It does not come as a surprise that tax authorities in Canada do exchange information after an audit. Whether you have been audited by the Canada Revenue Agency or the Québec Revenue Agency, always expect that the other one will react with a reassessment of its own. It makes sense not to duplicate auditing efforts, both agencies concur on this matter.
Other than the collaboration of the two Revenue Agencies, taxpayers’ information is considered confidential information. But there are exceptions.
The Income Tax Act
Section 241 of the ITA reads as follows :
241 (1) Except as authorized by this section, no official or other representative of a government entity shall
- (a) knowingly provide, or knowingly allow to be provided, to any person any taxpayer information;
- (b) knowingly allow any person to have access to any taxpayer information; or
- (c) knowingly use any taxpayer information otherwise than in the course of the administration or enforcement of this Act, the Canada Pension Plan, the Unemployment Insurance Act or the Employment Insurance Act or for the purpose for which it was provided under this section.
This is a standard technique of law writing. First, you stipulate the general principle, then you list the exceptions.
The Exceptions
As the reader expects, here is one of the exceptions :
241(4) An official may
(iii) to an official solely for the purposes of the administration or enforcement of a law of a province that provides for the imposition or collection of a tax or duty,
For the purpose of this article, this latter exception is the important one, rest assure that there is a large number of other exceptions.
There is an important aspect and relevance pertaining to the agencies’ reliance on the other to obtain audits’ results. We will address this point further down.
The Québec Tax Administration Act (TAA)
Section 69 of the TAA is similar to section 241 of the Income Tax Act.
Exceptions in the Québec TAA
Information contained in a tax record shall not be used within the Agency without the consent of the person concerned except for the following purposes:
- (a) the application or enforcement of a fiscal law;
- (b) the application or enforcement of
- i. the Act to facilitate the payment of support (chapter P-2.2);
- ii. (subparagraph repealed);
- iii. the Shelter Allowance Program for the elderly and families established under an order in council made under sections 3 and 3.1 of the Act respecting the Société d’habitation du Québec (chapter S-8);
- iv. section 13.1 of the Highway Safety Code (chapter C-24.2);
- v. the Act respecting the legal publicity of enterprises (chapter P-44.1), but only to the extent that the information is necessary for the application or carrying out of that Act;
- vi. the Unclaimed Property Act (chapter B-5.1);
- (b.1) the exercise of a function of the enterprise registrar as provided for by law, but only to the extent that the information is necessary for the exercise of that function;
- (b.2) the provisional administration of property entrusted to the Minister under an Act;
- (b.3) the carrying out of a mandate assigned to the Minister by an Act whose administration is not the responsibility of the Minister;
- (c) the carrying out of a study or research or the production of statistics;
- (d) the administration, direction or management of the Agency or the application of sections 71.3.1 to 71.3.3;
- (e) the carrying out of surveys to ascertain the expectations and satisfaction of the population with respect to the Acts and programs under the administration of the Agency provided that, as regards an Act, a chapter or a program referred to in subparagraph b, only the persons to whom that Act, chapter or program applies are surveyed.
A person may assume that its tax information is confidential in a general sense, but that the government may use it in different circumstances for different purposes.
Québec Important particularity regarding statute barred years
A tax year is considered as statute barred 3 or 4 full years after the date on your original notice of assessment issued from the Revenue Agency. These 3 or 4 years are what is called the normal reassessment period.
There are two conditions that allow the opening of stature barred years by tax authorities. One is if the taxpayer willingly signs a waiver of the time limit. The other is if the taxpayer has made a false representation because of neglect, carelessness or willful default or fraud.
It will often happen for an auditor to start an audit inside the normal reassessment period close to the expiration of the time limit period. When auditors think that time is needed, they will insist on having a waiver or else they will issue a reassessment right away just to stop the prescription.
In Québec, the Income Tax Act gives the Agency a very special, if somewhat unfair provision found at section 1010.02.01 :
Notwithstanding the expiration of the time limits provided for in section 1010, where a taxpayer is the subject of an assessment or reassessment made under the Income Tax Act (Revised Statutes of Canada, 1985, chapter 1, 5th Supplement), the Minister may, within one year after the date of that assessment, redetermine the tax, interest and penalties payable by the taxpayer and make a reassessment for the sole purpose of taking into account elements that may be considered to relate to that assessment or reassessment.
In this manner, the Québec Revenue Agency has been given a one-year extension over the normal reassessment period !
