553On January 12, 2018, the Canadian Federal Court of Appeal (the “FCA”) released its decision in North Shore Power Group Inc. v. Canada, 2018 FCA 9 (“North Shore Decision”), which addressed the tax implications to a purchaser of receiving credit notes from an insolvent supplier.  The FCA’s unanimous decision also sheds light on the scope of a purchaser’s obligation for unremitted goods and services tax/harmonized sales tax (“HST”) and illustrates how the textual, contextual and purposive approach to statutory interpretation is applied by Canadian courts.  The decision also serves as a useful reminder of the practical considerations for purchasers, as well as suppliers, in using credit notes when dealing with refunds.

HST overpayments generally

By way of background, HST overpayments made by a purchaser to a supplier are generally addressed in one of two ways: (1) the purchaser files a rebate with the Canada Revenue Agency (the “CRA”) for the tax (an option that many suppliers favour), or (2) the supplier can refund the tax to the purchaser and claim the refunded tax back in its HST return (an option that many purchasers favour).  The rules relating to option (2) are set out in section 232 of Part IX of the Excise Tax Act (Canada) (the “HST legislation”), and were the subject of the North Shore Decision.

Section 232 of the HST legislation

Subsection 232(3) is triggered when a supplier “adjusts, refunds or credits” HST under section 232 (e.g. because the HST was incorrectly charged or the price was later reduced) to a purchaser and generally requires, among other things, that the supplier “within a reasonable time, issue to the other person a credit note, containing prescribed information…” If the purchaser has already claimed back the HST paid to the supplier as an input tax credit (“ITC”), section 232 requires the purchaser to repay the credited HST to the CRA when it files its HST return, so that it is prevented from recovering the single HST payment twice (i.e. once as an input tax credit and once as a credit from the supplier).

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Paradise Papers and the new voluntary disclosures program

sweet-ice-cream-photography-122596On November 5, 2017, a massive leak of financial documents referred to as the Paradise Papers was released to the public. The leak involves multiple jurisdictions and contains nearly 13.4 million confidential electronic documents relating to offshore investment. The Paradise Papers comes largely from Appleby, a law firm based in Bermuda, and from the corporate registries of 19 tax havens.

The Paradise Papers cover the period from 1950 to 2016 and involve over 120,000 people and companies across the world, including government officials, entertainment personalities and corporate giants. It also involves more than 3,000 Canadian individuals and corporations, which is five times more than the ones from the Panama Papers.

On November 3, 2017, just a few days prior to this new leak, the Canada Revenue Agency (the “CRA”) delivered a statement (document) to highlight its work to combat tax evasion and tax avoidance. The CRA stated having “currently more than 990 audits and more than 42 criminal investigations related to offshore underway”, 123 of which involve participants and facilitators named in the Panama Papers. In light of the recent Paradise Papers leak, the CRA already announced that it is reviewing the data and promised to take “appropriate action”.

Furthermore, as part of the CRA’s strategy to combat offshore tax evasion and aggressive tax planning, the CRA announced earlier this year that a revised voluntary disclosures program policy would be introduced in 2018. The proposed changes were initially supposed to be implemented on January 1, 2018, but the CRA is delaying the implementation until March 1, 2018. The formal keys changes confirmed by the CRA will :

  • eliminate the « no-names » disclosure process;
  • require payment of the estimated tax at the time of the application;
  • cancel relief if it is subsequently discovered that the application was not complete due to a misrepresentation; and
  • create a two tracks system by introducing a « General Program » for minor non-compliance and a « Limited Program » for major non-compliance with limited relief in certain circumstances;

Such circumstances could include, for example :

  • Situations where large amounts of tax were avoided;
  • Active efforts to avoid detection and the use of complex offshore structures;
  • Multiple years of non-compliance;
  • Disclosures motivated by CRA statements regarding its intended focus of compliance, by broad-based tax compliance programs or by the reception of leaked confidential information by the CRA such as the Paradise Papers data leak; and
  • Other circumstances in which the CRA considers that there was a high degree of guilt in the taxpayer’s conduct contributing to his failure to comply.

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GST/HST Voluntary Disclosures – New Rules are Coming March 2018

office-1209640_1920On December 15, 2017, the Canada Revenue Agency (the “CRA”) released new guidelines on the rules applicable to voluntary disclosures that are made (or for which the name of the taxpayer is disclosed) on or after March 1, 2018.  Like the earlier draft guidelines, which were released on July 9, 2017, the new guidelines include a separation of the rules applicable to income tax voluntary disclosures and the rules applicable to disclosures of errors relating to GST/HST and other non-income taxes.  Below is a summary of the new voluntary disclosures program for GST/HST (“VDP”).

Background

The voluntary disclosures program allows taxpayers to make disclosures to the Canada Revenue Agency to correct inaccurate or incomplete information, or to disclose information not previously reported. We understand there were concerns within the CRA that the existing program was overly generous to participants in the program (as compared to taxpayers who had been fully compliant), and proposals to revise the program have been in the works for some time now.  In this regard, the CRA issued an earlier version of the VDP guidelines for comments on June 9, 2017, with an initial proposed implementation date of January 1, 2018.

There was much speculation that this implementation date would be postponed, as well as  hope that the final guidelines would address concerns expressed by many tax practitioners that certain proposed measures in the June 9, 2017 version were too harsh and would lead to few taxpayers choosing to avail themselves of the program.  In the result, the new VDP guidelines includes significant improvements from the July 9, 2017 version.  As compared to the program that is currently in place, the new VDP is more beneficial for taxpayers in some cases, and worse for taxpayers in others.

VDP Categories

The new VDP includes three categories for disclosures, depending on the taxpayer’s circumstances.

Category 1 (GST/HST Wash Transactions Disclosures)

Category 1 disclosures include disclosures of errors relating to qualifying GST/HST “wash transactions”. This generally covers situations where a taxpayer who supplied goods or services fails to collect and remit tax as required, and the recipient would have been entitled to full input tax credits.  Wash transactions will continue to be eligible for full relief from interest and penalties under the new VDP. As for the relevant period, these disclosures will require disclosure of previously inaccurate, incomplete or unreported information for the four calendar years before the date the VDP application is filed.

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Panama Papers: Canada Revenue Agency moves into full gear

panama-1675062_1920This posts was originally published on White Collar Post under “Panama Papers: CRA getting tougher on tax evasion” – a Fasken Martineau blog.

We are beginning to see the legal enforcement fallout from the now infamous Panama Papers.  Canada Revenue Agency’s (CRA) concerted efforts to find undeclared offshore money and assets is moving into full gear. In addition to pursuing typical civil audits, the CRA is now executing search warrants and launching criminal investigations for tax evasion.

The CRA is actively gathering information from domestic and international sources to identify and charge offenders criminally. Since 2015, the Canadian government has required domestic financial institutions to report to the CRA all international electronic fund transfers of $10,000 or more.  In addition, as of March 2016 the CRA has analyzed over 41,000 transactions worth over $12 billion dollars, involving four jurisdictions and particular financial institutions of concern, and has initiated risk assessments on 1,300 individuals named in the Panama Papers. This has resulted in approximately 122 CRA audits to date and counting. However, it is not just taxpayers who are subject to the CRA’s scrutiny and who may be criminally charged. The CRA is also investigating the enablers and advisors, including the lawyers and accountants, who facilitated the hiding of taxpayer money and assets offshore.

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