Here comes the CEWS audits
Practitioners are now seeing the first CRA "small-scale" CEWS audits say Kenneth Keung and Kim G C Moody
CALGARY – Today is the six-month anniversary of the Canada Emergency Wage Subsidy ("CEWS") program which has been handing out aids to employer for wages paid with an effective start date of March 15, 2020. While the programs — including revisions — was anticipated to be a $82.3 billion program, so far $33.7 billion has been paid out. While $33.7 billion is quite a bit lower than the originally budgeted amount given we are more than two-thirds into the program (CEWS currently sets to end after November 21, 2020 unless the Government extends the program to the end of 2020), it is still a very significant amount. It is therefore no surprise that the Canada Revenue Agency ("CRA") is getting serious about enforcement.
According to this National Post article dated August 25, 2020, the CRA will initiate "small-scale" audits on CEWS by the end of the summer. The CRA said they will select a sample of CEWS applicants and run a "significant" number of test audits on them. The goal being to gather data to help CRA refine the size and scope of "large-scale audits" that are scheduled for later this fall.
We are now seeing the first of these so-call small-scale audits. Aaron Schechter of Crowe Soberman recently shared on his Linked In account a redacted CRA Initial Contact Letter informing of an employer of a "limited scope audit" on its CEWS application. The letter requested the employer provide to the CRA a tremendous amount of information, such as:
- Minute book documents including information on all entities within the corporate group, all inter-company loans/advances, and resolutions demonstrating decision-making process and approvals for making CEWS claims;
- 2019 and 2020 revenue details: GL, Monthly TB, monthly sales report (revenue type and source) sales journal, cash receipts journals, adjusting entries;
- Detailed computation and description of qualifying revenues;
- Break down of revenues from non-arm's length sources;
- Revenue recognition policy for all revenue items;
- Detailed payroll information by pay period and by employee for all claim periods, including hours or days worked in a week for any irregular pay periods;
- Employment contracts for all employees, and a list of employees who were independent contractors with respect to any claim periods;
- And much more...
The CRA wanted "the vast majority" of the information requested within 10 business days! This may be an impossible task for some small businesses who are already understaffed and suffering from lack of resources due to various reasons related to COVID. And this is only the start to a potentially drawn out audit process.
If this is what the CRA is calling a limited scope or small scale audit, imagine what a "large-scale audit" scheduled for this fall will look like.
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Kenneth Keung, CA, CPA (CO, USA), TEP, CFP, MTAX, LLB is a director of Canadian tax advisory at Moodys Tax Law LLP. Kim G C Moody FCPA, FCA, TEP, is chief executive officer and director of Canadian tax advisory at Moodys Tax Law LLP.