CRA takes aim at the wealthy

CRA takes aim at the wealthy

CRA takes aim at the wealthy

The agency’s HNW audit program is comprehensive and costly for clients, tax practitioners say.

As governments around the world continue to target aggressive tax avoidance and tax evasion, pressure on the wealthy to provide transparency about their finances increases. Canada is no exception: tax practitioners here say that the Canada Revenue Agency’s (CRA) audit program of high net-worth (HNW) individuals requires Canadians to provide extensive details about their tax and financial affairs.

“[The CRA is auditing] partnerships, joint ventures, any foreign affiliate – it’s like a laundry list of information that [the agency] is asking for,” says Deborah Graystone, private client service practice leader in Canada and leader of BDO Americas Private Client Service Practice with BDO Canada LLP in Vancouver.

Says Peter Weissman, partner with Cadesky and Associates LLP in Toronto: “It is a very intrusive and expensive process.”

The CRA’s Related Party Audit Program (RPAP) seeks to address non-compliance among wealthy individuals and families who control them, as well as these taxpayers’ associated entities. “The CRA approach is to audit the entire group vs auditing a single taxpayer,” the CRA stated in an email to Investment Executive in response to questions about the RPAP.

In recent years, the CRA has broadened the reach of the program (which, until April, was known as the Related Party Initiative), including removal of the requirement that an HNW individual have 25 or more related-party entities to fall under the program’s ambit.

The CRA states that there are 600 individual audits currently in progress under the RPAP, and that during the period of April 2014 to September 2019, more than 900 audits had been completed. Furthermore, the CRA has identified more than 1,100 HNW groups qualifying for audit under the RPAP.

Tax practitioners interviewed for this article say that in their experience, several CRA auditors – not just one – will be assigned to an individual RPAP file. After the CRA received additional resources as part of the 2016 federal budget, the agency states, it added 17 RPAP audit teams, for a total of more than 30 teams.

“If the CRA, historically, has always just looked at one auditor at one entity at a time, that would be very difficult to assess compliance overall,” says Curtis Davis, consultant in tax, retirement and estate planning services, retail markets, with Manulife Investment Management in Toronto. “Hence the more team-based or holistic approach that [the CRA] is taking.”

The CRA also is increasingly using data, leveraging internal as well as third-party sources, to identify and analyze RPAP groups, the agency states: “The CRA’s use of advanced data analysis techniques to mine the business intelligence [the CRA] has at its disposal has allowed the CRA to more precisely target non-compliance in a timely manner.”

The roots of the RPAP go back to the mid-aughts, when the CRA launched a pilot project to audit HNW individuals. However, the program became official and picked up momentum only after the global financial crisis of 2008-09 and the publication of a report by the OECD about the risk that tax avoidance and tax evasion posed to government revenue around the globe.

Over the past decade, the scrutiny on HNW individuals in Canada has increased, particularly after events such as the release of the so-called Panama Papers, which contained details of more than 200,000 offshore accounts.

The federal government has signed several agreements and treaties with other countries to exchange financial information about each other’s tax residents. In March 2018, the CRA changed the rules governing the voluntary disclosure program, making the agency much less forgiving if it deems a taxpayer’s non-compliance to be intentional.

“In virtually all of these cases, the CRA can make that claim [that the non-compliance was intentional],” says Robin MacKnight, partner with Wilson Vukelich LLP in Markham, Ont. “Whether it’s true or not, they can certainly make it.”

HNW clients who are the subject of an RPAP audit may well feel overwhelmed, but should seek out tax advice rather than try to deal with the CRA directly.

“My preference is for the CRA to come and interview the [tax] advisor first,” Graystone says. If the client does choose to meet with the CRA, the advisor should be present, she suggests.

Weissman agrees: “When someone is nervous, they talk a lot. They may have nothing to hide, but if they say something in the wrong way, the CRA may start chasing [down a path].”

Both Graystone and Weissman stress the importance of co-operating with the CRA. They recommend asking the agency to provide a list of questions, in writing, related to the audit. These steps may narrow the scope of the audit, reducing costs and hassle for your client.

