Seven Essential Insights and Six Common Misconceptions
About Dealing with the Canada Revenue Agency
NOT TO BE CONSIDERED PROFESSIONAL ADVICE
This is written by Ken Lagasse, Small Business Tax Specialist
This article is going to give you seven essential insights and six common misconceptions about
dealing with CRA. Have no doubt that you need to know what to expect or drown in incorrect
assumptions and uncertainty.
Whether problems dealing with CRA seem intentionally problematic or not is beside the
point. Remember that CRA is great at processing tax returns, payments and all other routine
compliance activities. They have more experience than you and are also quite adept at handling
taxpayer’s requests for more information, and the disputes and disagreements that are part of
the tax landscape. It is an understatement to say that CRA has a disregard for what effects
their policies have. The following insights are not in any particular order.
If they do not agree with your challenges and responses to their interpretations of the Act,
CRA will not tell you why, except to quote a section of the legislation. This can be infuriating
but don’t lose your cool, at least not yet. Is the government guilty of deliberately producing
vague and incomplete tax legislation so they can interpret it as they wish? It often seems
like that, particularly to practitioners. But it works both ways because tax court judges get
frustrated too and this is often not helpful to CRA’s cause. This means you can push the
CRA does not encourage taxpayers to seek professional help and are not required to inform
you of your rights or their obligations. Additionally they often expect taxpayers to provide
quick answers and commitments. Take your time. Above all, don’t make commitments you
know you can’t keep in order to satisfy CRA.
CRA may seem intimidating, often not on purpose, but on the other hand they know this
makes taxpayers more nervous. Then this makes CRA suspicious and so the taxpayer
becomes even more nervous. The circle tightens. Do not let CRA think they are intimidating
you – even if they are.
CRA personnel write notes on what you say – and they seldom tell you what their real
agenda is. We all hear what we want to hear so conversations with CRA can be dangerous.
Make your own notes about the conversation when talking to CRA.
Clarify all facts carefully. Most tax problems are caused by CRA interpreting the facts to fit
you into a tidy tax corner. This makes their job easier because they know a certain
percentage of people give up without a fight. Keep notes (confidentially) on facts pertaining
to important financial transactions as well. Use the words ‘Without Prejudice’ on all
correspondence and answers on questionnaires related to facts and dates to ensure these
facts can be amended or clarified based on new information or interpretations.
Be up to date on your research. CRA uses the same reference material tax professionals do
(mostly from CCH), but remember that CRA is not quick in communicating changes in law or
even their own policies to their staff. This might give you the upper hand in some cases.
CRA likes to ask questions and have questionnaires completed as part of a desk review or
audit process. Many would argue CRA has no authority to demand answers (outside of
court) and that they only have access to books and records. The point is – be careful what
responses you provide to questions. Clarify the questions. Request reasons for difficult
ones. If you don’t have the answer or the work is too onerous to provide the answers – say
so. If the answer is incriminating, seek professional advice. Use legal privilege where
possible. That way you don’t have to answer any questions. Stay honest and get to the
point. They will thank you.
Now let us look at the most common misconceptions people have with CRA and the alternatives
that will help get you to where you want to be.
Misconception You are assumed by CRA to be totally guilty of a misdeed.
Alternative Go the other extreme and prove you’re totally innocent by being brutally honest.
Misconception Delaying CRA will help your cause.
Alternative Insist on a quick resolution and you may catch CRA unprepared or unable to
resolve the dispute immediately because of the following misconception.
Misconception The tax auditor has sufficient support for their position.
Alternative Ask for detailed reasons, facts they are relying on, exact legal requirements or
basis as it applies to your situation. You can then battle over who has the best support for their
position – and keep in mind that this also helps negotiate settlements faster.
Misconception CRA cannot or will not help you.
Alternative They will often willingly help. Ask for what they need to agree with you. Seek
alternatives and question what accommodations they feel would be reasonable.
Misconception CRA fully understands your story, motivations and facts of the situation.
Alternative CRA personnel know you are trying to save tax, so don’t deny the obvious. Ensure
their facts and understanding of what your own decision process is are absolutely correct. You
don’t want to start arguing facts at the appeal level because the onus of proof is already on you
to ensure you have provided the correct facts. What you want to use are the facts most
supportive of your position.
Misconception CRA assumes you have the means to pay their re-assessment.
Alternative Make it as clear as possible what their likelihood of tax recovery is and that you are
close to survival mode. Exaggerate slightly. CRA knows a cornered victim becomes
exponentially more difficult to capture without both parties suffering damage.
This concludes this report. Ken Lagasse has many more important tips for Canadian small