Navigating Tax Changes in 2024: Explaining the New CRA Audit Powers: What Small Business Owners Need to Know
The 2024 Budget has introduced several new powers for the Canada Revenue Agency (CRA) aimed at enhancing their ability to ensure compliance and enforce tax laws. These changes are designed to make tax audits more efficient and effective. As a small business owner, it is crucial to understand these new audit powers to stay compliant and avoid potential penalties. Here’s a comprehensive breakdown of the new CRA audit powers and what they mean for you.
Notices of Non-Compliance
The CRA has new powers to issue a “notice of non-compliance” when someone does not comply with a request for information or assistance. Understanding the steps involved can help you navigate this process effectively.
1. Issuance and Review:
- Issuance: If the CRA believes you have not provided the required information or assistance, they will issue a “notice of non-compliance.” This notice formally states that you have failed to comply with their request.
- Review: Once you receive this notice, you have the right to request the CRA to review it. To do this, you need to explain why you believe the notice is unreasonable or provide evidence that you have complied with their request. The CRA will then reconsider the notice.
2. Court Review:
- If you are not satisfied with the outcome of the CRA’s review, you can take it a step further by requesting a judicial review by a Federal Court judge. This means you are asking the court to evaluate whether the CRA’s decision to issue the notice of non-compliance was justified.
- The court will examine the evidence and make a ruling. If the court finds that the notice was issued unfairly, it can order the CRA to cancel it.
3. Extended Reassessment Period:
- Typically, the CRA has a limited time frame to reassess your tax returns, known as the reassessment period. However, if a notice of non-compliance is issued, this period is extended.
- The extension lasts as long as the notice of non-compliance is unresolved. This means the CRA has more time to reassess your taxes, ensuring they have sufficient opportunity to review all relevant information once it is provided.
4. Penalties:
- If you do not resolve the notice of non-compliance, a penalty can be imposed. The penalty is $50 for each day the notice remains outstanding, up to a maximum of $25,000.
- This penalty is intended to encourage prompt compliance. However, if the CRA or a court later determines that the notice of non-compliance was unreasonable or that you had complied with the request, the penalty will not be applied.
Questioning Under Oath
The CRA can now require that any information or documents provided during an audit be given under oath or affirmation. This applies to both written and oral information.
Compliance Orders
The CRA can obtain a compliance order from the court if a taxpayer fails to meet information requests. Here are the key points:
- Penalties for Non-Compliance: If a compliance order is issued, a penalty of 10% of the total tax payable for the relevant tax years will be imposed. This penalty only applies if the tax owed exceeds $50,000.
- Foreign-Based Information: The CRA can also seek a compliance order for foreign-based information or documents if a taxpayer fails to provide them.
Stopping the Reassessment Limitation Clock
Previously, if a taxpayer sought judicial review of a CRA requirement or notice, the reassessment period would be extended by the duration of the review. The new rules extend this to include any period during which a notice of non-compliance is outstanding, ensuring the CRA has adequate time to review all relevant information before the reassessment period expires.
Avoidance of Tax Debts
The CRA can address tax debt avoidance more effectively with new rules that ensure taxpayers cannot escape their tax liabilities through asset transfers to persons of non-arm’s length. These changes make the transferee jointly responsible for the tax debts.
Implications for Small Business Owners - notice of non-compliance
Receiving a notice of non-compliance can be stressful, but understanding these steps can help you manage the situation effectively:
- Issuance and Review: Act quickly if you receive a notice. Gather all relevant documents and evidence to show that you have complied with the CRA’s request or explain why you couldn’t.
- Court Review: If you believe the CRA’s decision is unfair, don’t hesitate to seek a judicial review. This step involves legal proceedings, so consulting a tax professional or lawyer can be very helpful.
- Extended Reassessment Period: Be aware that unresolved notices will extend the time the CRA has to review your tax returns. This means keeping your records organized and readily available for a longer period.
- Penalties: To avoid daily penalties, respond promptly to the CRA’s requests. If penalties are imposed, you still have options to appeal the notice through CRA’s review process or through the courts.
Practical Tips for Small Business Owners
1. Keep Detailed Records: Maintain comprehensive records of all transactions, including receipts, invoices, and correspondence with the CRA. Detailed records can help you respond to CRA requests quickly and accurately.
2. Stay Informed: Keep up-to-date with tax laws and regulations. Changes in tax policies can affect your business operations and tax liabilities.
3. Consult Professionals: When in doubt, seek advice from tax professionals or accountants. They can provide guidance on compliance, help you understand your obligations, and assist in responding to CRA audits.
4. Be Proactive: Don’t wait for the CRA to contact you. Review your tax filings regularly to ensure they are accurate, and address any discrepancies or issues before they become significant problems.
Conclusion
The new CRA audit powers introduced in the 2024 Budget are designed to enhance compliance and enforcement, which means more compliance requirements for small businesses in Canada. Understanding these changes is crucial for small business owners to ensure compliance and avoid penalties. You can navigate these changes effectively by keeping detailed records, staying informed, consulting professionals, and being proactive.
At Dexado.ca, we specialize in providing proactive, audit-proofed accounting services. If you have any questions or need assistance with your tax obligations, don’t hesitate to reach out to us. We are here to help you navigate the complexities of tax compliance and ensure your business remains on the right track.
For more information or personalized advice, don’t hesitate to get in touch with us at Dexado.ca, your proactive accounting advisory firm in Ottawa. We are dedicated to helping small businesses like yours succeed in today’s challenging tax environment.
