Written on behalf of Feigenbaum Consulting
We’ve previously blogged about various actions the Canada Revenue Agency (CRA) has taken to crackdown on alleged tax evasion in particular industries, including in the bar and restaurant industry.
This week, we continue our blog series by looking into a new audit the CRA is undertaking. This time, the agency is undertaking a review into general contractors and those working in the home improvement sector.
This new audit represents the latest in a series of priority audits the CRA is using to target the so-called “underground economy”.
The Underground Economy
According to CRA estimates, “underground” economic activity (i.e. the activity that is not being reported to the CRA) accounted for more than $51.6 billion in 2016 (approximately 2.5% of Canada’s GDP).
Both the food services industry (targeted in earlier audits as we blogged about) and residential construction industry (being targeted now) account for a significant portion of this economy- 12.1% and 26.6% respectively.
These are both industries in which transactions often happen in cash with no paper trail or other record.
The Latest CRA Audit
In July of this year, the CRA obtained a Federal Court order which compelled hardware giant Home Depot to disclose the identities of the chain’s commercial customers, as well as total annual amount spent by those customers at Home Depot stores across the country from the period encompassing January 2013 to December 2016.
The order was granted under the “unnamed person requirement” in Canada’s Income Tax Act. Specifically targeted were contractors who the CRA suspected were using cash for their purchases of building and other materials.
In addition to reviewing transactions at Home Depot stores, the CRA reviewed lists of municipal building permits as a means of creating a list of unregistered building contractors. This particular approach allowed the agency to locate more than 2,700 unregistered building contractors.
The Targetting of Hardware Stores is Not New
Home Depot is not the only hardware chain that the CRA has looked into. Previously, the CRA has also looked into the records of:
- Rona (a Canada-wide competitor);
- Roofmart Ontario (a roofing company);
- Canac-Marquis Grenier Ltée (a regional chain in Quebec); and
- Two other regional chains in Quebec.
According to tax law experts, so long as the CRA has reasonable evidence that tax evasion is taking place, this targeted audit falls entirely under the purview of the Income Tax Act, which grants the agency broad powers to investigate.
Despite these broad powers, this investigative process has been lengthy, having begun in 2016 when the agency first petitioned the Federal Court to grant access to Home Depot’s records. In the interim, Rona was disputing a similar order for production of their records, taking their fight all the way to the Supreme Court of Canada, before having their leave to appeal denied.
Perhaps as a result of Rona’s failed attempts to fight the production order, Home Depot did not challenge the CRA’s application for their records.
We will continue to follow developments in this matter as more information becomes available, and will provide an update as this matter unfolds. In the interim if you have any questions about this or any other CRA audits, or would like to know how this may impact you or your business, contact us.
How Can Feigenbaum Law Help?
If you are a contractor and run your own business and have questions about tax audits, or compliance with your tax obligations contact Mark Feigenbaum for a custom solution to your corporate tax needs.
At Feigenbaum Law, our highly skilled team regularly assists our clients in making informed choices that lower their overall tax burden, ensure tax compliance, and avoid penalties that can amount to tens of thousands of dollars. We offer our clients confidence knowing that they have a highly skilled team working to manage tax issues.
Our extensive familiarity with the U.S. and Canadian tax systems means we create novel solutions to meet your individual needs. We are lauded for our ability to solve problems that other professionals have deemed unsolvable. Our approach is solution-focused and creative. We pride ourselves on our ability to think outside the box and provide our clients with solutions tailored specifically for their needs.
We work with you to create a bespoke solution that will streamline your compliance requirements. Contact us to learn more about how we can help or call us at (905) 695-1269 or toll free at (877) 275-4792.