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Canadian Tax Professionals: A Canadian Tax Lawyer's Guide

Introduction-Types of Canadian Tax Professionals

Finding the appropriate Canadian tax professional to provide tax help in different scenarios can be difficult and confusing because there are different types of tax professionals and different types of tax problems require different tax expertise.  There is also overlap between the work carried out by some types of tax professionals as well as unique services provided by different tax professionals.

The basic categories of tax professionals are:

  • Canadian tax lawyers
  • Canadian tax CPAs
  • Canadian tax-preparation accountants
  • tax-preparation services

In addition, many regular accountants have different levels of tax expertise, most notably when it comes to tax return preparation.

Canadian Tax Lawyers and Full-Time Tax CPAs

Both Canadian tax lawyers and tax CPAs generally practice full-time in the income tax field and there is some overlap in their education and in the tax services they provide.  They both studied income tax in a detailed way. They will both typically have taken the CICA in-depth tax course.

Some Canadian tax lawyers have a further recognition from the Law Society of Ontario which confers the designation of Certified Specialist in Taxation on Ontario tax lawyers that meet its criteria for tax expertise.

Both Canadian tax lawyers and Canadian tax CPAs will typically carry out tax planning by providing detailed tax planning memoranda. When it comes to the implementation of the tax planning advice, the tax lawyer will set up the corporations and draft the agreements, while the accountants will prepare the necessary tax election forms and any related tax returns.

If there is a CRA challenge to the tax plan, or an income tax audit or a challenge to any tax plan that has been implemented, the tax lawyer is usually better able to draft a notice of objection and make legal based submissions and the tax CPA is better able to deal with CRA challenges to the numbers.  On a more complex file typically the tax lawyer and either a tax CPA or a regular accountant will both be involved.

If the notice of objection is unsuccessful, the next step is an appeal to the Tax Court of Canada and this has to be carried out by a tax lawyer. Again, an accountant will often be involved and may sometimes be a witness.

Nontax CPAs

Most CPAs who are not tax specialists have studied income tax, have tax knowledge and routinely prepare personal, corporate and trust tax returns.  The typical accounting engagement involves preparing financial statements and related corporate and personal tax returns.  CPAs will also prepare individual tax returns for clients.

When it comes to challenging a CRA tax assessment, or representing a taxpayer in a tax audit, some CPAs have the knowledge and ability and routinely do this. Others rarely get involved with tax disputes and lack the ability to effectively provide this tax service.

Tax-preparation services

There are many individuals and firms that provide tax-preparation services. Some tax preparers operate on a franchise model and others provide individual tax-preparation services. The level of training and expertise varies greatly. Many of them are able to handle routine personal tax returns but some lack the tax expertise to prepare tax returns with any complications such as offshore assets.  Historically some small tax-preparation firms have involved their clients in tax fraud by claiming fraudulent expenses or deductions.  If a non-CPA tax preparer is saying that you can receive a refund on your taxes where you have historically never received one before, this is a red flag that should warn you to seek a second opinion.

See also
Importance of Contracts & Written Agreements in Tax Reporting

Tax and Bookkeeping services

The background and training, and therefore the expertise, of bookkeepers is varied.  Some bookkeepers will offer tax return preparation services. It is possible to use a bookkeeper just to prepare the books of the business and then take those bookkeeping results to a CPA for tax return preparation.  If you are considering using a bookkeeper to prepare your tax returns make sure you investigate their background and level of expertise.

What tax professional should you hire for tax planning

Tax planning, both simple tax planning and complex tax reorganizations, can be carried out by both Canadian tax lawyers and Canadian tax CPAs. Whichever tax professional you retain will provide a detailed tax memorandum setting out the facts of your tax situation in detail, your tax planning objectives and outlining the steps that need to be carried out to accomplish your tax planning goals.

The implementation of the tax plan, whether drafted by a Canadian tax lawyer or a Canadian tax CPA, should only be carried out by a Canadian tax lawyer.  The preparation of the related tax election forms and tax returns should only be done by a Canadian CPA.

What Canadian tax professional should you hire for a Canadian tax audit

The nature of your Canadian tax audit will dictate if you need a Canadian tax lawyer, a Canadian tax CPA or both.  For example, a simple denial of expenses by CRA will typically require the submission of appropriate documentation. This should be handled by a Canadian tax CPA.  On the other hand a more complex tax audit that requires legal submissions, such as the denial of a principal residence exemption, will require technical legal analysis and submissions and should be carried out by a Canadian tax lawyer.  Where there is a combination of legal issues and accounting issues, both a Canadian tax lawyer and a Canadian tax CPA should be involved.

What Canadian tax expertise is required for a net worth tax audit or net worth tax assessment

A CRA net worth audit or assessment is an indirect tax audit verification method used by a CRA tax auditor who accuses a taxpayer of having insufficient books and records.  The tax auditor will compare the increase in total net worth from the beginning of the net worth tax audit period to the end of the audit period and see if reported income supports the increase in net worth.  The net worth analysis is supported by detailed schedules prepared by the CRA tax auditor and those tax schedules have to be analysed in detail since they often contain mistakes. A Canadian tax lawyer or a Canadian tax CPA with specific expertise in net worth analysis is required to analyse the work done by the CRA tax auditor and to make detailed submissions about the appropriateness of the net worth audit methodology.  Before hiring any Canadian tax specialist to assist with a net worth audit a Canadian taxpayer needs to confirm the amount of experience that the tax specialist has had with challenging net worth assessments for other taxpayers.

