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David Rotfleisch On How to Manage Audits and Appeals for Canada Emergency Wage Subsidy (CEWS) Claims: The Skinny from a Seasoned Canadian Tax Lawyer

posted 1 month ago

Introduction: Understanding the Canada Emergency Wage Subsidy (CEWS)

A Canadian government program called the Canada Emergency Wage Subsidy (CEWS) was created to support qualified full-time employers between March 15, 2020, and November 30, 2021. With a maximum weekly subsidy of $847, qualifying businesses were able to obtain financial support under the CEWS program equal to up to 75% of the eligible compensation provided to each eligible employee. The eligibility requirements modified for each claim period. The COVID-19 epidemic had a detrimental effect on Canadian companies in 2020 and 2021, however the federal government provided assistance through the CEWS in the amount of $100 billion. The funding infusion helped many firms with cash flow issues that arose from lockdowns, which probably helped workers retain their employment at the time. The potential advantages of more government funding, however, soon turned into a nightmare when the Canada Revenue Agency (“CRA”) began auditing CEWS claims in August 2020. By the end of 2023, $458 million in CEWS that had been paid to employers had been rejected or modified by the CRA. It appears that the CRA is still auditing the program, and it is anticipated to do so at least through 2025. It is also crucial that companies that applied for the CEWS comprehend the procedures for CEWS audits and appeals.

Audit by the Canada Revenue Agency (CRA) regarding claims made for the Canada Emergency Wage Subsidy (CEWS)

Any or all of the periods for which a company filed a CEWS claim may be subject to a tax audit by the Canada Revenue Agency. Employers, particularly small enterprises, may find it challenging to respond to a CRA examination of their CEWS claims because of the differing eligibility standards for different time periods. Once an auditor is assigned to a file, they typically begin the review process by asking an employer for information and supporting paperwork to demonstrate that the company satisfies the requirements. Invoices, payroll records, financial statements, and receipts are examples of common evidence. A company should get advice from an expert Toronto tax lawyer before responding to a CRA audit of CEWS claims to make sure that the submissions do not divulge more information than is necessary and to prevent initiating additional CRA tax audit actions. Generally, an auditor will first send out a proposal letter outlining the strategy he or she plan to reevaluate along with providing some evidence to back up his or her suggested decision before making a decision. A taxpayer has by default 30 days from the date of the audit suggestion letter to react. However, the taxpayer’s Canadian tax lawyer may request an extension of the deadline to reply to an audit proposal letter, and the CRA Audit Division may decide to grant it. After the tax audit is over, the auditor will eventually make a resolution about the taxpayer’s CEWS claims and issue a notice of determination.

Post-Audit Consequences: Revealing the Results of a CEWS Investigation

Three outcomes are conceivable following the completion of an audit. If the Canada Revenue Agency approves the claims in whole, without any modifications, that is the best outcome a business can hope for. That is, the company has full entitlement to its CEWS claims, according to the CRA’s conclusion based on the audit assessment. There is little chance that the CEWS allegations will result in new problems or prompt additional CRA actions once the final audit decision letter has been sent. The most disastrous scenario is when the CRA rejects all CEWS claims and reassesses the company for fines and interest. However, the CRA may opt to accept some, but not all, CEWS claims. In any case, the next step for a business whose CEWS claims have been rejected in full or partially is to consider if it is worthwhile to take the disagreement to the objection stage, and if that fails, to hire a top Canadian tax litigation lawyer to file an appeal with the Tax Court of Canada. When a business gets a notice of determination from the CRA in regard to the CEWS audit, it has 90 days from the date of the notification to object to the decision. If the firm files a request for an extension of time along with the objection and offers valid justification for the delay, the objection may be filed within a year after the filing deadline for the CEWS Claims under dispute if CRA grants the time extension. The CRA Appeals Division reviews the case at the objection stage. After being assigned to the file, an appeals officer will consider the audit decision in light of the submissions and supporting documents that the officer has access to. Even if the new material wasn’t given to the auditor earlier, it can still be presented at this point to bolster the CEWS assertions. If more information is needed, the Appeals Officer may also decide to ask the company and the auditor for it. Going to the Tax Court of Canada is the next stage in contesting a CRA decision. In the event that the CRA does not respond, a firm has two options for filing an appeal with the Tax Court: either within 90 days after the objection’s completion or 90 days after the notice of objection was filed. Taxpayers and the CRA have the option to reach a settlement at any point before the court hearing following the filing of an appeal by a Canadian tax litigation lawyer in the Tax Court. The Tax Court of Canada will ultimately render its decision if a settlement cannot be reached. You may read our article here to get further information on appealing a Tax Court decision: When Is It Worth Disputing the Inaccurate Tax Court Pleadings from the CRA? Bringing the decisions of the Federal Court of Appeal in Preston and Adboss back into line.

Pro Tax Tip: Which Documents Can Be Provided To Support CEWS Claims?

When it comes to proving one’s eligibility for CEWS, there are no predetermined lists of documents or specifications. The crux of the matter is in demonstrating that the business has fulfilled the prerequisites for each CEWS claim term. For Periods 1 through 4, that is, March 14, 2020, to July 4, 2020, for instance, a decrease in business revenue is required. You can provide copies of your bank statements, invoices, receipts, T4s, and other tax slips as evidence of the decline in your company’s revenue. In order to help an auditor in understanding the workings of the business, you may also offer a synopsis of all the data and documentation that are readily available. It is important that you speak with one of our knowledgeable Canadian tax lawyers right away if the CRA is reviewing or rejecting your CEWS claims. This will help to make sure you don’t miss any deadlines for responding to the CRA or on appeal. When it comes to responding to the CRA and battling arbitrary judgments made by the CRA, our knowledgeable Canadian tax lawyers can offer you legal counsel.

Frequently Ask Questions

Why Are My Company’s CEWS Claims Being Reviewed?

It is anticipated that the CRA will carry out tax audit assessments of CEWS claims all over the whole country. There are no clear indications as to when the CRA could start an audit or what initiates a review. It is not always the case that a CRA audit review indicates that you were not qualified for CEWS during the reviewed periods. Most likely, the audit was a component of the CRA program, which sought to recoup subsidies that had been awarded under COVID-19. For case-specific legal assistance, please get in touch with one of our knowledgeable Canadian tax lawyers if you have any concerns regarding the CRA audit of your CEWS claims.

If a CRA rejects my CEWS claims, how can I appeal the decision?

You have a period of 90 days to submit a notice of objection following the completion of a CRA audit and the CRA’s determination regarding your CEWS claims. In case you need more time to file the notice of objection, try to do so no later than a year from the date of filing for the denied CEWS claims. You can also request an extension of time by sending a request to the CRA Appeals Division. The CRA will examine the allegations following the filing of an objection and either amend or maintain the audit’s beforehand decision. In addition, you have the option to file an appeal with the Tax Court of Canada against the CRA’s decision on your CEWS claims in the following two cases: 1) when your objection has been rejected; or 2) when the CRA has not responded to your objection within 90 days of the day that you filed it.

Disclaimer:

The information in this article is only general. It is only current as of the day it was posted. It might not be current as it has not been updated. It is not to be relied upon and does not provide legal advice. Each tax scenario is specific to its conditions and will not be the same as the examples given in the article. A professional Canadian tax lawyer should be consulted if you have any special legal issues.

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