The Canadian Tax Audit Protection Plan is designed to provide individual Canadians with the advice, experience, and expertise of a qualified tax lawyer or law firm and their staff in the event that their personal income tax return is audited or reassessed by the Canada Revenue Agency. The Plan does not cover additional fees or charges, such as the professional fees charged by your accountant, tax preparer, or financial planner, disbursements incurred by Sixth Sphere in the course of assisting and representing you, or other costs associated with challenging a tax audit or reassessment. You are responsible for reimbursing Sixth Sphere and any Plan Participating Law Firm for any expenses and disbursements they incur on your behalf, including office charges allocated to your file.
First, no two tax cases are the same. The issues and evidence required to prove a person is entitled to deduct employment expenses are substantially different from proving the fair market value of a piece of property at the time of a deemed disposition for capital gains purposes. The former generally won’t require the evidence of an expert whereas the latter will require a report and testimony from a professional valuator. It would be inequitable for other Members of the Plan to cover the extraordinary and out-of-pocket expenses associated with certain types of tax objections and appeals. It would also significantly increase the annual membership fee, thereby placing the benefits of membership beyond the financial reach of many of the Plan’s Members.
Second, by having Members bear a portion of the costs associated with objecting to and appealing their own tax reassessment ensures that a Member does not use the Plan’s resources to pursue frivolous objections and appeals in circumstances where there is no reasonable chance of success. This would not be fair to other Members of the Plan as it would not only waste the Plan’s resources but would substantially increase the cost of membership for all Members.
The following is a list of examples of the types of expenses that may be involved in challenging a tax audit or reassessment for which a Member would be responsible for paying, or if the expense is incurred by Sixth Sphere or a Plan Participating Law Firm on behalf of the Member, for reimbursing Sixth Sphere or the Plan Participating Law Firm.
A Member’s accountant or bookkeeper can provide invaluable assistance to a Member during an audit and in the course of objecting to a reassessment. The Plan, however, is not responsible for paying any amounts that may be charged by the Member’s accountant or bookkeeper to assist the Member or Sixth Sphere or a Plan Participating Law Firm in the course of an audit or objecting to or appealing a reassessment, even if the accountant or bookkeeper is a Participating Tax Professional.
Once again, it comes down to ensuring equity and fairness between the Member of the Plan. For example, many taxpayers keep organized and complete books and records along with annual financial statements with the assistance of their accountant or bookkeeper. Others, however, may not. If a Member who hasn’t maintained organized accounting records is audited by the CRA, it may be necessary to organize their books and records and to prepare proper financial statements in order to challenge or overturn any resulting reassessment by the CRA. If the fees charged by the Plan Member’s accountant to undertake this work were paid for by the Plan, it would effectively mean that those Members who independently maintained organized accounting records and financial statements would be paying for this work to be done for a Member who chose to organize their accounting records after the fact. By ensuring all Members of the Plan are responsible for the professional fees charged by their own accountant, bookkeeper, or tax preparer ensures that all Members are treated equally.
Not all audits and assessments involve the same issues. Sometimes, to resolve the issues, it is necessary to involve experts in order to give opinions or provide testimony in order to settle the dispute. A common example is where the Canada Revenue Agency alleges that the fair market value of a particular item was higher than the amount recorded or declared by the taxpayer. In such a circumstance, it is necessary to retain the services of a professional valuator. Because the requirement for expert testimony is the exception rather than the rule, to be fair to the other members of the Plan, a Member is responsible for paying the expert’s fees.
To institute an appeal before the Tax Court of Canada and for certain steps taken during the Tax Court of Canada process, the Tax Court of Canada charges certain filing fees. These fees currently range between $100 for an appeal taken under the Informal Procedure Rules of the Tax Court of Canada to $550 for an appeal involving federal tax in dispute of $150,000 or more. These filing fees and any other disbursements incurred on your behalf remain your responsibility and to the extent they are incurred by Sixth Sphere or a Plan Participating Law Firm, you are responsible for their reimbursement. Other disbursements that may arise in the course of a tax appeal include such items as process server fees, witness fees and conduct money, court reporter fees, photocopying charges, registry searches such as land title search fees and personal property registry search fees, long distance calls, faxes, postage, deliveries, photocopying, and agents’ fees. Such fees and other disbursements are the financial responsibility of the Member and not the Plan.
The legal services provided to you under the Plan will be provided to you by telephone, fax, email, post, or the Internet. In a perfect world, the Plan would be able to provide all Members with service in-person in every town and city across Canada. However, Canada is the second largest country in the world and the costs of providing such face-to-face service would be prohibitively expensive. Thankfully, technology makes it possible to provide you with the advice and expertise of experienced, qualified tax lawyers regardless of where you are located.
That being said, there are steps in the tax objection and appeals process when you and your Sixth Sphere lawyer may need to meet in-person. For example, when oral examinations-for-discoveries are held as part of the appeal process to the Tax Court of Canada and for actual hearings before the Tax Court of Canada. Such in-person meetings and proceedings will take place in whichever of the following major Canadian cities is closest to you: Victoria, Vancouver, Calgary, Edmonton, Regina, Saskatoon, Winnipeg, Toronto, Ottawa, Montreal, Halifax, or St. John’s. Should a Member choose or request that such meetings or proceedings take place outside of these major cities, the Member shall be responsible for reimbursing Sixth Sphere or the Plan Preferred Law Firm for the travel and accommodation costs of the attending lawyer.
If a taxpayer chooses to appeal a reassessment to the Tax Court of Canada, and if the taxpayer is not successful, the Tax Court may order the taxpayer to pay the Crown’s “Costs”. Costs are generally comprised of the other side’s out-of-pocket costs, plus an amount to pay a portion or all of the winning side’s legal fees. If a Member of the Plan appeals a reassessment to the Tax Court of Canada and the Court orders the Member to pay costs to the Crown or any other party, the Plan Member is solely responsible for paying such Court-Ordered Costs.
Conversely, if a taxpayer appeals a reassessment to the Tax Court of Canada and his or her appeal is successful, the Tax Court may order the Crown to pay the taxpayer’s Costs. If a Member of the Plan appeals a reassessment to the Tax Court of Canada and the Court orders the Crown or other party to pay the Member’s Costs, the Costs received from the Crown or other party shall be divided between the Member and the Plan as follows: