We have written previously about the difficulties that arise when CRA conducts oral interviews of taxpayers. While there is clear authority to do so, and indeed merit in having a conversation to explain the nature of a business, all interviews are fraught with danger. This can be as a result of a language difficulty or a simple miscommunication. In our experience, once an auditor labors under a misimpression it requires another oral interview (namely examinations on discovery or a hearing with a judge) to resolve the difficulty. So, it is with considerable anxiety that we read that Budget 2021 enhances the government’s authority to compel oral information.
The major change between the previous rules and the Budget 2021 proposals is that the government can compel not only the leadership of an organization to sit for an oral interview, but also any individual with knowledge of the enterprise. This may go so far as office workers and professional advisors (who are not otherwise protected by solicitor/client privilege).
There is some logic to an auditor requiring a worker or others with relevant information to provide information for the benefit of the audit. However, whereas a business owner has a vested interest in a proper resolution of the audit and a big-picture view of the entire business, other individuals may not have this. If organization leadership can create miscommunications and misunderstandings the situation can only be magnified with people who may not have as fulsome an understanding of the group’s operations.
One would imagine that such difficulties could be resolved more easily with recordings of the interviews. However, and rather unbelievably, CRA policy refuses to allow their auditors to be recorded when conducting oral interview. As this may conflict with the right of individuals, depending on their Province, to record their conversations the clear question is whether the CRA right to compel an interview overrides the individual’s ability to record the session and then use the transcript to record potential misunderstandings. It is unfortunate (for taxpayers) that the changes to the CRA’s powers in Budget 2021 were not accompanied by a requirement or at least a policy change that interviews are to be recorded.
One day the matter of recording interviews will undoubtedly end up in front of a Court, as it indeed it should. In the meantime, individuals subject to an oral interview should assert their ability to record the interview or otherwise invite a third-party witness to attend and take copious notes of the questions and answers should misunderstandings arise. For individual taxpayers, the consequences of not doing so could mean tens of thousands of dollars of legal costs before there is another opportunity to have an oral interview – before a judge. And for others subject to CRA administration, the consequences could be even worse, as there is no other time that an oral interview is part of the process and a miscommunication recorded as a fact could result in the revocation of a charity’s status and reassessment of its donors!
By: Adam Aptowitzer
Adam Aptowitzer is the managing partner at Drache Aptowitzer LLP. He practices in the area of Charity Law and Tax Litigation. He can be reached at firstname.lastname@example.org.