Tax administration is going global and international cooperation is increasing as revenue authorities develop strategies to counter abusive tax planning. For example, the Canada Revenue Agency ("CRA") has recently introduced a new program: the Related Party Initiative ("RPI"). This new audit initiative focuses on individual taxpayers with a net worth of more than $50 million or who have related groups comprised of 30 or more entities. CRA requires individuals to complete a T997 "Audit Query Sheet," as well as a meticulous 20-pages questionnaire, within 30 days of receipt.
CRA is also examining the use of trusts in tax planning at all income levels, and is gathering information about a variety of related economic entities, including partnerships, corporations, joint ventures, and private foundations. Hence while a corporation may not be directly targeted by an RPI audit, it could be connected indirectly to an audited individual as one of that individual's 30 entities. This applies even though the entity in question may be a small- or medium-sized business.
The T997 form requires individuals to provide the following documents: copies of their entities' board of director minutes; corporate minute books; listings of all legal and accounting firms used by the entities, including "all correspondence files with them"; and also all tax planning documents.
To ensure that CRA's broad information requests are met with appropriate disclosure, taxpayers who have already received a CRA questionnaire should seek legal advice and assert lawyer-client privilege over privileged documents. Those who haven't yet been contacted, but who may have undeclared income in foreign jurisdictions, should take advantage of CRA's Voluntary Disclosure program. Formal Voluntary Disclosure allows taxpayers to come forward, correct their tax information, and pay only taxes owing and interest – thereby avoiding additional charges and penalties.