CIFP s 9 th Annual National Conference Canada Revenue Agency

Transcription

1 CIFP s 9 th Annual National Conference 2011 Canada Revenue Agency

2 Overview RRSP Strip / Scheme Retirement Compensation Arrangements Tax-Free Savings Accounts Third-Party Penalties Voluntary Disclosure Program 2

3 What is an RRSP Strip/Scheme? Offside withdrawal of funds from an RRSP or RRIF without appropriate payment of tax Return of investment (RRSP) by offshore debit or credit cards offshore bank accounts loan-back arrangements Immediate access to assets in "locked-in" RRSPs or RRIFs Arrangement to extract value from the plan in such a way that the plan trustee does not detect the withdrawal and does not generate a T4RSP or T4RIF slip 3

4 How is it Done? (shares) Trust Company Taxpayer $70,000 Self-administered RRSP $100,000 cash shares Promoter Co. $30,000 - return of cash - immediate or over time - often offshore - numerous scenarios 4

5 RRSP Withdrawal A) In general, property in RRSP or RRIF constitutes income that has been deferred B) Generally, a withdrawal from an RRSP or RRIF is taxable* *in certain circumstances, you may withdraw funds from your RRSP and your RRSP issuer will not withhold tax. These include the Home Buyer s Plan and the Lifelong Learning Plan 5

6 Impact of RRSP Strips Tax and where appropriate penalize participants Loss of retirement funds and future drain on social fabric Funds are to a significant degree consumed by high promoter fees Funds are lost to fraudulent promoters Extensive off shoring of funds An erosion of the Canadian economic base since the funds associated with offshore transaction would not be re-invested in the Canadian economy 6

7 Compliance Activities Section 146 and Part XI.1 are the main provisions GAAR has been applied in certain cases as well as other provisions depending on circumstances Engaging with trustees to collaborate on efforts to improve compliance Public education Tax Alerts, mass media Comprehensive risk assessment to identify and target promoters 7

8 Outcomes In 2009 CRA issued a Tax Alert on RRSP Strips RRSP Over 5,000 taxpayers had been reviewed or reassessed, and many more under review Total amount invested in arrangements reviewed was approximately $250 million Additional audits of taxpayers and RRSP/RRIF investments are ongoing 8

9 CRA Tax Alert 2009: : : 9

10 Retirement Compensation Arrangements 10

11 Retirement Compensation Arrangement Employer Contribution: 11

12 Retirement Compensation Arrangement Payment to Beneficiary: 12

13 Retirement Compensation Arrangement Why is CRA Looking at RCAs? The number of RCAs registered in recent years has increased significantly The refundable tax creates an enormous liability for the government that must be managed Reviews of these trust arrangements are identifying issues that are of concern to the CRA, including whether a bona fide RCA even exists (versus a salary deferral arrangement for example) We ll continue to audit RCAs and our positions taken will be based on the facts of each case Once CRA has a better appreciation of the compliance challenges related to the RCA segment, where appropriate, we may: Develop an IT bulletin or IC to communicate CRA s interpretation of the RCA rules Consult with the Department of Finance about gaps, if any, in the RCA legislation Consult with the tax community, including CIFP and the CTF, about CRA s concerns, if any 13

14 Retirement Compensation Arrangement Outcomes: Most common scenario: the plan is, in fact, an SDA CRA will deny the employer corporation s RCA deduction on the T2 return; however, CRA will allow an SDA deduction The employer may be subject to penalties and interest for failure to withhold on the salary The entire amount will be included in the beneficiary s income (T1) Another common scenario: the funds are loaned back (directly or indirectly) to the payor corporation Depending on the circumstances, this may result in the funds being taxed in the hands of the beneficiary or the recipient 14

15 Tax-Free Savings Accounts 15

16 Tax Free Savings Account (TFSA) Income Tax Act Amendments The proposed TFSA amendments will apply after October 16, 2009: Make any income attributable to deliberate over contributions and prohibited investments subject to existing anti-avoidance rules in the Income Tax Act. The tax payable on this income will be 100% Make any income attributable to non-qualified investments taxable at regular income tax rates Cont d 16

17 Tax Free Savings Account (TFSA) Income Tax Act Amendments Ensure that withdrawals of deliberate over contributions, prohibited investments, non-qualified investments or amounts attributable to swap transactions, or of related investment income, from a TFSA do not create additional TFSA contribution room Effectively prohibit asset transfer transactions between TFSAs and other accounts 17

18 Compliance Activities CRA has started TFSA issuer and TFSA holder audits Audits have been initiated in situations where there is suspicion of deliberate over contributions, prohibited and non-qualified investments, amounts attributable to swap transaction, and/or other TFSA non-compliant situations CRA will make use of all the compliance tools at our disposal to address the non-compliant behavior relating to TFSAs 18

19 Abusive TFSA Transactions Application of the General Anti-Avoidance Rules (GAAR) - ITA S.245 Gross Negligence Penalties - ITA S.163(2) Potential Third Party Penalties, ITA S Tax Shelter Penalties - ITA S Criminal Prosecution - ITA. S

20 Third-Party Penalties 20

21 Objectives of the Third-Party Penalty Legislation To deter the making of false statements relating to tax matters To ensure compliance by deterring behaviour that results in non-compliance 21

22 Type of penalties and amounts Two types of penalties: planner penalty for promoting, planning and valuating activities preparer penalty (not limited to tax preparers) 22

23 Statistics As of March 31, 2011: 46 cases have had the third-party penalties assessed 77 TPP Audits are on-going, 23 involve tax preparers and the other 54 involve professionals and promoters involved with aggressive arrangements 35 cases were either rejected for TPP audit or it was determined that the penalty should not apply 23

24 The Cases Many different kinds of cases have been evaluated: Fictitious Amounts (T4s, Business, Farming and Rental Losses, Employment Expenses) Appropriations of Funds / Invalid Journal Entries Donation Arrangement RRSP Strip Deceptive FMV / ACB GST (Expenses not reported net of GST, fictitious amounts) SR&ED (expenditures did not relate to an eligible SR&ED activity, capital expenditures claimed as current expenses, use of estimates) 24

25 Voluntary Disclosure Program 25

26 Voluntary Disclosure Program An individual may correct any inaccurate or incomplete information regarding his/her tax affairs through the CRA s Voluntary Disclosure Program. If an individual makes a full disclosure before any compliance enforcement action is started, he/she may avoid penalties and prosecution. More information on Voluntary Disclosure Program: IC00-1R2 Voluntary Disclosure Program 26