Notwithstanding the enormous powers that tax authorities have, they still need the taxpayer’s collaboration in order to obtain all the necessary information to conduct an audit.
The hereinafter text refers to the the Income Tax Act (federal), and the Canada Revenue Agency (CRA). The Québec Taxation Act does have very similar dispositions and the policies of both the CRA and de QRA (Québec Revenue Agency) are somewhat also similar.
Reasonable audit assistance
The Income Tax Act stipulates that the CRA has the power to check all the documents, records and information of a taxpayer. It also has the power to ask anybody on the premises for help in completing its mission.
231.1 (1) An authorized person may, at all reasonable times, for any purpose related to the administration or enforcement of this Act,
- (a) inspect, audit or examine the books and records of a taxpayer and any document of the taxpayer or of any other person that relates or may relate to the information that is or should be in the books or records of the taxpayer or to any amount payable by the taxpayer under this Act, and
- (b) examine property in an inventory of a taxpayer and any property or process of, or matter relating to, the taxpayer or any other person, an examination of which may assist the authorized person in determining the accuracy of the inventory of the taxpayer or in ascertaining the information that is or should be in the books or records of the taxpayer or any amount payable by the taxpayer under this Act,
and for those purposes the authorized person may
- (c) subject to subsection 231.1(2), enter into any premises or place where any business is carried on, any property is kept, anything is done in connection with any business or any books or records are or should be kept, and
- (d) require the owner or manager of the property or business and any other person on the premises or place to give the authorized person all reasonable assistance and to answer all proper questions relating to the administration or enforcement of this Act and, for that purpose, require the owner or manager to attend at the premises or place with the authorized person.
That said, it is possible to precise the limits of such powers.
On-site assistance
The CRA can compel you to be on the premises, but it is advisable for you to be there anyway. The power CRA have is subject to requests that are reasonable.
Costs, importance, relevance
The taxpayer must provide assistance to the auditor during the on-site audit, but again that obligation is limited by the reasonableness of requests. If the request for assistance goes too far, the taxpayer could refuse. Nevertheless, it is better to discuss with the auditor or the supervisor in case of strong disagreement. Common sense dictates to be proactive and respectful, and not to ignore what may be judged to be unreasonable by the taxpayer.
Of course, the taxpayer is not under the obligation to do the CRA’s work. The CRA has the control and leadership of its audit. (With certain taxpayers, mostly at risk large corporations, the CRA’s position is that they are obligated to disclose ‘’ concerns with regard to tax at risk’’.) The audit must be structured in a manner to minimize the time to complete it, along with the assistance needed from the taxpayer.
Audit leadership
The agency must specify the information it wishes to verify and the relevant documents needed for that purpose. Usually, the auditor knows precisely what is needed. An audit is not a fishing expedition, and the taxpayer should be aware that unreasonable or clearly imprecise requests could be discussed and questioned.
Anwers to questions
During the audit , the CRA can enter into any premises or place where any business is carried on, any property is kept, anything is done in connection with any business or any books or records are or should be kept. In addition, the agency can ask all proper questions relating to the administration or enforcement of this Act.
One of the most important limitations on the agencies’ ability to compel the production of information is solicitor-client privilege protected by the Charter of Rights and Freedoms. The Charter also prohibits seizures that are unreasonable, any request must be reasonable in order to be enforceable.
There is also a frontier between a tax audit and a search for evidence that can be used in a criminal accusation. These are complex questions, and a consultation with a tax lawyer is advisable.
