The CRA recently started the first stage of its CEWS audit program to identify types and levels of non-compliance for the upcoming larger-scale audits. Select groups of employers have been contacted by the CRA to provide supporting documents to verify their CEWS claims.
Some tax professionals are finding the initial requirements "daunting" due to its extensive business information requirements. Nonetheless, employers who are found to be non-compliant can be required to repay any ineligible amounts, interest, and penalties, as they would for non-compliance discovered through other CRA audit programs.
In light of quarantine measures, the CRA will be conducting the audit process virtually. For the vast majority of information requests, the turnaround time should be no more than ten business days. To facilitate the preparation process, if you plan to claim or have claimed CEWS, we recommend that employers have the following information readily available.
Keep the following information handy
1. Documents from the employer's minute books, such as any excerpts of governance documents included in the corporate minute book as they relate to the CEWS claim
2. Revenues in respect of the 2019 taxation year, such as general ledger and revenue journal entries
3. Revenues in respect of the 2020 taxation year, similar to above
4. Revenue information for purposes of computing the CEWS revenue decline percentages, such as detailed working papers substantiating calculations of qualifying revenue for each reference period
5. General payroll information, such as source deductions, employment contracts, bank statements, proof of payments
6. Information relating to other subsidies and other government programs that impact the CEWS claim, such as 10% Temporary Wage Subsidy
7. A signed copy of the CEWS Attestation Form (RC661)
8. Supporting documents for exceptions or elections utilized for CEWS (see Q6-4 and Q8-3 respectively for definitions)
9. Exclusions of remuneration, such as a list of any employees who were not receiving eligible remuneration for 14 or more days in a qualifying period
10. Exclusions of qualifying revenue from sources such as extraordinary items, or other subsidies claimed
Because of the complex and extensive nature of requirements, it is highly recommended that you consult an accounting partner regarding CEWS calculations, claims, and filing processes. Failure to prove full compliance may result in what is commonly referred to as the "gross negligence penalty", which can be up to 50% of the difference between the amount of CEWS that the employer claimed in its application and the amount of CEWS to which it is entitled.
Besides starting the auditing, the CRA has also recently announced new T4 reporting requirements, which include a per-period breakdown of total employment income amounts. If you do not already have copies of this information available, we recommend you contact your current and/or previous payroll providers as soon as possible.
Humi’s accounting partner, LiveCA, is actively helping Canadian businesses with taxes, advisory, bookkeeping, payroll, accounts payable, and other finance functions. Learn more.