The Ombudsman's report...

Last week I received a copy of the Taxpayer Ombudsman’s first annual report. I’m not sure how many people know of or use the Ombudsman but as an accountant it’s a valuable source and venue for our industries difficulties.

I want to comment on a story the report shared. I’ll quote it here:

“The operator of a special care home for adults received a per diem allowance for each of her residents from the provincial government. This allowance is a form of subsidy to the residents and is not considered taxable income for the owner of the home. The CRA officials who reviewed the owner’s file were not aware that this revenue was ax-exempt and proceeded with collection action that included freezing the taxpayer’s bank account and garnishing $4700. This resulted in considerable difficulties for the taxpayer. Once the Ombudsman got involved, the CRA ceased its collection activities and released the taxpayer’s bank account.”

This story in the report showed me two things. First, that rogue auditors (its what I call them) often times are wrong in their interpretations of events (such as per diem or subsistence allowance being classified as non-taxable). Since per-deums are relatively unique to the trucking industry I assume in the next couple years rogue auditors will make their stand somewhere or in several places across Canada. Accountants must be aware.

Secondly, the concept of non-taxable benefit is clearly understood, not just by the Ombudsman but also by CRA (once they are enlightened).

The crusade to have operators use subsistence will be speckled with resistance and education both by drivers as well as CRA agents.

The only comment that needs pondering is what form of compliance did the special care operator have in regards to the per diem system? Was there an appropriate agreement? Paperwork? Etc. We must assume there was since CRA backed down on the claim. In my opinion compliance and audit trail will be the fulcrum for many accountants applying the system.