I was super inspired this week when I went to a presentation by Accountancy Insurance. Their product is called Audit Shield in Canada. We’ve had it for quite some time and I’ve finally been able to meet Michael Sexton, who’s in from Australia and did a wonderful presentation on a lot of things to do with CRA, what they’re auditing. These people have real time data on what’s going on in the market and what’s being audited. And I thought, Michael, I need to have you on my podcast. So thank you so much for coming on, Michael, it’s really great to have you.

Thanks for having me. I really appreciate you wanting to me give a little bit more detail about the product for your clients, basically who the product’s all about.

Yeah, sounds good. I’ve also got a co-host on for this one, David Crawford. David is our indirect tax leader at Aiken Henderson, and he’s by far the one who’s got the most experience with audits. And so I brought him on just to chat a little bit on the front end about what’s involved when you’re going to get audited and some of the feelings you might be having, the types of letters you might receive, all of that. Thanks for coming on again, David.

(01:46)
So Michael, you’re in Canada right now. Why?

Well, the product actually started in Australia 20 years ago, so we’re celebrating our 20th year and moved to New Zealand 10 years ago. And we’ve been in Canada, as you said for seven years, and lucky enough to have you as one of our first clients that took up audit shield. So why am I here? I’m here to basically speak to accountants about, to give them an understanding of what issues the CRA are looking at. As you suggested, we have a lot of data now. We obviously don’t see every audit in the country, but we do see a lot. So I’ve been out here to speak to accountants about what sort of things we see and what they can tell their clients, what sort of audits they can expect, and then they can make a conscious decision whether they should participate in your fee waiver service, which as you said is called audit shield.

David, why don’t you run us through? So audits are scary. I mean, nobody wants to get caught offside in the CRA and that’s why they pay a lot of money. And in fact, a lot of clients, we have them come to us because they’ve gotten into hot water with the CRA and they need an accountant that maybe has a different skillset than the accountant that they were using prior to us, or maybe they just want that extra assurance that they’ve got a solid firm behind them who can represent them if they ever go to audit with the CRA. But not every letter that you get from A CRA is indicative of an audit. Why don’t you tell us a little bit about that, David?

Yeah, I think CRA audit’s been pretty quiet over the last three years. There was a lot of, I call it the pandemic grace period, which I think has pretty much expired now. We’ve seen just in the last week alone, we’ve had three clients from three different industries get two year full scope audit letters. And that means auditors are coming out to do a field visit and grab all their data for the last two full fiscal years and go through it with a fine tooth comb. That’s called a field audit, if you will. And then there’s desk audits that are usually just one or two periods at the most, and they’re just looking at specific issues. And as Michael said, that’s usually triggered by a refund. Sometimes it would just be out of the norm. Filing frequency pattern is just not quite right, something’s not up and they just want to look into it. Whereas these field audits that are coming up are much, much bigger, much more involved and can require a lot more time and dedication.

So now there’s a difference between an audit and the CRA just asking you for information, and we should clarify that there’s a big difference there. So most of us, most entrepreneurs and company owners in Canada file their returns electronically with no support attached to the return. If you go back to what my father used to do, he used to go down to the post office and pick up a T one general and you’d fill it out by hand and you’d staple all your slips to the back of it and you’d send it in. And there weren’t a lot of questions, review questions being asked at that point because going, here’s all the support for their return. But in today’s world, we’re everything. So we’re e-filing GST returns, e-filing, corporate tax returns, personal tax returns, and no support is going in. And I have to bang my head against the wall and the table a lot because some of the requests that we get, we’ve downloaded the support for the item that they’re checking from the CRA, right? We’ve downloaded the slip from you guys and you’re asking me for support for what you already have on file, but that’s not an audit. Tell us a little bit about those types of letters.

