Jon Cartu Stated: The Ripple Effect Of Future Wage Subsidy Audits - Accountin... - Jonathan Cartu CPA Accounting Firm - Tax Accountants
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Jon Cartu Stated: The Ripple Effect Of Future Wage Subsidy Audits – Accountin…

The Ripple Effect Of Future Wage Subsidy Audits - Accountin...

Jon Cartu Stated: The Ripple Effect Of Future Wage Subsidy Audits – Accountin…



Canada:

The Ripple Effect Of Future Wage Subsidy Audits


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As part of its response to the COVID-19 outbreak, the Government
of Canada has created a number of emergency benefits to assist
individuals and businesses through these troubling financial times.
For businesses, the centerpiece of the Government’s response
has been two wage subsidies – the Temporary 10% Wage Subsidy
and the Canada Emergency Wage Subsidy (CEWS).

The Government originally pegged the cost of the CEWS at $73
billion and with news that the program will be extended into the
summer [see: Emergency wage subsidy
extending into summer: PM
], it appears that the cost of these
wage subsidies will exceed $100 billion.

While the Government has focused its resources to ensuring that
these benefits are delivered in a timely fashion, it is inevitable
that the Government will pivot and focus its resources to ensuring
that these benefits were delivered to those who actually qualified
for them. Given the design of the CEWS, any CRA audits into a
business’ CEWS application could lead to a number of potential
audit trails.

The first potential starting point in an audit is a review of
the business’ revenues. Given that a business is eligible based
on a comparison of revenues between two periods – the default
comparison being a year-over-year comparison – CRA will look
at how a business calculated its qualifying revenue for the two
comparison periods. This could raise a number of topics including
income suppression, revenue recognition policies, income versus
capital gains characterizations, and pricing between non-arm’s
length entities.

Each of these topics could create further follow-up audit
issues. For example, any income suppression detected could raise
questions as to whether GST/HST has been remitted correctly. Income
versus capital gains characterizations could raise questions as to
the kinds of deductions the business was permitted to claim.
Pricing issues between non-arm’s length entities create issues
as to the reasonableness of deductions claimed within the
group.

A second potential starting point in an audit could be a review
of the business’ employees. CRA could look into whether these
employees were actually employees and not independent contractors.
CRA could also review how employee benefits, allowances, or
deductions were administered to determine if they were treated
correctly pursuant to the Income Tax Act.

One final note is that both the CEWS and the Temporary 10% Wage
Subsidy are administered through a business’ payroll account.
In the event that an audit creates a liability in the business’
payroll account, corporate directors should also be mindful of
their exposure to potential director’s liability under section
227.1 of the Income Tax Act.

Whether you are seeking proactive assistance in determining if
your business qualifies for the CEWS or if you fear that you are
potentially exposed to an issue on a CRA audit, the specialists at
TaxChambers LLP can help.

Originally published Tax Chambers, May 2020

The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.

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