Your Rights During a CRA Audit Under the Taxpayer Bill of Rights in Canada

Being audited can feel one-sided. The CRA has broad powers, but those powers have limits, and you have protections too.

This article sets out what auditors can ask of you, where the law requires a judge to be involved, and how the Taxpayer Bill of Rights fits in. It describes how things generally work, so talk to a lawyer or accountant about your own file.

This article covers Canadian federal tax law, which applies in every province.

What the Taxpayer Bill of Rights is

The Taxpayer Bill of Rights lists 16 rights. They include paying no more and no less than the correct amount, confidentiality of personal and financial information, a formal review of your file, courteous and fair treatment, a representative of your choice, and freedom from reprisal.

It helps to be realistic about its force. It is a set of principles rather than directly enforceable rights. The Taxpayers' Ombudsperson oversees only eight of the 16, which are the service rights numbered 5, 6, 9, 10, 11, 13, 14 and 15, and the principles may on occasion support natural-justice or procedural-fairness arguments.

What auditors are allowed to do

Under s. 231.1(1) of the Income Tax Act, an authorized person may inspect, audit or examine books, records and property, may enter premises where a business is carried on or records are kept, and may require the owner or person in charge to give all reasonable assistance and answer proper questions.

• Ask for records such as ledgers, journals, invoices, receipts, contracts and bank statements.
• Visit your residence, place of business or representative's office for an on-site audit, after presenting valid identification.
• Ask employees who do the accounting entries about business operations.
• Issue a written requirement for documents or information, which must stipulate a reasonable time for compliance.
• Use indirect methods such as net worth, which can include the financial records of a spouse and household members.

Where the limits are

An auditor may enter a dwelling-house without the occupant's consent only under a warrant. A judge may issue the warrant on the Minister's ex parte application on proof that entry is necessary and has been or is likely to be refused.

Requirements aimed at third parties are also limited. The Minister cannot impose a requirement on a third party about unnamed persons unless a judge first authorizes it, on information under oath that the group is ascertainable and the requirement is to verify compliance.

If a person does not comply with an access, assistance, information or document requirement, a judge can on summary application by the Minister order compliance, and refusing the order can be found to be contempt of court. That order is not available for information or documents protected by solicitor-client privilege. Declining to co-operate is therefore rarely a sound strategy, and a lawyer can help you separate legitimate objections from refusals that carry risk.

Protections that work in your favour

• Representation: you may choose a person to represent you and get advice on your tax affairs, though you remain legally responsible.
• No reprisal: complaining or asking for a formal review should not lead to reprisal, and a Reprisal Complaint can be filed on Form RC459.
• Disputed amounts: you can avoid paying personal tax amounts in dispute until an impartial review, but interest still accrues and undisputed amounts must be paid.
• Escalation: before objecting formally, you can contact the auditor and then the auditor's team leader.
• Burden of proof on penalties: in an appeal involving a s. 163 penalty, the burden of establishing the facts justifying the penalty is on the Minister. In an appeal of an assessment made after the normal period, the burden of establishing misrepresentation lies on the CRA, although the onus shifts to you on the amount once the right to reassess is established.

After a notice of assessment, collection steps are limited for most assessments until 90 days after the notice was sent, and if you object, collection of the disputed amount is barred until 90 days after notice of the Minister's confirmation or variation. This does not apply to amounts required to be withheld and remitted, such as payroll source deductions.

What to do next

• Ask to see the auditor's identification on any visit.
• Keep the written request and note the compliance date.
• Provide what is properly requested, and keep a copy of everything you send.
• If privileged legal advice is involved, speak to a lawyer before handing anything over.
• Consider appointing a representative before substantive meetings.
• Diarize the 30-day window to respond to a proposal letter, which is CRA practice. Also diarize the statutory objection deadline: an individual other than a trust must serve a notice of objection by the later of one year after the filing-due date and 90 days after the notice of assessment was sent, while other taxpayers have 90 days after the notice was sent.

Frequently asked questions