When do You Need Canadian Tax Lawyers versus Accountants – A Practical Guide
Income tax involves both the law and numbers, tax returns. So it's natural that there is overlap between what tax lawyers and accountants do and therefore resulting confusion. While there are common areas where both Canadian tax lawyers and accountants practice, there are equally areas that should be the exclusive area of tax lawyers or accountants, with no overlap. This article provides a practical explanation of the differences, and advice as to when you should choose the tax lawyer and when the accountant.
Legal Matters – Exclusive to Canadian Tax Lawyers
If you are going to court you need to have a tax lawyer. While accountants can represent their clients in some Tax Court of Canada cases, they should not. Appearing in court is a purely legal activity, one for which lawyers have been trained and accountants have not. An accountant who offers to represent a client in tax court is not properly serving the taxpayer, and may not be insured in the case of a claim by the taxpayer that the case was mishandled.
Similarly a CRA tax evasion prosecution or prosecution for failure to file tax returns should only be defended by a Canadian tax lawyer. It is a tax battle that may end up in the criminal courts.
Implementing tax planning structures or reorganizations, even if planned by an accountant, is legal work that should be exclusive to tax lawyers. Drafting agreements is another example of work that tax lawyers are trained to do and for which accountants lack expertise.
Legal tax opinions can only be provided by a tax lawyer. However accountants can give non-legal tax opinions. If the client requires a legally binding tax opinion, they need a tax lawyer. Otherwise they can use a tax accountant.
Tax Returns and Forms – Exclusive to Accountants
Preparing tax forms and Canadian tax returns is what accountants are trained to do and they are the only ones who should fill out returns for their clients. Lawyers lack the expertise to prepare tax returns and should not do so and are probably not insured if they make a mistake. Lawyers who offer to prepare tax returns for their clients as part of a package of legal services such as a voluntary disclosure are doing their client a mis-service. Clients should insist that all tax returns be prepared by professional accountants.
Voluntary Disclosure Program (VDP) – Legal Work Should be done by a Canadian Tax Lawyer
Why use a tax lawyer for a voluntary disclosure? At its core, the VDP is a legal process not a tax accounting process. If problems arise, only lawyers have solicitor client privledge - CRA can seize files and documents and prosecute if the file is handled by an accountant. The CRA voluntary disclosure is in essence the intersection of two separate areas of law, tax law and administrative law.
Our tax law firm understands these principles and can set up a tax amnesty file from day one in anticipation of CRA challenge or push-back. Accountants don't have this knowledge of administrative law. A Canadian tax lawyer can also go to court to seek judicial remedies for breaches of natural justice, procedural fairness etc. In fact our tax law firm was an early adopter of the VDP. Our office has completed many hundreds if not thousands of disclosures since the program began in the 1990's and before it became well known. We are familiar with all stages of process from initial submissions to hearings at the Federal Court of Canada.
However we don't prepare tax returns for clients even thought our senior lawyer is a CPA and fully capable of doing so. We prefer to have accountants who prepare tax returns all of the time complete the returns and we review them to ensure accuracy. We think our clients are better served than if the tax returns were prepared in house by our tax law firm.
Areas of Overlap – Canadian Tax Lawyers and Accountants
Having delineated the exclusive areas of tax practice, everything else is properly the work of both tax lawyers or accountants. However in some cases tax lawyers are better able to serve their clients, and in others accountants are better able to act.
CRA tax audits can be handled by either tax lawyers or accountants. If the issue is one of proof of documentation to support expense claimed, then the accountant is usually in position to provide that audit evidence to CRA in a cost effective way. The accountant prepared the financial statements, and perhaps did the bookkeeping. It should be a simple matter for the accountant to respond to a CRA audit enquiry. However if the issue involves legal tax interpretation or possible civil penalties then a tax lawyer should be retained to respond to CRA.
Similarly CRA collections issues can often be handled by tax lawyers or accountants. On the other hand where CRA is threatening or has taken legal action it is often a good idea to consult with a tax lawyer first.
Tax planning is an area where both tax lawyers and tax accountants (not regular accountants) do the same work, and where either can be consulted. In this case the decision is usually based on an existing relationship, or a referral.
Conclusion – Canadian tax lawyer or accountant
As you can see, the decision as to when to retain a Canadian tax lawyer and when an accountant is appropriate depends on the exact nature of the tax help needed. Our tax law firm always refers accounting related work to professional accountants. If you are unsure as to what is appropriate in your case contact us and we'll help you or refer you to an accountant.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.