How Your State Corporate Revenue Tax Reporting Rules Might Change Canadian Underwriters

Some brokers may be at greater risk of having to be scrutinized by the Canada Revenue Agency or filing more tax documents if the measures proposed in Monday’s federal budget come into effect.

The federal government is proposing new requirements for companies to notify the Canada Revenue Agency when those companies have what are known as “uncertain tax positions.”

Before deciding whether or not to make such reporting mandatory, the government is planning a public consultation, Deputy Prime Minister Chrystia Freeland said in the 2021-22 budget document presented on April 19.

The United States, Australia and the UK have already enacted rules – as has Quebec on provincial corporate income tax – that require reporting of uncertain tax positions, Joseph Micallef, partner and head of financial services practice at KPMG Canada, said in an interview Tuesday.

Micallef made general comments on the impact of the 2021-22 federal budget proposals on private Canadian companies, not insurance brokers specifically.

If the federal government required reporting uncertain tax positions to the rating agency, it would be controversial as it could adversely affect all companies affected by the new regulations, Micallef told the Canadian underwriter.

“Depending on the nature of the information provided, this could certainly lead to additional audits and requests for information that would obviously be in place, not to mention other additional costs and activities related to helping defend the tax position taken. Micallef added.

A company can have an uncertain tax position in various cases. Examples of this include uncertainty about whether an expense is eligible for a tax deduction or whether a tax credit can be claimed, according to an article on PwC’s website.

“A tax position simply reflects your assessment of how tax law applies to your circumstances,” writes Kassie Bauman, managing partner of PwC in Philadelphia.

Many areas of Canadian federal income tax law are ambiguous, KPMG Canada’s Micallef told the Canadian underwriter on Tuesday.

“There is not always 100% certainty that whatever position a taxpayer takes will end up being accepted by the tax authorities,” he said. “Overall, there are a number of criteria that we consider not only to determine a tax advantage or a tax position, but also to measure it.”

Both the US and Australia have reporting requirements for certain taxpayers that reflect uncertainty about taxes in their audited accounts, the federal government noted in its budget document for 2021-22 released last Monday. “The experience in these countries provides a useful model for developing similar rules in Canada.”

The Canadian government suggests reporting uncertain tax positions only for companies with assets greater than $ 50 million on their balance sheets.

Typically, when accountants believe the company’s tax position is less than 70% likely to be accepted by the government, a tax position is “highly uncertain,” Micallef said.

Comments on the proposal must be submitted to the Federal Ministry of Finance by September 3. Comments can be emailed to [email protected].

The federal budget document also discussed what the Liberals call tax evasion and “aggressive tax planning”. Therefore, Ottawa promises to allocate more money to the CRA to conduct more audits and collect tax debt.

In particular, the federal government is proposing to spend a further USD 304.1 million over a period of five years so that the rating agency can finance new initiatives and expand existing programs. This would include increasing the sales tax audits of large companies and improving their ability to detect tax evasion.

The government estimates that the proposed budget measures to combat tax evasion and aggressive tax avoidance will generate revenue of $ 810 million over five years.

This would give the rating agency more resources to allow federal tax collectors to scrutinize a company and examine the details in corporate returns and other records, said Micallef of KPMG Canada.

“Remember, when you file your tax returns, it’s numbers,” he said. “And so you can’t see any detail behind these numbers, and what they ask for is more information.”

That way, CRA could ask additional questions to the company filing its taxes or decide whether to conduct an audit, Micallef said.

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