The Canada Revenue Agency ("CRA") audits taxpayers to ensure compliance with the Income Tax Act ("Act"). In completing an audit, the CRA has broad powers to request documents and information; to examine property or processes; and to inspect books and records. However, the CRA's power to require a taxpayer or its employees to attend interviews by CRA auditors remains uncertain.
In Minister of National Revenue v. Cameco Corporation, the Federal Court of Appeal ("FCA") had to decide whether the CRA's audit powers include requiring employees to attend interviews to answer CRA auditors' questions. The circumstances of the CRA's interview request are important.
During a transfer pricing audit, the CRA delivered a letter to Cameco requesting interviews with 25 of its employees. The employees chosen were from Cameco, and its U.S., European and Barbadian subsidiaries. The subject of the interviews were the facts relating to the years being audited (2008-2010): the functions the employees performed, the corporate assets used, and the risks taken on.
Cameco denied the CRA's request. The Minister proceeded to Federal Court to obtain a compliance order to compel the 25 employees to attend the CRA interviews. The Federal Court denied the request, and the Minister appealed to the FCA.
The Minister argued that the CRA could interview the 25 employees given the CRA's broad audit powers. Particularly, that the word "audit" found within its powers (s. 231.1(1)(a) of the Act) allows the CRA to interview employees to verify a taxpayer's information, ensuring compliance with the Act.
The Court disagreed. During an audit, taxpayers do have an obligation to facilitate the CRA's access to documents, records, books, and information which explains what the taxpayer did in its tax return. However, the CRA's powers (the word "audit") do not include a general power to require taxpayers to submit to interviews so a CRA auditor may understand the facts, assumptions, and other considerations it made in preparing its tax return. In other words, a taxpayer's potential soft-spots.
The caveat. Unfortunately, the Court qualified its decision, leaving the Minister another opportunity to argue that it has the general power to interview under another paragraph of the Act (s. 231.1(1)(d)).
The Moral
The CRA has broad audit powers to request documents, records and information which explains the taxpayer's tax return. However, the word "audit" does not give the CRA the general power to interview a taxpayer about its tax liability. Unfortunately, the Court's caveat left taxpayers with uncertainty. Choose not to submit to an interview, and the CRA make may negative inferences. Choose to submit, and the taxpayer must determine what is and what is not a proper question. Ultimately, taxpayers without advisors are on their own to navigate the advantages and pitfalls of having employees submit to CRA interviews.
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