The Mortgage Brokers Association of B.C. is following its Ontario counterpart in offering member coverage for legal services in the event of an investigation by FICOM or a CRA audit.
The move comes as the federal government signals its intention to apply a more probing eye to T4A recipients.
“It will level the playing field with regulators,” says Samantha Gale
, CEO of MBABC. “While we all want to see mortgage broker regulators rigorously enforce standards, in order for the process to be fair and equitable, mortgage brokers need to have affordable access to legal representation during a regulatory investigation or hearing.”
MBABC will be offering Legal Expense Insurance coverage to its members effective May 1. Ontario’s IMBA
has offered just such coverage for approximately a year now, says Gale.
The coverage carrier will be DAS Canada.
“The cost of legal representation is exorbitant and can easily add up to $50,000, and in some cases well over that,” says Gale. “This can cripple an industry member, potentially ruin their business, and in some cases, eat into their personal assets, for example by forcing them to mortgage their house to pay for legal costs.”
Specific coverage will include: FICOM Hearings & Investigations Legal Defense for Brokers; Personal Tax Protection (in regards to CRA appeals or audits); Legal Defense of Highway Traffic Act & Motor Vehicle Offences; Business Tax Protection; and Telephone Legal Advice.
Maximum annual coverage in the event of a FICOM hearing is $100,000 with no deductible, and $25,000 for personal tax protection, with a $250 deductible. Coverage for motor vehicle mishaps are $100,000 with no deductible, and $25,000 for business tax protection with a $500 deductible.
The current increase in CRA investigations and audits in the Ontario market into alleged condo flipping underlines the need for the type of legal services currently offered by IMBA
, Gale points out.
“Most mortgage brokers are commissioned sales people who receive a T4A, and then write off their business expenses against their earnings – they are therefore at high risk of being audited by CRA,” she says, adding that “The CRA is a powerful government entity and the Income Tax Act is overwhelmingly complex. Industry members facing a CRA audit need an advocate to ensure that the audit result is fair and they do not overpay on taxes, penalties and interest.”