What NOT to do when the CRA Audits YOU

Tax Litigator Dov Whitman, Jose Atencio and George Roth on What to Do (and Not Do) When the Brown Envelope Arrives.

This episode features Montreal tax litigator Dov Whitman discussing how we should respond when we receive a CRA audit letter and why many people make costly mistakes by either overcomplying (giving more than requested and triggering deeper scrutiny) or undercomplying (ignoring or sending hostile replies that can escalate matters and even create criminal exposure).

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00:00 Audit Letter Mistakes
00:45 Meet Tax Litigator Dov
01:28 Why He Chose Tax Law
03:03 Fighting Government Overreach
05:29 Canada vs US Tax Code
07:30 CRA Intimidation Tactics
10:17 Money Pressure and Incentives
12:08 Protect Yourself in the System
14:11 How to Handle an Audit
18:12 Routine vs Serious Audits
19:06 Overcompliance Story Setup
20:35 Stop Overcooperating
21:03 First Steps After Letter
23:36 Avoiding Audit Triggers
26:21 Third Party Audit Risks
28:35 Government Data Powers
29:33 Guilty Until Proven
31:53 Records And Court
35:01 Who Gets Targeted
37:08 Fighting Back Options
38:54 AI And Audit Tools
41:23 Closing And Contact

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*This video is for entertainment purposes only and is not financial or legal advice.

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Transcript

SPEAKER_03 0:00

Once you get an audit letter, that's when you really have to start being careful because people often do the wrong thing. Sometimes do one or two things that could be wrong, okay? One thing that could be wrong is people overcomply. People just say, okay, oh man, the government's asking questions. Let me give them every single thing that I have, no matter what, okay? You know, it's one thing to give them what they're asking for, it's another thing to give them more than they're asking for. And the general rule is certainly never give them more than they're asking for. Because I guarantee the more you give them, the more information and ammunition they will have to keep looking. And I can't tell you how many situations I've seen where taxpayers innocently give information and then it just leads to more and more audits.

SPEAKER_01 0:45

You have followed the rules, and then a brown envelope arrives. In that moment, you realize the CRA doesn't just want a seat at your table, they just happen to want the whole table. And today we're talking to this man, a man who fights back when the state tries to claim your sovereignty. He is a tax litigator in Montreal. His passion is to fight against the CRA, fight for the rights of business owners, fight for the rights of families that the only crime that they have committed is to make some money in Canada. Today we have a very special guest here with us, our friend Dov Whitman. Dov, thank you for joining us today. It's a pleasure to be here. Thank you for having me. Yes. Dov, when it comes to the tax litigation and the work that you do, what moved you initially to do this? What was the thing that prompted you to take this career path?

SPEAKER_03 1:39

I mean, I I guess there was a couple of different elements to it. At first, it was really just the idea of tax was something that was very interesting to me. It was super, super complicated, super technical, but also very philosophical and very policy-driven. Tax actually affects every single part of our life. Almost everything we do in our life has some potential tax implication. So that means tax cases for me become very interesting because a lot of times they're about the way people live their lives and the choices that people make. It's about the industries that they're in, the jobs that they choose. So there's a lot of very human elements to the practice of tax, just that I find interesting. And then in terms of the litigation, I always like to go fight. Um and this is a really great thing to fight about. For me, like fighting the government is something you can feel good about. You know, never worried that you know you're the big guy trying to bully the little guy. Because compared to the government, you're always the little guy. You know what I mean? No matter how much money you have, no matter how big you are, you're always the little guy. The government always has more money and more resources. So you're always, in a sense, kind of the underdog. And I like that, you know. Um, I like fighting for the underdog. Um, what makes me frustrated is the government overreach. Because, you know, there's really two separate questions when it comes to tax, right? There are kind of policy questions about what should the law be and what shouldn't the law be. And those are important questions, that's for sure. But that's not really where I spend most of my time. I let other people deal with what should the laws be. For me, it's okay, these are the laws, these are the rules that you, the government, have instituted, but now you got to follow them. You can't make laws and make rules and then not follow your own rules. Like to me, it's the big problem that I have, and that's kind of what motivates me a lot in tax litigation is you want to make these crazy rules, okay. Like, we'll play by the rules. But then when we play by the rules that you yourself made, don't come in, start changing and moving the goalposts and saying, well, really, the rules are different. Well, no, you made the rules, so now you got to live by that. That's kind of what we aim to do.