Those are just general processing review questions that they’re just asking to see some documentation. So it’s not an audit in that sense. It’s more of like a review and checking information. And that can be, you can see that in GST desk audit sometimes that they’re just asking a couple of quick questions, but if you’re under audit, you will get a letter that says you are under audit, and then it will tell you the period or periods that they’re at, and generally they’re supposed to tell you you’ve got 30 days to supply them with X, Y, and Z,

And it’s usually pretty involved. Those requests, even the review letters that we get, if you answer them incorrectly or if you send in data that might trigger a person to go, you know what? It’s time to kick these guys into audit because I don’t like how they’ve answered these questions. There’s a bunch of triggers there. And so I guess just a high level Michael on Audit shield. And so we offer audit shield as, so we are insured, Aiken Henderson is insured or the accounting firms you work with are insured to offer their clients a fee waiver service. And broadly speaking, with some exceptions, the deal is once you get any of these letters, you want to respond to them properly. You want to respond to them in a manner that, what I say is when we’re typing up one of these response letters, we don’t want to let the CRA do much thinking when we respond, we need it all spelled out for them.

(06:57)
Let’s not leave much room for logical thought here. Let’s just put the whole story down the way we want it read. It’s an art to responding to these letters because if you answer ’em wrong, you can land in real hot water. So we offer our clients audit shield, fee waiver service so that when they get one of these letters, our fees to respond are covered. What a lot of clients think is, well, I’ve already paid you for the year end, so you’re just going to respond to this letter. No, that’s not true at all. You’ve paid us to get to filing the return. Anything that happens after that is out of scope. Tell us a little bit about the product, Michael.

Yeah, so David mentioned before about it may be an audit, it may be a review. The good thing about audit shield is our definition of an audit is actually very broad. It can be an investigation, an inquiry, a review and examination. It can be as simple, you filed your GST return and the CRA call you and say, can you provide us your five biggest invoices that is covered under basically in simple terms, if you file something and the CRA coming asking questions about that filed, and we want more information that’s going to meet our definition in the policy. So it is very broad and we’ll go into some examples later. We’re not just talking CRA here, we’re talking many other provincial agencies as well. And we’ll look at some of those examples later.

Yeah, right on. Thanks. David, Is there anything else that we should add? I think one of the things that I would like you to just chat briefly about before I hand it over to Michael to get into his core sort of presentation or stats if you will, is this is pretty emotional when we get one of these letters, right? Because somebody’s already paid us thousands of dollars to prepare their year rendered or deal with their bookkeeping or whatever, and they get a request letter. And it’s very, very common, I think for business owners to go back and blame their accountant once they’ve received one of those letters. Can you talk a bit about that and why that might be wrong? Thinking?

Yeah, I think I’ve been at this long enough and I’ve sort of seen the full spectrum of our clients that believe that and other ones that kind of understand that you’re there to do the year end and they give you information and if what they gave you is wrong or they don’t have the documentation that they say they do when the auditor comes calling, a lot of them do, for the most part, are pretty good about owning up to that, that that’s on them, right?

Well it even goes beyond that. What if just the analytics don’t line up the right way and you get selected for audit? It doesn’t necessarily mean that you’ve done anything wrong,

Not necessarily, but there’s something not right about your filing patterns. Right? Okay. And a refund may be just because you imported a bunch of goods from the US or from outside of Canada for the first time, and all of a sudden you’ve got more GST refunding to you than you do in tax collected. You might’ve bought a big asset in one month, it’s out of the norm and they want to see what that was, and it might be just one big purchase invoice that you got to give. Yeah, fair enough. But it might not mean anything more than that, but if you go down that rabbit hole with the auditors are looking at two year full scope audits, they’re going to do more than just ask for a couple of big invoices. It will be a pretty involved thing that may spin off into income tax issues, vehicles in the company stem by, or sorry, taxable benefits, various things that they might be poking around for.

Thanks. Yeah, no, and I think we’re talking about audit there as Michael’s about to show us, there’s a lot of things that just get selected just because you put ’em on your return and it has nothing to do with anything but that. So why that might be a good segue to you, Michael, to sort of start in on what you’re seeing with Audit Shield and give us some of the stuff that you talked with us about the lovely presentation that I saw last week. And feel free to share your screen if you want, for the people on YouTube.

