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					                                        TAX MANAGEMENT
                                         QUESTIONNAIRE




ICAA Council has approved the implementation of tax standards as a formal part of the ICAA
practice review program effective January 1, 2004.

This Tax Management Questionnaire has been designed to obtain, from the public accounting firm
subject to practice review, the nature and extent of firm internal quality controls with respect to tax
services.

It is acknowledged that some of your procedures will be minimal, for others comprehensive. Not all
questions will be applicable to all firms.

If additional space is required, please attach separate pages to this questionnaire.




PUBLIC ACCOUNTING FIRM NAME: _______________________________________

ADDRESS: ____________________________________________________________

PROFESSIONAL COMPLETING QUESTIONNAIRE: ___________________________




                              Reviewed and discussed with the Public Accounting Fir m Representative.


                              _______________________________________________________
                              Practice Reviewer Signature


                              _______________________________________________________
                              Date




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TAX MANAGEMENT QUESTIONNAIRE

      SECTION I - BACKGROUND AND COMMENTS ON QUESTIONS IN THE TAX MANAGEMENT
      QUESTIONNAIRE

      This section is intended to assist practitioners in filling out the Tax Management Questionnaire. The
      purpose of each question is to make the questionnaire easier to understand and to serve as a useful
      guide in assessing whether the firm is addressing the key risk areas in its tax practice.

      1.     Professional Accounting Firm (PAF) Resources

             The firm should have current tax reference material. Practitioners should make every effort to
             remain current regarding income tax matters by attending courses and having available tax
             reference materials. Where the office does not have a full time tax member, the firm may
             consider contacting individuals practicing tax full time (es pecially for more complex work).

      2.     A system to is needed to ensure that filing deadline dates are met. This has been identified as a
             major issue in professional liability insurance claims.

      3.     Authorizations are requirements of CRA and must be undertaken by the practitioner. This is the
             only evidenc e that exists that the client has authorized the practitioner to represent the clients.

      4.     This will provide you wit h information relating to carry -forward information such as ABIL,
             capital gains/losses, RRSP and others (CNIL, AMT).

      5.     Documents prepared by staff need to be reviewed and approved by a member.

      6.     Software will facilitate the practitioner in preparation of tax filings.

      7.     When ret urns are provided to those other than CRA (e.g. banks), disclaimers are important to
             make it clear to all stakeholders that the particular return is prepared on the basis of information
             supplied by the client. This is particularly true of personal tax returns. Often personal returns for
             self-employed individuals (as an example) are prepared based solely on information provided by
             the client.

             It is highly recommended to have a disclaimer on all personal tax returns.

      8.     This is the only evidence that the return was prepared by you. It will facilitate responding to
             questions from both CRA and your clients.

      9.     This assures that the client receives a copy of the return to assess completeness and accuracy of
             information stated therein. It is important that clients are kept informed as to filing positions with
             CRA.

      10.    A clear understanding should be on file as to the nature and extent of services, which are being
             provided. A written engagement letter is highly recommended.

      11.    This ensures that the client is able to respond on a timely basis, particularly in areas in volving
             requests for supporting documentation for claimed deductions & requests for payments. This
             also allows ample time to file a Notice of Objection within the prescribed time frame.




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TAX MANAGEMENT QUESTIONNAIRE

      12.    A system needs to be put in place to ensure that bonuses and/or dividends are reported.
             Bonuses must be paid within 180 days of the corporate year end.

             It is sometimes useful to prepare the T4s and T5s or a data sheet immediately and put the client
             copies directly into personal tax files to ensure that this inf ormation is reported in the appropriate
             taxation year. Another suggestion is to prepare a memo for the personal tax file to remind the
             practitioner of the need to pick up the bonuses or dividends in preparing the client’s personal tax
             return.

      13.    This specific carry-forward information should be ret ained for each client to facilitate tax planning
             and preparation of tax returns and forms. Where uncertainty exists, balances should be verified
             with CRA.

