Author: Christopher Nardi
Published: November 16, 2022
OTTAWA — The Canada Revenue Agency will soon be able to parse through the identity and transaction records of most of J.D. Irving’s Kent Building Supplies’ commercial clients and associated contractors and installers to make sure they paid all their taxes.
Earlier this month, the Federal Court approved a request by the CRA to require J.D. Irving to fork over the trove of significant data dating back to Jan. 1, 2019, as part of the tax agency’s fight against the underground construction economy.
The ruling requires J.D. Irving to send the agency the complete name and contact information, CRA business number or social insurance number and total transaction amount of all “Kent Pro” account holders who have made purchases totalling over $20,000 in a year.
“Kent Pro” is a service by Kent Building Supplies, a big box construction store with 48 locations across Atlantic Canada, reserved for commercial customers (be it individuals or corporations) that includes a rewards program, a dedicated service team and gives access bulk purchasing and pricing.
But that service also gives J.D. Irving comprehensive records that include “identity, sales amounts and other pertinent account details” of their commercial clients.
J.D. Irving will also have to send CRA a list containing known identification, contact, payment and banking information (such as the name of financial institutions, transit and account numbers as yearly payment amounts) of all tradespeople, contractors and installers who perform building or installing services for Kent Building Supplies customers.
The CRA used a legal tool called an Unnamed Persons Requirement (UPR) in its successful argument for the data.
In an affidavit filed in support of the UPR, CRA analyst Margaret Kidd said the agency has “identified significant non-compliance” with tax laws by people working “in building construction and renovation.”
Kidd’s affidavit also reveals the CRA has turned its attention towards potential tax fraud and evasion in the construction industry in Atlantic Canada specifically.
In a tax gap report — the amount of taxes collected by the government compared to the total taxes that should be paid — published earlier this year, CRA estimated that hidden income earned in the construction industry accounted for over one quarter of all unreported personal income tax in 2018. That represents a whopping $10 billion in unreported taxable income and $2.1 billion in estimated lost tax dollars.
The report also found construction companies, particularly small and medium enterprises, also often rank among the top in terms of non-payment of corporate income taxes or GST and HST.
“The underground economy results in lost jobs and hinders economic growth. It erodes the integrity of Canada’s tax system and compromises the competitiveness of businesses, particularly small businesses,” CRA spokeswoman Hannah Wardell said in a statement.
She added that a key part of CRA’s latest strategy to fight the underground economy is obtaining “third-party information,” particularly in sectors where “cash transactions are frequent.”
“The CRA has also considerably increased efforts to identify individuals and businesses that do not file returns. Acquiring information on the clients of construction companies through UPRs is instrumental in finding potential non-compliance within the sector.”
Lawyer David Piccolo, a partner at Tax Chambers, says this UPR likely has “multiple levels” of targets.
Firstly, he says CRA will likely check the information obtained from J.D. Irving commercial clients and “installers” against their tax filings to see if there are any major discrepancies that could trigger further questioning or an audit.
An obvious example would be a contractor who reported zero income in 2019 but purchased $100,000 of materials in the same year at Kent Building Supplies.
Piccolo also said the data obtained could also eventually lead the CRA to house-flippers who did not pay the requisite harmonized sales tax (HST) on renovations.
“When CRA figures out what jobs these contractors have done, they might uncover work that’s being done on one behalf of house-flippers or people who are doing substantial renovations in their house. And there’s a lot more HST at stake in those cases than the general contractor type. HST on a million-dollar house is $130,000,” Piccolo said.
In an emailed statement, J.D. Irving vice president of communications Anne McInerney said CRA’s UPR is a “common and routine practice for home improvement retailers in Canada, where select contractors are concerned.”
“In past years there have been similar audits done in other parts of the country. This year they are looking at Atlantic Canada. As with all tax compliant companies operating in Canada, we will continue to comply with all CRA audit requirements,” she added.