Tax Authority Audit Trends

Transcription

1 Tax Authority Audit Trends Audit Processes and Common Risk Areas Jennifer Boychuk, CPA, CGA Partner, National Indirect Tax KPMG LLP

2 AGENDA

3 Main Types of Audits GST/HST Refund Integrity Examination Review of credit returns and rebate claims prior to payment Typically a single filing period National standard is examination completed in 60 days from day return is received GST/HST Audit Typically 2 years plus current year; Assessment period can include 4 years from the later a return was due or filed Public Sector Teams set up across the Country Focus is wide spread GST/HST and ITCs and Rebates Large Business Audit Institution could be considered a large business Typically this would involve CRA performing comprehensive audits that involve GST/HST, payroll, income tax Could be audited every year Aggressive GST/HST Planning Program Have not seen these in Higher Education environment and would not expect these to occur

4 Five Phases of a CRA Audit Planning Audit Finalization Gathering Info Detailed Audit Testing Evaluating Systems

5 Control Risk Impact on Audit Procedures Control Risk the risk that a material misstatement would not be prevented, detected or corrected by internal control procedures put in place by the Institution Financial System Documentation New System Implementation During Audit Period Internal Controls Specific Process Documentation (Return Prep, PCard, Self- Assessment, etc.) Documentation Retention

6 GST/HST Common Audit Issues 1 Third Party Agreements 2 Grant vs Consideration 3 Internal Supplies 4 Meal Plans

7 Third Party Agreements Suppliers Volume Rebates, Barter Transactions, etc. Food Services Providers Higher Education Entity Student Associations Joint Programming

8 Grants vs Consideration Factors to Consider Charitable Donation Direct Link Purpose of Payment Regular or Ongoing Financial Support Accountability

9 Internal Supply Procedures Common Areas Bookstore / Computer Store Catering / Food Services

10 Meal Plans High Level CRA Concerns Meal Qualifying meal plan cannot allow purchases at a mini-mart or convenience store; Purchase has to be for a meal at a restaurant or cafeteria on campus Separate Meal Plans Draft CRA policy states separate meal plans required for meal plan vs flex dollars Sufficient Funds Student purchases for single consideration a right to receive not less than 10 meals weekly throughout the meal plan period

11 GST/HST Common Audit Issues 5 Self-Assessments 6 Place of Supply 7 VAT / ITC Tables 8 Capital Real Property Transactions

12 QST Common Audit Issues ITCs as ITRs Taxable Benefits Pension Plans Place of Supply

13 PST Common Audit Issues Documentation Issues - Form and content - Retention PST Audit Issues Misunderstandings - PST vs VAT vs GST/HST - Software vs Service (BC) Self-Assessments - Out of Province purchases of taxable goods or services - Change of use Legislative and Administrative Changes - Delivery charge clarification (BC) /18 changes and amendments (SK)

14 Common Income Tax Audit Issues 1 Payroll Audits 2 Donations 3 Charitable Purpose 4 Related Business

15 Charities Education Program (CEP) CEP Charities may receive a CRA letter informing them that they have been selected for a Charities Education Program (CEP) visit. The CEP is a new program that the CRA says is meant to help charities comply with their tax obligations under the Act and avoid common errors. According to the CRA, a CEP visit does not preclude the possibility that the charity could be audited in the future. During a CEP visit, a Charity Education Officer from the CRA will: CEP Visit Ask the charity questions about its books and records as well as its purposes and activities Provide the charity with information on its registration obligations, on how to file accurate information returns, and on the issuance of official donation receipts Review the charity s books and records, give feedback on their accuracy and completeness, and advise on how to address potential issues Provide a summary of their findings and recommendations, which the charity must sign.

16 What is a Related Business? Criteria Regular recurring income generating activity Not Passive in nature; and either 1. Run substantially by volunteers; or 2. Linked & subordinate to its charitable purpose Examples Gift Shops in facilities Cafeteria in facilities Paid Parking areas Bookstore and Computer Stores Areas of concern requiring further analysis: operations such as hotel, land development, research commercialization, energy generation, and other commercial/retail ventures

17 Important Considerations Be prepared Document internal controls, policies, procedures Documentation retention policies Document tax set up in financial and subsystems Be aware of entitlements CRA required to audit to net tax Under certain circumstances, Higher Education entities can claim rebates not previously claimed Stay current - Legislative Changes i.e. Provincial budgets, Federal budget, CRA/MRQ/Provincial Administrative Policies SK PST changes in 2017 and 2018 Pension Plans Master Trust Rules Proposed QST measures for non-resident suppliers

18 Questions?

19 Thank you Jennifer Boychuk, CPA, CGA Partner, National Public Sector Indirect Tax - KPMG LLP jboychuk@kpmg.ca We d love your feedback Please take the time to complete the session evaluation.