part of the gst webinar series - cch
TRANSCRIPT
Part of the GST webinar series
Presenter
Sheila Wisner, CASW Consulting
Advisor and Trainer, Author- CCH Suite of GST Products
SESSION OBJECTIVE
Familiarize participants with information resources available concerning GST Audits in CRA’s The Audit Manual
AGENDA1. T.O.C. - The Audit Manual2. Audit Selection & Planning3. Conducting The Audit4. Assessments5. Mid-Webinar Break6. Working For The Taxpayer7. Issue Specifics8. Industry Sectors9. Questions
The Audit ManualSection I -Audit Policies and Procedures
Section II - Technical Issues
Section III- Sector Profiles
The Audit Manual Table of Contents
Section I - Audit Policies and Procedures:
Chapter 1 – The Audit Manual – Organization, Purposes and Uses Chapter 2 – The Canada Revenue Agency Chapter 3 – Fairness and Client RightsChapter 4 – Auditor’s Standards of Conduct, Authorities and ResponsibilitiesChapter 5 – Human Resource Issues Chapter 6 – Organization of the Audit Divisions in the Tax Services OfficeChapter 7 – Compliance Programs BranchChapter 8 – Audit Selection – Risk AssessmentChapter 9 – Audit Planning and Preparation
The Audit Manual Table of Contents
Section I - Audit Policies and Procedures (cont’d)
Chapter 10 – Conducting the AuditChapter 11 – Finalizing the Audit Chapter 12 – Specific Audit Guidelines and ChecklistsChapter 13 – Audit TechniquesChapter 14 – GST/HST Prepayment ReviewChapter 15 – International Audit IssuesChapter 16 - Clearance Certificates, Estates and Trusts Chapter 19 – Objections and Appeals
The Audit Manual Table of Contents
Section II – Technical IssuesChapter 20 – Valuation of InventoryChapter 21 – Administration Chapter 22 – Bankruptcy, Receivership and Insolvency Chapter 23 – Capital Property Issues Chapter 24 –Related Persons, Corporations and Shareholders, DividendsChapter 25 – Future use Chapter 26 – Expenses / Input Tax Credits Chapter 27 – Income / SuppliesChapter 28 – Penalties Chapter 29 – LossesChapter 30 – Future use Chapter 31 – Import / Export Issues
Section III – Sector Profiles – Chapter 40
The Audit Manual in CCH Online
Audit Selection &
Planning
Risk AssessmentSources
• Industry Risk • CAAS (8.2.3)• Financial Statements (8.2.5)• Referrals (8.2.3)• Ongoing Audits
Risk Assessment ProcessFile Review (8.3.5)
– Matching– Reasonableness– Expectation of Profit
Revenue Risk
Audit SelectionFinal Audits
-GST / HST Deregistration
Areas of Risk-Disposition /Seizure of Property-Supply of Business Assets
- Insolvent Registrants- Change in
Ownership/Legal Status
Audit SelectionNon-Compliance Projects• Homogenous Group of Taxpayers
(Industry Association Consultation)• Non-Registrants• Unfiled Returns• Specific Sectors
Repeat Audits (9.12.4)
Refund-Audit Risk Assessment Variables
• Nature of business• Reporting history / account status• Audit history• Local TSO / Auditors knowledge• Amount of Refund/Thresholds (14.3.0)• Maturity of Business• Economic Conditions• Type of claim / rebate(14.5.5)
Refund-Audit Selection Criteria (14.2.7)
• Claims by non-residents• Registrants without GST collectible• Exceeds threshold limits• Exceeds cumulative limits• Even dollar / previous match
Refund-Audit Selection Criteria (14.2.7)
continued
• Non-registered accounts• Statute barred• New Registrant• Netfiled / Telefiled and Over Threshold• Revenue Quebec rejects
Audit Planning-Preliminary Review Sources
• Prior Audit Information• Collections Information• Historial Information / filing history• Sector Profiles• TSO Specialists
Financial Statement Review
• Ratios (9.4)– Gross Profit Ratio– Inventory Turnover– ITC to GST/HST Ratio
• Comparative Analysis/prior years (9.4.8)
Putting The Audit PlanInto Action
• Review Registrant File• Meet with Team Leader• Contact Taxpayer• Confirm in writing with Taxpayer• Time Budget• Scheduling