See also
Importance of Contracts & Written Agreements in Tax Reporting

What Canadian tax professional should you retain to challenge a CRA tax assessment

To challenge a CRA tax assessment you have to file a notice of objection within 90 days of the date of assessment.  If the issue is, for example, a simple denial of expenses because proper documentation was not submitted, then a Canadian tax CPA should be hired to submit the notice of assessment.  However if the tax problem is more complex than a Canadian tax lawyer should be retained to set out the legal arguments in detail. If the tax issue is a blend of legal points and accounting issues, then both a Canadian tax lawyer and a Canadian tax CPA should be involved.

What Canadian tax professional should you retain to go to the Tax Court of Canada

Only Canadian tax lawyers are trained to go to Tax Court on behalf of a taxpayer. Furthermore, a corporate taxpayer has to be represented by a Canadian tax lawyer in Tax Court.  A Canadian tax CPA may be required as an expert witness in the trial.

What Canadian tax professional should you retain if you are charged with tax evasion or tax fraud

if you are charged with tax evasion or tax fraud and are convicted you face at a minimum a monetary penalty left to 200% of the tax abated and potential jail time. Only a Canadian tax lawyer can defend you against tax charges.

What Canadian tax professional should you retain to prepare your tax returns

Depending on the complexity of your tax return, a Canadian CPA or a tax-preparation service should be hired to prepare and submit your Canadian tax return.

What Canadian tax professional should you retain to submit a voluntary disclosure

The voluntary disclosure program, also called tax amnesty or VDP, is a CRA program that allows Canadian taxpayers to voluntarily admit to accidental or deliberate errors in their tax returns or failure to file tax returns or T11 35 offshore asset declarations.  These are technical legal submissions that may end up in Federal Court if the voluntary disclosure is rejected at first instance and which may result in tax prosecution. The voluntary disclosure submission should only be prepared by experienced Canadian tax lawyers even though some CPAs will say they have the expertise to make these submissions.  The tax returns that are required as part of the voluntary disclosure submission package should only be prepared by Canadian CPAs.  Some Canadian tax lawyers have accountants on staff to prepare those tax returns.  Generally speaking Canadian tax lawyers, unless they are also themselves CPAs, lack the expertise to properly prepare tax returns and are generally do not have professional liability insurance with respect to tax return preparation.

Can CRA seize books and records from your Canadian tax professional

The files of a Canadian tax lawyer are privileged and confidential and cannot be accessed by CRA or any other governmental authority. Files of an accountant, including a tax CPA, can be seized by way of a search warrant.  If your tax situation requires solicitor client privilege then the Canadian tax lawyer can retain an accountant on your behalf and extend the privilege to the files of the accountant.

Disclaimer:

"This article provides information of a general nature only. It is only current at the posting date. It is not updated and it may no longer be current. It does not provide legal advice nor can it or should it be relied upon. All tax situations are specific to their facts and will differ from the situations in the articles. If you have specific legal questions you should consult a lawyer."

Frequently Asked Questions

There are a number of different ways that you can file a Canadian tax return. You can file (1) electronically through software, (2) using paper forms that will then need to be mailed to your local tax office, (3) by phone using File My Return (only if you are on low or fixed income), or (4) at a community tax clinic.

Tax return preparation fees are only deductible for certain taxpayers. Employees cannot deduct this expense from their employment income. Business and property owners can deduct these expenses when the fees relate to income earned from their business or income from property (e.g., rental income). Tax preparation fees can be deductible for all taxpayers, including persons earning employment income, if they are incurred in preparing, instituting or prosecuting an objection or appeal. While an initial income-tax return will not be prepared in this context, amending the return may. If a taxpayer opts to amend their return by filing a formal objection, instead of requesting an adjustment by filing a T1 ADJ Form, the accounting fees associated with clarifying tax liability will be considered deductible.

If you make a minor mistake in your tax return, the CRA may adjust it automatically and send a letter informing you of the error by mail or through My Account. Mistakes that are not picked up by the CRA may require you to file an adjustment by way of a T1 ADJ form. However, if your mistake is more serious — such as underreporting income — you could be subject to penalties and should consider filing a voluntary disclosure under the VDP program. On the other hand, if you discover that the CRA has made a mistake on their assessment, the Income Tax Act requires you to file a formal Notice of Objection within 90 days of the date of the assessment. This objection is completed by filling out form T400A either in hard copy or online. A top Canadian tax litigation lawyer is best placed to make the submissions required by this form.

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Canadian Tax Professionals: A Canadian Tax Lawyer's Guide
Canadian Tax Professionals: A Canadian Tax Lawyer’s Guide
Importance of Contracts & Written Agreements in Tax Reporting
Importance of Contracts & Written Agreements in Tax Reporting