C.G.A. - CRA Liaison Meeting REGIONAL OPERATIONS, PACIFIC February 24 th, 2005 Holiday Inn - Metrotown

Transcription

1 Page 1 Canada Revenue Agency Regional Operations-Pacific Agence du revenu du Canada Opérations régionales Pacifique C.G.A. - CRA Liaison Meeting REGIONAL OPERATIONS, PACIFIC February 24 th, 2005 Holiday Inn - Metrotown ACTIONED BY Speaker: Arlene White Director Vancouver Tax Services Office Canada Revenue Agency Arlene opened the meeting and welcomed the members and guests to the CGA CRA Liaison meeting. She expressed regrets on Rod Quiney s, the Assistant Commissioner for the CRA, behalf that he could not be in attendance to open the meeting but he would be joining us later in the afternoon. Arlene then outlined the afternoon s agenda and introduced John Pankratz from the C.G.A. Association who co-organizes these sessions. She also congratulated John on his recent appointment to the CRA Appeals Advisory Committee and mentioned the value added that this Committee provides to the Agency. John thanked the CRA for their availability and willingness to meet with the CGA practitioners. He indicated that this is a great venue to hear new and changing issues and the information from these meetings aid the Association members in helping their clientele comply with the many tax requirements and regulations. Arlene then introduced the first speaker, Sarah Chang. Presentation: Electronic Services for Business Speaker: Sarah Chang Business Returns Surrey Tax Centre Sarah commenced her presentation by discussing a recent survey that indicated there is an increasing interest in using the internet as the way for businesses to transact with other businesses and the government. Our challenge is ensure the business community is aware of the CRA electronic services available and to encourage businesses to use these services.

2 Page 2 Types of electronic services for business available: Business Registration Online Corporation Internet Filing GST/HST Netfile T4 Internet Filing Online Requests for Business Electronic Payment Electronic Mailing Lists Product user surveys have been conducted and the results indicate, generally speaking, our clients are very satisfied with these services. Future plans include: Web-site, Improvement and Expansion My Business Account Third Party Privilege Management Bill Presentation Marketing Please check out our website at and/or contact Sarah Chang at (604) , sarah.chang@ccra-adrc.gc.ca. Presentation: Books and Records Speaker : Sanddip Basra Office Examiner, Verification & Enforcement Burnaby-Fraser Tax Service Office Office examination is an integral part of the Verification & Enforcement Division and is responsible for performing books and records reviews of taxpayers, registrants and corporations. These reviews are an important part of our self-assessment system and are intended to increase the Agency s visibility within the community. One of the mandates of Office Examination is to ensure books and records reviews are conducted to provide information and identify areas of concern thus leading to voluntary compliance by taxpayers and registrants through education. The office selects files for review including new and established businesses. High risk/underground economy files may also be selected for books and records reviews.

3 Page 3 A good books and records system includes: Sufficient details to support claim Accuracy and completeness of accounting records Transaction integrity and security Retention of files in a legible format Access to electronic records Adequate backup procedures Records and books are a form of documentation, which contain information to support the business related income and expenditures and should be the original documents. These documents should contain sufficient information to determine income, expenses, etc. and the audit trail which facilitates verification. Books and records must be retained for periods as prescribed by subsections 230(4) to (7) of the Income Tax Act and Part 5800 of the Income Tax Regulations or until the Minister gives written permission to authorize their disposal. The Minister may authorize the destruction of books and records prior to the prescribed period if a request is received, in writing, addressed to the Minister. This permission applies only to information required to be retained under the legislation administered by the Agency. If a person has failed to keep adequate books and records, the Agency can specify what records or books of account shall be kept. The Agency will request a written agreement that books and records be maintained and will follow up this request by letter or visit. If there has been no compliance within the specified period the Agency will issue a formal requirement letter. Failure to comply may result in prosecution. Common areas of concern in respect to inadequate books and records include: Meals and entertainment expenses Motor Vehicle expenses Capital assets Business use of home expenses Payroll/salary/wages expenses Inadequate sales invoices Guides and further information available on the web site at as noted above or contact the CRA at: General Enquiries Business Window

4 Page 4 Presentation: Electronic Records Speaker: Mohamed Nurani Electronic Commerce Audit Advisor, Pacific Electronic Commerce Compliance Division Audit Directorate, Compliance Programs Branch, Headquarters Electronic Commerce Compliance Division (ECCD) was established in 2002 to address E Commerce issues and to maintain CRA s ability to conduct audits with this new emerging technology. There is a legal obligation to retain electronic records, (6) years plus the current year. Source documents (hard copy or electronic) should be retained if they are relevant in determining income, deductible expenses, refunds, rebates or input tax credits. It is estimated that 85% of the 2 million active businesses in Canada have electronic accounting packages. Many business owners believe that the retention of records is covered by these accounting packages and there is no need to retain other records. Many also believe that printouts of invoices and purchases are adequate records. Electronic record keeping issues include: Owners not concerned over historical records and therefore prior versions of software are not maintained Electronic Point of Sales Systems and Internet based systems are becoming more widespread Software developers are focusing on future development (newer versions may not read past records) Auditors face on going challenges in readily accessing readable electronic books and records Records stored on a Web server outside of Canada must be made available upon request. If a third party is utilized, it is still the business owners responsibility to ensure that the electronic records are complete, retained and readable. Encrypted records must be decrypted and produced in an accessible and electronically readable format. Questions the auditor will ask of the taxpayer include:

