written on behalf of Feigenbaum Law

A few weeks ago we blogged about how the Canada Revenue Agency (CRA) is intending to use mobile payment companies, such as PayPal, to crack down on businesses that are not reporting all of their income. This week we explore a further initiative by the Agency to get tough on high-income Canadians who may be underreporting their worth.

Recently, CBC News obtained the details of a plan launched last summer by the CRA to target high-income Canadians. Dubbed “The Postal Code Project”, and apparently OK-ed by Canada’s privacy Commissioner, the initiative is focusing on the wealthiest neighbourhoods across the country as a means of finding undeclared wealth and ensuring that “those who are wealthy pay the tax they owe”.

The Postal Code Project

A redacted briefing document obtained by the CBC indicates that the Project is an “innovative way” for the CRA to use “an indicator of wealth” (in this case, high-priced real estate) in a “more systematic way as a starting point to initiate taxpayer reviews”. The CRA calls this a “residence focused approach to audit”. The document does not reveal which postal codes will be targeted.

A CRA spokesperson noted only that the Agency has selected five neighbourhoods across the country (one in each of the Pacific, Prairies, Ontario, Quebec, and the Atlantic). The spokesperson noted that the wealthiest neighbourhoods are identified using the CRA’s own databases, publicly available information such as census data, and third-party data.

The Project So Far

Since the summer of 2016, the CRA has been reviewing more than 1,100 wealthy households and has directly contacted 33 high-income taxpayers. Apparently, investigators can:

• Use public-record checks;
• Inspect properties in person;
• Conduct in-person assessments and interviews;
• Review a taxpayers assets (including homes, boats, and cars).

Letters, notices, and direct meetings with taxpayers will help the CRA determine how far it will go in these audits.

Ted Gallivan, the assistant commissioner for the CRA’s International, Large Business and Investigations Branch told CTV news that:

[The CRA is] looking at the value of the home and seeing who owns it: is it a company, is it a trust, is it an individual? What other information do we have about them?…Basically, we’re looking to make sure the people have paid the taxes that they owe.

Gallivan noted that the Agency has carried out similar investigations in the past, but that The Postal Code Project is the first time they are “taking it to scale” and reviewing such a large number of residences in one go. He further stated that:

The message we’re trying to send is the tax authority has the resources and the mandate to go hard after ‘aggressive tax planning’

Gallivan notes that if, through The Postal Code Project, CRA assessors uncover homes that are owned by a numbered company, and that numbered company is owned by another numbered company that is owned by a trust, such an arrangement will prompt the Agency to dig further. If enough red flags appear, the CRA could then potentially launch a full audit.

We will continue to follow developments around the Postal Code Project and will blog further if more information becomes available. In the meantime, if you have questions about how this latest CRA endeavour may potentially impact you, contact Feigenbaum Law. Our in-depth knowledge of both U.S. and Canadian tax makes us leaders in our field. We offer services to clients in the U.S., Canada, and around the globe. Contact us online or at (416) 777-8433 or toll-free at (877) 275-4792.