SPEAKER_01 4:07

Is that something you see often, then you know that they don't follow their own rules? Is that like the main reason why you have a job?

SPEAKER_03 4:16

Well, absolutely. Like, that's what they do all the time. Now, sometimes it's questions of interpretation, and sometimes it's questions of judgment, but very often the government will challenge the things that taxpayers do. You know, there's no basis for it. There's no basis for it, there's no support for it, there's no foundation, and they just, you know, they don't like it, and then because they don't like it, they find a reason to challenge it. But they don't really think that's the way government should be working. You know, government has a role to play, of course, and there's an oversight role, but it should be okay. Let's look at what you did, and if it's wrong, it's wrong. But we shouldn't just say we don't like the result and now find a way to justify, you know, then what? It's just a cash grab. I mean, that's not the role of government, and that's not the role of tax, you know. So that's something that we try and push back on.

SPEAKER_00 5:11

Doug, I find that interesting. We've had the tax code for a very long time, and there's still different ways to interpret the tax code and move the goalposts. How is this even possible after hundreds of years of the tax code? This is shocking to me.

SPEAKER_03 5:28

But you know what's interesting? It's like if you compare, for example, the Income Tax Act in Canada to the Internal Revenue Code in the US, okay? So the tax code in the US is much, much, much more detailed. Very, very detailed, okay? Which is why in the US, there's a lot less room for tax litigation because everything is spelled out black and white. Okay. But in Canada, the way the act is written, yes, it's very complicated, but it's nowhere near as detailed uh as the U.S. counterpart. So many questions are often questions of how do we they're they're judgment questions of how should we apply the law to these facts, because it's not always clear and always need to get resolved by the courts. And courts say different things at different times, and you can have one fact situation, you get one answer, you have another fact situation, you get another answer, which is why sometimes you end up with seemingly similar situations, but with different results and different rules. And that's one of the reasons why tax litigation becomes so important in Canada, because the code is not as you might find in other jurisdictions.

SPEAKER_01 6:45

That's interesting. But you know, why would you say this difference exists? Like, you know, we're like both countries under the system of common law, but why would it be so different? Like, why do they have more clarity than our system? Why would you think that happens?

SPEAKER_03 7:02

So, first of all, I don't know. But if I had to guess, I would just say it's because they're bigger. The US is bigger, you know, five, six times the size, so it made more sense or makes more sense to have like these issues come up probably way more often than they do in Canada. So maybe that's why their system just evolved faster. But then that would only be speculation. Like I couldn't say. Okay. I couldn't say.

SPEAKER_01 7:30

Doug, do you have some examples? Earlier you mentioned government overreach, and that's something that we talk a lot about and how the government was to put their hands into everything, especially when it comes to finances and of course taxation. One of the main means of revenue generation for the government is it's either taxation or inflation. They can't produce anything, everything they have has to be either confiscated or just created out of thin air. What are some of those examples of overreach? When you think about government overreach and what you fly through, what are some of the top examples that come to mind?

SPEAKER_03 8:12

Well, there's a lot, that's for sure. There's a lot. Let me think of a couple different kinds of examples. I mean, one thing that we see a lot, and especially like I specifically deal a lot with, you know, transactions that get considered to be aggressive tax planning. You know, that's what the CRA calls them. And what you'll find is that when you have these kinds of situations, the CRA is often not really clear on why they don't like it. And usually what they'll do is they'll throw out a whole bunch of reasons. They'll say, we don't like it because of this. And if it's not this, it's this, and if it's not this, it's that. And then if all else fails, then we think it's abusive tax planning. You know? So they like to throw out a lot of different things at you. And people get scared because they say, Wow, they said I did this wrong and I did that wrong and I did that wrong. But a lot of it, in my opinion, is first of all an intimidation tactic. They just they want people to be scared. They want people to open up a 30-page letter and say, oh my God, the government has 30 pages to say why I'm a crook, so they must be right. That's number one. But number two, to me, it also shows that they're not really 100% sure about what's wrong with it. You know, like if it was clear that it was wrong and if there was a clear violation, they would just say, it doesn't work because of this. But they don't have those kinds of arguments. So what they have to do is they have to come up with alternative arguments and they just say, well, maybe it's this, maybe it's that, maybe it's that. And the way I feel about it is if you're not really sure, then leave everybody alone. Why why why are you making all this trouble if you're not really sure what the problem is? Exactly.

