CRA Audits of COVID-19 Benefit Programs
Globally, COVID-19 has been the greatest upheaval the world has seen since the second World War. Millions infected and countless effected. Government assistance programs such as the Canada Emergency Response Benefit (“CERB”), Canada Emergency Wage Subsidy (“CEWS”), and the Canada Emergency Student Benefit (“CESB”) have all been instituted in order to help the Canadian people through this challenging time. The Canada Revenue Agency has recently updated the public in regard to post-payment validation requirements for its assistance programs. Here’s what you need to know:
CERB, CEWS, CESB, and CRA Audits
Between the months of July and August, the CRA has announced that it will launch a pilot CEWS post-payment compliance project through the Trust Exam Program and Employer Compliance Audit. In order to ensure compliance, the CRA will institute a combination of automated queries within its data, follow-up calls to verify certain elements of the taxpayer’s claim (when necessary) and will also begin a more comprehensive post-payment review and audit of all claims made under the CEWS.
Beginning in September, the federal government of Canada will begin post-payment validation of the new programs introduced as a result of COVID-19. These programs include CERB, and CESB. Further, the CRA will monitor the initial intake of claims and adjust its queries as necessary. The purpose of post-payment validation for these new programs is the CRA’s attempt to maintain the integrity of the program and deter fraudulent application filings.
If the CRA concludes that a taxpayer is not eligible for the wage subsidy, the taxpayer will then be required to repay amounts paid. It is possible that penalties and interest are applied as well.
CRA Audits – What do I need to do?
The CRA expects all taxpayers to maintain adequate books and records to ensure that the claim is accurate and complete, and clearly supports the taxpayer’s eligibility for the wage subsidy for a claim period. This includes ledgers, journals, financial statements, contracts, calculations of other working papers, payroll records, etc. Creating your own “paper trail” can be tedious but is imperative in ensuring your claims are supported and can help you avoid being penalized for fraudulent claims.
For CERB, the CRA is actively monitoring the situation to ensure that compliance with the lax laws is assured. With the same goal in mind, the CRA ensures that, regardless of the assistance program you apply for, they monitor each claim and ensure that the claims are valid, and the claimant is eligible for the support program they have applied for, whether it be CERB, CEWS or CESB.
There is some good news to share. The federal government has extended the CERB payments from 16 weeks to 24 weeks as a result of the ongoing pandemic for those eligible.
Penalties and Non-Compliance
Many have wondered whether the federal government will be taking active steps in penalizing those who have applied for an assistance programs they are not qualified for. The answer to this question is, yes. Due to a specific anti-avoidance rule, an employer will not be eligible to claim the wage subsidy for a claim period if the employer participates in a plan that has one of the main purposes of effectively reducing the employer’s qualifying revenues for the current reference period, in order to qualify for the subsidy. As a result, where this anti-avoidance rule applies, the employer will be liable to a penalty equal to 25% of the amount of wage subsidy that is claimed in its application and will have to pay back any wage subsidy that it received.
In addition to this, if an employer knowingly makes a false claim amounting to gross negligence, the employer is liable to a penalty of up to 50% of the difference between the amount of the wage subsidy that it claimed in its application and the amount of wage subsidy to which it is actually entitled.
If you have questions about your eligibility for any of these programs, call us today! We’re here to help!
This article provides information of a general nature only. It does not provide legal advice nor can it or should it be relied upon. All tax situations are specific to their facts and will differ from the situations in this article. If you have specific legal questions you should consult a lawyer.