CRA to expand EFT audits in 2017, PwC warns

The next two years will see an expansion of the Canada Revenue Agency’s efforts to review international funds transfers (EFTs), which means many taxpayers can expect to see an “EFT Letter” next year, according to a recent PricewaterhouseCoopers LLP (PwC) Tax Insights brief.

The CRA initiative builds on efforts by the agency that since the beginning of 2015 have required financial intermediaries to report international EFTs of $10,000 or more to the agency. But while the fishing net may be widening, businesses that do things by the book shouldn’t worry, according to Montreal-based PwC partner Marc Vanasse. “It’s business as usual for those who are reporting to government on fund transfers,” he said.

The mandatory reporting of EFTs is part of the government’s initiative announced in the 2013 federal budget to fight international tax evasion and aggressive tax avoidance. Vanasse said the CRA is focusing on EFTs with high risk jurisdictions: so far, PwC believes that the CRA’s initial review of 20,000 EFTs related to the Isle of Man and the island of Guernsey is nearly complete, and that reviews of the remaining two presently undisclosed jurisdictions will likely be completed by March 2017.

In its advisory brief, PwC said the CRA is also planning to review approximately 100,00 EFTs in four other undisclosed jurisdictions over the next two years. Vanasse said the federal government’s efforts are in line with other international initiatives to combat tax invasion and do not represent a change in tax law.

“Some people are thinking government is increasing bureaucracies around fund transfers,” he said, but that isn’t the case.

EFTs are a convenient way of moving money to other jurisdictions legitimately, but they can also facilitate individuals trying to hide money and assets offshore.

“Most EFTs are legitimate transfers between individuals and corporations that have nothing to do with not paying their fair share of taxes,” said Vanasse. “EFTS exist and are going to continue to exist.”

The EFT letter from the CRA requests detailed information about all incoming and outgoing EFTs made by the taxpayer during the audit period, according to the PwC brief. It does not specify the targeted jurisdiction, but requires that the information cover all EFTs with non-Canadian jurisdictions.

According to PwC, the CRA can compel disclosure of information when two tests are met: its request must be for the purpose of administering or enforcing the Income Tax Act; and, the information sought “may relate” to the audit purpose. Usually, the EFT letter doesn’t provide the recipient with enough factual information to know whether either of these tests is met with regard to any or all of the information requested, so recipients should consider asking for so they can answer in an informed manner.

Recipients can also push back, said Vanasse, if the scope of the request is unreasonably broad or the timeline to respond is unreasonably short. He said it is likely that most businesses are already keeping track of all EFTs and their nature due to other compliance measures, but being asked to report on every single EFT above $10,000 would be rather onerous and costly to the business.

Vanasse said the government wants taxpayers to have faith in the tax system and is using its resources to ask the right the questions audit and detect transactions where there is non-compliance. “They are focusing their resources where they think the risk is higher,” he said.


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