Yeah, I can do that. So just further from what David had to say there, we see numerous clients that are audited by the CRA and they come back without having any adjustment whatsoever. But of course the accountants have had to spend the time effectively defending their clients. So a lot of the time there is no adjustment, but that doesn’t mean that you haven’t have to spend many hours preparing and filing it. And that’s what Audit Shield is all about, to help your clients rather than them having to pay you for your time, which is all fair and reasonable. We would obviously pay you for your time if your client has taken out Audit Shield. So that’s the simple principle behind it. It doesn’t mean that you’ve done anything wrong, the accountant’s done anything wrong or your clients have done anything wrong. It just means that the CRA want to look further into something and you need to spend the time doing that and someone needs to pay for that. And if your clients have taken out audit shield, we’ll be the ones paying for that.

Yeah, I mean it’s interesting because it lends to our self-assessing system in Canada where we self-report our own income. And that’s one of the fundamentals in our tax system. And I remember when Audit Shield first came out, there was this big hoopla about is it in the public’s best interest and all this, and can we offer it as CPAs? And my argument from day one, as you said, we were one of the first, is I think it’s completely in the government or in the public’s best interest to give them some protection to be able to respond to the CRA over what is largely in a lot of cases, very frivolous questions that are very demanding on our time and our customer’s resources. And then to give that peace of mind.

So yeah, I’ll share my presentation now. Just a couple of slides from there. So I hope you can see that. So the first slide I wanted to look at is just claims frequency. So this is the number of claims that we receive in particular types. And the largest audit type that we see is what they call the T1 processing review. And we’ll go into a bit further as to what the three main areas the CRA look at, but effectively nearly half of our audits are in relation to T1 processing reviews. The next highest is in relation to corporate tax, and they’re called corporate post assessing reviews. And once again, the CRA decide each year what sort of area they’re looking at, and I’ll go into more detail as to what they are. And the third highest claim type is GST. About one in every 10 claims we see come from GST, but the next slide shows a little bit more that even though half of our claims are coming from personal tax, the actual number of dollars that we pay out is a whole lot less for those. So clearly, yes, we see those claims, but they’d take less time. If we look at the corporate tax, the post assessing review, a quarter of the money that we pay out is in relation to those. And the big one here is GST. So one in every 10 claims is in relation to GST, but one in every $4 that we pay out is in relation to GST audits, which clearly shows there’s a lot more time involved with the GST audit.

That is astounding. When I saw that stat at your presentation last week, so just one out of 10 claims is GST and 25 over 25% of the cash you pay out is in GST. By spoiler alert, this is why I brought David Crawford on the call and why we’re so honored to have an indirect tax person at Achen Henderson. Not many small firms get to have that. It’s an area of specialty that most small practitioners kind of understand, but it can get very complex and once you actually start digging through the issues and defending claims, I mean the numbers speak for themselves, right?

Yeah, absolutely. And the thing is that David mentioned before, one of the benefits of Auto Shield, and you guys can use your expertise here when I’m advising your clients is the GST returns. You will often see if there is a large refund, if someone has filed their first GST return and they’re getting a refund, or as David mentioned, they’ve purchased some form of asset, which means they’re getting a large refund, there’s a fair chance they’re going to get an audit. And based on that, you guys will advise your clients that it may be in their best interest to consider taking out audit shield just based on your knowledge that you can say, listen, I think you are in maybe a higher risk area to receive an audit, and it’s in your best interest to actually take that out. So if we go a bit further in terms what you can advise your clients and your clients can see from these is that if we look at the T one processing reviews and which ones are actually the ones that the CRA are looking into and the three largest claims, so

This is personal tax just for everybody.

So T1 processing review is a personal tax, and the three main items that the CRA are looking at are charitable donations, medical expenses, and non-business foreign taxes, those same three types. I’ve got another graph, but I won’t show it the previous 12 months, the same three claim types. So once again, your clients can look at this and say, gee, they’re looking at these three areas. If they’ve got high claims in those areas, once again, no guarantee, but there’s a fair chance that they may receive a letter from the CRA in regards to that in relation.

