Over the past several years, the CRA Audit Division has directed more attention to businesses that use Employment Agencies for their staffing needs. If your business deals with Employment Agencies, Temporary Labour, Staffing Agencies, or other similar entities, consider consulting us for strategies on safeguarding your ITCs.
These CRA audits come in response to some questionable business practices in the Employment Agency sector recently. In particular, some Employment Agencies collect GST/HST from their clients but do not remit the tax to the government. In these cases, a fraudster operates the Employment Agency and profits, while putting clients in jeopardy of serious tax liabilities. The best way to protect your business from these situations is getting professional tax advice so that you can be alert to any red flags.
Where the CRA finds such an Employment Agency, it will often commence audits of the Employment Agency’s clients. Typically, the fraudsters behind this type of Employment Agency scam disappear as soon as an audit commences because nothing is in their real name.
While auditing the clients of the Employment Agency, the CRA Auditors will try and gather evidence that the business knew, or ought to have known, that the Employment Agency was a sham or façade – nothing more than an empty shell meant to hide the true suppliers of the workers.
If the CRA believes they have found this kind of evidence, the CRA will generally reassess to deny the ITCs claimed on the Employment Agency fees. The rationale for this disallowance is that the Employment Agency that wrote the invoices was not the true supplier of the workers to the business. The CRA often uses the term “Invoices of Accommodation” to describe these types of invoices from persons who are not the true suppliers.
However, if the CRA believes that the business was an innocent third party and exercised the due diligence of a reasonable person, then the CRA may decide not to reassess.
If your business deals with Employment Agencies, Temporary Labour, Staffing Agencies, or any other type of business that provides workers on a contract basis, ask us how to perform due diligence on your suppliers to ensure that you get the ITCs you deserve!
If you face this issue, or any other issue with respect to GST/HST, we are here to help, providing legal support and advocacy, business strategies, and over 30 years of experience.
Author: John G. Bassindale