CRA will still demand tax accrual working papers from difficult taxpayers with large unexplained tax reserves

Gordon Parr (Director) indicated that, partly in response to the BP decision, CRA is currently updating its internal communiqué with respect to obtaining information from taxpayers, registrants and third parties. The communiqué will outline that CRA officials can seek the production of tax accrual working papers, provided that the request for such records is relevant to a specific risk issue or item 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 level of non-compliance, large unexplained tax reserves, and potential tax at risk. The taxpayer’s list of uncertain tax positions that relates to 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.

While CRA officials may, in certain circumstances, request the 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 potential reassessment. Provided that all of the relevant facts of the transactions are included in their uncertain tax positions, exclusions of the advisors’ analysis of the legal and tax effects of the transactions may be considered.

Neal Armstrong. 24 May 2018 CTF Seminar - Preventing, Navigating, and Resolving Tax Disputes under “Managing Tax Risk, The Ins and Outs of Reporting and Compliance” (Gordon Parr).