On October 26, 2020, a CRA/CPA Canada webinar session was conducted in which several new positions and issues were discussed in respect of the CEWS audits, FAQs, employment benefits, and other Covid-related tax issues. The following is a summary of the webinar as noted by Video Tax News.
Overall comments
(Ted Gallivan – Assistant Commissioner, Compiance Programs Branch, CRA)
The CRA is taking into account that the crisis is significantly affecting businesses and people.
CRA has tried to lift the floor on materiality.
CRA will try to be reasonable with time to respond to audit requests.
CRA understands that there may be legitimate confusion out there.
CEWS reviews
(Harry Gill – Director General, Small and Medium Enterprises Directorate, CRA)
Pre-payment reviews
Some prepayment reviews may be able to be conducted without contacting the claimant or representative, but rather, by simply checking information that CRA already has on file such as payroll records to make sure they make sense.
Reviews can be resolved in many cases by just getting a verbal explanation from the applicant, but documentation may be needed in some cases.
Post-payment reviews
Who and what:
CRA is currently looking at
the eligibility of the employer;
whether qualifying revenue and the revenue drop has been calculated correctly;
making sure that employees are actually eligible and not contractors;
ensure that eligible remuneration and baseline remuneration calculations are correct;
other items.
A cross-section of applicants are being currently reviewed, from small to large multinational, from individuals to partnerships and corporations, from all geographic areas.
Those being reviewed may have been identified through risk algorithms, notes from pre-payment reviews, leads, and some are random.
Current audits are focusing on Periods 1 to 6.
The audit process
Audits will be similar to traditional audits which generally start with a phone call to the applicant. They may advise that a computer audit specialist may be used to retrieve electronic records.
The phone call will be followed up with a letter detailing the information required. If the initial phone call is not answered, the process will start with the letter, although that is not the preferred method.
CRA expects that the audit will be a “2-way conversation”.
CRA confirmed that the CEWS letters sent out originally were templates and that they should have been whittled down and customized for the actual audit. It was a symptom of growing pains. Only documentation that is necessary will be requested.
If it feels like the information requested is too exhaustive, contact the auditor or team leader. CRA wants to reasonable and mindful of the realities that the employers are facing.
After the initial review, the auditor may request additional information, or expand the period of the audit.
Proposal letters will be issued with explanations. Responses can be submitted by the applicant. This will be followed by a notice of Assessment or determination if necessary.
Virtual meetings may be held and email can be used as a last resort.
CEWS FAQs
(Randy Hewlett – Director General, Legislative Policy Directorate, CRA)
1) Rulings
CRA is unable to rule on eligibility for CEWS.
2) Amending a claim for elections
Where an application form was previously filed, but a given election was not made on the form that was filed, it can be made in an amended application form for the qualifying period.
However, where an election was made on an application filed previously, the entity cannot revoke or otherwise amend such an election by filing an amended application form. However, it is noted that the legislation in respect of this is currently being reviewed.
3) Published list of applicants
The public “CEWS Employer Search” database is currently being finalized which will show which corporations have received CEWS. Detailed information like the number of employees of the business or the amount requested cannot be disclosed. An announcement will be made when it is available for use.
4) The Joint Venture (JV) election and Non-arm’s Length(NAL) Elections
The elections in respect of JV elections and NAL elections will not be available for the 5th and subsequent qualifying periods, but the matter has been referred to the department of Finance. CRA will not be granting administrative relief at this time.
5) Floating month ends
Retail entities that use a floating month end rather than a calendar month end cannot use the floating month end to calculate the revenue declines.
Employment benefit and other
(Kevin McKenzie – Director General, Business Compliance Directorate, Collections and Verifications Branch, CRA)
1) Commuting
In situations where an employee continues working at their regular place of employment, CRA will not consider an employee to receive a taxable benefit where their employer pays for, reimburses, or provides for a reasonable allowance for additional commuting costs incurred by the employee. CRA would extend this position to situations where an employee is working from home because the regular place of employment is closed and CRA would not consider the employee to receive a taxable benefit where the employer pays for, reimburses or provides a reasonable allowance for commuting costs incurred to allow the employee to travel to their regular place of employment, to, for example, pick up computer equipment or perhaps other office equipment so that they can work from home. Both of these provisions would be extended to the use of employer provided motor vehicles for this kind of travel.
2) Parking
Where the regular place of employment is closed due to COVID-19, CRA will not consider that an employer provided parking spot at the place of employment available to an employee’s use would result in the taxable benefit.
Records and support must be retained.
3) Home Office Equipment
CRA will not consider an employee to receive a taxable benefit where the employer pays or reimburses up to $500 of computer or home office equipment to enable the employee to carry out their duties. Common eligible expenditures could include chairs, desks, monitors and some computer equipment. Amounts in excess of $500 must be included as a taxable benefit. For example, if a $1,000 desk was purchased and the employee retained it, there would be a $500 benefit.
4) Asset acquisition rules – CEWS
An 805 error message may be received if filing on the basis that the payroll requirement criterion was met by the entity from which the assets were purchased having a payroll account on March 15, 2020. In such cases, the applicant should call the CRA business enquiries service to explain what has occurred and that they are electing under Paragraph 125.7(4.1)(e). The agent will be able to add the entity to an exception list. Once complete, the agent will advise the entity when they can apply for CEWS.
CEBA and Loss Carry-back
(Costa Dimitrakopoulos, Director General, Income Tax Ruling Directorate, LegislativePolicy and Regulatory Affairs Branch)
1) CEBA forgivable portion of loan
The forgivable portion of the loan is included in income in the year in which the loan is received by virtue of Paragraph 12(1)(x). A taxpayer can elect under Subsection 12(2.2) not to include the forgivable amount in its income by reducing its outlay or expenses in respect of which the loan is received by the same amount. The election can be made by sending a signed letter to CRA by the due date for the corporate tax return covering the period in which the expenditure was made (note1). Amounts that are not forgiven can be deducted under Paragraph 20(1)(hh) for the year in which the repayment is made.
2) Loss carry backs by an estate (Subsection 164(6))
Subsection 164(6) allows losses experienced in the first year of an estate to offset gains in the deceased taxpayer’s final tax return. It is available to graduated rate estates. CRA does not have the discretion to extend the one-year limit.
CRA encourages further questions to be submitted by October 28 so that they may be covered in the November follow-up session.
Links:
Webinar link (length 48:10):