|
Tax
and Revenue Administration
Alberta Corporate
Tax Act
Information
Circular CT-10R1 |
| Last Reviewed: |
November 2005 |
| Produced by: |
Alberta Finance and Enterprise, Tax and
Revenue Administration |
| For more information: |
tra.revenue@gov.ab.ca |
CT-10R1 / November 2005
ALBERTA CORPORATE
TAX ACT INFORMATION CIRCULAR:
THE TAX AUDIT
This Information Circular explains the policies and practices of Alberta Finance and Enterprise, Tax and Revenue Administration ("TRA") concerning the audit of records and books
pursuant to the Alberta Corporate Tax Act (the "Act"). The topics discussed
include:
- TRA's policies and practices relating to the audit of records apply to all entities
subject to the provisions of the Act. The following list is a summary of the
types of entities, each of which is referred to as "taxpayer" in this circular:
a) corporations with a permanent establishment in Alberta, whether
or not they are required to file Alberta corporate income tax returns;
b) insurance corporations, as defined in Part 9 of the Act;
c) banks, loan and trust corporations and credit unions as defined in Part 10 of the
Act; and
d) individuals, trusts and estates (herein called "individuals") that claim
the Alberta Royalty Credit for Individuals and Trusts ("RCIT") pursuant to part 11 of the Act.
- Except for RCIT (and refund of income tax on royalty credit), all other tax provisions for Alberta individuals are administered by the Canada Revenue Agency (CRA). Any reference to audits of
individuals in this circular relates only to the RCIT program.
- Section 61 of the Act requires taxpayers to keep records and books of account in a
form that will enable Alberta taxes payable and refundable
tax credits to be determined.
- The Act requires taxpayers to keep their records and books of account in Alberta. By policy, TRA permits a taxpayer to maintain records and
books elsewhere in Canada. Taxpayers must obtain written permission from TRA to maintain records and books outside of Canada. For additional information on
the requirements concerning records and books, please refer to Information Circular CT-13R1,
"Records and Books".
- If a taxpayer has received permission to keep its records and books outside of Canada,
it must, upon request, forward its records, books and supporting documentation to TRA or
to its business location in Canada at its own cost, or arrange to have TRA audit staff
visit at the location of the records and books. The taxpayer will be responsible for
absorbing the incremental costs incurred by TRA in sending auditors outside Canada.
- Section 63(1) of the Act authorizes TRA auditors to:
a) enter a taxpayer's business premises or any other premise where relevant books
and records are kept;
b) audit all books and records and other documentation pertinent to the
determination of taxes and refundable tax credits under the Act; and
c) examine inventory or property.
It also provides auditors with the right to reasonable assistance and explanations that
may be required from the owners or managers of the business or property, or from other
persons on the premises.
- Section 67 of the Act provides auditors with the right to make, or to have made,
copies of any documentation examined.
- The Alberta income tax system operates on the principle of self-assessment and relies on
voluntary taxpayer compliance. Self-assessment includes proper determination of
entitlement to Alberta tax credits.
- Maintenance of the self-assessment system and public confidence in its integrity
requires an audit function to monitor and ensure compliance with the Act.
- The objectives of TRA's audit function are to:
a) encourage voluntary compliance with the law;
b) ensure that the provisions of the Act are applied and interpreted uniformly and
within the context intended; and
c) identify those who fail to voluntarily comply with the law and enforce compliance in those cases.
- TRA uses various file selection criteria to generate a list of potential audits for
review.
- The audit selection criteria focus on claims for Alberta incentives and on returns
showing taxable income allocated to more than one jurisdiction. However, any taxpayer
filing a return or an RCIT application may be selected for audit.
- If a significant lack of compliance with the Act is determined for a tax
credit or in a certain calculation, special audit projects covering that tax credit or
calculation may be undertaken.
- As the Act adopts most of the provisions of the federal Income Tax Act (the
"federal Act") relating to the calculation of taxable income for corporations,
it is TRA's general policy to accept taxable income as determined for federal purposes and
then make adjustments provided for by the Act. As a result, TRA generally concentrates its
audit efforts on the deductions and tax credits unique to Alberta legislation (includes insurance premium tax). TRA will,
however, undertake the audit of taxable income if there is concern that an area is not
being reviewed federally such as files with different federal and Alberta discretionary deductions (e.g., capital cost allowance); differing energy tax deductions (e.g., resource allowance): etc. In addition, TRA conducts audits of corporations that allocate
taxable income among jurisdictions. Care is taken to avoid duplication of any audit effort
undertaken by CRA.
- There are two types of audits performed: desk audits are conducted at
TRA's offices while field audits are conducted at the taxpayer's place of
business or at another location mutually agreed on by the taxpayer and TRA. The type of
audit is determined by the nature of the issues involved, the dollar amount of taxes and
credits under review, and the volume of records to be reviewed.
- In most cases, one auditor will be solely responsible for a specific audit. In the
larger and more complex assignments, the audit may be conducted by a team
consisting of a leader who co-ordinates the entire audit, and one or more auditors who are
assigned specific audit responsibilities. The team approach reduces
the length of time auditors spend at the taxpayer's business premises.
- When a taxpayer has been selected for audit, the auditor will:
a) perform a preliminary review of the current and prior years' returns or applications
and financial statements, if applicable, and any other information available to TRA;
b) contact the taxpayer, identify him/herself, and explain the purpose of the
contact;
c) for field audits, arrange a mutually convenient date to commence the audit, ensure the records and books necessary for the audit and appropriate space will be available at the taxpayer's business premises to enable the audit to be
performed; and
d) contact the taxpayer's accounting representative, if necessary, to obtain copies of
working papers that normally link the taxpayer's records to the filed returns.
