How Does the CRA Obtain Information when Auditing?
The average taxpayer is unaware of how the Canada Revenue Agency (“CRA”) may obtain information from them. This blog post will provide an overview on how the CRA has been and will continue to obtain information from taxpayers, registrants, claimants, and third parties for the purposes of administering and enforcing the Income Tax Act (ITA), Excise Tax Act (ETA) and any other applicable legislation for its audit purposes.
Additionally, it is important to note that CRA officials through legislation have been granted broad powers to obtain information for purposes of an examination and for any other purpose relating to administration and enforcement.
CRA Requests for Information and Documentation
Taxpayers are the sole gatekeeper of their own information and income tax fillings. This is because taxation is a self-regulated process in Canada, with the ITA imposing the burden of proof on the taxpayer as a result. Only the taxpayer will have access to information pertaining to tax obligations and entitlements. As such, every taxpayer is expected to cooperate and should respond to reasonable requests for information to provide further explanation. Given the self reporting nature of income tax, CRA officials are able to examine the books, records and comprehensive financial statements of the taxpayer. Subsequently, this self-reported information will be relied on heavily as well as source data with its contemporaneous documentation.
CRA Requests that are not Responded To
Please note that when the taxpayer is in not providing information and not responding to specific questions, the CRA’s ability to determine the risk of non-compliance is limited. In such situations, CRA officials will take additional steps to gather the information necessary. These additional steps may include initiating court proceedings to obtain a compliance order or issuing a requirement to third parties, resulting in an additional compliance burden to the taxpayer.
CRA officials can and will use the means provided to them under the relevant legislation to determine a taxpayer’s risk of non-compliance. As well as to properly assess taxes owing. This will be done under discretion taking into account the circumstances of the case, officials will ensure that the request for information is reasonable. As well, CRA officials may consult internally with specialty areas, including regional and national advisors for abusive tax avoidance, technical or industry specialists for domestic and international tax, and the Department of Justice with respect to complex and contentious issues. If you have any questions or concerns about how the CRA is accessing your information please contact R&A Tax Law.
Taxpayers should always be encouraged to maintain candidness and look to assist CRA officials where appropriate. It is always important to clearly demonstrate through the appropriate and required information, that their overall risk of non-compliance is in fact low. Voluntary disclosure of aggressive or uncertain tax positions by a taxpayer accompanied by complete and substantive information in support will lead to a more efficient audit and provide the taxpayer with earlier tax certainty.
If you are being requested to provide information or documentation to the Canada Revenue Agency, and you think they might not be entitled to all the information they want, call us today! If you’re being audited and you have questions before you hand over your information, we can help!
This article provides information of a general nature only. It does not provide legal advice nor can it or should it be relied upon. All tax situations are specific to their facts and will differ from the situations in this article. If you have specific legal questions you should consult a lawyer.