5 Page 5 Accounting/software system used Retention of the electronic records Backups Format of files Tape of CDROM drive POS or Ecommerce Systems The data files are transferred to the auditor so they can perform audit tests on the data. Auditors are equipped with laptops loaded with the IDEA software. The information you should be prepared to provide to the auditor include: General ledger detail transactions Chart of accounts Trial balances and financial statements Year end adjusting entries External accountant s working papers Account groupings Sales and purchase details Customer and vendor master files PLU and product master Tables containing tax codes s Passwords if protected A query was raised in respect to storage of books and records in PDF format. The response is as follows: Using pdf file format to store electronic books and records (detailed transactions) for the purposes of the Income Tax Act and the Excise Tax Act is not acceptable. Pdf files store information in a report format embedded with extraneous formatting characters for displaying and printing purposes, thus rendering the data not accessible and useable by agency software. However, many generic and other data formats are acceptable and it is best to call your local tax services office and ask to speak to an Electronic Commerce Audit Specialist (ECAS) for advice.

6 Page 6 Taxpayers may seek advice from the Agency on questions related to electronic books and records. Contact Information: Mohamed Nurani (604) mohamed.nurani@ccra-adrc.gc.ca Presentation: GST/HST Common Errors on Credit Returns Speaker: Caroline Darts Team Leader - Verification and Enforcement Division Burnaby Fraser Tax Service Office When the calculation of net tax on the Goods and Services tax Return results in a credit, the local Tax Services Office may select this credit return for a restricted scope audit. Commonly misunderstood Excise Tax Act legislation includes: Transportation services (interlining) Real property transactions Who is responsible for reporting the tax? Supply of the assets of a business (GST 44) Closely related corporations & the election for nil consideration There is a common misconception in the transport industry that all freight transportation is zero rated. This misconception leads to the under reporting of GST/HST collected or collectable, and to applicable penalties and interest. GST/HST collectable on real property transactions: A registered recipient of a supply of real property may be required to report the GST payable on the supply. Subsection 221(2) lists the exceptions. Supply of the assets of a business are outlined in subsections 167(1) and 167(1.1) of the Excise Tax Act. The GST 44 is the joint election to be filed with the minister and Policy 188 outlines the two tests that must be met. Section 128 is the definition of closely related corporations. Section 156 permits certain closely related corporations to elect to treat supplies between them as if they were made for no consideration. Common mistakes made when filing the GST/HST return include:

7 Page 7 Not reporting all sales on the GST/HST Return Reporting sales from another period Copying information incorrectly from the working copy of the return to the mail in stub Including installment payments in the Input Tax Credit totals Including amounts for registrant requested adjustments Registration issues (section 123 of the ETA) The definition of a person includes a partnership, but does not include a joint venture. If a company is struck, it is no longer a person. Required documentation includes a logbook for vehicle mileage, records for meals and entertainment and the documents must be in the name of the business entity. Common causes for the delay in processing the GST/HST Return: -Common errors made on GST returns as noted above -Incorrect or outdated information. The registrant should provide all changes such as the contact person, address and major business activity to the Agency. -Not responding or supplying all requested information within timeframes Presentation: T1 Filing Program Update Speaker: Wanda Healey/Carla Fraser Individual Returns & Compliance Surrey Tax Centre The 2003 volumetrics indicate that 41% of all Individual Income Tax Returns are submitted electronically and should continue to increase approximately 3-4% each year. The Surrey Tax Centres percentage of electronically filed returns is higher than the National average due in part to the promotional activities undertaken by this office and by the Tax Services Offices in B.C. Individuals who are deemed most likely to convert to electronic filing have been identified to determine a target audience for future Headquarters seminars. CRA objectives linked to Electronic Services include: Reduce paper burden on business

8 Page 8 Process in the most efficient manner through technology and innovation A presentation was made on the pre and post assessment review statistical data. Some new initiatives in 2004/2005 include: Locate an E filer on-line Will be posted on the Efile for individuals pages Will replace paper lists of Efilers Search by postal code or business name Still requires Efiler consent on the electronic renewal/application form Government of Canada s Epass Managed by PWGSC & Treasury Board An Epass is similar to a bank s logon ID Provides access to the Government of Canada s Secure Channel for electronic transactions All Federal government electronic services will be moving into the Secure Channel New My Account features include: Changing your income tax and benefit return Disagree with an assessment My return (allows clients to view and print their tax information) Other recent innovations include 2 Dimensional (2D) Bar Coding that is available to the tax preparer community for the 2004 Tax Return and will be available to all those who utilize a P.C. tax preparation program next year.