Unsurprisingly, it’s time for a post-payment tax audit of subsidies paid during the COVID-19 pandemic! Over the past few months, the government has introduced a number of measures, including the much-coveted SSUC, to smooth out the steep curve that the pandemic would take on companies. Now that most of the funds have been distributed, and hopefully the worst is behind us, we can look forward to imminent audits. With such a large budget deficit, these audits represent a potential turnaround. As announced, individuals and employers who have circumvented the criteria or abused the measures will face substantial penalties.
How to prepare for a tax audit emergency benefits
post-COVID-19
The Canada Revenue Agency ( ARC “) began conducting audits of grant applications for Canadian individuals and businesses, notably in connection with the Canada Emergency Wage Subsidy (“SSUC“), the Canadian Emergency Benefit (“CEP”), the Canadian Economic Recovery Benefitthe Emergency account for Canadian businessesand many others.
The CRA has repeatedly announced that Canadian individuals and businesses who fail to meet the eligibility criteria for subsidy programs will be required to repay amounts received with interest, and may be subject to severe penalties. As a result, we can expect the CRA to scrutinize grant applications made in the context of the COVID-19 pandemic.
Here are a few tips to help you prepare for a possible tax audit of a post-COVID-19 emergency benefit by the tax authorities:
- Prepare and document your file. A well-prepared taxpayer will be able to provide the documents prepared as part of the grant application at the outset of a tax audit. Have your analyses on hand, along with worksheets corroborating the calculation of the drop in income for each eligibility period and details of the items excluded from the calculation. A well-prepared file helps avoid inconsistencies and errors in documentation, as well as increasing the credibility of the application and limiting audit time.
- Working together. You have a legal obligation to answer the auditor’s questions and provide any documents requested in connection with the audit. It is therefore essential to cooperate with the agent in charge of verification.
- Limit the number of speakers. Anything you say can be used against you. Be aware that the auditor keeps documents and takes notes on what you say. Be sure to limit the number of people involved with the CRA, giving preference to those who have been involved in the applications, so that questions can be answered consistently and the risk of incorrect, incomplete or even contradictory information being transmitted is reduced.
- Planning your defense. If your case has grey areas or loopholes, start preparing your arguments and a due diligence defense. To invoke this defense, a taxpayer must demonstrate that he has acted diligently to potentially justify the non-application of penalties.
So, given the financial impact these measures will have on Canadian public finances, it’s likely that requests for tax audits will explode over the coming months. Be prepared!
If you already know that you’ll need support in this area, or that you’re being audited, contact our experts. They’ll be able to support and guide you through the process.