SPEAKER_01 10:01

And what do you think will be their motivation? Because you know, they're not even sure. Yeah.

SPEAKER_00 10:06

That's my question.

SPEAKER_01 10:07

If if you're not sure what's wrong, then what are the motivations? Is that like they have bonuses, like quotas that they have to fill? Like, tell me about it.

SPEAKER_03 10:17

Well, I mean, the motivation is very simple. It's just, you know, the Department of Finance says we need more money. So they tell them get as much money as you can. And I mean, look, it's like obviously it becomes political at a certain point because the more that the government raises the budget, then the more taxes they have to raise in order to cover the budget. And, you know, as you said, tax is pretty much their source of revenue. So they just say we need more money, you know, and and that's that's one of the issues, which is that a lot of this stuff is not being driven by policy concerns, it's just being driven by we need more money. Okay, but like why is that everyone's problem? You know.

SPEAKER_01 11:04

When they say, Yeah, we need more money, how does that directive come from top to down to the actual auditor that's going to audit someone? Do they have like in the sales world quotas and goals? Do they have something like that?

SPEAKER_03 11:20

That's always a big question. Nobody seems to really know exactly. I mean, the CRA always says that they don't, but we understand that they have some kind of incentives. So it's not really clear exactly what kind of quotas, but we understand that there is some kind of incentive. Uh what exactly it looks like, I I couldn't tell you. We understand there's some kind of incentive.

SPEAKER_01 11:41

Okay. But these are not public domain. No, no, no, nobody really. Well, they should be, right? Like they're like a public servant.

SPEAKER_00 11:51

So what it's you would think. Well, this is what's crazy. So this takes me to the I'm here from the government, I'm here to help. I mean, it shouldn't their purpose be to help Canadians, uh as opposed to the opposite.

SPEAKER_02 12:07

Yeah.

SPEAKER_00 12:08

So what can business owners how can they protect themselves? Do you have any uh ideas around how can we stay sovereign and avoid CRA coming after us?

SPEAKER_03 12:21

There's always two things to consider, right? There's the bigger policy questions, you know, which is an important question of if people feel that you know their voices are not being heard in parliament and the policies that they want to see being enforced are not being enforced. But again, that's not really my area, it's certainly not my area of expertise, and it's not really anything that I'm involved in. So I can't comment on that. All I can really comment on is okay, we're in this system, you know, how can you protect yourself best? How can you ensure that your experience in the system is as smooth as possible? Right? So the question really becomes when you come across some kind of interaction with the government, when does it make more sense to accede to what they want, and when does it make sense to fight it? Because sometimes it's not worth the fight, but sometimes it is. And it's knowing that difference that really makes all the distinction, really makes all the difference, right? Like sometimes you might think, okay, look, I really don't like what they're doing, and it's a big principled argument. Okay, I suppose. And you wouldn't be wrong to fight it, but maybe your life will just be easier if you don't, right? But then again, you have to know, okay, but by giving them what they want, am I opening myself up to more? Is it really just one thing, or is it going to come become one thing and then another and then another and then another? This actually comes back to the question that you asked before about what do you do when the brown envelope comes, okay? Because that's usually the starting point for everything. So let's we can let's dig into that a bit. Of course.

SPEAKER_01 14:10

Yeah.

