A Canadian Tax Lawyer's Guide To Canada Emergency Wage Subsidy Claims Audits And Appeals

RS
Rotfleisch & Samulovitch P.C.

Contributor

Rotfleisch Samulovitch PC is one of Canada's premier boutique tax law firms. Its website, taxpage.com, has a large database of original Canadian tax articles. Founding tax lawyer David J Rotfleisch, JD, CA, CPA, frequently appears in print, radio and television. Their tax lawyers deal with CRA auditors and collectors on a daily basis and carry out tax planning as well.
The Canada Emergency Wage Subsidy ("CEWS") is a government subsidy that was available for eligible businesses with full-time employees from March 15, 2020, to November 30, 2021.
Canada Tax
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Introduction: The Canada Emergency Wage Subsidy (CEWS)

The Canada Emergency Wage Subsidy ("CEWS") is a government subsidy that was available for eligible businesses with full-time employees from March 15, 2020, to November 30, 2021. The CEWS provided up to 75% of eligible remuneration, paid by an eligible employer, to each eligible employee – up to a maximum of $847 per week. There were different criteria for different CEWS claims period. For more information regarding the Canada Emergency Wage Subsidy program, you can read our previous article on this topic here: Tax Guidance To The Canada Emergency Wage Subsidy (CEWS) And The Voluntary Repayment Of CEWS – A Canadian Tax Lawyer Tax Guide.

The CEWS in 2020 and 2021 helped Canadian businesses who were negatively impacted by the COVID-19 pandemic, as the federal government distributed about $100 billion through the CEWS. The injection of funds alleviated the cash flow problem many businesses had due to lockdowns, which likely helped employees to keep their jobs at the time. However, the blessings of additional government subsidies quickly turned into a nightmare when the Canada Revenue Agency ("CRA") turned their focus to audit the CEWS claims since August 2020. By the end of 2023, the CRA had denied or adjusted $458 million in CEWS disbursed to employers. The CRA's audit of the program seems to be ongoing and is expected to continue until at least 2025. Thus, it is important for businesses who applied for the CEWS to understand the CEWS audits and appeals processes.

CRA Audit of CEWS Claims

The Canada Revenue Agency may choose to audit any or all of the periods for which a business submitted a CEWS claim. Due to the varying eligibility requirements for different periods, it can be difficult for employers, especially small businesses, to respond to a CRA audit of their CEWS claims. An auditor, once assigned to a file, generally starts the review by requesting information and documentation from an employer to prove that the business meets the eligibility criteria. Common evidence includes financial statements, payroll records, receipts and invoices. When responding to a CRA audit of CEWS claims, a business should consult with an experienced Toronto tax lawyer ensure that the submissions do not reveal more information than required, to avoid triggering further CRA tax audit activities.

Before an auditor issues a decision, he or she normally will first issue a proposal letter, explaining how the auditor intends to reassess and providing some reasons supporting the proposed decision. The audit proposal letter by default provides 30 days for a taxpayer to respond. The deadline to respond to an audit proposal letter, however, may be extended at the taxpayer's tax professionals request and at the discretion of the CRA Audit Division. Eventually, the auditor will issue a decision on the taxpayer's CEWS claims and a notice of determination following the conclusion of the audit.

Aftermath: What Happens After A CEWS Audit?

After an audit is concluded, there are three possible results. The best result a business can obtain is that the Canada Revenue Agency accepts the claims in full without any adjustments. That is, the CRA concludes that based on the audit review, the business is fully entitled to its CEWS claims. Once the final audit decision letter has been issued, the CEWS claims are unlikely to cause any additional issues or to trigger any further CRA activities.

The worst result, undoubtedly, is when the CRA rejects all CEWS claims and reassesses the business for penalties and interest. Yet, often times, the CRA may choose to accept some but not all CEWS claims. Either way, the next step for the business, whose CEWS claims have been rejected in full or partially denied, is to decide whether it is worth bringing the dispute to the objection stage and if that is unsuccessful to retain a top Canadian tax litigation lawyer to appeal to the Tax Court of Canada. Once a business receives a notice of determination from the CRA in relation to the CEWS audit, the business has 90 days to object to the decision, from the date on which it is issued. The objection may be filed within one year from the filing-due date of the CEWS Claims in dispute, if the business provides legitimate reasons to justify the delay and submits an extension of time request alongside the objection.

