Privilege and File Management When Dealing with CRA Audits LSUC CLE – Taxation Issues for General Practitioners September 22, 2014 Leigh Somerville Taylor Mark Tonkovich Leigh Somerville Taylor PC Baker & McKenzie LLP Adrienne Woodyard (Moderator) Davis LLP
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 2
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) 3
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) 4
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 obtaining 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) 5
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” 6
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 3. path of communication 2. documentation 4. vigilance 7
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” 8
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 9
[Polling question]
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 11
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 12
B. Your client has received a formal requirement from the CRA's Aggressive Tax Planning unit. What are their options? - Essentially: comply or resist? Items to consider: 1. significance to client 2. legal validity of requirement 3. can your client comply? methods and potential risks of resisting – challenging the 4. requirement vs. waiting for CRA enforcement 13
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) 14
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 15
D. The CRA demands that you disclose documents about one 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) 16
D. The CRA demands that you disclose documents about one of your clients in the course of a tax audit. What do you do? ( continued ) – 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 17
Leigh Somerville Taylor Leigh Somerville Taylor PC (416) 590 2671 leigh@lstlaw.ca Questions? Mark Tonkovich Baker & McKenzie LLP (416) 865 6984 Thank you. mark.tonkovich@bakermckenzie.com Adrienne Woodyard Davis LLP (416) 365 3414 awoodyard@davis.ca
Recommend
More recommend