SPEAKER_03 14:11

So often the starting point for these interactions is you get a letter from the government saying we're gonna audit you, okay? And the trigger for the audit could be anything. They don't usually tell you what has triggered the audit. They have audits that they do by industry, they have audits that they do when people have a certain net worth, they have audits that they do if there's something that looks funny in your tax return. Like there can be many, many different things that trigger an audit. But once you get an audit letter, that's when you really have to start being careful because people often do the wrong thing. And sometimes do one of two things that could be wrong, okay? One thing that could be wrong is people overcomply. People just say, okay, oh man, the government's asking questions. Let me give them every single thing that I have, no matter what, okay? You know, it's one thing to give them what they're asking for, it's another thing to give them more than they're asking for. And the general rule is certainly never give them more than they're asking for. Because I guarantee the more you give them, the more information and ammunition they will have to keep looking. And I can't tell you how many situations I've seen where taxpayers innocently give information and then it just leads to more and more audits. Okay. Now, I'm not saying that you should just refuse it because you cannot. You know, that's a criminal offense. But the question is not do you respond or do you ignore it? That's not the question. The question is how do you respond? And it's all about how you respond. Okay. So one thing is obviously not over-responding. Okay. The other thing is also not under-responding because a lot of people, their instinct is, oh, I got a letter from the government. Who are these people? I don't owe them anything. They have no right to ask me questions, and just go fly kite. Okay. You know, I mean, I suppose a person could do that if they want, but the thing to remember is first of all, that's a criminal offense. So a person who does that exposes themselves to the potential of criminal prosecution. It's not common, but that potential exists. That's number one. And number two is I guarantee you, writing some kind of letter like that back to them is not going to stop them. It may feel good, it may feel nice to be able to get that off your chest and to vent, but it's not going to achieve the outcome you want. If the outcome you want is for the government to back down, that's not going to do it. If anything, that'll make the government come after you more. They're going to say, oh, this guy, he probably has something to hide. So, you know, the question always becomes knowing what to give and what not to give and where to draw the line and when to fight, right? And that's why it is definitely helpful to consult a professional from the beginning. And I can't tell you how many situations I've seen where people come to me down the road after they've already started to have a lot of correspondence back and forth. And here's what often happens. In the beginning, people think, oh, I'll handle it on my own. But then they either give too much or they just write letters saying you guys are terrible, and they've just made a mess of it. And what ends up happening, inevitably, is just that it becomes a much more expensive proposition. It's as simple as that. So if you get someone like me involved in the beginning, it will likely end up costing you much less than if you wait to get me involved. That's that's really the long and short of it. Exactly.

SPEAKER_01 18:05

So basically, as soon as you see that brown envelope arriving right here, essentially.

SPEAKER_03 18:11

Exactly. Because you also need to know there are some audits that are just routine audits. If they just want a couple things and you give them what they want and they're gonna go away. Okay? Those are not worth fighting because you just give them what they want and they're gonna go away. It it's simple.

SPEAKER_01 18:25

But it's still nice to call you to ask you, hey, this is the request. What should we do? Right?

SPEAKER_03 18:30

Well, but that's the point, right? Like you need to be able to know the difference. Yeah you need to be able so I can look at something and say, look, this looks like a routine audit, just give it, and then they're gonna go away and you're never gonna hear from them again.

unknown 18:42

Yeah.

SPEAKER_03 18:42

Or I could say, hey, the kind of stuff they're asking for is a little out of the ordinary, it seems a little strange. I think they have some bigger picture that they're going after here. We better be careful.

SPEAKER_01 18:53

And that opinion is worth gold, like it's worth paying for. Otherwise, you're gonna pay with time, with stress, and with even more money, which doesn't make any sense.

SPEAKER_03 19:02

Absolutely. Absolutely. I love that.

SPEAKER_01 19:06

Dove, you mentioned when you received the audit letter that be careful not to be like overreact and also not to go in the side on overcompliance. Could you give us like a brief example, like a real story? We don't have to mention real names, but like a real example of overcompliance.

