The Canada Revenue Agency (CRA) is in the first stage of its Canada Emergency Wage Subsidy (CEWS) post-payment audit program — and initial requests have drawn criticism from tax professionals.
The CEWS audit program is designed to “identify types and levels of non-compliance with CEWS legislation,” the CRA stated in a Sept. 11 email to Investment Executive (IE).
Employers could be subject to penalties if they’re found liable for making false statements or omissions in CEWS applications. Third-party tax preparers could be found liable “if they know, or would reasonably be expected to know, that the application [they filed or prepared] contains false statements, including an omission of information,” the CRA stated.
Aaron Schechter, taxation partner at Crowe Soberman LLP in Toronto, called the CEWS audit requests “daunting.”
Earlier this month, Schechter posted a nine-page audit request template to LinkedIn that asked for details such as corporate minute books, organizational charts, two years of bank statements and employment contracts. The document was dated Sept. 11 and requested a large volume of information to be submitted by Sept. 28.
“In certain circumstances the professional fees [incurred for] responding to the questionnaire may exceed the benefit the taxpayer received under the CEWS,” Schechter said.
Peter Weissman, partner at Cadesky and Associates LLP in Toronto, agrees that CEWS audit requests are onerous for businesses. “[The audit document] is outrageously detailed, contains a number of items businesses were never told would be required and has some questions that ask for information that is seemingly not relevant,” he said.
The CRA responded in a Sept. 23 email to IE: “Industry participants may have seen a form with many audit questions circulating on LinkedIn. The purpose of the form is to provide CRA auditors with a full list of potential sources of information that may be relevant to their audits.”
While the auditor “issued the entire list as an initial request” in that case, the form “is not intended to be used this way. Auditors use their judgment and the list is tailored for each file,” the agency said.
“We do require significant information to confirm eligibility,” the CRA confirmed, but “are seeking copies of information that should exist and would have been recently referenced in the preparation of the CEWS claim.”
The agency added that the CEWS audit program is in the early stages: “This is brand-new territory and we are proceeding cautiously, being mindful of the risk of error. We have started small [and] the results of this first phase will guide decisions on further work,” it said.
The CRA concluded that it is open to extending audit deadlines “if delays are anticipated.”
The commencement of CEWS audits follows an August update from the CRA requiring all Canadian employers to report employment and retroactive payments on the T4 Statement of Remuneration Paid slip for defined periods under new information codes so the agency can “validate payments” made under the Canada Emergency Response Benefit, CEWS and the Canada Emergency Student Benefit programs.
In the Sept. 23 throne speech, the Liberals vowed to extend the CEWS program into summer 2021.