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CRA ADOPTS 2-YEAR AUDIT WORKPLANS

LARGE BUSINESSES UNDER AUDIT TO FACE BROADER INITIAL RECORDS REQUESTS

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The Canada Revenue Agency (“CRA”) has recently announced an important administrative change affecting many large business audits (“Audits”). More specifically, CRA has advised at a major industry roundtable that rather than examining one taxation year at a time, Auditors may now adopt a two-year Audit workplan and request records from multiple years at the outset of an Audit.

Although this announcement was made in the income tax context, many of the same administrative principles are equally relevant to GST/HST, Excise Duty, and other Indirect Tax Audits where recurring issues often span multiple reporting periods.

We review this new announcement and its practical implications in the following Tax Audit Series Report.

The CRA’s Recent Announcement

During a recent industry roundtable, the CRA advised that, beginning with the 2023 and 2024 taxation years, its International and Large Business Directorate (“ILBD”) has implemented a two-year Audit Workplan for Audit files where similar issues exist from year to year. As part of this initiative, taxpayers should expect CRA Auditors to request documentation relating to more than one year simultaneously, which will help Auditors identify recurring issues.

According to the CRA, this initiative forms part of a broader strategy to improve Audit efficiency and provide taxpayers with earlier tax certainty (!). Other CRA programs serve the same purpose. For example, the ILBD will continue conducting focused compliance reviews in selected areas while encouraging greater communication between Auditors and taxpayers throughout the Audit process.

Implications for Large Taxpayers & GST Registrants

While these new CRA policies are aimed at increasing Audit efficiency and promoting early tax certainty, in a few straightforward ways, these policies may create more work for large corporate taxpayers.

For example, the CRA will now request records for more than one year simultaneously from some businesses under Audit. Tax departments at these businesses will consequently face a larger workload when responding to initial requests. Plus, producing more documents means a higher risk of inadvertently oversharing with the CRA, for example by producing something covered by privilege.

In other ways, the CRA’s plans will make Audits more intensive for impacted businesses. For example, as part of the CRA’s plan to “strengthen communication and engagement” between taxpayers and Auditors, it will encourage Auditors to make more site visits in order to meet face-to-face with taxpayers under Audit. That means large corporations under Audit will have to prepare for on-site Auditor visits by, for example, preparing personnel for in-person interviews, and preparing their physical spaces for examination.

Takeaways

The CRA’s adoption of two-year Audit workplans is supposed to reflect the CRA’s increasing emphasis on Audit efficiency and earlier tax certainty. However, from a practical perspective, Audits may become even more intensive for large businesses, increasing their compliance burden.

When CRA begins a Tax Audit, there is no better time for getting Experienced Tax Counsel involved.

For help with Tax Audit matters, please click here.

For an updated Index of our Tax Audit Series, click here.