CRA Can Now Require Oral Interviews Of Taxpayers
The Canada Revenue Agency (CRA) has broad powers of audit that allow it to request records, documents, and evidence from taxpayers. Facing a need for increased revenues and a desire to collect unpaid taxes, the Government of Canada expanded these powers in its 2021 Federal Budget. Due to this expansion, the CRA can now require oral interviews of taxpayers, including owner-managers and employees of an affected business. This change could have a dramatic impact on taxpayers. If you have questions about how these changes might affect you or would like to get assistance with an oral interview, consider contacting Jeremy Scott Law at (902) 403-7201.
The CRA already had the power to examine taxpayers’ documents or property to determine their potential tax obligations, as well as the right to ask questions about these things. However, the CRA did not have the power to compel oral interviews. Therefore, the CRA only used oral interviews when completing certain types of audits. Previously, the CRA could call for “all reasonable assistance” and responses to “all proper questions,” as provided within the Income Tax Act. In a precedential court ruling, the Federal Court of Appeal denied the CRA the right to subject a taxpayer’s employees to forced interviews.
In application, the CRA did not perform many face-to-face interactions with taxpayers. Instead, the agency would more often confer with taxpayers’ accountants or tax lawyers. Taxpayers could generally answer questions in writing, which gave them an opportunity to review their records, consult with a legal representative, and carefully answer each question.
Reason for Change
The new rules allow the CRA to force interviews and compel answers from both taxpayers and taxpayers’ employees. The change was initiated to make it easier for the CRA to obtain necessary information and issue assessments. Additionally, the expansion was made to supersede an adverse court decision in the case of MNR v. Cameco Corporation. In that case, the CRA asked about 25 Cameco employees to attend oral interviews for the second time. Cameco refused, suggesting that it provide written answers instead. Cameco argued in court that the CRA had no general power to compel oral interviews. The courts agreed with Cameco, finding that the CRA had no general power to compel oral answers to its questions.
Potential Consequences of New Powers Regarding Oral Interviews
The CRA will likely conduct more oral interviews and widen the scope of the interviews. The CRA now has the power to compel people to answer all proper questions and provide reasonable assistance during these proceedings. Taxpayers can be required to answer questions orally or in writing, per the CRA official’s specifications. Those answers could expose taxpayers to penalties, higher assessments, or criminal prosecution. Additionally, the expansion of oral interviews can lead to several significant consequences.
Lack of a Transcript
The oral interviews may occur in informal settings without a court reporter to keep a record of the proceedings. The CRA official and taxpayer may remember these interactions differently. The taxpayer’s answers may, therefore, have serious implications without the benefit of having a transcript available to reference or make arguments from.
Any Person Can Be Interviewed
These oral interviews can be conducted on any “person.” Therefore, a disgruntled former employee or other person with animosity toward the business could potentially be interviewed and have their answers taken seriously by government officials.
Assumptions and Misunderstandings Can Happen
Even if the business owner or employees try to protect the business, they may not have the necessary tax knowledge to answer CRA questions truthfully while also protecting their own rights. CRA officials may commence an oral interview simply looking for details to corroborate the agency’s position, so they might overlook other information refuting that perspective. Simple miscommunications or misunderstandings can potentially lead to adverse conclusions by CRA officials. Some may worry that the CRA will use its expanded powers to gain evidence to use against the business in an audit.
Best Practices for Oral Interviews
While a taxpayer is expected to cooperate with the CRA, he or she can provide this cooperation through means that protect the taxpayer’s rights and limit the scope of the inquiry. The following best practices can help taxpayers with oral interviews.
Before the oral interview, take the time to gather all necessary records and documents that you may need to pull information from, such as:
- Tax returns
- Business financial statements
- Previous communications
Prepare the Workspace
Clear the space that will be used for the interview. Make sure the space is private and free of distractions.
Work with a Tax Professional
A tax attorney from Jeremy Scott Law can assist with the oral interview and preparation. A tax lawyer is familiar with tax laws and the scope of oral interviews and audits. A tax professional can guide the taxpayer through the process and help to prepare witnesses. He or she can also attend the oral interview and ensure that the questions are appropriate.
Request the Questions in Advance
Request the questions in advance of the oral interview so that you can gather the necessary information and consult with your tax professional. A tax lawyer can also determine if there are questions that are more technical and should be answered in writing and that the questions are within the scope of the audit.
Prepare for the Oral Interview
Prepare for the interview by preparing your records and rehearsing your answers. Schedule a time with the CRA auditor that is convenient for you, your witnesses, and any representatives.
Review the auditor’s working paper for accuracy and completeness. If you did not have the necessary information to answer a question, follow up in writing after the interview to answer the question.
Contact Jeremy Scott Law for Help with Oral Interviews
Since the CRA can now require oral interviews of taxpayers, businessowners might want to prevent the interviews from occurring in the first place or to carefully prepare for an interview. If you have received notification from the CRA of oral interviews, you might benefit from professional tax advice and assistance. Consider contacting the tax lawyer at Jeremy Scott Law by calling (902) 403-7201.
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