The Canada Revenue Agency is increasing the level of audit scrutiny on taxable benefits received by employees. While the dollar amounts on individual items for each employee may be relatively small, the aggregate amounts for all employees of a business can be quite substantial, and the CRA is becoming increasingly active in auditing businesses to ensure that all benefits enjoyed by an employee which might potentially fall within the tax net are taxed accordingly.
At a November 2, 2011 presentation to the Toronto Centre Canada Revenue Agency & Professionals Group co-chaired by Steve Suarez of BLG’s Tax Group, senior officials from the CRA’s Taxpayer Services and Debt Management Branch announced that the CRA would no longer be willing to allow employers to make a payment to the CRA to resolve situations in which taxable benefits enjoyed by employees had been under-reported. Instead, the CRA will insist on re-assessing individual employees (or groups of employees) for taxes and interest (and potentially penalties) on amounts that constitute taxable benefits, which is an HR disaster for employers. What this means is that there is greater value than ever for employers in ensuring in advance that all taxable benefits are identified and reported, since it is very difficult to remedy the situation after the fact.
Among the benefit-related issues identified by CRA staff at the November 2 presentation as being those most commonly re-assessed are:
- unreported bonuses, commissions and incidental cash payments
- motor vehicle benefits
- parking benefits
- vehicle allowance benefits
- independent contractors determined to be employees instead
In addition to these items, we have encountered similar issues involving cell phone use, moving expenses, meal allowances, employer-provided clothing, employee purchase programs and professional membership dues, among other items. The BLG Tax Group has extensive experience in helping businesses ensure that taxable benefits have been appropriately identified and reported and that the employees of the business will not get re-assessed as a result of a CRA audit of the employer. A thorough review of the situation in advance is a wise investment, both in terms of maintaining strong employee relations and ensuring a good working relationship with tax authorities.