What the CRA can and can’t do with your data and social media accounts
According to Facebook, you’re doing just great. We all just learned that you bought a brand new Mustang. And there are countless pictures of you strolling on sandy beaches.
Your tax return, however, paints a different picture. To the CRA, you’re saying you’re only making $20,000 — barely scraping by.
That discrepancy between “Facebook you” and “tax return you” may be part of your undoing in a tax audit.
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The CRA can use your social media accounts as part of an audit
It isn’t your bragging on Facebook that would first get the taxman on your trail, explained David Rotfleisch, a tax lawyer and CPA based in Toronto.
What triggers the audit might be the fact that you’re allegedly making only $20,000 but live in a neighbourhood where the median income is $60,000, added Rotfleisch.
But once the CRA is onto you, “absolutely, they’re going to be able to look at social media,” he added.
“The CRA does not practice mass monitoring of social media accounts,” the agency told Global News in an emailed statement.
However, it noted, “the CRA does practice risk-based compliance, so for taxpayers identified as high-risk, any relevant publicly available information relating to the specific risk based factors for the taxpayer may be consulted as part of our fact gathering processes, including public social media accounts.”
The taxman can also force Internet-based companies to release your data
While the CRA doesn’t troll your Facebook, Twitter or Instagram feeds at random, it can come upon your online activity by forcing Internet-based companies to release user data.
That’s what the CRA did after winning a court case against eBay in 2008, which resulted in the release of thousands of records of so-called power sellers, people who had made at least $20,000 in 24 or more sales during one year or made more than $100,000 in a year, regardless of the number of transactions. The agency used the eBay files to launch audits as part of a broad crackdown on tax-dodging among online merchants.
There is little that would prevent the government from taking the same approach with sharing-economy providers such as Uber and Airbnb, said Rotfleisch.
“It’s something [the CRA has] been doing for sometime now and will continue to do,” he noted.
Provincial tax administrators are following the federal lead. Revenu Québec, for example, recently won a similar court case against Uber.
“The law is pretty clear that the government is entitled to get this type of information, so I’m actually a little bit surprised that Uber tried to fight it,” said Rotfleisch.
In a statement to the CBC, Uber said it challenged the seizure because it included data that belonged to its employees. The company added it is now collecting provincial taxes on each ride.
In general, the CRA is collecting more data and getting better at analyzing it
The CRA has been acquiring access to ever larger amounts of data and using cutting-edge technology to sift through it. This is having at least two broad effects, according to the agency: It’s making it easier to spot tax evasion and also to help Canadians get their taxes right and receive the benefits they’re entitled to.
With the help of so-called big data analytics, the CRA has boosted revenue collected through audits from $9.4 billion in 2012-2013 to $13 billion in 2015-2016, the agency told Global News. That’s an increase of nearly 40 per cent in three years.
Over the past few years, the agency has also been expanding the amount of information it gathers, for example, by boosting information-sharing with other federal government departments, provinces and municipalities, as well as foreign governments. It is also demanding more data from the private sector.
Provincial data is helpful in identifying potential fraud in real estate transactions, the agency said.
From the private sector, since 2015 the CRA has been receiving reports from financial institutions about electronic funds transfers of $10,000 or more. This has been “a true game changer,” the agency told Global News. “We are receiving millions of reports with insight of Canadians who may be engaged in offshore non-compliance.”
For now, the CRA only has the resources to focus on a transactions between Canada and a few jurisdictions known to be tax havens, such as Isle of Man.
However, the agency told Global News, this is “just the start of a multi-year plan to bring real time risk assessment to all offshore holdings and interactions.”
The law also requires the banks to send information on investments made within TFSAs. This data is also subject to analysis, the CRA said.
And in 2018, the CRA will start automatically sharing financial account information with close to 100 other countries, as part of an initiative to fight tax evasion spearheaded by the Organization for Economic Co-Operation and Development.
Analytics also helps the CRA decide how to deal with you
If your declared income stands out compared to that of your neighbours or taxpayers otherwise similar to you, algorithms might help the CRA spot the anomaly. But they might also help it decide how to deal with you. Does your taxpayer profile, based on the data collected, suggest that all you need is a warning? Or does your type require a full-on audit?
This kind of predictive intelligence “helps our risk assessment, compliance and collections efforts, from placing a well-timed phone call, to offering a reminder, to selecting files for examination when non-compliance is suspected,” the agency said.
On the plus side, data mining could make it easier to file taxes and collect benefits
The CRA said big data analytics also helps it identify and address problems with its own tax forms, applications and communication with Canadians. Are people making the same mistake over and over again when filing taxes? An algorithm would pick that up, helping the agency figure out whether a certain tax document is causing confusion and should be made clearer.
Data-driven intelligence also “helps us reach Canadians to ensure that they can access the benefits they are entitled to, credits such as child tax credits or the GST/HST credits,” the CRA said.
If that’s little consolation compared to the thought of the CRA crawling through your Facebook photos, you might want to review your privacy settings.