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Forced fees – just for SR&ED, or should everyone disclose?
Everything is in a flurry at the SR&ED Education and Resources office as we rush to document the changes to the program in relation to our favourite tax credit, Scientific Research & Experimental Development (SR&ED). It appears that the program remains relatively unscathed compared to Budget 2012; however, there are few interesting notes that appear to have made their way into Budget 2013.
Last year, we covered the debate on contingency fees (Success-Based Fees and SR&ED), and showed that while there are multiple models available to taxpayers, most first-time claimants and those in contentious fields prefer this model. The government asked for feedback and we even provided links to a sample form that could be submitted. Guess what?
The government listened.
As always, one has to wonder about the implementation. Read below to see how this feedback has been interpreted:
In Economic Action Plan 2012, the Government noted its concern that high contingency fees charged by SR&ED tax preparers reduce the effectiveness of the SR&ED tax incentive program. The Government announced that it would consult on contingency fees charged by SR&ED tax preparers to find out whether these fees diminish the benefits of the SR&ED program to Canadian businesses and the economy. To that end, a discussion paper was released inviting submissions, and consultations were undertaken in 2012.The submissions received by the Government during the consultations indicated that intervention to regulate contingency fees directly is not required: the market for SR&ED tax preparers is competitive, contingency fee rates have declined over time and there is no evidence that this type of billing arrangement results in higher compliance costs for businesses.Instead, many stakeholders recommended that the Government enhance the predictability of the SR&ED tax incentive program, and take action to address aggressive positions being taken by some tax preparers and claimants. […]In addition, in order to enable better risk assessment, SR&ED program claim forms will be revised to require more detailed information. To enforce this new requirement, Economic Action Plan 2013 proposes that a new penalty be applied in instances where the new required information is missing, incomplete or inaccurate.These new initiatives will help protect the integrity of the SR&ED tax incentive program. 1
Budget 2013 introduces measures to provide the Canada Revenue Agency with new resources and administrative tools to better respond to the minority of Scientific Research and Experimental Development (SR&ED) program tax preparers and SR&ED performers who participate in claims where the risk of non-compliance is perceived to be high and eligibility for the SR&ED program unlikely.One of these measures will require more detailed information to be provided on SR&ED program claim forms about SR&ED program tax preparers and billing arrangements. In particular, in instances where one or more third parties have assisted with the preparation of a claim, the Business Number of each third party will be required, along with details about the billing arrangements including whether contingency fees were used and the amount of the fees payable. In instances where no third party was involved, the claimant will be required to certify that no third party assisted in any aspect of the preparation of the SR&ED program claim. This information will facilitate the identification of SR&ED program claims with a higher risk of non-compliance.In order to support the requirement to provide more detailed information, Budget 2013 proposes that a new penalty of $1,000 be imposed in respect of each SR&ED program claim for which the information about SR&ED program tax preparers and billing arrangements is missing, incomplete or inaccurate. In the case where a third-party SR&ED program tax preparer has been engaged, the SR&ED program claimant and tax preparer will be jointly and severally, or solidarily, liable for the penalty. This measure will apply to SR&ED program claims filed on or after the later of January 1, 2014 and the day of Royal Assent to the enacting legislation. 2
What does this mean? It is a forced measure for determining how much people are paying third-party preparers. This is information that the CRA would not be able to obtain otherwise.
There will likely be pushback from the Big 4 Accounting firms, as well as some of the more aggressive boutiques. No one likes their payment structure being made public, and it does raise the question “why not everyone?”
If this information is being collected, shouldn’t it apply to the accounting groups in addition to the third-party tax preparers? If forced survey results are now the norm, let’s make sure that a single group isn’t being targeted unnecessarily. If the CRA is amending forms it won’t cost much more to request this information from regular accounting and auditing groups too.
What do you think about the proposed new requirements and fines?
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- Government of Canada. (2013, March 21.) Budget 2012. Section 3.4: Investing in World-Class Research and Innovation. Accessed March 21st, 2013. ↩
- Government of Canada. (2013, March 21.) Budget 2013. Annex 2: Tax Measures: Supplementary Information and Notices of Ways and Means Motions. Accessed March 21st, 2013 ↩