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A recent article reported that CRA is reviewing every electronic fund transfer over $10,000 from Canada to four foreign
jurisdictions per year. The first two targets were the Isle of Man and the Island of Guernsey, with two more undisclosed
jurisdictions to be reviewed by March 31, 2017. CRA has started audits of 166 high-risk taxpayers and sent over 1,000 ‘nudge’ letters
to lower risk taxpayers. For 2017-2018, CRA plans on reviewing about 100,000 fund transfers to four other undisclosed jurisdictions.

The article also noted that the Offshore Tax Informant Program received over 3,000 tips as of October 31, resulting in almost 200
audits and 124 active files under review.

In addition to these activities, a November 14, 2016 Huffington Post article indicated CRA identified 2,600 documents with a
Canadian link, opened 85 investigations into Canadians, and has commenced 60 audits with respect to the Panama Papers.

Action Item: If transferring funds offshore, retain appropriate documentation in case of CRA review.

In a May 26, 2016 Technical Interpretation, CRA summarized the conditions that must be met in order for an individual that
earns employment income to deduct employment expenses. Deductible expenses are limited to only a select group described in the Income
Tax Act.

Generally, an employee may deduct costs of employment related expenses if:

• under the contract of employment, the employee had to provide and pay for the expenses;
• the employee does not receive a non-taxable allowance for the expenses;
• the employer does not, or will not, repay the employee for the expenses; and
• the employee keeps with his/her records a completed and signed copy of the appropriate form(s) (i.e. Form T2200, Declaration
  of Conditions of Employment, or Form TL2, Claim for Meals and Lodging Expenses).

Additional conditions must be met to deduct certain types of expenses (such as, for example, travel).
For more information on employment related expenses, see www.cra.gc.ca/employmentexpenses, Chapters 3 and 4 of Guide T4044,
Employment Expenses 2015.

Action Item: Employers-ensure that Form T2200 is properly completed and distributed or employees may be denied employment
expense claims. Employees-obtain Form T2200 from your employer as early as possible.

In a June 10, 2016 French Technical Interpretation, CRA commented on whether an employer had conferred a benefit to an
employee where the employee was reimbursed for their meal expenses.

Generally, an employee must include the value of any benefits received or enjoyed in their taxable income. CRA normally
considers a taxable benefit to be conferred when:

• the benefit provides an economic advantage to the employee;
• the benefit is measurable and quantifiable; and
• it mainly benefits the employee (or a non-arms length person) and not the employer.

If the meal is reimbursed while the employee is travelling within the municipality or metropolitan area of the
establishment of the employer, the employee is generally considered the primary beneficiary. However, in certain cases, the
reimbursement can be excluded from the employee’s income. For example, if the main purpose of the reimbursement is to ensure that the
employee’s functions are carried out more effectively as part of a shift, then the employer could be the one who mainly benefits.

Meal reimbursements when the employee travels outside the municipality of the employer in the performance of their duties
is generally considered to primarily benefit the employer.

The fact that the employer charges the client for the reimbursement is not a factor in this determination.

Action Item: Consider the tax ramifications when developing and implementing a meal reimbursement policy.

When filing an objection to a CRA reassessment, one of the most frequently-posed questions is “How long will it take?”. The
answer, according to the Auditor General, is “too long”.

On November 29, 2016, the Auditor General released a report to Parliament focusing on the effectiveness and timeliness of the
objection process.

Length of Process
For the five-year period ending March 31, 2016, CRA took the following numbers of days, on average, to resolve objections from the
time they were filed by the taxpayers:

• 143 days for low-complexity objections (about 61% of total objections for the period);
• 431 days for medium-complexity objections (about 37% of total objections for the period); and
• 896 days for high-complexity objections (about 2% of total objections for the period).

On average, CRA did not assign an objection to an appeals officer until 150 days after the taxpayer had mailed the notice of
objection.

CRA’s performance was also compared to six other administrations using 2009 data. Canada took 276 days compared to an average of
70 days for the other six countries.

It was also noted that the tracking system for timing the process was not sufficiently accurate or complete.

Objection Decision Results
Of the objections accepted and processed by CRA, 65% were decided in favour (in whole or part) of the taxpayer. 0.6% of objections
resulted in an increase in income tax owed.

