Since it's almost Halloween night, we are sharing information that scares most business and property owners: the Canada Revenue Agency's audit statistics!
CRA Audits of Small and Medium Size Businesses
The information was presented by Gilles Robert and Sharon Sicard of the Canada Revenue Agency at the Canadian Tax Foundation's 2019 Ontario Tax Conference.
Overall, the CRA completes on average 7,700 audits of small and medium size businesses (not including large enterprises) per year (5,900 audit of small businesses and 1,800 audits of medium size businesses).
The CRA recovers on average $1.186 Billion per year from small and medium size businesses ($625 Million from small businesses and $560 Million from medium size businesses).
On average, the CRA recovers $190,000 per audit. The amount is $137,000 for a completed small business audit, and $336,000 for a completed medium size business audit.
The CRA applied the so-called "gross negligence penalties" in 28% of audits of small businesses and in 8% of audits of medium size businesses. The penalties are equal to 50% of the tax owing.
For example, if the CRA audited and reassessed your business' 2016 taxation year to conclude that you owed $100,000 in additional taxes, your additional penalties, if assessed, would be $50,000. Your total CRA debt for the 2016 taxation year, including interest and penalties as of today, October 30, 2020, would be approximately $183,378.
CRA Audits of Real Estate Sector
According to the CRA's News Release of May 30, 2019, the CRA audits have identified over $1 billion in unpaid taxes related to the real estate sector since 2015. Over the period between 2015 and 2019, CRA auditors reviewed over 41,700 files in Ontario and British Columbia, resulting in over $100 million in assessed penalties.
In 2018, the CRA assessed $171 million more in additional taxes related to real estate than in 2017, a 65% increase. The penalties assessed in 2018 totaled over $57 million, which is more than double compared to 2017.
The 2019 Federal Budget proposed to further increase compliance actions by providing $50 million over five years and $10 million ongoing to the CRA's Real Estate Task Force. This specialized division of the CRA currently focuses on the Greater Toronto and Greater Vancouver areas, but will follow the risk as it evolves over time.
We strongly recommend to engage a tax professional for all your dealings with the CRA. At Advotax Law, we routinely help clients who are being audited or reassessed. Call us at 437-916-9000 for a free, no obligation, 20 minutes assessment of your case.
Nothing in this article constitutes legal advice and no solicitor-client relationship is created. If you require legal advice pertaining to your specific situation, please contact our tax lawyer.