Risky Business:
Managing Tax Practice Risks & How to Mitigate Them BRUCE BALL www.cpacanada.ca
Tax legislation is becoming increasingly complex, bringing
3. Lack of documentation – failing to maintain evidence of client
ever more risk for those of us who practice tax. Find out the
engagement terms or tax filing positions in working paper
most common sources of insurance claims filed against tax
files, including:
practitioners and how to mitigate risk.
• Failing to detect the client’s GST/HST errors or omissions when it was unclear whether checking GST compliance was
Tax is a highly contested practice area in our profession.
part of the tax practitioner’s mandate (engagement letters are
Statistics show that the highest volume and value of profes-
a key tool for reducing this sort of risk)
sional liability insurance (PLI) claims for small and mid-sized firms are related to tax services. With an increasingly
TWO KEY MEASURES YOU CAN PUT IN PLACE TO MITIGATE THESE RISKS:
complicated tax system, it is quite easy to see why tax is the
1. Only take on work within your circle of competence
top of the list when it comes to insurance claims and
Tax practitioners can avoid many of these risks by only
complaints. It is therefore crucial that practitioners take care
accepting work for which they have either adequate experi-
when practicing tax, keeping up with the latest tax changes
ence or the ability to outsource the work to qualified tax
and implementing quality controls within their practice.
specialists.
SOME OF THE MOST COMMON TAX-RELATED INSURANCE CLAIMS INVOLVED:
2. Implement quality control systems in your business
1. Lack of expertise – errors due to practitioners advising on
Quality control systems can not only help you avoid common
technical tax matters when they didn’t have adequate
pitfalls and manage risk, they can also help you improve your
experience or knowledge, including:
practice effectiveness.
• Family trusts and the financial impact of invoking the attribution rules
A FEW OTHER TIPS AND IDEAS:
• Timing and calculation errors related to designating a
• Use checklists: A best practice for your practice is to create
capital dividend
general tax preparation and review checklists for all of your
• Failure to file information returns, especially T1134 and
staff to use. Also consider using specialized checklists for
T1135 forms
common tasks and issues encountered within your practice, such as a cross-border tax checklist for clients that are
2. Lack of attention to detail – errors that could have been avoided
expanding into or outside of Canada or a checklist for setting
if there had been procedures and controls in place, including:
up family trusts.
• Shareholder loans outstanding for more than a year
• Implement a task and deadline tracking system: A task
• Late-filing information returns, especially T1134 and T1135
tracking system can help you monitor client filings and meet
forms
their due dates. It is also important that the system stores tax
• Late-filing corporate tax returns, causing the taxpayer to
filing confirmations. Finally, when doing this year’s work,
miss out on dividend refunds and, when there is a holding
consider reconfirming that last year’s filings have been
company, lose the ability to offset Part IV taxes payable
acknowledged by the Canada Revenue Agency (CRA) and other relevant tax authorities.
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MBE BUSINESS MAGAZINE FEBRUARY / MARCH 2020
W W W. M B E F O RYOU. C O M
