In BP Canada Energy Company v Minister of National Revenue (2017 FCA 61), the Federal Court of Appeal imposed important restrictions on the use of Section 231.1(1) audit powers by the Canada Revenue Agency (CRA) (for futher details please see "New limits on Section 231.1(1) audit powers").
In a statement issued on May 31 2017, the CRA announced that it would not seek leave to appeal that decision to the Supreme Court of Canada. According to the statement:
"Rather than appealing the Federal Court of Appeal's decision, the CRA is addressing the issue on a broader scale by undertaking to update its audit procedures to clarify when and why information is to be requested from taxpayers. This will give the CRA better, and more clear procedures to access information. The CRA has also struck an interdepartmental Access Working Group mandated to support CRA's ability to request information and to coordinate related litigation."
It is difficult to obtain leave to appeal to the Supreme Court of Canada and, if leave is granted, the outcome of an appeal is itself uncertain. On these grounds alone, the decision to not seek leave to appeal and to "update" audit procedures instead is understandable. However, it is also possible that this decision reflects an acknowledgement by the CRA that the case was correctly decided.
Either way, taxpayers and their representatives should not conclude from this that the CRA has given up. The same statement indicates that the Access Working Group will:
"focus its attention on CRA information requirements, including information required as part of a taxpayer's routine tax filing, as well as information sought by the CRA in activities related to the administration and enforcement of the legislation".
The statement concludes by making the focus of the Access Working Group perfectly clear: "more can be done to find those who aggressively avoid or evade tax" and the close to C$1 billion investment that the government has made "enhances the CRA's continued efforts to crack down on tax evasion and combat tax avoidance".
This focus of the CRA was reinforced by a news release, entitled "Minister Lebouthillier Updates Canadians the Government's Progress to Crack Down on Tax Cheats", which was issued the following day (June 1 2017). In the news release, the minister stated:
"[T]oo many corporations and wealthy individuals are trying to find ways to not pay what they owe. This is why the Government of Canada has committed important resources to crack down on tax cheats, both at home and abroad."
To achieve this, the CRA is taking a number of steps that include:
- adding both technical and legal expertise to the audit and investigation divisions;
- making better use of external data to facilitate the identification of high-risk taxpayers;
- using greater collaboration with the Public Prosecution Service "to more effectively crack down on those who choose to participate in tax crimes";
- increasing information sharing with international partners; and
- reviewing and modernising programmes, which include the Voluntary Disclosures Programme, to ensure that the tax system is responsive and fair.
The news release concluded with another affirmation of the firm intention to "detect, audit, and combat illegal tax evasion and aggressive tax avoidance".
So, why does this matter? Of course, taxpayers are required to pay tax in the amount that the law requires. Equally, taxpayers that intentionally evade the payment of tax can and should expect to be investigated and potentially criminally prosecuted.
However, in their interactions with the CRA, taxpayers have the right to protect their rights and interests – it would often be imprudent not to do so. To do this, certain taxpayers should understand that, now more than ever, the sharp focus of the CRA is to:
- gather information from the taxpayer;
- gather information from domestic and international sources; and
- find those who aggressively avoid or evade tax.
Therefore, for some taxpayers, the risk that information gathering by the CRA might result in a criminal evasion investigation or prosecution has now increased.
It is important that taxpayers' representatives take heed of these and other similar statements that the CRA has recently issued, and advise their clients of their options with respect to their interactions with the CRA in light of what must be new calculations of risk.
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