Dealing with the Canada Revenue Agency: General Tips

One of the most accurate comments I've heard made about the Canada Revenue Agency (“CRA”) was by a Justice of the Tax Court of Canada.  His comment was that taxpayers would be a lot better off if they just thought of the CRA as Canada's biggest collection agency, and they stopped looking for the CRA to be fair.

Most tax lawyers who deal with the CRA will agree that resolution of all but the clearest of issues is never easy.  The combination of dealing with the Income Tax Act, one of the most complex statutes ever enacted, and the CRA, one of Canada's largest administrative bodies, can prove difficult to even the best tax practitioners.  No taxpayer, acting on their behalf, should ever think they can resolve their tax problems easily or quickly.  Preferably, experienced help should be sought to ensure you pay the least, but correct amount of tax.  However, reality is that experienced help usually has to be paid for, and not every problem is big enough to justify you spending money to get that help.  Undoubtedly, there will come a time when you have to 'dance' with the CRA on your own.  With that in mind I have tried to set out some points I've learned during my years before the Tax Court.

  1. Always remember that the CRA can be wrong.  It doesn't matter whether they give you their opinions or advice over the phone, put it in a letter, or refer you to something they have published - they can still be wrong.  This is important to remember when you are calling or writing to the CRA for their advice or opinion, or in the middle of an audit.  If something you are told doesn't seem right - investigate!  

    Remember the adage “you get what you pay for” when you rely upon whatever the CRA says to you

  2. Most people would be surprised to know that where the CRA has told you something, either in writing or over the phone - and it is wrong and you have relied upon what they told you - the CRA can still come back later and tax you for the mistake or error!

    The CRA is not bound by what it says because most of the advice and opinions given by the CRA are legal opinions.  Their legal opinions are based on their own interpretation of the law.  Unfortunately, the only legal opinion that really matters is that of the courts.  And if you should be unlucky enough to have to go to the Tax Court, it will not matter that you relied upon the CRA's opinion for doing
    what you did.  You will still have to prove what you did was right.  Wrong is wrong, and it doesn't matter what the CRA originally thought was right.

  3. The next and perhaps most important advice is to keep good documentation of your dealings with the CRA.  Good documentation involves keeping not only a copy of every letter sent to you by the CRA, but also copies of every letter or document you send to the CRA.  After you speak to the CRA, write down what you asked them, and what was said to you, identify the number you called as well as the date and time of the call, and most importantly who you spoke to.  The CRA has hundreds of people answering its phone lines - and without you getting a name or identifying number - the conversation might as well not have taken place!

    Now, you may wonder why it is important to document dealings with the CRA when they aren't bound by anything wrong they say.  Well, as the interest clock is always ticking on money you owe in taxes, you may be able to get interest and penalty relief by showing the CRA they caused or contributed to your problem.

  4. When you first learn you have a tax problem you should consider paying some or all of the amount CRA says you owe.  Paying any amount towards your tax bill does not stop you from being able to continue to fight the CRA, nor can it be taken that you have accepted that the CRA is right.  If you end up being right, that money will be refunded.   The benefit of paying your 'potential' tax bill at the start is that it stops the interest clock ticking on any amount you might owe (to the extent you have already paid that amount to the CRA).  The Canadian tax system works on the basis that the obligation is upon you to correctly compute the tax you should be paying by April 30th of the following year.  If the CRA comes along later, even years later, to tell you that you owe more taxes than you calculated, you are required to pay interest on the amount you should have paid the government - calculated back until the original April 30th deadline.  And as the interest rate applied is roughly prime plus 3% - a punishing interest rate – which can lead to a whopping tax bill just from the interest alone! Paying down the tax bill early can be one of the best moves you ever make; even if you can't pay it all at once budget yourself to start paying it off immediately.  Believe it or not, but resolving a tax dispute with the CRA can take years – there are even tax cases before the courts that are 20 years old!