The Canada Revenue Agency (CRA) released a statement on May 31, 2019 following the Federal Court of Appeal (FCA) decision in National Revenue v. Cameco Corporation (2019 FCA 67). At the heart of this case is the breadth of the CRA’s audit powers and its ability to compel employees to participate in oral interviews during a general audit. Both the Federal Court and the FCA sided with the taxpayer, preventing the CRA from conducting the requested employee oral interviews.
In the statement, the CRA confirms that it accepts the decision and will not seek leave for appeal. In addition, the CRA offered the following comments:
“The decision of the FCA does not diminish the responsibilities of owners, managers and other persons on the premises of a business to cooperate and answer questions during the course of an audit. Refusal to participate in oral interviews, and to provide the assistance required during the course of an audit indicates a lack of openness and transparency, and potentially a higher risk of non-compliance…The CRA will continue to seek interviews where necessary and expects that the vast majority of taxpayers will continue to comply. Where taxpayers decline interviews in circumstances similar to the Cameco case, the CRA will use alternative means to carry out its obligations in verifying a taxpayer's level of compliance, which may increase tax uncertainty and compliance burden for the taxpayer.”
The outcome of this case is very fact-specific and may not apply in every situation. Therefore, when dealing with a CRA audit, it is best to extract any relevant information and then form appropriate policies. Based on my experience, the CRA has a tendency to make documentation errors when conducting oral interviews, either incorrectly documenting responses or relying too heavily on assumptions and opinions.
In their May 31 statement, the CRA stressed the following points:
- all taxpayers should fully cooperate with reasonable requests arising in the course of an audit;
- it remains open to the Minister to make inferences when no answer is given; and
- the Minister is free to make assumptions and assess on that basis.
While I agree with these statements, precautions should be taken to minimize the chance of incorrect and incomplete documentation. At Baker Tilly, we have developed several policies regarding the CRA’s oral interview requests:
- Oral interviews should be minimized and limited to a company’s most senior officials.
- Oral interviews should adhere to the following guidelines:
- A tax professional should attend the interview to ensure questions from the CRA are appropriate;
- The CRA should provide the interview questions in advance if possible;
- The nature of the questions should be related to gathering general knowledge of the business, industry and accounting records;
- Technical or subjective questions should only be answered in writing;
- The questions should relate to the business and stay within the scope of the audit;
- The auditor’s working paper summarizing the oral interview should be reviewed for accuracy and completeness.
Oral interviews are an important tool for the CRA, helping them get to know a business before conducting an audit. The more the CRA knows and understands about a business, the easier the audit process will be with less chance of incorrect assumptions. The policies outlined above are not intended to prevent oral interviews, but to ensure they are properly conducted, keeping unintentional errors to a minimum.
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