Hardball wrong game for government auditors - Fiscal Agents Money Management Newsletter

Mutual Fund Investing

Savings

Managing Money

Choosing Fin.Services

Insurance Products

RESP Savings

Taxes / Estate Matters

Subscription Services

Glossary of
Financial Terms

The Companion Advisor: Taxes & Estates
Hardball wrong game for government auditors

By Bruce Ball, CA, CFP, TEP
BDO Dunwoody LLP

Recently business owners were jarred over their morning coffee by the headline “Tax auditors vow to play hardball.” As part of their contract negotiations, the 6,000 accountants of Professional Institute of the Public Service of Canada (PIPSC) have vowed to adopt “zero tolerance.”

From here on in, the union declares, unless their dispute with the Canada Revenue Agency (CRA) is resolved, no more Mr. Nice Guy.

Instead, starting July 1st, auditors will “stick to the letter of the law,” poring over business statements with extra special attention, zeroing in on write-offs and tax deductions they used to let slide by… but no more.

Corporate Canada, worried by this turn of events, with images of roving bands of government auditors descending on their business, should instead take to heart the words on the first page of the Hitchhiker’s Guide to the Galaxy: “Don’t Panic!”

The PIPSC hopes its work-to-rule strategy will pressure business to pressure Ottawa to give in to their demands. What businesses should know is that, in many cases, even with the auditors increased diligence, life will continue pretty much as before.

Naturally, no one wants to be audited by the CRA, and especially not businesses facing an auditor with an apparent agenda. Audits usually means a company ends up paying out more taxes. Now businesses are worried union troubles will mean audits will also cost them more time and money.

However, the union is limited to a degree in how far is can bog down the system. That’s because under a CRA audit, in areas where businesses face potential tax adjustments, the auditor’s role is carefully proscribed.

For instance:

In the matter of material items, where both sides argue over the technical points of a deduction or an expense or accounting method, when these differences arise – what’s allowed, what’s fair, what’s legal – the CRA will often negotiate before ruling. If businesses don’t like the agency’s conclusion, they can appeal to the Tax Court of Canada.

In these situations, negotiations with an auditor may now move to the CRA Appeals Group. Hopefully, taxpayers will get the same results, but unfortunately with more work.

Overall, even with added auditor diligence, the current level and pace of work in this area, while nettlesome to those involved, isn’t likely to change greatly.

With material items where the taxpayer feels they’ve been dealt with unfairly or there’s a problem with the tax law, the CRA must continue to operate within the legal framework. If an audit uncovers a large item, the CRA will take the unfairness into account, but that often won’t change the result.

That’s why it’s not clear how, according to the union, auditors previously looked the other in these situations, since it’s not the CRA’s job to say whether a rule is fair or unfair. A taxpayer does have other remedies in this situation.

Besides, most taxpayers will never face such a situation.

In the case of clear errors that lead to an automatic reassessment, the current labor troubles won’t change how that’s handled – the mistake is uncovered, and the business pays up.

It is with immaterial items, whether through errors by the taxpayer or points of disagreement, that the union might try to bog things down. With these items, the CRA usually gives the case a pass because the revenue gained by chasing it down isn’t worth the time or expense.

This situation usually impact clients with high transaction volumes where errors are a fact of life. Call it an occupational hazard.

Moreover, it’s not clear, at least from their public pronouncements so far, that the union is threatening this time-consuming route, which would also tie them up.

Most businesses would prefer to see this matter resolved by both sides as quickly as possible. In the meantime, Canadian companies should carry on as usual, but keep their accountants close by.

Bruce Ball, CA, CFP, is a Partner in the BDO Dunwoody's National Tax practice, where he helps produce the firm's tax publications, as well as developing tax planning strategies for clients. He’s co-author of The Guide to the Family Business, Canadian Edition.

For further information, please contact Bruce Ball at bball@bdo.ca or 416-369-3096; or Gordon Lee, National Director of Marketing and Communications at glee@bdo or 416-369-3050.

Notice: Fiscal Agents Financial Services Group are not engaged in rendering tax, accounting or legal professional services or advice. The comments in this article are not intended, nor should they be relied upon, to replace specific professional advice. Before acting on material contained herein. Readers should seek advice that is appropriate to their personal circumstances from a professional advisor.

* * *