Following the Budget 2019 announcements, the Canada Revenue Agency (“CRA”) launched a Real Estate Task Force whose mission is to deter tax non-compliance in the real estate market.
The federal government has allocated
significant funds and resources to scrutinize real estate transactions in which
parties have failed to comply with the appropriate regulations.
Here you will find a CRA questionnairesent to selected individuals and corporations as part of the audit process. The questionnaire is broad, contains over 35 questions and requests significant documentation.
estate audit program is specifically aimed and can impact:
Promoters and developers for sales tax compliance;
Taxpayers involved in property flipping activities;
Taxpayers earning commissions in the real estate sector; and
Taxpayers reporting the sale of a principal residence.
In light of the foregoing, structuring and planning real estate transactions while ensuring tax compliance is of primary importance. If you have received a similar information requests, seeking legal guidance and advice is recommended before answering the questionnaire.
Nicolas Simard has extensive experience in every kind of tax litigation concerning income tax, consumption taxes and voluntary disclosure. He may be reached at 514-397-5288.
David H. Benarroch specializes in many areas of tax, including tax litigation, tax compliance and tax planning.
reports that the Canada Revenue Agency (“CRA”) has initiated audits in the
cryptocurrency space, sending select taxpayers a lengthy and exacting
questionnaire requiring information regarding the taxpayer’s investments,
cryptocurrency purchases and sales, mining history, assets, wallets, and
Initial Coin Offering (“ICO”) participation.
The initiative is part of the CRA’s
underground economy strategy, which describes its general purpose as protecting
the integrity of Canada’s tax system and limiting the reduction in tax revenues
that results from, amount other things, the digital economy.
In a public statement, the CRA commented
that in 2017 it developed a dedicated crypotocurrency unit. Unsurprisingly, in
this statement, the CRA refused to provide any information on the specific
information or criteria they use to select files for audit, though it has
confirmed that it currently has over 60 active audit files in the
The questionnaire asks about the history of the taxpayer’s involvement in the cryptocurrency space, investments, transactions with specific exchanges such as shapeshift exchange and changelly, use of cryptocurrency mixing services and tumblers, and the reasons for using such services. The questionnaire also inquires into cryptocurrency storage, requiring information about both hot and cold wallets, and requires detailed information on trading activity, the source of funds used in cryptocurrency activities, investments in ICOs, commercial transactions using cryptocurrency and mining activities.
The questionnaire describes itself as an ‘initial interview’ and alerts taxpayers that there may be follow up questions.
The CRA’s cryptocurrency audits follow
the example of the Internal Revenue Service, who has been actively auditing the
cryptocurrency space for several years and which won a partial victory in late
2017 when the United States District Court Northern District of California
ruled that the San Francisco coin exchange Coinbase must supply the IRS with
identifying information on all users who had more than $20,000 in any one
transaction type (buy, sell, send, or receive) in any one year during the 2013
to 2015 period.
Despite the underground, ‘off the grid’
character of cryptocurrency, Canadians who have invested in cryptocurrency, or
engaged in the space in any capacity, may have significant tax liabilities.
The CRA takes the position that
cryptocurrency is not a form of money, but a type of property. Generally
speaking, what this means is that cryptocurrency will be taxed like a commodity
such as gold, and taxpayers are required to report all associated gains and
If you have invested in cryptocurrency,
if you have engaged in the space as a miner or trader, if you have been paid in cryptocurrency or if
you have participated in an ICO, regardless of whether you have gains or
losses, we advise contacting a tax professional to discuss your exposure.
On July 16, 2018, the Ontario Superior Court of Justice delivered a major victory to Canadian charities that devote all or a portion of their resources to non-partisan political activities.
In Canada Without Poverty v. Attorney General of Canada, the Court held that non-partisan political activities constitute charitable activities for the purposes of the Income Tax Act (Canada) (the Act), provided that they are carried out in furtherance of an organization’s charitable purposes. Accordingly, a registered charity may devote significantly more than 10% of its resources to such activities, contrary to long-standing Canada Revenue Agency (CRA) policy.
This decision is of particular interest to registered charities that have been the object of increased audit activity from the CRA for having engaged in political activities. Depending on the specific circumstances at issue, the decision may forge a path to a successful outcome for those involved in administrative audits with the CRA or legal proceedings before the courts.
On June 21, 2018, the Ontario Court of Appeal handed down a decision in the case of Canada Life Insurance Company of Canada v. the Attorney General of Canada and Her Majesty the Queen in the Right of Ontario. This is a very troubling decision for taxpayers and their professional advisors. The facts are briefly as follows. The Canada Life Insurance Company of Canada (“CLICC”) and certain of its affiliates carried out a series of transactions and events in December 2007. The purpose of the transactions was to realize a tax loss to offset unrealized foreign exchange gains accrued in the same taxation year. The Canada Revenue Agency (the “CRA”) disallowed the claimed loss in the reassessment of CLICC’s taxes for 2007. Asserting that it had proceeded on the basis of erroneous advice from its tax advisor, CLICC applied to the courts for an order setting aside the transactions and replacing them with other steps retroactive to the date of the original transaction.
The problem arose because the tax loss was to be triggered by the winding up of a limited partnership. The mistake was that the general partner of the limited partnership, CLICC GP, was also wound up at the same time that the partnership was wound up. This resulted in the limited partner, CLICC, carrying on the business of the limited partnership alone within three months of the dissolution of the partnership.
CLICC originally applied for an order rectifying the transaction so as to move the winding-up of the general partnership from December 31, 2007 to April 30, 2008. The taxpayer was successful in its application before the application judge. However, the Attorney General appealed the decision. While the appeal was pending, the Supreme Court of Canada, in the case of the Fairmont Hotels, overruled previous decisions which permitted rectification. The change in law restricted the scope of the equitable remedy of rectification to the correction of written agreements. Continue Reading »
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.