Question: how far can the arm of Canada Revenue Agency (CRA) actually reach?
Once a taxpayer is under a CRA audit, CRA can demand of the taxpayer all kinds of records including accounting records, financial statements, bank, credit card and investment statements, supplier and customer lists. The list is long.
And CRA can ask for information not just from the taxpayer, but also of the taxpayer’s employer, banker, credit providers, accountant, investment advisor, insurer, and yes even casinos.
When it comes to an audit, the Income Tax Act specifically states that those who surround a taxpayer must comply with a CRA request to supply information about that taxpayer. Non-compliance can lead to a charge of contempt of court and jail time, although it is a long and winding road to get to that point.
Nonetheless, history has not been kind to those people not complying with a CRA audit. The Supreme Court of Canada supports the CRA demand and delivery of requested information as long as it can be shown that the information being requested is relevant to the audit.
The one exception to this court support is information held with a lawyer under solicitor-client privilege. Although this fact may not be too surprising, what might be is the court’s expanded view of solicitor-client privilege such that any information held within a law office is included, not just that information private to a taxpayer’s lawyer.
However, this wider interpretation of protection ends when the information leaves the law office. For example privilege will be assumed waived when documents pass to the taxpayer’s banker’s office.
It is noteworthy that a court order must be established when CRA requests information from a third party without providing the taxpayer’s name. This procedure is used by CRA when CRA suspects commonality among a certain group of taxpayers, for example clients of a specific financial advisor, real estate broker or accountant.
Fortunately there are preliminary stages available to CRA before the full-on audit kicks in, the main one being a CRA review. At this stage, life can remain quite uncomplicated if one chooses to cooperate.
Having said this, cooperate or not, just about all sources of information are available to CRA so it is becoming more and more often.
Ron Clarke has his MBA and is a business owner in Trail, providing accounting and tax services. Email him at ron.clarke@JBSbiz.ca. To read previous Tax Tips & Pits columns visit www.JBSbiz.net.