Privilege and File Management When Dealing with CRA Audits

Transcription

1 Privilege and File Management When Dealing with CRA Audits LSUC CLE Taxation Issues for General Practitioners September 22, 2014 Leigh Somerville Taylor Leigh Somerville Taylor PC Mark Tonkovich Baker & McKenzie LLP Adrienne Woodyard (Moderator) Davis LLP

2 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 ) - 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

3 1) What is the scope and what are the limits of the CRA s audit powers? (continued) Requirement to provide information (s ) - record, document, return - foreign-based information (s ) - Limitations: purpose of requirement, reasonable time for production, protection of privileged documents, unnamed persons Search warrant (s ) 3

4 1) What is the scope and what are the limits of the CRA s audit powers? (continued) Inquiry (s ) Compelling compliance: Compliance order (s ) Summary conviction (s. 238) 4

5 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

6 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

7 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 functionallynecessary 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 7

8 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

9 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

10 [Polling question]

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? - 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

12 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

13 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? 4. methods and potential risks of resisting challenging the requirement vs. waiting for CRA enforcement 13

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? - consider authorizing provisions (ITA, s (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

15 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

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? 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 ) 16

17 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

18 Questions? Thank you. Leigh Somerville Taylor Leigh Somerville Taylor PC (416) Mark Tonkovich Baker & McKenzie LLP (416) Adrienne Woodyard Davis LLP (416)