- In the course of a desk audit, the auditor may require certain records to verify an
issue under review. The auditor will request that the taxpayer arrange to have these
records sent to TRA. Upon completion of the audit, the records will be returned to the
taxpayer.
- Upon arrival at the business premises for a field audit, the auditor will present an official identification card. Before beginning the examination
of the books and records, a discussion may be held with the appropriate officials
regarding the general nature of the business, the accounting system, basic accounting
procedures, the intended scope of the audit. A tour of the
premises will enable the auditor to acquire a better understanding of the business
processes. Co-operation in this regard will permit a faster and more efficient audit.
- The auditor, under the advice and direction of his or her supervisor, determines the extent of the audit. The decision as to which records to examine and what audit
techniques to employ is made by the auditor. Records frequently reviewed during
the course of an audit include the general ledger, minute book, share register,
applicable legal agreements and source documents such as joint venture billings, land records, cancelled
cheques, invoices, etc.
- Every effort is made by the auditor to complete the review of the books and records as
soon as possible. The time spent by the auditor at the taxpayer's office can be
reduced by having available, at the start of the audit, any information previously
requested by the auditor.
- If the audit is to include a review of the Alberta Royalty Tax Credit ("ARTC")
and the Royalty Tax Deduction, the taxpayer can reduce the audit time by:
- preparing a list of oil and gas Alberta crown royalties on a well-by-well basis to support the number used for ARTC purposes;
- preparing a reconciliation between royalties in the general ledger, financial
statements and tax returns and
(i) Alberta crown royalty for purposes of ARTC; and
(ii) Crown charges used in the calculation of the Royalty Tax Deduction; and
- ensuring the availability of files (land records) showing the title history for wells whose
royalties are included in the ARTC claim.
- Excessive delays by the taxpayer in providing information can result in an audit being
finalized, and a reassessment being processed, based on available information. If a
dispute arises as a result of such reassessment, the taxpayer will be required to provide
all missing or withheld information before any adjustments to the reassessment are
considered.
- The auditor will document and fully discuss with the taxpayer, during and at the
conclusion of the audit, any inconsistencies, questions or issues which may form the basis
of a reassessment.
- At the conclusion of the audit, the auditor will review the results of the audit with
the taxpayer and/or the taxpayer's representative.
- If, in the auditor's opinion, a reassessment is warranted based on adjustments
determined during the audit, TRA will provide an explanation to the taxpayer detailing all
proposed changes. A reasonable period of time will be provided for the taxpayer or the
taxpayer's representatives to discuss the proposed adjustments with TRA or to provide further
documentation.
- A taxpayer who disagrees with the reassessment has the right to file a Notice of
Objection with the Appeals section of the Tax Services branch, distinct and
separate from the Audit branch. An independent review of all relevant facts and law would
then be undertaken by the Appeals section before confirming, vacating or varying the
reassessment.
- A taxpayer may appeal a decision of Tax Services to the Alberta Court of Queen's Bench.
This court's decision may be further appealed to the Alberta Court of Appeal and from
there, with leave, to the Supreme Court of Canada. Information Circular
CT-8, "Objections and Appeals" discusses these matters in detail.
- Taxpayers are entitled to arrange their affairs to keep their taxes to a minimum,
provided they do so within the framework of the law. TRA draws a distinction between
legitimate tax planning and those schemes dependent for their success on deceit or concealment of material matters. Taxpayers may expect that TRA will thoroughly
investigate and challenge any schemes or affairs arranged in an artificial
manner for the purpose of acquiring the benefit of tax credits or deferring, reducing, or
avoiding tax payable under the Act.
- Section 37.1 of the Act provides penalties for false statements. Under S. 37.1(2), a taxpayer is
liable to pay an administrative penalty, even when there is no tax owing, if TRA finds that a filed return or application
contained false statements or omissions under conditions constituting gross negligence.
As applicable, the penalty is the greater of $100 or 50% of the total
of:
a) the amount, if any, by which
(i) the tax that would have been payable if the false statement or omission had not
been made exceeds
(ii) the tax that would have been payable if the return had been assessed as filed by
the taxpayer; and
b) the amount, if any, by which
(i) the refundable tax credits that would have been payable to the taxpayer if they
were calculated as filed by the taxpayer exceeds
(ii) the refundable tax credits that would have been payable if the amount relating to
the false statement or omission were excluded.
- Taxpayers who willfully attempt to evade payment of tax, or claim a refundable tax
credit greater than that to which they are entitled, are subject, on conviction by a
court, to fines. Individuals party to acts of evasion are also subject to fines
and imprisonment if convicted.
- TRA's policy is to reinforce the self-assessment nature of the tax and tax credit
programs administered in Alberta. Therefore, TRA encourages any submission demonstrating
the intent to voluntarily redress previous contraventions of the Act. Information
Circular CT-11, "Voluntary Disclosures" explains TRA's policies on this subject.
- The Audit Branch of TRA may be contacted as
follows:
AUDIT BRANCH
TAX AND REVENUE ADMINISTRATION
9811-109 ST.
EDMONTON, AB T5K 2L5
Phone: 780-427-0540
Fax: 780-422-2090
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