I attended a tax brief hosted by the CICA last week entitled The Changing Landscape Faced by High Net Worth Individuals. I learned about Canada Revenue Agency’s (CRA) new Related Party Initiative.
CRA launched a pilot project back in 2004 to look at high net worth individuals and their related entities. This evolved into its Related Party Initiative in which CRA is looking at individuals with in excess of $50 million of net worth and at least 30 different entities. It was determined back in 2007 that just 5% of Canadians pay 25% of the tax collected. In the U.S. the top 1% of the population pays 40% of the tax.
CRA is interested in taxpayers who have used “special purpose entities” to achieve “favourable tax results”. These results can be from increased tax deductions, deferrals or decreases in the effective tax rates from a myriad of tax planning strategies.
The comprehensive review process starts with a 21 page questionnaire which must be completed and filed with CRA. If you’re one of the unfortunate few to receive CRA’s letter, contact your tax advisor. In the meantime, for anyone who has engaged in any significant tax planning initiatives, you should ensure that all documentation is complete and organized. A review may only be a matter of time.