I think that’s what we’re saying. And we’ve got a cross-border tax practice, and I think by volume, most of our claims are on defending foreign tax credits on Carol’s cross-border tax practice. And the numbers prove out here, the charitable donations one, so many of us are required as employers and business owners are required to send so much information to the CRA for someone else’s taxes. For example, T4s, T5s, whatever, T5018s, T4A’s all the little slips. I’m kind of shocked that charitable donations isn’t on there. A charity has to keep track of their charity slips. Why don’t they have to send them into the CRA at the end of the anyways, but they don’t. And so yeah, that’s one of the big ones that I’m seeing as well. And then of course, medical expenses. I mean this makes sense. This is what we’re actually seeing all the time.

Yeah, so I will say on the letters that we see from the CRA, we’re not talking about small dollars here. We’re talking about some large donations that they’re looking into. So from what we see going to the T two side now, so the corporate post assessing reviews as they’re known in the last 12 months,

51% of those claim types have been in relation to professional fees. Now I’ve said professional fees because three years ago that’s what the category was this year it’s a little different. They’re saying legal, accounting and professional fees. So that’s what are in the letters.

What do you think they’re looking for? What do you think? Because last year it was cars. Last year it was cars, right?

Yep. You’re a hundred percent correct. If we look at last year over here on the left-hand side, 30% was travel expense and 54% was CCA class 10 vehicle assets. So that was what they were looking at last year. This year it’s professional fees, and as I said, if I looked at this pie chart from three years ago, professional fees would’ve been half of the claim types again. Now, obviously that’s dropped off. Well, sorry, the class 10 assets have dropped off. The travel expenses have continued on. If we look at the CCA class 10 assets that last year were 54% of our claim types. If we go up here, there’s only three point 10%, 3.1%, sorry. So clearly they have changed their approach to look at professional fees this year.

Michael, can I stop you there for a second and have David pop in? David, I know you were an auditor at the CRA for quite a while. What’s going on here with these flipflops? And this is real data, but what the CRA is doing, this is really interesting stuff.

I think it has a lot to do with what they call business intelligence. And so they’re doing deeper analytics than they ever had before with technology that they’ve never had before. I think they’re testing it out and they’re looking at different areas. And you know what? I think the flavor of the year will be whatever it is. So if last year was class 10 assets and maybe it didn’t turn up a whole bunch of results, maybe they’d be like, okay, or we cleaned up the system and we got lots of assessments and they’re like, okay, onto the next thing. And we’ve seen this year where a couple clients had professional fee audits, they were high, they want to see that they’re laid out to earn income and they’re not related to, I don’t know, you try to run through a legal professional fee that had nothing to do with the business. Maybe it was personal, that kind of thing.

Yeah, maybe it should have been capital. Maybe you were securing debt or buying shares or something, right?

There’s always looking for personal stuff and professional fees that aren’t related to the business, right? Or arguably not related to the business.

I will reiterate again that of those reviews that we saw, a high percentage of them came back with no adjustments. So once again, you may have not done anything wrong and all your records are fine, but you’ve still had to have got all that information and your accountant has had to analyze all that information and spend time dealing with the C rcra, even though the end result is no adjustment

And absent Audit Shield, the only money would’ve just been spent on your accountant’s office. And I have to tell you that we do what we can to inform our clients, but that diminishes relationships. That diminishes professional relationships because this is a make work project. I don’t like making money this way from my clients. This isn’t how I want to make money, but we sell, a lot of us sell our time and that’s how we make money. And you go, okay, I have to commit time and energy and resources to this, so I have to charge you for it. It’s not how I want to be making money, but off we go. And now no adjustments. So I guess maybe that speaks to the profession in general going, Hey, CPA in Canada, good jobs, pat on the back. Most of these had no adjustments, but you still had to have that uncomfortable conversation with your client if they didn’t have Audit Shield.