“See what they’re really looking for, see if we can start with the bigger entities first, and then, if [the CRA] has other questions, we can expand [the client’s responses],” Graystone says.

Depending on circumstances, seeking legal advice for your client’s protection may be necessary, Weissman says: “When I do think something has not been done properly, I will sometimes get a lawyer involved to get solicitor/client privilege.”

In fact, engaging the services of a lawyer can help to make sure that your clients aren’t sending information to the CRA inappropriately, Graystone says: “More complex [financial] transactions are often subject to solicitor/client privilege, and then we definitely want to work with legal counsel to navigate that information request.”

Graystone says that dealing with an RPAP audit can take years, with information and questions going back and forth between the taxpayer and the CRA.

Weissman says that while advice and legal costs can vary depending on the structure of a client’s financial affairs, an RPAP audit could “easily cost between $75,000 and $100,000 before you get through the process, and that is before you need to appeal or go to court.”

However, with governments around the world trying to address the issue of income inequality – during Canada’s recent federal election campaign, several parties’ platforms addressed affordability – sympathy for the plight of HNW Canadians may be hard to find, Weissman says: “There isn’t any, and I get that.”

Weissman does point out to clients – facetiously, he says – that the cost of advisory fees in regard to a CRA audit are tax-deductible.

By: Rudy Mezzetta | Source : Investment Executive | November 1, 2019

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Retirement Planning

Value of advice more important as Canadians near retirement: study

Retirement Planning

Two thirds of Canadians say they want to know more about the logistics of their retirement

The majority of Canadians want more help understanding the aspects of a successful retirement, according to a recent study from Toronto-based Mackenzie Investments.

The Retirement Study, conducted for Mackenzie by Pollara Strategic Insights, found that 72% of respondents (and 74% of baby boomers) feel there’s an opportunity for financial advisors to help clients better understand all components of retirement planning.

Sixty-one percent of Canadians (47% of boomers) want to learn more about what is involved in transitioning toward retirement, with less than a quarter saying they are familiar with the logistics, including how the Canadian Pension Plan works, when and how to convert RRSPs to RRIFs, and how they’ll be taxed in retirement.

Additionally, only 53% of respondents (67% of boomers) say they are confident in their ability to manage their investments during retirement.

Carol Bezaire, vice president, tax, estate & strategic philanthropy, Mackenzie Investments, said the value of advice takes on “added importance” in areas such as tax and estate planning and optimizing investments as clients approach retirement.

“Canadians in general, and boomers in particular, are seeking advice on the details involved in making the successful transition to retirement. This provides Canada’s financial advisors with a tremendous opportunity,” said Bezaire.

The Pollara survey was conducted with an online sample of 1,518 adult Canadians from Sept. 18 to Sept. 20, 2019.

By: Maddie Johnson, November 13, 2019, IE: Investment Executive

Financial Advice

Financial Advice

An advisor can help you determine where you are today financially and where you want to go. An advisor can provide you guidance on how to reach your short, medium and long term financial goals.

Why work with a Financial Advisor? 

  • Worry less about money and gain control. 

  • Organize your finances. 

  • Prioritize your goals. 

  • Focus on the big picture. 

  • Save money to reach your goals.

What can a Financial Advisor help you with? 

Advisors can help you with accumulation and protection

Accumulation: 

  • Cash Management – Savings and Debt

  • Tax Planning

  • Investments

Protection: 

  • Insurance Planning

  • Health Insurance

  • Estate Planning

How do you start? 

  • Establish and define the financial advisor-client relationship.

  • Gather information about current financial situation and goals including lifestyle goals. 

  • Analyze and evaluate current financial status. 

  • Develop and present strategies and solutions to achieve goals. 

  • Implement recommendations. 

  • Monitor and review recommendations. Adjust if necessary. 

Next steps…

  • Talk to us about helping you get your finances in order so you can achieve your lifestyle and financial goals. 

  • Feel confident in knowing you have a plan to get to your goals.

2019 Federal Budget

The 2019 budget is titled “Investing in the Middle Class. Here are the highlights from the 2019 Federal Budget.

