Tax practice in the information age

As the CRA becomes more digital, tax professionals must stand guard to ensure their clients do not end up as casualties of privacy violations.

It is both the best and worst of times to be a tax professional. OK, that may be melodramatic, but only slightly. The information age means we (and by we, I mean everyone: individuals, organizations and governments) now have the ability to save and share every piece of digital communication and documentation forever.

Let that sink in for a moment.

It also means privacy has never been more at risk. Last November, right around the time of Sony’s nightmare leaked-email drama, a serious privacy breach led to the disclosure by the Canada Revenue Agency (CRA) of detailed tax information of hundreds of Canadians — including former prime minister Jean Chrétien, author Margaret Atwood and grocery magnate Frank Sobey — to CBC News. Ouch.

As accountants, we are seen as trusted business advisers and gatekeepers to the tax system. With the CRA becoming more digital, we have to stand guard to ensure that our clients do not end up as casualties. Consider the facts: the CRA interacts with more Canadians more often than any other government organization. Its operations have a significant impact on all of us. To that end, it has one of the most extensive personal information record holdings in the country. About 65% of its approximately 40,000 employees have electronic access to taxpayer information through various tax systems.

Canadian taxpayers cannot afford to be naive. They have to assume that any information provided to our tax authorities can be retained indefinitely and shared with almost any government on earth. They also have to assume that breaches are not just possible but probable — no one’s information is safe, not even that of a former prime minister, a beloved writer or one of the country’s wealthiest individuals. While taxpayers may think revenue authorities have unlimited resources (the CRA’s annual budget is $4.3 billion or so), in actuality they are dealing with high expectations and budget cuts, which means they are looking for inexpensive ways to drive performance. Enter cloud-based and other technology that can help drive efficiency and potentially increase risk.

When it comes to tax practice in the information age, perhaps the biggest challenge is that technology is advancing in fits and starts, faster than our capacity to deal with it morally, ethically and legally. Many senior practitioners have admitted that they are glad to be retiring, just so they don’t have to deal with these issues.

Of course, it’s not all bad. Technology also gives practitioners the capability to capitalize on new service opportunities and build new business models. Everything is new again, including what clients perceive as value, the nature of client relationships and client expectations. Increasingly, those expectations include being made aware of potential security threats.

Practitioners can advocate for their clients. In addition to intervening with tax services offices on urgent client issues, they can also use social media to bring systemic problems to light and join others to assist, advise or advocate on a national level.

In this column I will address topical, significant tax practice issues from the perspective of the taxpayer and share some lessons learned. I will also comment on key cases shaping the current legal framework and the CRA policy regime, and point out areas of concern with respect to protecting information and ensuring tax fairness. My goal is to help simplify the issues and offer suggestions for resolving them before they become problems.