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ENABLERS TARGETED BY CRA & CBSA ALIKE

RECENT ACTION ON CAR THEFTS EASILY TRANSLATES TO TAX & CUSTOMS MATTERS

Recent news reports about Project Chickadee – the OPP and CBSA joint project aimed at dismantling organized car theft rings exporting stolen Canadian vehicles overseas – focused on an effort to target not only the direct causes of these thefts (the gangs stealing the vehicles), but also the ENABLER:  freight forwarding companies, shipping companies, and other intermediaries effectively aiding and abetting the process.

The Canadian government’s ability to intervene in situations that it does not ultimately like (i.e., tax schemes, GST shams, tariff fraud) knows no bounds.   And the government’s response does not always require joint work with the OPP or RCMP, but can come in much more innocuous ways. 

In this report, we examine a couple of ways in which Canada Revenue Agency (“CRA”) and Canada Border Services Agency (“CBSA”) can target persons indirectly associated with GST or customs non-compliance.

CRA & GST “Sham” Allegations

One of the ways CRA has approached perceived tax schemes is focusing not only on the direct perpetrators themselves, but also on established businesses that allegedly assisted, participated in or benefitted from the arrangement.  This issue has appeared in sectors such as employment staffing and precious metals. 

A common example involves the assessment of businesses that hired workers through staffing agencies that later failed to remit GST collected on their services.  CRA, which is able to assess based on “assumptions of fact”, has been seen to take the position that taxpayers claiming input tax credits (“ITCs”) for GST paid to staffing agencies either knowingly participated in tax evasion (for example, by accepting “invoices of accommodation”) or did not do enough to vet their suppliers (even where those suppliers were GST-registered). 

The CRA has then gone on to reject the claimed ITCs and assessed gross negligence penalties against the companies claiming the ITCs, often pushing them to bankruptcy as they spend years fighting the assessment in Tax Court, all the while being forced to pay GST assessments (which unlike income tax assessments, are payable notwithstanding objections and appeals).

CBSA & Improper Imports Allegations

A similar dynamic exists under customs law.  Under section 59 of the Customs Act, the CBSA has broad power to assess (i.e., issue statements of adjustment against) owners and importers of goods who do not meet their obligation under section 32.2 to make corrections to declared tariff classification, value for duty, or origin once they have reason to believe those declarations are incorrect.

This obligation can reach back up to 4 years, and any resulting assessments must generally be paid or fully secured before the appeal process can begin.  Businesses tempted to adjust declarations to blunt the impact of current tariffs should tread carefully.  CBSA enforcement can capture not only outright fraud, but parties who have turned a blind eye to errors that ought to have been corrected.

Takeaways

Recent headlines about the CBSA and OPP efforts to target the “enablers” of Canadian car theft are directly relatable to GST and customs fraud-related enforcement.  Both the CRA and CBSA have broad authority to pursue those indirectly connected to the fraud, and years of litigation can be involved in defending oneself.  When businesses find themselves in these situations, experienced professionals are required.  In the right situations, Voluntary Disclosure Programs can assist.

For help with a CRA or CBSA assessment, please click here.

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