Privilege and File Management When Dealing with CRA Audits LSUC CLE - - PowerPoint PPT Presentation

Privilege and File Management When Dealing with CRA Audits

Leigh Somerville Taylor Mark Tonkovich

Leigh Somerville Taylor PC Baker & McKenzie LLP

Adrienne Woodyard (Moderator)

Davis LLP

LSUC CLE – Taxation Issues for General Practitioners September 22, 2014

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1) What is the scope and what are the limits of the CRA’s audit powers?

Broad inspection and investigatory powers: – Audit and inspection (s. 231.1)

• “books and records” of “any person” “for any purpose related to

the administration or enforcement of the Act”

• Limitations: “dwelling house,” “unable to do so,” “genuine and

serious inquiry,” protection of privileged documents, unnamed persons

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1) What is the scope and what are the limits of the CRA’s audit powers? (continued)

– Requirement to provide information (s. 231.2)

• “record,” “document,” “return”
• foreign-based information (s. 231.6)
• Limitations: purpose of requirement, reasonable time for

production, protection of privileged documents, unnamed persons

– Search warrant (s. 231.3)

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1) What is the scope and what are the limits of the CRA’s audit powers? (continued)

– Inquiry (s. 231.4) Compelling compliance: – Compliance order (s. 231.7) – Summary conviction (s. 238)

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2) What are the bounds of solicitor-client privilege, and how does it interact with the CRA’s audit?

• fundamental civil right integral to Canadian legal system
• protects confidential information passing between clients and

their lawyers, when done for the purpose of seeking or

• btaining legal advice
• ITA carves solicitor-client privileged information out of the

reach of CRA’s audit powers, but see “accounting records”

• other forms of privilege also limit audit powers
• narrower than duty of confidentiality (LSUC r. 3.3)

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3) What steps should you and your clients take to protect privilege when facing a potential audit?

• read all the documents relating to the issue
• consider relevance and privilege
• consider who may have an interest in the documents aside

from your client that should be protected

• who is your client? (partner / partnership, corporation / shareholder)
• unnamed parties, third parties
• redaction
• consider how information is created, stored and circulated
• s. 230(1), Rules, “privileged and confidential”

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4) Can you protect solicitor-client privilege when a third party has to be involved in the file?

• disclosure generally constitutes waiver
• further exception: where disclosure is essential or ‘functionally-

necessary’ for carrying out legal retainer (e.g. translator)

• calls for a fact-intensive analysis
• best practices if engaging third party (outside litigation):

1. careful retainer 2. documentation 3. path of communication 4. vigilance

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5) Auditors on ‘fishing expeditions’: what are best practices for handling document disclosure requests that are overly broad or onerous?

• have a frank conversation with the auditor: gather information,

identify areas of focus, items under scrutiny

• aim to limit scope, number of issues
• identify duplication in auditor’s request; suggest alternatives,

“shortcuts”

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5) Auditors on ‘fishing expeditions’: what are best practices for handling document disclosure requests that are overly broad or onerous? (continued)

• samples vs. complete records; general ledgers / accounting

summaries vs. supporting documents

• keep written records of items requested and produced
• net worth audits - increased focus on owner managers

[Polling question]

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• A. Your client anticipates a CRA audit and would like to

purge some of its tax records. What factors / risks should they keep in mind?

• client bears onus in most cases
• records must be kept in a form and manner sufficient to

enable the CRA to determine tax liability

• legible and complete; electronic form
• records may include receipts, invoices, bank documents,

corporate minutes

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• A. Your client anticipates a CRA audit and would like to

purge some of its tax records. What factors / risks should they keep in mind? (continued)

• must be readily accessible (30 day deadline)
• general rule: 6 years after end of last taxation year
• longer retention may be necessary if records are relevant to

tax liability in later years

• try to develop a document retention policy beforehand

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• B. Your client has received a formal requirement from the

CRA's Aggressive Tax Planning unit. What are their

• ptions?
• Essentially: comply or resist? Items to consider:

1. significance to client 2. legal validity of requirement 3. can your client comply? 4. methods and potential risks of resisting – challenging the requirement vs. waiting for CRA enforcement

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• C. Your client calls you at 8 AM, panicking: a team from the

CRA has arrived to search and seize all books and

• records. What are your first steps?
• consider authorizing provisions (ITA, s. 231.3(1); CCC s. 487)
• offence alleged?
• nexus to document or thing and place to be searched?
• advise client respecting extent of obligation to provide

information or assistance

• identify and contact the lead officer(s)

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• C. Your client calls you at 8 AM, panicking: a team from the

CRA has arrived to search and seize all books and

• records. What are your first steps? (continued)
• review the warrant (specificity, “reasonable grounds,”

documents “in plain sight”)

• assert privilege where available (scope, procedure)
• obtain and review information sworn by CRA officer
• consider “predominant purpose,” potential use of seized

documents

• D. The CRA demands that you disclose documents about
• ne of your clients in the course of a tax audit. What do

you do?

– Best practice: advise client if request pertains to them, unless prohibited by law from doing so – Is the information privileged? If clearly not privileged: comply, but disclose no more than necessary (LSUC r. 2.03(2), r. 3.3-1.1)

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• D. The CRA demands that you disclose documents about
• ne of your clients in the course of a tax audit. What do

you do? (continued)

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– Is the information privileged? If arguably privileged: 1. seek instructions 2. communicate to CRA 3. if in court proceeding, file documents under seal – Keep an eye on: Thompson; Chambre des notaires

Leigh Somerville Taylor Leigh Somerville Taylor PC (416) 590 2671 leigh@lstlaw.ca Mark Tonkovich Baker & McKenzie LLP (416) 865 6984 mark.tonkovich@bakermckenzie.com Adrienne Woodyard Davis LLP (416) 365 3414 awoodyard@davis.ca

Questions? Thank you.