When Should a CPA Call a Tax Litigator?
Most tax disputes are resolved long before a courtroom is ever involved. In many cases, a skilled CPA can manage compliance issues, respond to routine audit queries, and negotiate factual clarifications with the Canada Revenue Agency (CRA). However, there are moments in a file when the risk profile shifts; when the issue stops being primarily accounting and becomes legal. That is when a tax litigator should be called.
1. When the Issue Turns on Statutory Interpretation
If the dispute hinges on how a provision of the Income Tax Act should be interpreted, rather than on bookkeeping or documentation, legal analysis becomes central. Questions involving GAAR, subsection 84(2), 15(1) shareholder benefits, residency determinations, source rules, or treaty interpretation are fundamentally legal issues. Early involvement of a litigator ensures that positions are framed with appellate-level reasoning in mind.
2. When Penalties or Gross Negligence Allegations Arise
The moment the CRA raises gross negligence penalties under subsection 163(2), or alleges misrepresentation attributable to neglect, carelessness, or wilful default, the file has escalated. These allegations carry reputational consequences and can extend the reassessment period. The evidentiary record must be carefully managed. Statements made too casually at audit can later become exhibits at trial.
3. When the Audit Becomes Adversarial
There is a noticeable shift when an audit moves from information-gathering to theory-building. Broad requirements for information, aggressive assumptions, or repeated fishing expeditions may signal that Appeals — or ultimately the Tax Court — is inevitable. A litigator helps structure responses strategically, ensuring that the record being created supports future objection or litigation.
4. Before Filing a Notice of Objection
While CPAs often draft Notices of Objection, complex or high-value matters benefit from legal framing at the outset. The objection stage is not merely administrative; it is the foundation of the litigation record. Positions taken (or not taken) can narrow arguments later. In sophisticated disputes, objection strategy should align with potential Tax Court pleadings.
5. When Criminal Exposure Is a Concern
If the facts suggest possible tax evasion exposure (i.e. offshore issues, deliberate omissions, falsified records) counsel should be involved immediately. Solicitor-client privilege becomes critical. Accountants do not enjoy the same privilege protections in Canada as lawyers. Early legal involvement can materially affect risk containment.
6. When Settlements Require Legal Structuring
Not all disputes proceed to trial. Many resolve through negotiated settlements at Appeals or shortly before hearing. However, settlement terms must be structured carefully to avoid unintended collateral consequences , especially where related corporations, shareholder loans, or parallel reassessments are involved. A litigator ensures the settlement aligns with statutory authority and minimizes downstream risk.
7. When Precedent or Principle Is at Stake
Some files have implications beyond the taxpayer at hand. If the issue is novel, industry-wide, or strategically important, litigation strategy must be deliberate from the outset. These are not merely disputes, rather, they are potential precedent.
The Strategic Advantage of Early Involvement
Engaging a tax litigator early does not signal aggression. It actually signals prudence. The goal is often to prevent litigation, not provoke it. Early legal framing can narrow issues, avoid harmful admissions, preserve privilege, and position the file for resolution on favourable terms.
The most effective CPA–litigator relationships are collaborative. The CPA brings deep financial knowledge and factual mastery. The litigator brings statutory interpretation, evidentiary strategy, and courtroom perspective. Together, they protect the client.
In the context of tax disputes, timing matters. The right time to call a tax litigator is often earlier than one thinks.
by