The next graph I’m going to show is just the length of time that the CRA take with these orders. And I suppose that doesn’t really affect your clients greatly except for the anxiety level is there for a considerable amount of time. And that anxiety level can be helped a little bit in knowing that yes, it’s going for a long period of time, but anything that my accountant needs to do because I’ve taken audit shield, I can rest assure from that point of view that I’m not going to have this massive bill at the end of the day, yes, I’m going to have anxiety for a lot of time based on the length of these until it’s all settled, but that can be lessened by knowing that you’re not going to get a big bill at the end of the time as well. A couple other things that I wanted to talk about. So

Just to go back to that, we are on a podcast, so anybody who wants to see these visuals pop back to YouTube. Let’s talk about the actual stats for a second because they’re mind blowing. So Audit Shield compiled a seven year average. Talk about the stats just for a minute, Michael, before you move on.

So on this, if I looked at the last 12 months, I would say that all these figures are less, they’ve actually gone down. But the reason these they’re at so large is there was the time period during Covid where the CRA took all their resources out of these particular audits and put them all into their Covid area. So that’s why I believe these timeframes are, but even if I just took the last 12 months where clearly the CRA put their resources back into it based on the number of claims that we’re seeing coming through, they’re still taking a considerable amount of time. And as I said, sometimes it can be you provide the information and you just hear from ’em for months, but other times it can be to just ask questions. You provide them information, they ask more questions, you provide them more information. So yeah, it’s varied as to why they length of time, but as I said before, unfortunately that’s something we have no control over other than just answering the CRA’s questions when they come.

So we’re talking a seven year average here, 383 days for a full corporate tax audit. Hopefully that’s gone down, that’s over a year. Talk about anxiety business audits, 204 days personal tax audits, 203 days. I mean, here we go. Personal tax processing reviews, four months and hopefully that’s come down again after Covid, but this is a seven year average. So we’re talking about when somebody, when the CRA asks you for medical, you provide the medical, so this is from when they send the letter, I’m assuming you get 30 days to respond to it. So then they take another three months on top of that to run through your paperwork. Interesting point, which is sort of unrelated, is there’s now a status monitor in your CRA online account where you can see the status of everything that’s going on. If the CRA are looking at you or I’ve requested information from you, so go check that out in my account. So just really long wait times. And you’re right, it does lead to anxiety. In fact, anecdotally, whenever one of our customers is on the amount of emails that we get in going, Hey, where are we at on this? Hey, where are we at on this? And we’re going, I have no control over this. This is the CRA take it. I’m so sorry, but this isn’t something I can control. So

There is something that can be done about it too. And that’s about really managing an audit. And as a former auditor and a indirect tax professional that’s been doing audit controversy for most of my career in public practice, if you don’t manage the audit well, you’ll get up to those numbers, whether it’s income tax or GST, doesn’t matter, I think is. And a lot of times that starts out with some clients trying to go it on their own. And I think that if they had that audit shield, they might be able to engage a professional early on and maybe coach the through it if they really want to do it themselves or let them handle it right from the beginning. And that doesn’t necessarily mean me at front and center, but it might mean me working with one of our staff to pull everything together and send it to the auditor. But I think part of what gets things off the rails is not having probably constant and regular communication and contact and good contact with the auditor and the team leader. And I’ve done few training sessions on that about how to really manage an audit and an auditor and those numbers, those number of days outstanding can be definitely brought way down, effectively managed.

Fair point, David. Thanks.

So just a couple of other points I wanted to talk about, and the first one here is we’re seeing the CRA audit the same matter, even though it was ordered the year before and closed without any adjustment. So a client, perfect example, client received a letter on the 15th of October, 2022, and the CRA were reviewing their charitable donations. It came back, no adjustment, all good. 12 months later, just about to the day they’re now auditing the 2022 return at charitable donations. So the point I’m trying to get across there is just because you were audited this year or last year doesn’t mean you won’t be audited the following year. Now, that was something that in the past you probably thought, oh, I was audited last year. I don’t need audit shield next year. But our analysis and our statistics say that is not the case that the CRA definitely going back to the same person, even though there was no adjustment the following year, they’re looking at that same person 12 months down the track.

Oh man, I hope I’m never in those shoes. That would be super frustrating and I’ve seen it in our practice, Michael.