Audit Selection & PlanningMiscellaneous
• Unfiled Returns• CRA audit codes / action codes• Non-disclosure agreement• Rules of Audit• Combined Audits
CONDUCTING THE
AUDIT
The Audit Period
• Legislation• One-plus-One• Prepayments• Extended Audit Period• Re-Auditing a Period• Waiver (11.4)
Audit EvidenceTypes of Evidence•Circumstantial•Documentary•Expert Opinions•Affidavits•Hearsay (not evidence)
Third Party Evidence•Supplier/Clients/other•Financial Inst.•Accountants (10.6.7)
•Lawyers (10.6.8)
•Solicitor-Client Privilege
Demand For Information
Chart at 10.8.4
Consultation vs. Referral
Referrals•Collections•Customs & Excise•Other TSO•Income Tax
Consultation•Other Federal depts•Provincial Gov’ts•Countries w Treaties•Dept of Finance HQ
Section 10.11 of The Audit Manual
Testing
• Reasonableness Tests• Net Worth Audit• Computer Assisted Audit Techniques
(CAAT)
Computer Assisted Audit TechniquesExample 2 – Sales to Provincial GovernmentsExample 3 – Export SalesExample 4 – Zero-Rated SalesExample 6 – Review Expenses for Possible
BenefitsExample 7 – Review Numerical Sequence of Work
Orders
Section 13.1.8 of The Audit Manual
Auditing Expenses / Input Tax Credits
• Internal Controls• Cut-Off Techniques• Documentary Evidence - Testing Invoices• Purchase Adjustments/Discounts• Volume Rebates / Returns• Personal Expenses• Travel & Entertainment• Non-Arms Length acquisitions
Auditing Expenses / Input Tax Credits• Prorated / Allocated Expenses• Journal Entries / Audit trail• Bad Debts• Collection ExpensesCatch-all accounts:• Miscellaneous • Advertising Expense
Section 13.9.22 of The Audit Manual
Auditing The Financial StatementsBalance Sheet (13.8)
•Asset Dispositions•Bank Accounts•Sale of Receivables•Inventory turnover•Investment volume / exempt income•Goodwill
Income Stmt (13.9)•Accrual vs. cash basis•Types of Sales, T,E,Z•Black market / Cash sales•Conditional / Instalment Sales•Bad Debt Expense•Servicing of receivables
Note…auditors read the notes to financial statements
Exempt Supplies Checklist
Section 12.8 of The Audit Manual
Zero-Rated Supplies Checklist
Section 12.9 of The Audit Manual
Auditing Rebate Claims• Registrant vs non-registrant rebates• Tax Centre Processing procedures
– Verification of Information– Tax Centre reviewer– Referral to TSO
• Contacting the Claimant• Types of Rebates
Section 14.5 of The Audit Manual
Conducting The AuditMiscellaneous
• Auditing using proposed amendments (12.3)• Elections & Applications (12.4)• Amended Audit (12.7)• Tax-Included vs. Tax-Extra (12.10)• GAAR & Tax Avoidance (10.11.6)
Mid-Webinar Stretch BREAK
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ASSESSMENTS
Finalizing The Audit• Checklist• Negotiations (11.2)
• Off-setting Adjustments (12.15)
• Proposal Letter• Final Meeting
File Completion Checklist (11.1.1)
1. Review all working papers and ensure that they are properly cross-referenced and that findings are clearly summarized.
2. Have all the audit concerns been addressed? Where a previous audit indicated that follow-up was required to ensure that the registrant was in compliance, have these issues been addressed?
3. Discuss and resolve any contentious issues with the team leader prior to the final interview with the registrant.
4. Is there a need to assess additional penalties?….cont’d
File Completion Checklistcontinued
5. Discuss the proposed adjustments with the registrant and provide a copy of the SAA and supporting working papers. Determine whether the registrant concurs. Allow 30 days for the registrant to review the adjustments and provide additional information.
6. ….7. …8. Complete the collection report if required.9. Have all significant issues raised by the registrant been
clearly answered?