      14.    This documentation enables a practitioner to support the professional tax advice provided.

      15.    Risk Areas

             a) Section 84.1

                  Whenever there is a share disposition to a company with which the vendor does not deal with
                  at arms lengt h, Section 84.1 may apply to convert a capital gain to a deemed divid end, where
                  non-share consideration is received in excess of the vendor’s adjusted cost base. Consult
                  and review Section 84.1 carefully before proceeding with a share disposition.

             b) Sections 85 & 97(2) Elections (T2057 & T2059)

                  The major issues are the late filing of these returns and the errors they contain regarding the
                  consideration received. The due date for these elections is by the earliest of the day on or
                  before which any taxpayer making the election is required to file a return of income.

             c) Share Redemptions

                  Practitioners assume that a share redemption by a private corporation will give rise to a
                  capital gain which can be sheltered by the exemption. While this is true in some
                  circumstances, it is not the norm. Redemptions in excess of p aid-up capital will give rise to a
                  deemed dividend. Proceed with caution in this area.

             d) Section 15

                  Despite the existence of the shareholder benefit provisions of the Income Tax Act for many
                  years; this continues to be a troublesome area for practitioners. Of particular importance is
                  the area of shareholder loans. Generally, these must be repaid by the end of the fiscal period
                  following the year in which they arose. Otherwise, the amount must be reported as income
                  by the shareholder. This means if the shareholder subsequently repays an income inclusion,
                  no deduction will be allowed if the repayment is made as part of a series of loans or other
                  transactions and repayments. Loans should be adequately documented as a loan, or repaid
                  within the current fiscal year.

                  In addition, it will be much more difficult to structure exempt loans to shareholders under
                  Subsection 15(2) after April 1995.




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TAX MANAGEMENT QUESTIONNAIRE

           e)     Capit al Gains Exemption

                  Care must be taken to ensure that the company upon which the exemption is being cl aimed
                  meets the tests outlined in Subs ection 110.6(1). This area is very complex and assistance
                  from a tax specialist should be considered. In addition, a prior year ABIL claim will reduce
                  the taxpayer’s entitlement to claim the full exemption. The prac titioner must also take into
                  account the presenc e of a CNIL balance. AMT should be considered by the practitioner
                  whenever planning for the capital gains exemption.

                  Systems need to be put into place to ensure that a gain in the year is not omitted when
                  preparing the taxpayer’s personal return for that year.

           f)     Filing Returns and Forms Late

                  Filing ret urns and forms late is a very common type of professional liability insurance claim
                  made against members by their “former” clients.

           g)     GST

                  Often GS T is overlooked on transactions such as Section 85 rollovers. Essentially, whenever
                  property is being trans ferred GS T needs to at least be considered. Consideration needs to be
                  given as to whether any particular election is necessary.

           h)     Capit al Dividend Elections

                  The most common concern is over-electing on the CDA balance. This will give rise to a tax
                  liability equal to 75% of the excess amount. Although an election can be filed to treat this as
                  an ordinary dividend, the amount will still be taxable, possibly resulting in actions being taken
                  against the practitioner.

           i)     Non-Resident Transactions

                  If dividends or interest are paid to a non -resident by a Canadian taxpayer, withholding tax
                  may be required. The domestic rates of withholding may be reduced by a tax treaty that
                  Canada may have with that country. Failure to withhold can result in large penalties to the
                  client and they may be required to pay the amount that should have been withheld. In
                  addition, transactions with certain non -resident persons may require separate disclosure with
                  Revenue Canada. These situations need to be reviewed carefully.

                  Trust and foreign affiliate reporting retroactive to taxation years beginning after 1995 will be
                  required to be filed with the earliest date being April 30, 1998. A Canadian resident taxpayer
                  must complete an information return with respect to interests in foreign affiliates (Form
                  T1134A) interests in controlled foreign affiliates (Form T1134B), loans or transfers to a
                  specified foreign trust or controlled foreign affiliate of the trust (Form T1141) and in respect of
                  a receipt of a distribution from or indebtedness to a non -resident trust in which a beneficial
                  interest is held. (Form T1142).

                  Information return Form T1135 requiring a Canadian taxpayer to describe foreign investment
                  property held, the cost of the property and income earned from the property will not have to
                  be filed for the 1996 and 1997 taxation years and is being subject to further review by the
                  Auditor General to see if asset reporting is the best approach to achieving the objective of
                  reporting world income.