And further to that, the CRA now auditing more than one year, when we look at the corporate post assessing reviews up until the last couple of years, they would just look at one year. Now we’re seeing them look at two and three years. And what does that mean? Well, it means you need to spend more time defending your clients because you’re not just providing information for one year, you’re now providing it for two or three, which means more time, more cost. So Audit Shield is there in relation to that.

Is that a Covid catch up, David?

Yeah, I think it is. I think it’s Michael talked before is that a lot of the human resources and CRA were pushed into the Covid benefits programs and then the auditing of those programs, and that’s wrapping up, but not totally, and Michael, you can probably speak to that, is that, yeah, I think that there’s this expectation, and I don’t think CCRA is probably wrong about this. There was turnover, people quitting, people getting sick, and that just leads to errors. It’s just a fundamental fact of life. It’s not a Murphy’s Law or anything like that. And CRA knows this that there’s going to be errors made, and I think they’re looking for wrap up and see what happened in the last two years, and if those errors were egregious enough, they might look back even another year. And that could be income tax or GST. Right?

Interesting. Yeah.

So in relation to the Covid things where they’ve definitely slowed down and put their resources back into other areas, but we’ve seen a letter recently where, and I made this comment last week, I wouldn’t wish this on. My worst enemy, is to get this letter where they’re looking in the one letter at sers at sues and at the hardest hit to the HHBRP all in the one letter. They’re requesting five pages of information. Now, the accountant that sent that into us as a claim, they’re estimating spending six and a half thousand dollars on that claim. Now, who knows, it could turn into more based on the information they’re asking, it would not surprise me if it becomes $10,000. It’s a large lot of information they’re requesting. So yes, they’ve definitely cut back, but I think they’re being a bit more targeted in the ones that they’re looking at and they’re going in deeper as to more than just suss as it was at the time. They’re looking into asset, this one, three actual types in the one letter. So it is still there. And something for your clients to consider if they’ve had those sorts of claims.

I mean, the fees related to answering a letter that has five pages of requests on it and you don’t want to get it wrong and you want to pay your accountant to deal with it. I mean, those could be crippling to a small business. In fact, that can be crippling to most small businesses, I would argue.

Yep, absolutely. So what I’ll go onto now is just to talk about some other revenue agencies that are covered under Audit Shield. It’s not just your T1s or your T2s or your GST. There’s, as I said before, the definition in our policy is very broad, and one of the first ones I look at is the WorkSafe bodies. So WCB Alberta or WorkSafe BC or WSIB Ontario. What they’re looking at there is the how much your clients, the employers have declared as insurable earnings, and they basically look to see to make sure they’re paying the levy on the correct amount of insurable earnings. That’s the type of thing that’s covered in relation to that. Another one, the Alberta Treasury Board and Finance, the tourism levy. Now, I’ve noticed that on my hotel bills of the last few weeks is the tourism levy. So clearly that’s out there, but that’s the thing they look at.

(31:46)
One levy that I haven’t had to pay because I haven’t been to Saskatchewan, is the Saskatchewan Ministry of Finance Liquor Consumption Tax. And that’s another example of a provincial agency who are looking at things. The next thing is a BC sales tax or Ontario Ministry of Finance, employer health tax. Then there’s some other things that you may do on a yearly basis, but you didn’t think, oh, if I took out audit shield, that would be covered. And one of those is the peer review. So they’re pensionable and insurable earnings review. When I’ve spoken to accountants, they told me they get lots of those, right. So your clients I’m assuming, are having that. Another one is a notice of tax deduction, the Canadian pension Plan and employment insurance discrepancy. And that’s where the employers have declared an amount of information to the CRA and the CRA coming back and saying, no, the information we have differs to what you say.

(32:51)
And once again, time needs to be spent sorting out that discrepancy. Just two other claim types. And one is if the scientific research and experimental development claim, so shred as it’s otherwise known, normally they consist of a financial review and a technical review. The financial review side of that is covered under the policy. And the last one is trust accounts examinations, that can be payroll, GST or in some cases, both of those types. Once again, covered under Audit Shield. So what I’m trying to get across there is that the definition of audit is very broad. We’re not just talking CRA, we’re talking about all these other agencies and all these other types of even CRA matters that aren’t just your standard T one T twos.

