Does CRA consider you to be a 'high net worth individual'?

It is difficult to determine, given that CRA has not formally released its criteria for defining this category; however, it appears that they are focusing on individuals and their related groups having a net asset value of approximately $50-million or more and who have related groups consisting of 30 or more entities.

If you meet their criteria, CRA may select you and your related group to be audited as part of their Related Party Initiative (RPI), a program designed in response to what they consider to be the collective tax risk posed by groups that frequently employ special-purpose entities to achieve favorable business and tax results.

What is the purpose of this audit initiative?

According to the CRA, the goals of the RPI program are to gain an understanding of how high net worth individuals structure their affairs and to identify the type and magnitude of compliance issues and tax at risk. Their objectives are to develop a compliance strategy for such taxpayers and to identify legislative or program changes required to address such compliance issues.

How will the audit process work?

The first part of this audit process involves completing a 20-page questionnaire in which the CRA is requesting information regarding various economic entities, including partnerships, trusts, corporations, joint ventures and private foundations. Taxpayers completing the questionnaire are asked to provide organizational charts detailing their interests and investments in the various economic entities, as well as complete sets of financial statements for all taxation years under review. Taxpayers also may be asked to complete a T997 "Audit Query Sheet". The T997 requests taxpayers to provide further documentation, including Board of Directors' minutes, corporate minute books, legal and accounting correspondence files, and all tax planning documents. Taxpayers are expected to comply with all requests and provide all information within a certain time period, potentially as little as 30 days.

How can MNP help you?

At MNP, we have an experienced team of tax professionals who can review your tax situation and ensure you comply with the legislative requirements. If you have already received a CRA questionnaire, please contact your local MNP Tax advisor for assistance with the audit process, including all correspondence with the federal tax authorities.