This summer, a number of small and medium-sized business owners have been asked by the Canada Revenue Agency (CRA) to participate in the Liaison Officer Initiative (LOI) – a part of the CRA’s 3-point plan to provide early tax compliance support to businesses.
Through the LOI, selected businesses would receive in-person guidance and information to assist them to understand their tax responsibilities, help them identify potential errors so they can be corrected before filing, and help them better comply with their tax obligations.
Participation may include being asked to review the company’s books and records, visits to a place of business, or being asked to sign a Compliance Support Arrangement (CSA).
For those being asked to participate, the primary questions have been:
- Must I comply with LOI’s requests for an onsite visit and review of the company’s books and records?
- If I comply, will the findings be held against me, cause a reassessment, or instigate an audit?
- Will refusal to participate act as a reason for the CRA to audit the company?
The CRA has made it clear that LOI is in place to help businesses, not investigate or hurt businesses. The CRA position is that “a visit from a Liaison Officer (LO) does not constitute an audit and will not result in any CRA-driven changes to past tax filings”. The CRA standpoint is that many future audits can be avoided if the taxpayer gets it right from the start.
Although participation in LOI is completely voluntary, there still remain many unanswered questions.
The program states that it is aimed at being proactive and helping the taxpayer to avoid future issues, but how are taxpayers in fact being protected?
There seem to be many benefits of participation, however, before agreeing to participate in the program, it may be wise to better protect yourself. For instance, it could be beneficial to have in writing that the information obtained during the LOI will not be used against you in any criminal investigation or audit, or for any other purpose than education.
If you do in fact participate, following a visit or review, you may be asked to sign a CSA referred to earlier. This document is a voluntary acknowledgement that you understand your tax obligations and responsibilities. Although the CRA states that the CSA is not binding in a court of law, one should be hesitant to sign a CSA without careful review by a tax lawyer and fully understanding the possible repercussions. Prior to putting your signature on any document, the document should always be carefully read and reviewed with full consideration of the legal ramifications – signing any document is always “voluntary” (the CSA is not special in this regard) and may carry with it significant consequences. It may be foolish to think that signing the CSA would be any different.
What are your thoughts on the LOI?
Interested in learning more about this initiative? Check out the links below