The Current Plight of the CRA

My recent experience with the CRA has left me with a kind of Alice in Wonderland make believe world.  In truth the CRA is underfunded.  The recent cuts and more cuts of the Harper government has left the CRA labour short, labour untrained and labour unsupervised.  Recently a client received an assessment that was patently wrong.  Not a matter of conjecture or interpretation.  Just wrong.  A supervisor confirmed the assessment.  Again wrong.  The matter was taken to appeals in Shawinigan. The appeals officer threw the assessment out.  Why?  Because it was patently wrong.  The client had spent $30,000 in legal and accounting fees and there was no redress.

In a recent expose by the CBC  went on a hunt for tax cheats.  This included hidden cameras and gotcha interviews in Canada and Barbados.  No one from CRA was interviewed but it was implied, with a wink and a nod, that CRA was on top of this.  Most of the information was bogus.  But what it did was to falsely implicate literally thousands of legitimate companies that are formed in Barbados by Canadian parent companies.   Of course this made the CRA and the government of the day look bad.  What were all of these tax cheats doing running around Bridgetown.  While as a direct result of this reporting or otherwise the CRA has created a newly formed group that deals with international trading transaction.  A recent run in with one of that group has left me gaping in disbelief.  After hundreds of hours of both the CRA official's time and time of company personnel and after the transfer of thousands of pieces of documentation, the CRA has taken the position that the transactions between the Canadian company and the Barbados company is a sham!   CRA has taken the position that it will disregard binding contracts between the companies.  I could have understood discussions regarding transfer pricing (that is the price at which goods are sold from the Canadian company to its Barbados subsidiary) or even a discussion about whether "management mind and control" existed in the Barbados (the Canadian company has employees in Barbados). However, the CRA took the lazy and intellectually dishonest way out.  In fact, counsel believes that this position taken by CRA is the strongest position for the company/taxpayer.  I believe that CRA will lose in court.  Tens of thousands will be spent on professional fees.  I wonder where all those highly trained persons in international trade/tax are hiding.

International tax/trade is at the crux of the Canadian economy.  Canada has always been a trading country but that trade consisted largely of automobiles and resources.  In the current world no Canadian company of any size can exist without some aspect of international trade.  While this may consist mainly of north-south trade, trade worldwide is becoming the norm.  The Internet and etrade have had a huge effect on business.  If someone purchases intellectual property, where title to that property resides is a key factor in where income is earned.  If that income is earned in a low/no tax jurisdiction so much the better.

If CRA persists in its iron fisted approach to international tax/trade it will drive business offshore so that none of the profits will be repatriated to Canada.  Since Canada has a capital deficit that would be a shame.