We’ve put together the key measures for:

  • Individuals and Families
  • Business Owners and Executives
  • Retirement and Retirees
  • Farmers and Fishers

Read more

5 Reasons for an RRSP – 2019

Read more

Tax Planning Tips for End of 2018

Now that we are nearing year end, it’s a good time to review your finances. 2018 saw a number of major changes to tax legislation come in force and more will apply in 2019, therefore you should consider available opportunities and planning strategies prior to year-end.

Read more

The Difference between Segregated Funds and Mutual Funds

 

Segregated Funds and Mutual Funds often have many of the same benefits such as:

 

  • Both are managed by investment professionals.
  • You can generally redeem your investments and get your current market value at any time.
  • You can use them in your RRSP, RRIF, RESP, RDSP, TFSA or non-registered account.

 

So what’s the difference? Who offers these products?

 

  • Segregated Funds: Life Insurance Companies
  • Mutual Funds: Investment Management Firms

 

Why is this important?

 

  • Since Segregated funds are offered by life insurance companies, they are individual insurance contracts. Which means….
  • Maturity Guarantees
  • Death Benefit Guarantees
  • Ability to Bypass Probate
  • Potential Creditor Protection
  • Resets
  • Mutual Funds do not have these features.

 

What are these features?

 

Maturity and Death Benefit Guarantees mean the insurance company must guarantee at least 75% of the premium paid into the contract for at least 10 years upon maturity or your death.

Resets means you have the ability to reset the maturity and death benefit guarantee at a higher market value of the investment.

 

Bypass Probate: since you name a beneficiary to receive the proceeds on your death, the proceeds are paid directly to your beneficiary which means it bypasses your estate and can avoid probate fees.

Potential Creditor Protection is available when you name a beneficiary within the family class, there are certain restrictions associated with this.

 

What are the fees?

 

  • Segregated Funds: Typically higher fees (MERS)
  • Mutual Funds: Typically lower fees

 

I can help you decide what makes sense for your financial situation.

Retirement Planning

Survey reveals top financial fears of seniors

One-in-four seniors fear they might run out of money before they die

An alarming number of seniors are afraid as to whether they can afford long-term care and stretch their retirement savings, according to a national survey commissioned by the Financial Planning Standards Council (FPSC) and Credit Canada.

The Seniors and Money Report asked 1,000 Canadians over the age of 60 how they felt about debt, income, financial planning and work.

The survey revealed that nearly half of Canadians aged 60 and older say they have at least one financial concern.

For example, one-in-four seniors surveyed fear they might run out of money before they die, while an equal amount are concerned they won’t be able to pay for long-term care. Other fears include never being able to pay off their debt, not having enough money to retire, having to sell their house or needing to depend on children for financial support.

The report also discovered that Canadians are extending their working years. Specifically, one-in-five Canadians are still working past age 60, and 6% are working to age 80 and above.

The reasons for doing so include:

  • Three-in-ten can’t afford retirement (including 13% who say they’ll never afford retirement)
  • One-in-eight have too much debt
  • Approximately 28% don’t have enough savings
  • Twelve per cent are still helping their children financially
  • Nearly a third continue to work because they love their job

The report also demonstrates that fewer Canadians are able to reply on company pension plans. For example, 50% of Canadians 80 and older list a company pension plan as a source of income, while the percentage is 41% among those 60 to 69.

“Times are changing, and many seniors haven’t planned for or anticipated the life and financial circumstances they now are facing,” says FPSC’s consumer advocate Kelley Keehn, in a statement.

“Some seniors may feel embarrassed or that it’s too late to ask for assistance when it comes to their finances,” she adds. “Truthfully it’s never too late to get started.”

Additional findings from the study include:

  • Men are significantly more likely to be employed, have a company pension plan or have investments as their current source of income than women
  • Four-in-ten of those who have a company pension as a source of income also hold investments
  • Three-in-ten Canadians age 60 and older with children are supporting them financially (including 22% of those 80 and older)
  • Overall, Canadians aged 60-years and older are more likely to be supported by the government (73%) than any other form of income.