Audit Agreement
• No Change Audits• Accepting Payment• Compliance Letters• Waiver of Right of Objection or Appeal
Assessment Based on
Estimate & Projections (13.6)
• Legislative Authority• Circumstances That Warrant Projections• Reasonable Projections• Circumstances That Do Not Warrant Projections• Types of Projections
Assessment Period (11.3.2)
• Normal Assessment Period• When assessment prohibited• Exceptions to normal periods
Interest & Penalties
• General Rules of Application• Failure to file return or Provide Information• False Statements or Omissions• Failure to Remit / Pay
Chapter 28 of The Audit Manual
Legislative Authority
Section 28.14.2 of The Audit Manual
S. 285 Gross Negligence PenaltyForms of Gross Negligence
• the taxpayer/registrant was negligent • the taxpayer/registrant is not credible • the taxpayer/registrant's explanations about how the errors and omissions occurred
are not reasonable • the taxpayer/registrant's explanations are incompatible with the facts of the case • the taxpayer/registrant should have been more careful and should have known that
the returns and statements included irregularities • the taxpayer/registrant did not make an honest mistake • if a penalty under subsection 163(2) of the ITA and/or section 285 of the ETA is not
recommended, a penalty under subsection 163(1) of the ITA should be considered
Section 11.6.2 of The Audit Manual
Objections & Appeals
• N.o.O. Time Period• N.o.O. Extension of Time to File• Appeal to Tax Court• Informal Procedure
Chapter 19 of The Audit Manual
Working For the Taxpayer
Working For The Taxpayer• Access to Information• Voluntary Disclosure• Wash Transaction• Ruling & Interpretations• Taxpayer Requests & Amended Returns• Positive Adjustments• Waiver of Interest & Penalties
Access To Information
• Formal Requests• Informal Requests• Information that may be release• Information not released• Instructions to process
Section 3.4.5 of The Audit Manual
Voluntary Disclosure Program
• Purpose• Conditions• Process• Benefit• No-Name Disclosures
Section 3.3 of The Audit Manual
Wash Transactions
• What is a Wash Transaction?• Situations that Qualify• Situations that do not Qualify• I & P Concession• Audit Considerations
Section 12.12 of The Audit Manual
Rulings & Interpretations• Advance GST/HST Rulings• Application GST/HST Rulings• GST/HST Interpretations• Rulings Centres• Business Window• Rulings Requested by Audit
Section 10.11.14 of The Audit Manual
Ruling Request LettersShould include:• name and address of the person making the request• registration number of the requester where applicable• third party authorization where the request is made by a third party on behalf of their client• a complete description of the facts and the transaction or proposed transaction• for advance rulings — a statement of purpose of the transaction, the person's interpretation
of the application of the ETA and a description of the concern• a description of significant transactions completed before the request for ruling• a summary of relevant facts in supporting agreements or documents• confirmation that the ruling will not result directly or indirectly in misuse of the provisions of
the ETA in respect of the general anti-avoidance rule• other relevant information or material
Section 10.11.14 of The Audit Manual
Taxpayer Requests&
Amended Returns
• General Adjustment Forms (12.1.4)
• Audit Procedures
The Audit Manual on CCH Online
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Issue-Specifics
Employee Benefits
• Auditing Employee Benefits (12.2)• Technical details, calculations• Jurisprudence & guidance references
Section 27.10.3-7 of The Audit Manual
Taxable Benefits Checklist•Automobile Allowance•Parking provided by employer•Interest Free / Low interest loans•Stock purchase options•Incentives / Prizes•Gifts•Relocation Expenses•Personal expenses
•Insurance plan payments•Wage Loss Replacement plan•Rent-free or low-rent housing•Retirement payments •Termination payments•Employer contribution to RRSP•Extraordinary travel and meal allowances•Tuition Fees
Agents/Reps/Direct Sellers• Agents (27.1)
• Auctioneers (27.2)
• Direct Sellers (27.22)
• Purch & Sales Reps to non-residents (27.29)
• Lots of references• CCH Commentary [¶4200] Agents,
Auctioneers, Artists, and Direct Sellers
•Lawyers Disbursements•Coin-Operated Devices•Re-supplies•Damage Payments•Professional Income•Foreign Currency Exchange•Trade-Ins
•Combined/Mixed/Multiple Supplies•Warranty Claims•Employed vs Self-Employed•Lease Inducements•Farming / Fishing / Feed / Fertilizer•Promotional Allowances
Chapter 27
Industry Sectors
Industry Sectors Chapter 40
40.1 Accounting and Bookkeeping Services40.2 Architects40.3 Barbers/Hairdressers40.4 Dentists40.5 Excavation Contractors40.6 Florists, Lawn and Garden Centres40.7 Jewellery Stores 40.8 Management Consulting Services 40.9 Restaurants40.10 Pharmacists40.11 Healthcare Professionals – Physicians and Surgeons 40.12 Veterinary Services 40.13 Drywall Contractors40.14 Hospital Authorities 40.15 Education Sector Profiles40.16 Charities
40.4 Dentists– Introduction,Overview, Industry Structure– Accounting Practices– Taxable Revenues & Supplies– Books and Records– Specific Audit Checks
• Associations with universities, etc for additional income• Substitute for other dentists – ie, inter-office payments• Rent of parking space• Management or Admin company used?• Part of practice sold, shared with other dentist?
Public Sector
Bodies
Chart at 40.14.3 of The Audit Manual
Public Sector Bodies
• Legislation• Plannning The Audit• Common Audit Issues• Chapter 40 - 40.14, 15, 16
• Games of Chance (27.3)
• Exempt Supplies Checklist (12.8)
• CCH Commentary [¶45-000] Charities, Non-Profit Organizations, Governments
Section 40.16.4 of The Audit Manual
Charities - Legislation
Public Sector Bodies
Sale of real property by school authority, public college or university
Chart at 40.15.2 of The Audit Manual
Summary
1. Industry Sectors2. Issue Specifics3. Working For the Taxpayer4. Finalizing The Audit & Assessments5. Conducting the Audit6. Audit Selection & Planning7. The Audit Manual Contents
Thank-you, from
Sheila Wisner&
CCH Canadian Limited
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