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TAX MANAGEMENT QUESTIONNAIRE

                  Failures to report such transactions carry extremely large penalties. It may be necessary to
                  contact another member with international tax expertise.

                  Caution must be taken to ensure clients are made aware of these new foreign reporting
                  requirements.

           j)     Notice of Objection

                  Deadlines for filing a Notice of Objection should be logged and monitored. This is a frequent
                  problem area and is a source of many court cases. All practitioners need to ensure that
                  objections are followed up within the prescribed time limits. For individuals and testamentary
                  trusts, the deadline is the later of:

                  1) the day that is one year after the taxpayer’s filing due dat e for the year in questi on, and
                  2) the day that is 90 days after the day of mailing of the Notice of Assessment.

                  For all other taxpayers, the due date is 90 days after the mailing of a Notice of
                  Assessment.

           k)     Trans fer Pricing

                  Taxpayers who participate in cross-border transactions with non-arm’s length parties must
                  conduct such transactions on terms and conditions that would have prevailed had the parties
                  been dealing at arm’s lengt h with each other. New legislation is pending that will require
                  taxpayers to document transactions and the steps taken to ensure the terms and conditions
                  of such transactions satisfy the arm’s length principle. Penalties will be imposed where a
                  taxpayer fails to make reasonable efforts to determine and use arm’s length trans fer prices or
                  arm’s length allocations in respect to transfer pricing transactions. Care must be taken to
                  ensure clients are made aware of thes e issues and of the impending complianc e
                  requirements.

           l)     Non-Arm’s Lengt h Transactions

                  The Income Tax Act contains various provisions that may override an intended result with
                  respect to transactions between related or affiliated persons. Examples of this are the
                  superficial loss rules in Section 54 and the loss deferral rules under subsection 40(3.3) and
                  40(3.4) of the Income Tax Act. Care must be taken to ensure the intended result of such
                  transactions is not overridden by a specific provision of the Income Tax Act.

           m)     Inter-corporate Dividends

                  It is not unusual for a taxpayer corporation to attempt to reduc e an inherent capi tal gain in the
                  shares of a subsidiary company of payment of what is thought to be a tax -free inter-corporate
                  dividend prior to the sale of shares of the subsidiary. Section 55 of the Income Tax Act must
                  be considered to ensure that the tax-free inter-corporate dividend is not reclassified as
                  proceeds on the sale of shares resulting in a taxable capital gain for income tax purposes.

           n)     Acquisition of Control Issues

                  The reorganization of a private corporation or a parent corporation of a subsidiary corporation
                  could have unint ended results if an acquisition of control is considered to have taken place.




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TAX MANAGEMENT QUESTIONNAIRE


                     Restrictions on the deductibility of non-capital losses, the elimination of net capital losses,
                     deemed year end for income tax purposes, acceleration of payment of income taxes and
                     other implications must be considered if a reorganization results in an ac quisition of control.

            o)       Forgiveness of Debt

                     Dealing with any changes in the relationship of debtors and considering the implications of
                     prior debt arrangements on current restructuring of businesses can be a significant issue if
                     not identified. The implications of Section 79 and Section 80 of the Income Tax Act must be
                     considered.

            p)       Attribution Rules

                     A loan or transfer of property bet ween related pers ons, including a loan or transfer of property
                     by an individual to a corporation or trust for the benefit of certain relat ed persons, can result
                     in the attribution of related income or capital gains to the individual who made the loan or
                     transfer.

                     With proper structuring of such transactions, which may include the payment of interest on
                     loans bet ween related persons by the lender to the borrower by a specified date, signific ant
                     income tax savings may arise. Practitioners must be aware of these rules when advising
                     clients, particularly the importance of meeting interest payment deadlines, etc. which if not
                     met, can jeopardize the plan put in plac e to minimize the impact of the attribution of income
                     and/or capital gains.

      16.        The use of a checklist will ensure that all key points have been covered.

      17.        The use of annual checklists for clients helps them to review their financial affairs to identify tax
                 related matters.