SPEAKER_03 19:28

Of overcompliance? Sure. Sometimes people try and start giving explanations, okay? You know, so sometimes you know a very typical initial audit letter will be saying, you know, send us your minute book, send us your resolution, send us your contract, your receipts. Like that's a very routine, typical audit. Okay. They may ask for a couple of documents about a specific transaction. But sometimes what people will do is they think, oh man, the CRA is asking me questions about this transaction. I better start and give them, you know, like I better go on the defensive right away. And I better tell them, well, oh, this transaction, we did this and we did that, and it's because of this, and it's because of that. But I always say, don't answer a question you haven't been asked. If they didn't ask you, don't start giving explanations because I've seen more than once this kind of thing where, you know, the CRA was just asking routine questions, and then the taxpayer, obviously before getting me involved, decided, oh, you know what? I'm gonna tell them everything. I'm gonna give them all the explanations, and then they're gonna see that I'm in good faith, they're gonna see I'm cooperating, and then they're gonna leave me alone.

SPEAKER_02 20:43

No.

SPEAKER_03 20:43

You give them all these explanations, they're gonna catch on the one thing that you write that they don't agree with, they're gonna say, ah, we want to know more about that. So being extra cooperative doesn't help. No, being difficult doesn't help either, but being over cooperative, it doesn't really help. 100%.

SPEAKER_01 21:02

Yeah, George.

SPEAKER_00 21:03

So it sounds to me like the key is knowing the difference, as you mentioned. So when you get this letter, what should be their first step? Or what's the first two or three things that they should do once they receive a letter?

SPEAKER_03 21:20

The first thing that a person should do is they should contact a professional. Now, you don't necessarily need to contact a tax lawyer right away. You can start because not everyone has a tax lawyer and not everyone, you know, knows how to do that, but most people do have an accountant. So you should definitely at a minimum contact your accountant. The thing that people need to remember is that accountants sometimes have a different way of looking at the world, you know? And an accountant often, and again, I'm not trying to generalize for all accountants, but you know, some people may have a mindset of, oh, the Sierra is asking, let's just give it, right? So You know, contacting an accountant could be good, but for sure the best way is to contact a tax lawyer. That's for sure the best way. You know, it's not necessarily the cheapest way, but it is definitely the best way, you know. And I think a person needs to know. I think a person needs to have a general sense of their tax affairs to know, okay, have I done anything that I think might trigger the government scrutiny, or really have I done nothing whatsoever, right? And like there's nothing about your business or your employment that's unusual or out of the ordinary, okay, then maybe it's just a routine and you answer a couple questions and go away. But the second that you know that you've done a couple things, not that are wrong, of course not, but just things that are maybe not typical, then you might say to yourself, hey, you know, I think the government might not understand, might try and come after me, might whatever. Then you really want to get a tax lawyer involved, I would say, because you need to protect yourself.

SPEAKER_01 23:00

Something that our audience understands is the concept of opportunity cost. And when you mentioned, yes, contacting a tax lawyer might not be the cheapest. You know, when you factor in the actual opportunity cost of not contacting the lawyer and the added time that you're gonna have to put in to deal with this and the sleepless nights and everything that happens, just because you don't have a professional dealing with that, I I think a lot of people, a lot of listeners will agree that it might actually be the cheapest option to contact the tax lawyer. Yeah. So I want to go back to you when you mention aggressive tax planning. I think about okay, I don't even want to get into the position where I get that letter. How do we avoid or how do we increase our chances of not ever getting that letter, Dove?

SPEAKER_03 23:55

How do you increase your chances of not getting the letter? Well, so like I said, there are different ways that audits get triggered, right? So there are some things that you can do that will minimize that, and there are some things that you can't really do. So for example, you know the easiest thing that triggers audits is when you have compliance issues, people who don't file their returns on time, people who you know have missing returns, stuff like that. Like that's the easy, easy one, you know. If the CRE says, C's oh, this guy hasn't filed returns in five years, or his corporation hasn't filed returns, or if you filed them late, you know, or if you make mistakes and you have to file amendments, like those are all things which will trigger reviews. And then even if you're 100% right, like you've done nothing wrong, okay, but it'll trigger a review, and then you're talking months and months and months of back and forth and time and like all of that, which could have been easily, easily avoided from the beginning. So like that's something that that is very easy for people to do. That's number one. Number two is if you think that there are, you know, let's say transactions or things you can do that without reporting them, that's another thing. So for example, one thing the government does often is they have access to the uh provincial or municipal land transfer indexes. Okay, so they can see all of the transactions, all of the sales of property, of real estate, all the purchases, everything. So if you buy or sell a house, even if you don't put it in your tax return, the government will know. Okay, I've had many situations where audits were started not because of what was reported, but because of what was uh indicated in the land transfer registries. And then if you have a sale or a transaction which is reported in a registry but is not in your return, that I guarantee you is going to cause an audit because that's gonna look, hey, there's something that's you know, something that's something that's funny. Um, so those are things that you can do to minimize your chances of getting audited. If you do something though, which the government will consider aggressive tax planning, you know, then there's a very high chance that no matter what you do, you'll end up getting audited regardless. Because a lot of times what happens is let's just say you, let's say someone sells you a plan, okay? And but then the person that sells you the plan probably sold it to a hundred other people or a thousand other people, right?

