The Federal Court of Appeal has limited the Canada Revenue
Agency's (CRA) access to tax accrual working papers that reveal
a taxpayer's uncertain tax positions. This case is an important
one for every company that has audited financial statements.
The court's decision in BP Canada Energy Company v. Canada (National Revenue),
2017 FCA 61 overturns the Tax Court of Canada ruling in the
case, which held that BP Canada had to disclose multiple years'
worth of tax working papers to the CRA under the CRA's general
and admittedly broad audit power. The case followed a change in
CRA's policies and practices with regard to seeking tax working
papers as part of an audit. In a 2004 policy document, the CRA
stated that it was not its policy "to request a general access
to accountant's working papers for the purpose of scrutinizing
them in the course of conducting an audit"; however, in 2010,
the CRA revised its policy to state that "officials may
request tax accrual working papers" in the course of an audit
and indeed, in recent years, the CRA has become more aggressive in
seeking access to tax working papers. These working papers outline
uncertain tax positions or "soft spots" in a
taxpayer's tax filings and are therefore a rich source of
information and a potential roadmap for the CRA's audit. Public
companies prepare these working papers as part of the support for
their audited financial statements—which are a requirement
for public companies under provincial securities
legislation—and so companies are in a Catch-22 if they also
have to routinely disclose the working papers to the
The Federal Court of Appeal recognized that extending the
CRA's routine audit reach to tax working papers would
jeopardize transparency in the preparation of audited financial
statements as companies would be less willing to prepare detailed
working papers for uncertain tax positions and would also
effectively impose a requirement that taxpayers
"self-audit", which goes beyond the Income Tax Act's
requirement that taxpayers self-assess their taxes. The
Federal Court of Appeal did affirm that taxpayers must disclose tax
working papers in a CRA audit "to respond to a specific
inquiry" but denied "general and unrestricted
access" by the CRA to those parts of a taxpayer's working
papers that reveal its uncertain tax positions. The court thereby
struck a fair and appropriate balance that should restore audit
practices to those adopted by the CRA before its 2010 policy
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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