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CRA REQUESTS FOR INFORMATION

RFI ONE OF CRA'S MOST POWERFUL TOOLS – AND MAY SOON GET MORE POWERFUL

A Request for Information (RFI) is the Canada Revenue Agency’s (CRA) formal written request for answers and documents which it subsequently uses as the factual foundation of its Audit.

In the previous entry in our Tax Audits Series, we provided practical guidance on responding to initial communications from the CRA. In this entry, we dive deeper into RFIs specifically, which are one of CRA’s most powerful tools in the early stages of an Audit.

What are Requests for Information?

The statutory powers to make and enforce RFIs are found in section 289 of the Excise Tax Act and 231.2 of the Income Tax Act (the “ETA”, the “ITA” or, collectively, “the Acts”).

Those sections give broad powers to the CRA, “for any purpose related to the administration and enforcement” of the Acts, to request via written notice that “any person” provide “any information” or “any document”. And while RFIs generally specify the individual from whom information is sought, they do not have to: with judicial authorization, they can also be directed at groups of (otherwise unnamed) people who fall into a specified category.

If someone fails (or refuses) to comply with an RFI, the CRA can then get a court order for compliance (a “Court Order”). Non-compliance with the Court Order can lead to prosecution for contempt of court (and the CRA does indeed follow through on prosecution).

Recent Changes

RFIs have become an even more powerful tool for the CRA in recent years and that pattern is likely to continue. In 2022 the government amended the Acts to allow the CRA to compel oral interviews . Before those amendments, Courts had ruled that the CRA did not have that power – so the government explicitly gave it to the CRA.

Further CRA-favourable changes seem to be coming. Proposed amendments to the ITA (presumably to be replicated in the ETA) will allow the CRA to send a Notice of Non-Compliance (NONC) when an RFI is (in the CRA’s opinion) not complied with. The issuance of a NONC will suspend the “normal reassessment period” and, from then on, further non-compliance will attract a daily fine of $50, up to a max of $25,000. Additionally, non-compliance with a Court-Order-backed RFI will lead to a fine of 10% of taxes payable.

Best Practices after Receiving an RFI

Businesses in receipt of an RFI are advised to contact Experienced Tax Counsel for guidance on the scope of the RFI, the legality of its requests, and the best forms of evidence. As we wrote about in previous entries in this Series, the CRA is often incorrect, and yet overcompliance by uninformed or intimidated taxpayers is common – and can make an Audit far worse than it has to be.

Experienced Tax Counsel can also help taxpayers prepare for CRA-requested oral interviews. Without practice, it can be surprisingly difficult to answer specific questions and then remain silent – yet nervous chatter often leads to (costly) oversharing.

Takeaways

RFIs are one of the CRA’s most powerful tools to collect evidence in an Audit. Experienced Tax Counsel can help whittle an RFI down to what is strictly legally required, prevent unintentional but costly non-compliance, and prepare businesses to face the CRA and come out with a minimum of damage.

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