against that person in respect of the offence.” This would appear to include having to provide information to the CRA which in turn could be incriminating or provide evidence against oneself which could be used in court. In this case, an order was issued by the Federal Court of Appeal to prohibit the CRA from releasing information or communicating with the police regarding the confidential taxpayer information received in the statements.
3.1 Third party confidential information
Competing interests exist with respect to third party confidentiality rights in contrast to the taxpayer’s right to access of information from the CRA. There is a strong public policy interest in guaranteeing that taxpayer information remains confidential, hence the balance of these interests often weighs in favor of the taxpayer.
Sometimes, when a taxpayer needs to access the information of another party in order to make his or her case, a balancing test must be performed to see if it is justifiable to release the information of a third party for the benefit of another taxpayer’s case.
For instance, in MNR v. Huron Steel Fabricators (London), the trial judge used the balancing test to determine if the public interest would be harmed by the disclosure of tax returns by a company which was not party to the action. The court’s decision that no public harm existed withstood appeal. Similar decisions have been found when courts determine that the public interest is best served by production of information.
Other cases have provided additional safeguards for taxpayers by further limiting disclosure, such as in the case of Amp of Canada Ltd. v. The Queen, where the court limited the use of the competitor’s materials by imposing restrictions. The court limited the use of the competitor’s information only for the period of litigation; the disclosure was only to be made to expert witnesses and counsel; and the materials were to only be used for the purposes of the litigation.
While there have been cases where confidential information has been disclosed to the CRA, the opposite is also true. Take for instance the case of Crestbrook Forest Industries Ltd. v. The Queen; the corporate taxpayer sought from the CRA during a discovery request, the production of specific information that the CRA had relied on in the tax assessment of the corporation. The source from which the CRA had obtained the information was from a survey.
The participants of the survey were told that providing information during the survey was entirely confidential. Hence, it would be contrary to public interest should confidentiality be broken by providing information obtained under the promise of confidentiality. As such, the Federal Court of Appeal prohibited the production of such information. The court explained in this case that, “where the Crown has obtained information in confidence from taxpayers on a voluntary basis and for a specific and defined purpose, it may not subsequently make use of that information for a different purpose, namely the reassessment of other taxpayers, in circumstances where such use will almost inevitably result in a breach of the Crown’s undertaking of confidence.”
2
RECORD KEEPING: WHAT TO KEEP AND FOR HOW LONG
Legislation allows the Canada Revenue Agency (CRA) to reassess personal and corporate tax returns for up to three years following the initial date of assessment. For GST or HST returns, the CRA has up to four years. Once these deadlines have come and gone, taxpayers should not have a sense of comfort that they can purge their records. In certain cases, where there is believed to have been fraud or gross negligence on the part of the taxpayer, the CRA can examine and reassess returns outside of these time periods.
Taxpayers must keep any documents that will prove how much they earned from all sources and to substantiate their expenses. This could include receipts, credit card statements, bank statements, financial records, emails, purchase and sale agreements, legal documents, etc. Generally, records and supporting documentation needed to determine taxpayer >obligations and entitlements must be retained by the taxpayer for a period of six years. As per the Income Tax Act (ITA), the six-year retention period begins at the end of the tax year to which the records relate. For corporations, the tax year relates to the fiscal period, and for individual taxpayers, the tax year relates to the calendar year.
Further, there are times when records and documents must never be disposed, such as those related to the disposal of property (e.g., real estate, investments, and shares in companies) or long-term acquisitions (e.g., purchase of an apartment building for rental income or shares in a company that will be held for many years). The taxpayer must be able to prove what he or she paid for the property or acquisition so he or she can pay the correct amount of tax when it is sold. Such records and documents may include purchase and sale agreements, stock transactions, share registries, and other historical information that would have an impact on the sale or liquidation of property. Without access to such documentation at the time of a sale, the taxpayer may have to pay more than his or her fair share of taxes.
For example, if you purchase stock at $100 per share today and sell the stock at $150 per share in 20 years, you will need to prove to the CRA the price at which you initially purchased the stock so the CRA can assess capital gains based on a $50 gain per share instead of a $150 gain per share. The CRA will assume that you paid nothing for the stock (without your documentation), and that your entire sale price is profit. This is a huge departure from reality, which will cause a large difference in the tax payable, and unless you have kept all the relevant paperwork, it will be impossible to prove to the CRA that it has overassessed you.
Special circumstances trigger an additional retention period. In some situations the CRA will demand taxpayers to retain records beyond the standard retention period, either by requests made in-person by CRA officials, or by registered letter.
The following are examples of special circumstances:
• If an assessment is being objected to the CRA’s Chief of Appeals, or appealed to the Tax Court of Canada following an unsuccessful objection, all records which may be necessary as proof should be kept until the six-year period has passed, or until such time as the matter has been finalized.
• If a taxpayer files a late income tax return, his or her records should be kept for six years from the date the return is assessed following filing.
• If your business or organization is unincorporated and operations have ceased to exist or operate, your records must be kept for a six-year period beginning at the end of the tax year in which operations ceased to exist or operate.
• If the taxpayer is deceased, his or her legal representative should maintain all necessary records until such time a clearance certificate is obtained from the CRA, which would then allow the distribution of property under his or her control.
• If there is a corporate merger or amalgamation, the resulting or acquiring corporation must retain business records as if the original corporations were in continuation.
• If dissolving a corporation, following the dissolution certain records must be maintained for two years, and long enough such that if the corporation is audited within the normal reassessment period (three years for income tax returns and four years for GST or HST returns), that it is able to prove its figures during an audit:
• Any record or document of the corporation that may be used to verify corporate tax entitlements or obligations.
• All other corporate documents (e.g., minute books, share registries).
CRA information circular IC78-10R5, “Books and Records Retention/Destruction,Æ