SPEAKER_01 26:52

Which plan you're talking about here, Dav? Which type of plan?

SPEAKER_03 26:55

Like some kind of tax plan, okay?

SPEAKER_01 26:57

Okay.

SPEAKER_03 26:58

Some kind of product, like something which is legitimate, but you know, some kind of financial product or some kind of you know, tax plan or tax shelter or or whatever you want to call it, okay? Something which is completely legal, right? But you know, these things can happen, right? So then even if you don't get audited, but if that person gets audited, the government will often ask them to give the names of all of their customers and their entire client base, and they will have to give it and they most likely will. So you personally can end up being audited as a result of a third-party audit. Oh. So, you know, very often just by doing business with anybody, you know, or or even even if it's not tax related, you know, like there was a very famous case um several years ago where where eBay got audited. Okay. eBay was audited, and the government wanted the list of everyone that was considered a power seller on eBay. Okay, they asked eBay for that because the government thought that these people were selling stuff on eBay and they weren't declaring their income. And eBay didn't want to give it, but in the end, the court forced them to give it. So the point is that the government can get information about you from other people that you do business with. And those kinds of things, it's somewhat unavoidable because then you have no say in it. You have no say on whether eBay gives it or doesn't give it. You can't tell them not to. If they give it, they give it. And to the extent that any person does business with other people, they can get it. The government has a lot of power. The government can go to your bank. Like, you think that when the government calls you and says we want your bank statements, you think if you say no, that's going to stop them. The government can go directly to your bank and ask the bank for your bank statements. And they don't even have to tell you, and the bank doesn't have to tell you. So the government, right now at this moment, could be looking through your bank statements and you will have no clue whatsoever.

SPEAKER_01 28:59

And you know, there's no need for a court order or anything. It's just like, hey, we need this.

SPEAKER_03 29:03

Yeah, they don't need a court order, they just issue it. Now, there are ways to fight it, but you think the bank is gonna fight it? Probably not. The bank doesn't want trouble with the government.

SPEAKER_00 29:16

So Wow, that's that's a little scary.

SPEAKER_03 29:20

Yeah, of course it's scary. Of course it's scary. Like all of your information, all but a very large amount of your information is potentially within the reach of the government. You know?

SPEAKER_00 29:32

Wow. What are your thoughts on the concept or the idea of guilty until proven innocent? Is this the approach that they take often, or what are your thoughts around that?

SPEAKER_03 29:47

You know, it's a very good question. In a sense, yes, that is kind of the approach that is taken. And there is a policy justification for that. I'm not saying I agree with it, but there is a justification for that, right? And the policy reason for that is what they'll say is look, we're the government, we don't really know what you guys have been up to. Only you know, right? So if you are the ones that know, then you are the ones that have to prove to us that what you've done is right. And okay, maybe there's a logic to that, but the trouble becomes two things. Number one, the trouble becomes when that power gets abused to just become witch hunts and just to say, okay, well, we're just going to accuse everybody, and then now you just now it's your job to prove to us that you're correct, which becomes very difficult. Number two, one thing that we're seeing more and more often is the government will ask you questions about things that have happened years ago. And it's not uncommon anymore to get audit letters, and the government will say, Oh, you did something 10 years ago, we want more details about it. And you say, Okay, 10 years ago, I don't have any of that stuff anymore. I don't have those records anymore. I'm not even required to keep my records that long. So now you don't have any more records, you don't have any more documents, you can't prove anything. And the government says, Well, if you can't prove it to us, then we're gonna tax you. And then you're really in trouble because the way the system works as it is, is that yes, you are guilty until proven innocent. And if you can't prove your innocence, you're gonna have a very hard time.

