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Announcement of audit targeting wealthy serves a purpose: Rotfleisch

Canada Revenue Agency (CRA) audits based on postal code may not be new, but in discussing its latest initiative targeting wealthy neighbourhoods, the taxman likely has a number of specific goals in mind, Canadian tax lawyer David J. Rotfleisch tells AdvocateDaily.com.

The CRA’s ‘Postal Code Project’ is looking for undeclared wealth in several of Canada’s richest neighbourhoods, according to details of the initiative, obtained by CBC News under the Access to Information Act.

The article says the CRA identifies the wealthiest neighbourhoods via its own databases, third-party data and through publicly available information such as census data, while investigators can use tools such as public-records checks and in-person property inspections.

CBC reports that since the summer, the CRA has put 1,150 wealthy households under review, and has directly contacted 33 taxpayers. There is reportedly no end date for the project.

As a CRA spokesperson told CBC News, comparing a person’s lifestyle to their reported income helps the agency “identify people who are non-compliant.”

The spokesperson also confirmed that the project is linked to the agency's efforts to catch offshore tax cheats, and is intended to "reassure Canadians that the CRA devotes more attention to taxpayers who have proportionally high net worth, to confirm their compliance."

As Rotfleisch, founding tax lawyer at Rotfleisch & Samulovitch Professional Corporation, explains, the CRA has long looked at taxpayers in comparison to their neighbours to see if their income is in line with that of other residents of the neighbourhood. 

What is new, however, is that an announced project is being undertaken, he adds. 

This, says Rotfleisch, has several purposes, including: “To let the general public know that the rich are being targeted, to offset some of the poor optics of recent CRA measures, and to induce non-compliers to voluntarily report their income through the CRA Voluntary Disclosures Program.”

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