Next Steps
In the Fall of 2016, CRA commenced a review of its objections process. As an immediate response, CRA indicated that it will implement
the standard to respond to taxpayers on low-complexity objections within 180 days, 80% of the time. Also, beginning in the 2017-2018
year, as part of the initial step when objections are received and screened, taxpayers will be contacted (if necessary) to provide
missing information to ensure the file is complete when assigned for resolution.

Action Item: As it will likely take a long time to complete an objection, a significant amount of interest on the tax liability
may accumulate. Consider making an earlier payment to reduce the interest cost in the event that the objection is not successful. If
it is successful, the CRA will pay interest to the taxpayer, albeit at a lower rate.

In an April 26, 2016 Technical Interpretation, CRA opined that where an employer provides a payroll advance to an employee, the
amount is not generally considered to be a loan. A salary advance is a payment for salary, wages or commissions that an employee is
expected to earn in the performance of future services. These amounts are generally included in the employee’s income in the year the
advance is received.

If a repayment by the employee is required, a deduction is available in the tax year in which the repayment was made. The
deduction cannot exceed the advance that was previously included in the employee’s income from employment.

Action Item: When providing an advance to an employee, ensure that the employee clearly understands the tax implications.

Changes to Reporting measures to address perceived abuses of the PRE. The PRE essentially allows gains experienced upon
the sale of a principal residence to be tax free. Here are some of the major changes.

Reporting the Sale of a Principal Residence
While the legislation has always required that property be designated as a principal residence, CRA has historically waived the
requirement for any filings or disclosure where the entire gain was exempt due to the PRE. However, effective for sales of property
eligible for the PRE occurring on January 1, 2016 and later, individuals will be required to report the sale in their personal income
tax return. Basic information such as the year of acquisition, proceeds of disposition, and the address of the property must be
disclosed. This reporting may also be required where the property has not been sold but there is a deemed disposition. A deemed
disposition may occur, for example, when a personal home is converted into something else, like a rental property.

Late Designations
If the disposition is not properly and timely reported, the PRE may not be available. However, CRA does have the discretion to accept
a late designation. If the late submission is accepted, CRA also has the option to levy a penalty ($100 per month late, up to a
maximum of $8,000). The penalty may or may not be issued depending on the circumstances.

Extended Assessment Period
A further proposal would provide CRA with the authority to assess taxpayers beyond the normal assessment limitation period (generally
3 years) when the disposition of real estate is not appropriately reported in the tax return. In other words, there would be no time
limit for such an assessment. However, CRA’s ability to reassess will be limited to only the unreported disposition of the real
property.

Note that this extended reassessment period is not restricted to real estate used as a principal residence most real
estate counts. If the tax return is later amended to report the disposition, CRA’s ability to reassess will end approximately three
years after the adjustment or amendment is filed.

This amendment applies to taxation years that end on or after October 3, 2016.

Action Item: If disposing of any real estate, discuss with an advisor as to how this should be reported on your tax
return.

CRA may grant relief from penalties and interest in cases where the timely satisfaction of a tax obligation was not
completed due to:

• extraordinary circumstances;
• actions of the CRA; or
• inability to pay or financial hardship.

In a March 31, 2016 Federal Court Judicial Review, the taxpayer appealed a decision by CRA to refuse relief on penalties
and interest. In this case, the taxpayer argued that the CRA agent did not reasonably appreciate the taxpayer’s financial
difficulties.

The Court agreed with CRA that the concept of financial difficulties for a person is a financial insecurity or lack of
what is necessary to meet basic living needs (that is food, clothing, housing, and reasonable non-essential elements).

As it appeared that the taxpayer was able to repay the outstanding tax arrears, without having an undue impact on a
lifestyle of a relatively affluent Canadian taxpayer, CRA’s decision to deny the request was deemed reasonable.

CRA has also noted that relief may be granted:

• when collection had been suspended due to an inability to pay and substantial interest has accumulated or will
  accumulate;
• when a taxpayer’s demonstrated ability to pay requires an extended payment arrangement. Consideration may be given to waiving
  all or part of the interest for the period from when payments start until the amounts owing are paid, as long as the agreed payments
  are made on time and compliance with the Act is maintained.

Action Item: In addition to financial hardship, some of the more common reasons why taxpayer relief may be granted
include: natural or human-made disaster; death/accident/
serious illness/emotional or mental distress; or civil disturbance. If one of these situations apply, an application for interest and
penalty relief may be available. Note that taxes would still be owing.