You know what I was really surprised to learn about from your presentation and something that certainly Canadians have been hard hit with over the last year? Well, since 2018, we’ve known that the new trust reporting rules are coming, and then this year has been an absolute disaster by our government with the underused housing tax. I mean, I got a whole other section on the website devoted to this, but we had people pay us thousands of dollars to figure out if they had to file these bloody things in September, October only to find out that it was extended at the very last minute. That’s a whole other discussion. But what I was surprised to learn was that if somebody’s hiring us to make a judgment that they don’t advise them that they don’t have to file, that’s covered as well, isn’t it?

Well, yeah, because what we’re saying there is the CRA have said, you need to file this return right now. If you look into that for your client and make the decision, no, we don’t need to file, then defending that position is going to be covered. What’s not covered in relation to UHT or any other matter is your time spent doing compliance work. So in other words, completing a form, right? That’s not what’s covered under the policy. But if you say, our client, no, no, they don’t need to file this UHT and we need to spend time defending that position, yes, we’ll cover that cost. And another example on that is where the CRA will often issue a late filing penalty and you say, hang on a minute, we don’t need to file anything. And once again, you need to spend your time defending that position with the CRA saying, no, no, there should be no filing penalty because we didn’t need to file. Once again, that’s a claim.

I’ve got a question for you, Michael. So we had a client that during Covid, they had some staff turnover and they got assessed payroll penalties, significant ones, and so they requested us to do a fairness request under taxpayer relief or reduced or maybe even eliminate those penalties based on the fact that they probably met the criteria for taxpayer relief of penalty and related interest. Is that something that would be covered? Because it’s still an assessment, but not an audit per se?

Yeah. So if the CRA have issued you an assessment and you believe that that assessment is incorrect, then the time spent is actually, if you just get a penalty because you haven’t filed something on time and then you go and that’s not going to be covered. If you should have filed and you didn’t and you get a penalty, it’s not covered under the policy. But if you got a penalty issued to you for something that you’re saying we shouldn’t have filed that or the information the CRA have used to assess that penalty, then yes, that would be covered under the policy.

So the answer is no.

Yeah, maybe not in this case because fairness request is effectively saying the penalty’s correct. We’re just asking for you to waive it. Right? Yeah, that

It’s interesting just to put a bow on what you were saying about UHGT, I think there’s another wave coming with new trust reporting rules. There’s a lot of trust compliance that’s about to hit Canada, and I mean a lot unprecedented amount of paperwork and information’s about to go into the CRA and you can watch my blog for more information on that. And so we’re going to be helping people make a lot of determinations about whether or not they have to file. So that’s another one where the T3 or absent a T3 for a reason, then subsequently receiving a penalty for not filing or having to answer for the reasons that you were not filing. Good to know that Audit Shield is there for those circumstances, right?

Yeah. So I suppose in summary, from my point of view, and I think I’ve said this a couple of times tonight, is that audit shield covers more than just your T1 and T2 reviews from the CRA. It covers a whole wide thing. Now, my suggestion to your clients, if they take out Audit Shield and they receive a letter and they think sometimes obviously the account will receive it, they may receive it themselves, the best thing is to send it to you and for you to send it to us and we’ll look at that and say, yes, that’s covered, or no, it’s not. But more times, yes, rather than no.

So just for the avoidance of doubt for our clients, we send a letter out or we get a letter out to them every, it’s the summer every year or around the middle of the summer asking them to sign out for audit shield. It’s a paper letter. We still kick it old school on this and we have it on our website. And so we’ve got various ways that you can get ahold of this. And we have had people go, is this worth it? I know how I answer that question. How would you answer that question, Michael? Yeah,

So if I knew the client in a lot of detail, I would talk about their risk profile, right? We mentioned before about GST, that’s one time that, so I haven’t said this, I was actually a CPA for seven years myself. So when I was advising my clients, if they had a large GST refund, I’d be saying they should seriously consider taking out audit shield. In regards to the general question, once again, I would look at them and if they had something like a rental property, and that was an area the CRA were looking at, but in terms of answering the general question, should I take it out? My answer to that would be, if you got an audit, do you understand that you would have my professional fees to pay? And do you want to have that peace of mind of knowing that? Well, yeah, and any insurance, it’s just them analyzing their risk. But do I want to have peace of mind knowing that if I get an audit down the track, I can rest assured that my accountants are going to do the best job for me because they’re going to get paid for their time and effort?

