Big brother (Canada Revenue Agency) is watching
This is a guest post from Mark Goodfield, The Blunt Bean Counter. This article is for information only. the content in this article are the opinions of the author and not necessarily the views of other authors on RetireHappy.ca. If you’d like to write a guest post for Retire Happy Blog, submit a request through our contact page. We do ask that the subject applies to Canadian readers and you’re welcome to include a couple of links in the article as well as a writer bio with a link.
I am sure George Orwell would not be surprised to see how the various governmental taxing agencies around the world are now watching us, but he may be surprised at their audacity in asking us to provide the information they need to better monitor us. This blog speaks to how in the future, your accountant or tax lawyer may be assisting the enemy, otherwise known as the tax authorities.
The IRS is watching
What am I talking about? I am talking about the Internal Revenue Service (“IRS”), Finance Quebec and the Canada Revenue Service (“CRA”) requesting taxpayers to provide details of uncertain tax positions and aggressive tax planning.
Since 2007, the IRS has required companies, pursuant to what is known as FIN 48, to analyze all tax positions that are less than certain and disclose income tax risks. In January 2010, the IRS upped the ante on the reporting requirements, causing Andrew W. Jones an attorney in Georgia, to state “FIN 48 requires detailed financial statement disclosures, which compile a “roadmap” to lead the IRS to the positions taxpayers feel least confident about. These disclosures shift the power pendulum in favor of the tax agencies, and they have taken notice. The IRS fully intends to use FIN 48 to its advantage, both in the audit selection process and to spot issues within a particular audit.”
They are watching in Canada too
Don’t think big brother is not watching us in Canada. In October 2009, the Minister of Finance for Quebec released Information Bulletin 2009-5 called Fighting Aggressive Tax Planning. Taxpayers will be required to disclose any transaction in which they retained an advisor and there was a tax benefit of at least $25,000, or the taxpayer’s income was affected by $100,000 or more.
We knew CRA would not sit still on the matter and in the 2010 Federal Budget, CRA proposes a regime under which a tax “avoidance transaction” will be a “reportable transaction.” CRA says “in this regard, the proposed regime is similar to but less strict than, the reporting regimes of other jurisdictions that use hallmarks as a means of identifying aggressive tax planning, such as those of the United States, the United Kingdom and most recently, the Province of Québec. This would minimize the possibility that normal tax planning would be subject to these proposals.”
I am not a US or Quebec expert. I have tried to keep the details to a minimum. The intent of the above is to provide insight into the direction of the taxation authorities and their policies, and in my opinion, that direction is alarming.
The taxation authorities seem to be heading towards driving a wedge between taxpayers and their advisors and/or ensuring they are aware of any significant tax planning undertaken, so as Mr. Jones says, they have a roadmap to any and all tax positions and transactions are undertaken and they will ultimately use this information to audit.