The benefits of a tax-planning second opinion–A KRP case study

Obtaining the right accounting and tax planning advice is critical for every business owner.

That requires a strategic approach that takes both their personal and professional finances into account, while also incorporating long-term goals into any financial plan. At least that’s a best practice we reinforce here at KRP. But in some cases, we take on clients who have received advice from other firms—advice that can at times be less than comprehensive.

That’s why it often makes sense to obtain a second opinion when dealing with a complex tax or accounting issue.

That was the situation when one of our clients was referred to us in the midst of a multi-year Canada Revenue Agency (CRA) audit. The CEO had a senior tax lawyer managing the issue which involved various corporate governance issues. While the lawyer’s approach was largely successful, someone mishandled a matter to do with the timing of management bonus payments. Specifically, there was no way to reconcile whether bonuses were paid within a certain timeframe. Federal tax law mandates that bonuses must be paid within 180 days of year-end of the year they were accrued.

There was no question of whether the bonuses were paid because the recipient included the bonus in his statement of annual income, but he simply couldn’t prove it was paid within 180 days. To make matters more complicated, the apparent payment discrepancy dated all the way back to 2009. By that point, the matter was statute barred (or closed) and the CRA denied our client the tax deduction to which he was otherwise legally entitled. The agency also insisted that the recipient couldn’t carry corporate tax deductions into the subsequent year because that, too, was statute barred.

While the tax lawyer felt the matter could only be resolved through tax court proceedings, our team began researching recent case law to find a solution. We determined that relevant legislation did, indeed, allow the client to reopen the years in question for tax purposes, despite CRA’s insistence to the contrary. The specific law was a reverse application of one that CRA usually uses in a punitive matter to assess clients in years that such a reassessment would otherwise not be an option.

In the end, the client received the deduction, saving him approximately $100,000 in taxes.

The case underscores the need to engage an accounting firm that has a strong understanding of case law precedents and takes a comprehensive strategic approach. Again, entrepreneurs should never be afraid to obtain a second opinion when it comes to resolving a complex tax issue. As this client proved, taking the time to gain another perspective can result in massive savings—not to mention alleviating much of the stress involved with a CRA tax audit.

The KRP Team