At the objection stage, the matter is reviewed by the CRA Appeals Division. An Appeals Officer will be assigned to the file and will review the audit decision based on submissions and supporting documentations that are available to the Appeals Officer. New evidence can be submitted at this stage to support the CEWS claims even if they were not previously provided to the auditor. The Appeals Officer can also choose to request additional information from the auditor and the business if necessary.

The next step of disputing a CRA decision is at the Tax Court of Canada. There are two timelines available for a business to appeal to the Tax Court: 1) 90 days after filing the notice of objection, if no reply is received from the CRA and 2) within 90 days of the conclusion of an objection. Once an appeal is filed to the Tax Court by a Canadian tax litigation lawyer, the parties, namely the taxpayers and the CRA, can choose to settle at any time prior to the court hearing. If no settlement is reached, then the Tax Court of Canada will eventually make a decision. If you would like to learn more about appealing a Tax Court decision, you can read our article here: When Is It Worth Challenging The CRA's Defective Tax-Court Pleadings? Reconciling The Federal Court Of Appeal's Decisions In Preston And Adboss.

Pro Tips – What Documentations Can Be Submitted To Support CEWS Claims?

There are no set lists of documents or requirements for documentations when it comes to proof of CEWS eligibility. The key is to prove that the business has met the eligibility requirements for each of its CEWS claim period. For example, for Period 1 to 4, namely, from March 14 to July 4, 2020, the requirement is that there must be reduction in business revenue. To prove the reduction in business revenue, you can provide copies of invoices, receipts, bank statements, T4 and other tax slips. You may also provide a summary of all available numbers and documents to help an auditor understand how the business operates. It is not uncommon that the CRA auditor is unfamiliar with the practical elements of a business and will benefit from additional explanations offered by the business.

If your CEWS claims are being reviewed or have been denied by the CRA, you should engage with one of our expert Canadian tax lawyers as soon as possible, to ensure that you are not missing any deadlines to respond to the CRA or to appeal a decision. Our expert Canadian tax lawyers can provide legal advice on how to respond to the CRA and assist you with fighting unreasonable CRA decisions.

FAQ

Why Are My Business's CEWS Claims Under Review?

The CRA has been and is expected to continue conducting audit reviews of CEWS claims across the country. There are no apparent reasons why the CRA may commence an audit or what triggers a review. A CRA audit review does not necessarily mean that you were ineligible to CEWS for the periods that you are being audited for. The audit was likely part of the CRA initiative attempting to claw back subsidies paid out during COVID-19. If you are concerned about the CRA audit of your CEWS claims, please contact one of our expert Canadian tax lawyers for legal advice specific to your case.

How Can I Appeal A CRA Decision Rejecting My CEWS Claims?

After a CRA audit concludes and the CRA issues a decision on your CEWS claims, you have 90 days to file a notice of objection. If you require additional time to file the notice of objection, you should aim to file it within a year from the filing-due date for the rejected CEWS claims and to submit an extension of time request to the CRA Appeals Division. Once an objection is filed, the CRA will review the claims and revise or uphold the decision from the previous audit.

You can also choose to appeal the CRA's decision on your CEWS claims to the Tax Court of Canada either 1) when your objection has been denied or 2) when the CRA has not issued a decision or has not even taken any actions on your objection 90 days after you have submitted the objection.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

A Canadian Tax Lawyer's Guide To Canada Emergency Wage Subsidy Claims Audits And Appeals

Canada Tax

Contributor

Rotfleisch Samulovitch PC is one of Canada's premier boutique tax law firms. Its website, taxpage.com, has a large database of original Canadian tax articles. Founding tax lawyer David J Rotfleisch, JD, CA, CPA, frequently appears in print, radio and television. Their tax lawyers deal with CRA auditors and collectors on a daily basis and carry out tax planning as well.
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