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TAX MANAGEMENT QUESTIONNAIRE

SECTION II - RECOMMENDATIONS/STANDARDS

      1.        Professional Accounting Firm (PAF) Resources

                A.   Briefly describe the training & experience of those who practice tax in the firm? (E.g.
                     completion of CICA in-depth tax course, attendanc e at seminars, and Canadian Tax
                     Foundation conferences, etc.).




                     If a sole practitioner, describe how you maintain the appropriate level of tax knowledge.




                     If a multi-partner firm, indicate whether a designated tax personnel exists and the firm
                     policy as to how the tax personnel maintain their current level of tax knowledge.




                B.   If the multi-partner firm does have a designated person, what is the firm policy/procedure
                     as to how tax issues are referred to the designated person?




                C.   What tax reference materials does the firm have available and what procedures are in
                     place to ensure reference materials are maintained on a current basis?

                     (e.g. CCH Tax Service, Video Tax News, etc.)




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TAX MANAGEMENT QUESTIONNAIRE

      2.     Compliance with Filing Deadlines
                                                                       T1           T2            T4        OTHER
             Is there a system in place to ensure
             compliance with filing deadline dates?               Yes/No/N/A    Yes/No/N/A    Yes/No/N/A     Yes/No/N/A


             Please explain each system:



             Is there a system in place to ensure follow-up
             of CRA enquiries, correspondence etc?                Yes/No/N/A    Yes/No/N/A    Yes/No/N/A     Yes/No/N/A


             Please explain each system:



      3.     CRA Form 183 and other Consents
             Are the following forms maintained on file?

             a) Client approval to file T1 (Form 183)?                               Yes         No          N/A
             b) CRA Consent Form in prescribed format?                               Yes         No          N/A



      4.     Client Tax Hi story – New Clients

             a) Is tax history obtained?                                             Yes         No

             b) If “yes” indicate the nature/extent of history ( CRA printout, copies of client returns, etc.)




      5.     Tax Filings Documents Review
                                                                       T1           T2            T4        OTHER

             a) Are tax filings reviewed?                          Yes/No/N/A   Yes/No/N/A    Yes/No/N/A     Yes/No/N/A


             b) Please indicate

                 i)     Who is the reviewer?

                 ii)    What are the qualifications of the reviewer?

                 iii)   Describe the nat ure of the review.




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TAX MANAGEMENT QUESTIONNAIRE

      6.     Tax Software
                                                                      T1            T2            T4       OTHER

             Is tax software being us ed?                         Yes/No/N/A   Yes/No/N/A    Yes/No/N/A     Yes/No/N/A


             Indicate which software is being used for each type of return. If a manual system is used, provide
             a description of the preparation process.




      7.     Di sclaimer S tatements
                                                                      T1            T2            T4       OTHER

             Are standard disclaimers printed or stamped
             on ret urns provided to other than CRA?              Yes/No/N/A   Yes/No/N/A         N/A       N/A


             If so, please provide a copy of the wording of the disclaimer for each type of return.

      8.     Public Accounting Firm (PAF) Copies of Filed Returns

             a) Are copies of filed returns for existing
                clients retained by the firm?                     Yes/No/N/A   Yes/No/N/A    Yes/No/N/A     Yes/No/N/A


             b) Are these copies:
                Paper?                                            Yes/No/N/A   Yes/No/N/A    Yes/No/N/A     Yes/No/N/A


                 Electronic?                                      Yes/No/N/A   Yes/No/N/A    Yes/No/N/A     Yes/No/N/A


                 If electronic, can returns be accessed
                 and printed at a later date?                     Yes/No/N/A   Yes/No/N/A    Yes/No/N/A     Yes/No/N/A


             c) Are copies of supporting information (slips,
                financial information/statements, etc.)
                retained by the firm?                             Yes/No/N/A   Yes/No/N/A    Yes/No/N/A     Yes/No/N/A


                 Please provide a brief description of the types of information retained in the file.




