CRA is on the Hunt for Holding Companies

CRA, in its continued attempt to squeeze blood from various stones, appears to have engaged a new data-mining program to raise revenue and enforce spurious tax compliance on corporations, seemingly without regard to facts.

Apparently a call centre employee of some description contacts the registered contact to tell them that their payroll account is recording payments to employees that are in excess of the amounts of taxable sales recorded in HST returns. In some instances, the company is not an HST registrant; the CRA agent then informs the contact that this cannot be, and states that they will be registering the company for HST, retroactive to when the payroll account was opened, and that returns must be filed. A letter follows quickly, purporting to require HST returns to be made within 15 days.

Of course, this will have the effect of managing to catch mostly holding companies, or corporations who do business entirely through a partnership, and others who do not have taxable sales and are not required to be registered, but whose registered contact is too nonplussed by the call to find a way to stop the agent’s barrelling train of assumptions.

If your holding company pays directors through a payroll account, you can perhaps expect a call like this one. My only words of advice are to BE FIRM with the agent, and do not approve any registration for GST/HST until you speak to your tax advisor. I am not sure if CRA are unaware of the reality of holding companies and/or the technical requirements for GST/HST registration, or if this is simply a nefarious plan to ensnare innocent taxpayers in a compliance web that will ensnare the overwhelmed, generating penalties and arbitrary assessments for the fisc.

Taxpayer beware!

Written by Craig Burley

Craig is a tax lawyer in private practice in Hamilton, Ontario. Call Craig at (905) 296-3378 to discuss issues that you think may need independent tax advice. In addition to tax, Craig writes and works publicly on a number of other issues related to law, justice, and public affairs.