Yeah, I think that’s exactly right. But just to clarify one point in there, we’re not selling insurance. We are insured to offer you a waiver of fees. And when my clients ask me that question, I say, you know what? 100% of people who had audit shield and received a request from the CRA last year thought it was worth it. That’s how I answer that question. I mean, it’s literally that simple. And it’s not a lot of money in the big scheme of things, particularly when you start talking about 450 bucks an hour or 850 bucks an hour to respond to the CRA letter. And so I want to ask you,

I suppose it’s like any insurance, you only need it when you need it.

Yeah, exactly, exactly. Hopefully you never need it. But as we’ve established at the beginning of this, there’s no real, we can’t, as CPAs, as a profession, we can’t protect you from ever receiving a CRA letter. That’s impossible. It’s literally impossible. And by the way, most small business practitioners are not GST experts, and so they’ve got a general sense of what the GS T legislation is about. But having David on our team and having him have a look through a few of our files, you go, wow, GST is extremely complicated. And this isn’t something that the average practitioner, even a tax specialist like me, has their brain fully wrapped around. It’s a whole other set of legislation. In fact, 12 other pieces of, or I don’t dunno how many there are across the nation, David, but a lot. So do they go after specific, you’re probably not going to want to answer this, but do they go after specific CPA firms?

No, I can’t say I’ve seen that trend/

Because they say they don’t. I’m just wondering.

Yeah, I would say no based on my observation of the data that no, that’s not the case that they don’t.

Okay, good. I was hoping you’d answer that way or else the CRA was going to have a very uncomfortable round table the next time I go. And then I guess the other question is, are you seeing any industry specific trends that we should be aware of?

Well, other than the statistics that I’ve shown for the corporate post assessing reviews, they’re not necessarily industries, but they’re the type of expenses that they’re claiming, whether it be professional fees or travel expenses or Class 10 assets for specific industries, because also remembering that we take very limited data from you. So I couldn’t even tell you what industries your clients are in. That’s the limit of data that we take. So I couldn’t answer that question.

David, am I missing anything before we wrap this thing up?

No, I think you raised a good question. I mean, that would be fun statistics. I’m sure CRA has all those statistics in the industries that they’re after, but it’s not uncommon for them to kind of say either tongue in cheek or quite vocally, which industries they’re going to be after. Not any different than the Canada Border Services Agency every year announces their audit priorities for the things that they’re going to look at. CRA is a little bit more discreet, but we usually hear it through the grapevine from other professionals around the country saying, oh, are you seeing builders getting or anything to do with construction, renovators, et cetera, getting audits. And in the last year and a bit, the answer is yes. So some part of that industry they’re looking very closely at. And I think with the attention on UHT, this housing crisis and stuff like that, I think there’s going to be more attention on the construction builder industry for probably a few years to come yet.

Right on. Well, gentlemen, thank you so much for joining us. I hope our customers and listeners have gotten a tremendous amount of value out of this. I know I certainly have. Michael, thank you so much for putting together the information.

No, thanks for giving me the time to just go into a little bit more detail about the information we see, and hopefully your clients can now make a conscious decision whether to take out audit shield or not.

Yeah. Fabulous. Fabulous. And I mean, that’s a good point. When you’re shopping for an accountant, it’s one of the questions to ask, do you offer audit shield? Right? And so Michael, I wish you safe travels back down under, and I look forward to bumping into you lots more. And David, thanks again for popping on and adding some color and things that you’re seeing at the CRA. And thanks again for your time.