      9.     Client Copies of Returns or Summaries of Return Information

                                                                      T1            T2            T4       OTHER
             Are clients provided wit h copies of filings?        Yes/No/N/A   Yes/No/N/A    Yes/No/N/A     Yes/No/N/A


             Complete (C) or Summary (S) copies                      C/S            C/S          C/S              C/S
             (fill in the box w ith either a "C" or "S")




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TAX MANAGEMENT QUESTIONNAIRE

      10.    Docum entation of Services
                                                                      T1           T2           T4       OTHER

             a) Are engagement letters obtained for
                the following?                                    Yes/No/N/A   Yes/No/N/A   Yes/No/N/A   Yes/No/N/A


             b) Are engagement letters obtained for
                special tax work?                                 Yes/No/N/A   Yes/No/N/A   Yes/No/N/A   Yes/No/N/A


             If yes, provide a brief description. Please als o attach a c opy o f the firm’s engagement letters,
             (including examples of specific letters of understanding for special tax work ) to this questionnaire.




      11.    Firm Address - Correspondence with CRA

             a) Is the PAF’s address used as the client mailing address?                         Yes        No

             b) If “yes” are clients provided wit h copies of relevant correspondence
                to/from the CRA?                                                                 Yes        No

             c) If item b) above is “no” indicate the nature of the correspondence NOT being provided to clients.




      12.    Bonus/ Dividends

             Is there a system to ensure that bonuses and/or dividends are report ed?            Yes        No

             Please describe the system, emphasizing the features being relied on to preclude
             errors/omissions.




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TAX MANAGEMENT QUESTIONNAIRE

      13.    Carry Forward Amounts

             a) Indicate how the following carry forward amounts are identified for subs equent years.

                 i)     A.B.I.L

                 ii)    Capit al gains/losses

                 iii)   R.R.S.P.

                 iv)    Capit al Dividend account

                 v)     Others (C.N. I.L and A.M.T)


             b) State whether software or manual schedules are being maintained. If manual, pleas e describe the
                system used.

      14.    Oral and Electronically Transmi tted Tax Advice
             Is oral tax advice documented?                                                   Yes        No

             Please describe the system, particularly indicating the nat ure of the advice, on which the
             documentation is done. Please provide a representative sampli ng of clients where oral advice
             was provided.




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TAX MANAGEMENT QUESTIONNAIRE

15    Ri sk Areas

      Please refer to Page 3 of the questionnaire explanations rel ating to each ri sk area. Please provide a
      description of the system s that control the respective ri sk areas identified.

      The following have been identified as high -risk areas of tax practice:

        Tax Transaction                              Potenti al Error
        a)        Section 84.1                       Capit al gain converted to deemed dividend
        b)        Section 85 & 97(2) Elections       Late filings/considerations received
        c)        Share redemptions                  Dividend income - versus capital gains
        d)        Section 15                         Debit balanc es in shareholders loans
        e)        Capit al gains exemption           Eligibility & availability
        f)        Filing ret urns & forms late       Who pays?
        g)        GST on unusual transactions        There are many !
        h)        Capit al dividend elections        Over-electing
        i)        Non-resident transactions          Elections, withholding requirements, reporting requirements
                                                     and loans
        j)        Notice of Objection                Deadlines, content and proof of filing
        k)        Trans fer pricing                  Reas onableness
        l)        Non-arms lengt h transactions      Is value reasonable?
        m)        Inter-corporate dividends          Dividend income versus capital gain
        n)        Acquisition of control issues      Identification and implications
        o)        Forgiveness of debt                Identification and implications
        p)        Attribution rules                  Implications and deadlines

     Do you practice in any of the above areas?                                                      Yes       No

     If “yes”, please answer the following questions:

             a)    Describe the controls in place to minimize the risk associated with these areas of practice? (e. g:
                   Referrals to outside specialists, in-firm specialist review procedures, etc.)



             b)    What procedures are followed to ensure that any referrals are being performed as requested?



             c)    What procedures are followed to provide communication with clients?



             d)    What procedures are in place for any required subsequent follow-up?




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TAX MANAGEMENT QUESTIONNAIRE

      16.    PAF Staff Checkli sts

             Do checklists for professional staff exist?                                      Yes           No

             If yes, attach a copy of the PAF’s Checklist(s) to this questionnaire.


      17.    Client Checkli sts - T1 Filings

             a) Are clients given an annual checklist to assist them in providing
                information for filings?                                                      Yes           No

                  If yes, attach a copy of the PAF’s checklist to this questionnaire.


             b) If “no”, describe the procedures followed to ensure all relevant information is obtained?




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