Audits do not happen randomly

National Post

2007-12-01




There are no random audits," says William V. Baker, commissioner and chief executive of the Canada Revenue Agency, as he addressed attendees this past week at the Canadian Tax Foundation's annual conference in Montreal.

"There's always a reason," added the commissioner, who was speaking on the final morning of the conference and was succeeded on stage by representatives from the Department of Finance and the Department of Justice.

Mr. Baker was referring to the fact that if your tax return is selected for audit, the CRA has identified some aspect of your return, be it a deduction claimed or an industry that it is focussing on, for additional scrutiny.

Should you disagree with the CRA's findings, you have the right to object to your assessment, launch an appeal and, ultimately, have your day in court.

Filing a Notice of Objection is the first formal stage of disagreeing with your assessment if you fail to resolve your differences through informal discussions with your local tax services office.

The Notice of Objection must be

in writing and must clearly set out the reasons why you're objecting. The benefit of a formal objection is that the CRA will generally suspend any collection procedures they may have started until the appeal is resolved.

Johanne D'Auray, the assistant deputy attorney-general, tax law services at the Department of Justice, provided some interesting statistics to the conference's 1,000 attendees on the objection and appeals process.

Each year, the appeals branch of the CRA, which is charged with the responsibility of resolving disputes between the CRA and taxpayers, handles between 50,000 and 70,000 objections.

Ms. D'Auray revealed that approximately 92% of these objections are resolved administratively, with the remaining 8% of taxpayers choosing to go a step further by appealing to the Tax Court of Canada.

Of those 8%, about one-third end up in Tax Court, with the balance being settled before court or withdrawn by the taxpayer.

In 2006, the Tax Court heard 2,974 income tax appeal cases.

Should you lose in Tax Court, you do have the right to go to the Federal Court of Appeal -- but do not count on a reversal of fortune at that level.

Ms. D'Auray reported that in 2006, the Federal Court of Appeal decided 53 tax cases, of which 47 were brought by the taxpayer.

It dismissed 80% of those appeals.