Dispute resolution & voluntary disclosure

Tax Audit

The Canada Revenue Agency (CRA), provincial tax authorities, and other tax authorities around the world are under increasing pressure to generate revenue, causing a rise in tax audit activities. This pressure on the CRA and tax authorities in general has resulted in more information demands, larger adjustments, and increased potential for penalties and interest. The CRA announced that they will adopt a new risk assessment approach to select tax returns for audit, focusing on taxpayers they think will most likely fail to comply with legislation.

Voluntary Disclosures

Since 2007, the CRA has employed a Voluntary Disclosure Program (VDP) for taxpayers to come forward out of their own accord to amend or correct their previous tax filing or reveal information to the CRA not previously provided in their tax return.  If the CRA accepts a disclosure as having met the conditions set out for the VDP, it will be considered a valid disclosure and the taxpayer will not be charged penalties or prosecuted with respect to the accepted disclosure. The taxpayer would still have to make the necessary payments plus any applicable interest charges. Each request will be reviewed and decided on its own merit. If relief is denied or partly granted, the CRA will provide the taxpayer with an explanation of the reasons and factors for the decision.

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Audit Defence

CRA Tax Audit - Strategies for Best Possible Tax Outcome

With our technical knowledge and experience in dealing with the various tax authorities, we provide services to help you manage the process of tax audits and/or voluntary disclosures to achieve the best possible tax outcome.

Audit Defence

Pre-Audit Phase

  • Conduct a mock audit to help prepare you for the audit by diagnosing the areas of tax exposure and the types of questions the CRA will ask in the audit.

Audit Phase

  • Respond to the CRA or other tax authority demands for information or documentation and audit queries, and
  • Negotiate audits by
  • working with the CRA and other tax authority officials to help ensure stated administrative policies and procedures are followed, and/or
  • engaging with the CRA or other tax authority to agree on a project-based approach to progressing issues collaboratively.

Dispute Resolution Phase

We assist in resolving disputes and represent clients with a well-researched defence of a position.  Where the dispute is of a more serious nature, we will work closely with legal counsel In resolving the disputes.  We will

  • obtain information from the CRA, including internal documents, memos, and notes used by the CRA in support of its position,
  • meet with CRA representatives, in either the audit division or the appeals division, to present the taxpayers case,
  • negotiate a settlement when negotiation is called for, and
  • make informed decisions on preferred options for resolving difficult disputes such as alternative forms of dispute resolution, settlement, and objection. Depending on the decision made, either
  • assist to finalize settlements and ensure appropriate documentation in collaboration with the tax authority, or
  • prepare any required documentations such as a notice of objection.

If the dispute cannot be resolved in the appeals phase and proceeds to court, or if the matter is particularly serious, the situation may be referred to legal counsel in the first instance.  In such cases, we work closely with legal counsel in a support role on the client’s behalf.

Net Worth Audit

The CRA is making increased use of an auditing technique called “net worth assessment”. It is normally used to approximate unreported income. Generally, the technique involves determining the increase in a person’s net worth over a period of time, and examining the person’s sources of income and expenses to determine whether the income as reported can reasonably account for the person’s change in net worth. Errors can be made in this type of net worth assessment if it is based on incomplete or selective facts and/or inaccurate assumptions.

We provide the following assistance when asked to undertake a defence to a net worth assessment:

Net Worth Audit
Voluntary Disclosure

Voluntary Disclosure

We have been involved in numerous cases of voluntary disclosure and understand CRA practices and procedures. Our services to help submitting a voluntary disclosure request generally include the following:

  • Determine the most appropriate filing position for previously undisclosed income or required remittance of withholding tax, payroll tax, or HST/GST collected;
  • Where applicable, investigate possible tax planning strategies to minimize the taxes involved;
  • Present the situation to the CRA VDP officer on a “no name basis” and attempt to negotiate a favourable settlement before revealing the identity of the taxpayer;
  • Negotiate a waiver of interest in certain extraordinary circumstances; and
  • Negotiate payment terms over an extended period of time, if necessary.