Some small business owners that received the federal wage subsidy are now facing midyear audits, prompting a major organization representing independent businesses to formally urge the Canada Revenue Agency to shelve the audits until the pandemic eases.
Businesses and experts say it is highly unusual to conduct audits on benefits for the tax year that’s in progress. They warn it places an undue burden on companies to compile documents when they are already struggling to survive the pandemic.
In a letter sent this month to National Revenue Minister Diane Lebouthillier, the Canadian Federation of Independent Business stated while the organization does not object to audits of the program’s use, it asked that they be postponed “until after the pandemic emergency is over, or at minimum, until after the upcoming tax season.”
The Canada Emergency Wage Subsidy (CEWS) is a federal payment to business owners that partly offsets employee costs during the pandemic. As of this month, the government said 3.7 million workers have benefited from the program.
The CRA said in a statement it would make the required documentation of the audits less onerous, but it would not delay them.
The CFIB letter is signed by senior vice-president Corinne Pohlmann and vice-president Jasmin Guénette.
“While we understand the need for the agency to do routine audits of taxes and subsidy programs, we have had several CFIB members raise serious concerns about the timing and substance of audits of the CEWS program,” the letter states, adding that audits are an added source of stress for business owners during a very difficult time. “Right now, the focus of business owners is on making sure their business can survive the pandemic, not on collecting a five-page long list of documents for the CRA."
In a statement, CRA spokeswoman Pamela Tourigny confirmed the agency has launched the first phase of its CEWS audit work. She said that in some cases auditors relied on a standardized initial contact letter that requested a broader list of records than may have been necessary.
“We have confirmed that, in the initial few audits, some auditors asked for this full list of information rather than customizing the requests based on the size of the claim and the nature of the risk that prompted the CRA review. Revised guidance has been issued to our auditors,” she said.
The agency rejected the CFIB’s suggestion that the auditing work should be delayed.
“The CRA is conscious of the economic situation. However, a full delay is not practical given the size and extension of the program and the need for a level playing field. We plan to proceed carefully to protect the fiscal base while respecting the fragility of businesses and the economy," she said. "The CRA does not see a benefit to delaying CEWS audits, as it is unknown if Canada will continue to face a global pandemic after the CEWS is slated to end.”
CFIB president Dan Kelly said he’s glad to hear auditors have been urged to ease up on their document demands, but described the CRA’s explanation for rejecting the CFIB’s delay request as ludicrous and insulting.
“You don’t start auditing somebody in the current tax year,” he said. “It suggests that businesses are seizing on some sort of opportunity to get free money. ... The timing seems nuts to me."
The subsidy program’s rules have changed several times and the government recently announced further revisions as part of an extension of the program through to the summer of 2021. The program is expected to cost the federal government $68.5-billion by Dec. 19. The extension must still be approved through legislation, which Finance Minister Chrystia Freeland said Tuesday will be introduced shortly.
The wage subsidy includes a base amount for employers whose revenues have been negatively affected by the pandemic and an additional top-up subsidy for the hardest hit employers. The size of payment varies based on the degree of lost business revenue. A separate set of rules applies as of Oct. 25 for furloughed workers, who would receive between $500 and $573 a week.
The CEWS program took effect as of March 15 and is divided into roughly month-long periods.
Mike McCrae, who owns a MaidPro residential and commercial cleaning franchise in the Edmonton area, is among the business owners facing a CEWS audit. He said he qualified for the first three periods, but didn’t feel he qualified for the fourth period and so did not apply. He plans on applying again later this year.
Mr. McCrae said he assumes he was selected at random and fully expected that he could face an audit at some point, but he said audits are an added cost and hassle for his business and expressed concern he may have to go through the experience more than once.
“Is it necessary? As a taxpayer, should we be spending money on audits at this stage?” he asked in an interview. “How often am I going to get audited going through the process? Am I going to get audited every few times? Why not wait and do a final audit at the end instead of putting me through it every time?"
Borden Ladner Gervais LLP tax lawyer Bhuvana Rai, who previously worked in the tax litigation directorate of the Department of Justice, said she also questions why the CRA is launching audits related to a tax year that is still in progress.
“This is extremely unusual and the reason that it’s so unusual is that CRA normally would wait until after a taxation year has ended to commence audits about that period,” she said in an interview.
“The other thing is the point of the subsidy is to get businesses to hire people and to keep them," she said. "So if you make it so hard to get the subsidy that businesses are not going to use it, that actually need it, then is [the program] really going to fulfill its purpose?”
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