The Department of Finance released draft legislation on Friday for several previously announced tax measures, including those related to bare trusts and to expanded audit powers for the Canada Revenue Agency (CRA).
The proposed CRA audit powers target non-compliance with information requests. The proposal was announced in federal budget 2024 and included in draft legislation last August.
Under that 2024 draft legislation, the CRA would be allowed to issue a notice of non-compliance when a taxpayer hasn’t complied with a request for information as part of an audit. The CRA would also be allowed to extend the normal reassessment period for the issue related to the notice of non-compliance by however long the notice was outstanding.
Penalties would apply to a taxpayer with an outstanding notice of non-compliance, and also when the CRA obtains a compliance order against a taxpayer. In the latter case, the penalty proposed was 10% of taxes owed, if the order related to taxes owed of more than $50,000 in a year. The CRA could also compel taxpayers to provide testimony under oath.
The updated amendments released Friday change the penalty to “up to 10%,” instead of 10%, for a taxpayer who is issued a compliance order. Another change is that the compliance order penalty wouldn’t apply if the taxpayer didn’t comply with the information request because they reasonably believed the information was protected from disclosure by solicitor-client privilege. Likewise, regarding the penalty for a notice of non-compliance.
Technical amendments to trust reporting legislation, which were also in draft legislation from August 2024, had exempted more bare trusts from expanded trust reporting rules. The updated proposals published on Friday are largely similar. In a LinkedIn post, Adam Friedlan, a tax lawyer with Friedlan Law in Richmond Hill, Ont., said the bare trust rules are “still far too complex” and determining the existence of a bare trust remains challenging. “Many Canadian taxpayers will have questions on whether their trust arrangement is reportable under these rules,” Friedlan wrote.
Among other draft legislation released on Friday are proposals for the following:
- expansion of capital gains rollovers on business investment (from the fall economic statement);
- technical changes to the existing capital gains exemption for business sales to employee ownership trusts (from budget 2024);
- enhancements to the scientific research and experimental development program and an extension of the accelerated investment incentive (from the fall economic statement);
- implementation of the Organization for Economic Co-operation and Development’s crypto asset reporting framework in Canada (from budget 2024); and
- implementation of the remaining portion of the substantive Canadian-controlled private corporations measure relating to passive income of foreign affiliates (from budget 2022).
Finance also posted draft legislative proposals related to the Global Minimum Tax Act, and to the Excise Act regarding provisions for the goods and services tax/harmonized sales tax rules.
Guidance on other previously announced measures will follow “at a later date,” Finance’s release said.
The legislative proposals are out for consultation until Sept. 12.