CRA’s Related Party Initiative

Yesterday’s Ontario Bar Association Tax Law Section Conference was a great opportunity for our firm to discuss the Canada Revenue Agency’s (“CRA”) new Related Party Initiative (“RPI”), which targets high net-worth Canadian taxpayers.

The CRA consulted with the Australian Tax Office (“ATO”), which initiated a similar project in or about 1996. At that time, the ATO simply read the Fortune 500 lists to choose targets. The CRA has developed an algorithm to choose targets. It is estimated that the CRA has dedicated over 50 employees to the RPI Teams, including risk assessment officers and large case auditors, i.e., the CRA’s most senior auditors. In addition, the CRA has appointed CRA Special Enforcement Program employees and Aggressive Tax Planning Section employees to the RPI Teams.

As discussed in our firm’s previous post, the CRA is initiating RPI audits by sending a 20-page questionnaire to taxpayers selected for audit. The RPI questionnaire asks taxpayers to disclose sensitive tax information, including, but not limited to, tax planning documents.

A former CRA employee with experience in these matters echoed our firm’s previous recommendation that taxpayers who receive a RPI questionnaire should retain tax legal counsel and that taxpayers should work with tax legal counsel to retain accountants. This way, taxpayers may mitigate risk, protect communications using solicitor-client privilege and identify the information/documents that should not be disclosed to the CRA based on solicitor-client privilege.