The CRA has launched an “alert service” to provide information on tax shelters, “scams” and other areas of interest. Will the service make it easier for us to provide advice to our clients?
The CRA says that the “new” alert service will provide
Canadian taxpayers with a central repository of information about such things as tax shelters, tax havens, the underground economy and enforcement activities, as well as warnings about tax avoidance and tax evasion schemes. It also alerts taxpayers to the risks they are exposed to by hiring contractors who work in the underground economy.
In fact, the alert service is nothing new. The CRA has issued warnings to taxpayers before about shelters or planning that it regards as abusive. Nevertheless, if the service marks the beginning of a trend toward issuing these kinds of warnings sooner and more often, then the service, when used properly by advisers, could prove valuable.
From time to time we receive inquiries from clients or other advisers about the merits of this or that tax shelter. We always scrutinize the shelters closely. In particular, we look very closely at the legal and other opinions that generally accompany a shelter’s offering documents because the opinions — and the problems they some times assume away — are generally a good guide to the tax risks associated with the shelter.
The CRA’s alert service — if it lives up to its billing — could be another useful tool for evaluating a shelter. That the CRA does not like a particular structure or shelter does not mean that a client should not invest in the shelter or use the structure. The CRA’s administrative positions are not law. In addition, the exact nature of the CRA’s concerns about certain kinds of planning is not always easy to discern. For example, the warning contained in its very first alert seems overly broad. The alert might cause some taxpayers to believe that they cannot invest in mortgages through their RRSPs (although the reference in the alert to Dubuc c. La Reine, 2004 CCI 164 should clear up the matter). Tax advisers, then, must continue to keep in mind the fact that the CRA’s administrative positions are not always in accordance with the law. Advisers will also need to pay close attention to the wording of the alerts to make sure they understand correctly the CRA’s concerns.
Nevertheless, that the CRA does not approve of certain kinds of planning is an important fact to convey to our clients. Even if, in light of the black letter of the law, a shelter or planning structure seems to provide the expected tax result, that the CRA thinks differently is very important information. Our clients might wish to avoid a shelter or planning structure if using it is sure to lead to a reassessment.
