27 November 2018 CTF Roundtable Q. 11, 2018-0779971C6 - Record Retention Policy Guideline

Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the CRA.
Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'ARC.

Principal Issues: In light of cases such as BP Canada Energy Company v MNR, 2017 FCA 61, which address CRA access to records, is the CRA in the process of updating its published guidelines regarding access to taxpayer records and, if so, when will new guidelines be available?

Position: See comments.

2018 CTF Annual Conference
CRA Roundtable

Question 11: Record retention policy guidelines

The CRA has a published policy regarding access to taxpayer records: https://www.canada.ca/en/revenue-agency/services/tax/technical-information/acquiring-information-taxpayers-registrants-third-parties.html. This published policy identifies CRA’s view that audit working papers are accessible to the CRA and that such records will not be “routinely required”. In light of cases such as BP Canada Energy Company v MNR, 2017 FCA 61, which address CRA access to records, is the CRA in the process of updating its published guidelines regarding access to taxpayer records and, if so, when do you anticipate that new guidelines may be available?

CRA response

Following the BP Canada Energy Company decision, the CRA communicated in May 2017 that the Minister would not be seeking leave to appeal to the Supreme Court of Canada. The CRA maintains the position that in certain circumstances, the CRA can request access to the taxpayer’s tax accrual working papers. The CRA believes that the ability to obtain all information required to administer and apply Canadian tax laws is central to the integrity of the tax regime.

As previously communicated, the CRA considers the facts and circumstances unique in the BP Canada Energy Company decision. Rather than appealing the Federal Court of Appeal's decision, the CRA is addressing the issue on a broader scale by updating its audit procedures to clarify when and why information is to be requested from taxpayers. The CRA has also struck an interdepartmental Access Working Group to support CRA's ability to request information and to coordinate related litigation on national basis. The Access Working Group continues to focus its attention on information sought by the CRA in activities related to the administration and enforcement of the legislation.

The CRA has updated its internal Communiqué, Obtaining Information for Audit Purposes, with respect to obtaining information from taxpayers, registrants and third parties, after having undertaken an informal consultation with key stakeholders. The Communiqué outlines that CRA officials can seek the production of tax accrual working papers provided that the request for such records is relevant to specific risks or items under audit, and the CRA official is using a certain level of restraint in seeking this information. Tax accrual working papers may be sought where there are identified unresolved tax issues and there is a higher risk of non-compliance. Factors that may be considered include the taxpayer’s past level of compliance, the existence of large unexplained tax reserves, and the potential tax-at-risk.

A taxpayer may claim that the tax accrual working papers include information that is subject to solicitor-client privilege. The CRA cannot compel production of privileged communications, but a taxpayer has the right to waive privilege. The taxpayer’s list of uncertain tax positions that relates to the tax reserves in the taxpayer’s financial statements is considered to be part of the taxpayer’s books and records and is not a privileged document unless otherwise demonstrated.

As outlined in the Communiqué, CRA officials must be objective when reviewing any information or documentation obtained during an examination. It is important not to be influenced by any subjective analyses, comments or opinions contained in the information or documentation reviewed. While CRA officials may, in certain circumstances, request a list of what the taxpayer has determined to be its uncertain tax positions, in considering the structures and transactions outlined, CRA officials should perform their own research and analysis in forming the basis of any reassessment. Provided all the relevant facts of the transactions are disclosed, including the taxpayer's purpose or purposes in undertaking a transaction or series of transactions, exclusions of their advisors’ analysis of the legal and tax effects of the transactions may be accommodated.

The CRA’s position is that taxpayers are required to disclose sufficient detail regarding their business and tax transactions for the CRA to fulfill its mandate of assessing taxes owing. Where the criteria outlined in the communiqué are met, the CRA considers that it retains the right to request tax accrual working papers, including a list of uncertain tax positions. A request for the taxpayer’s list of uncertain tax positions in these circumstances is not a request that the taxpayer self-audit. The CRA may audit transactions underlying these positions and will make its own determination as to the tax effects of the transactions. Overall, the onus remains with the taxpayer to report and pay the correct amount of tax pursuant to the ITA or ETA under Canada’s self-assessment system. The Communiqué will be posted on the Government of Canada’s Canada.ca website and stakeholders will be notified through CRA’s stakeholder desk notification service.

Response prepared by:

Gord Parr
Large Business Audit Division
International and Large Business Directorate
2018-077997
November 27, 2018