On May 31 2010, the Canada Revenue Agency (CRA) issued a revised policy (new policy) on access to information and documents from taxpayers and third parties. This new policy replaces its 1995 guidelines.
Under the Income Tax Act (Canada) (the Act), taxpayers are obliged to retain books and records to support their tax positions. The CRA has broad audit powers to request, demand and review such books and records and to request information and answers to questions for any purpose relating to the enforcement of the Act. If not satisfied with answers to questions and requests, the CRA has the power to issue demands for documents from the taxpayer and third parties.
In the new policy, the CRA has confirmed that it will respect solicitor/ client privilege and litigation privilege and that there is a presumption of privilege in correspondence between lawyers and clients. There is not in Canada, however, any accountant/client privilege.
One of the significant issues between taxpayers and CRA has related to the access to accountants and auditors working papers (that is, those papers developed by an auditor to support its audit results and conclusions). There is a significant tension over the issues, because auditors need to openly review tax positions to achieve useful financial statements and yet this can lead to the easy discovery of audit issues for the CRA where difficult positions are involved. Furthermore, such papers are not required to be created under the Act and, arguably, do not constitute books or records. They are simply one person's view of a tax position.
The CRA policy confirms that it will not routinely require audit papers to be provided. However, where a taxpayer is not forthcoming with information, CRA will request or demand the working papers of taxpayer's internal accountants and auditors.
Given the recent focus of the CRA, on aggressive tax planning and positions, one can expect that, especially with uncooperative taxpayers, CRA will increasingly demand access to information from third parties including auditor's working papers. Taxpayers and their accountants and auditors need to be fully aware of this position when creating any tax related documentation and may wish to take steps to establish solicitor/client privilege whenever possible.
Bill Maclagan (wsm@blakes.com) is a partner of Blake, Cassels & Graydon in Vancouver.
