BP Canada – Federal Court of Appeal finds that taxpayers should not be compelled to disclose to CRA the uncertain tax positions comprising their tax cushion

An order of the Federal Court pursuant to s. 231.7(1) that BP Canada was to disclose tax accrual working papers (or, at any rate, the uncertain tax positions which were reflected in its tax cushion), has been reversed in part because:

[The] obligation to “self-assess” does not require taxpayers to tax themselves on amounts which they believe not to be taxable. Faced with an issue that is reasonably open to debate…taxpayers are entitled to file their tax return on the basis most favourable to them. … [A]lthough auditors are entitled to be provided with “all reasonable assistance” in performing their audits (paragraph 231.1(1)(d)…), they cannot compel taxpayers to reveal their “soft spots”.

After referencing financial reporting obligations of public companies under provincial securities legislation including the accurate reporting of accrued taxes, and before noting concerns of CPA Canada that required disclosure to CRA of tax accrual working papers would reduce the candour of disclosures by companies to their external auditors, Noël CJ also stated:

By enacting subsection 231.1(1), Parliament could not have intended to vest the Minister with a power so sweeping that it would undermine those obligations.

Although the second reason might only be applicable to public companies, it appears likely that private companies also cannot be required to disclose to CRA their uncertain tax positions summarized for audit purposes.

Neal Armstrong. Summary of BP Canada Energy Co. v. Canada (National Revenue) under s. 231.1(1)(d).