SPEAKER_01 31:26

Wouldn't that be something that will be easily dismissible in a court in 10 years? But I'm not even required to keep the documents. Isn't that like an easy win for you, Dov?

SPEAKER_03 31:36

No, unfortunately not. Because under the laws as they are right now, the government is completely entitled to do that. They're completely entitled to do it.

SPEAKER_01 31:46

Okay, so what but you don't have the records and you're not even required. So what's what would be the exit there?

SPEAKER_03 31:53

Well, in a case where you don't have the records, your only recourse will be to go to court and to try and testify. Because here's here's the thing that people have to remember also. So there's a very big difference between what happens when you're dealing with the government versus when you're dealing with the courts. Okay. When you're dealing with the government, when you're dealing with CRA, they want everything in paper. Okay. If there isn't a paper, then according to the government, it doesn't exist. Okay. You can tell them, yeah, I did this and I did that. If you don't have some kind of paper that proves it, the government will say we don't believe you. So that makes it very difficult when you're dealing with the government, especially when you're dealing with things that may have happened a long time ago. Not everyone keeps a note of every single thing that they ever do in their entire life, but that's kind of how the government expects you to operate. But if you go to court, a court will accept a much broader category of evidence. And the court will accept your evidence saying, look, this is what I did, and here's what I was thinking, and here was the reason. I don't have any papers to show it, but that will be enough for a court. So going to court is always the option when you have no records anymore. Um, but if a person wants to minimize that, then keeping your records can be better. Right? So that's where it becomes a very difficult question because a lot of people say, okay, should I keep my records or should I not keep my records, right? So on the one hand, let's say there's a certain amount of time that you're required to keep records, and afterwards, if you don't keep them, and then the government asks you for them, then you can say I don't have them, and that's fine. But the problem with that is that when you tell the government I don't have any records anymore, that doesn't necessarily mean the end of it. The government will say, Okay, you don't have documents, we're just gonna start making assumptions about what we think happened. And now the government's gonna say, okay, we're gonna make assumptions about what we think happened. You have to prove to us that it didn't happen. And now you're in trouble. Because now how are you gonna prove it to them? Because now you don't have any documents, you don't have any records, right? So I usually tell people keep your documents forever. Just keep them forever. Because if you ever need them, you're gonna have a much easier time with them than without them. If you find yourself in a situation where you don't have documents, then what you want to do is stop dealing with the CRA and try and go to court because the CRA will never agree with you if you don't have documents. A court might agree with you. A court might say, Look, yeah, you look believable, and I can understand why it's 20 years later you don't have documents. But I I've literally seen that. You know, things that happen where the government says we want documents from 20 years ago. 20 years. Who has that? Nobody has that.

SPEAKER_01 34:50

Well, I'm so glad you're here talking to us because I don't think anyone would expect that. You know, to think, oh yeah, that they're gonna ask for those documents 20 years ago. It's insane. It really is. Tell me something, Dov, about you know, who's the real target now in 2026? Is that you know, middle class families are those like gig workers, small business owners. Who's who has their crosshairs on now in 2026?

SPEAKER_03 35:21

Honestly, everyone. That's the truth. But there's a couple different things, right? Like we've known for a long time that they certainly go after people with high net worth. That's for sure. They have the whole audit division designated just for people with high net worth. So that's one thing.

SPEAKER_01 35:36

For sure, they have on they have an audit division specializing people with high net worth.

SPEAKER_03 35:43

Yeah.

unknown 35:44

Okay.

SPEAKER_03 35:45

Yeah. So if you make too much money, you're not VIP treatment. Yeah, VIP treatment, you're on the audit. Another thing is people that are self-employed, there's a lot of questions about deductions, about receipts, about expenses. There's a very high chance that someone that's self-employed is gonna get audited. Um especially if your income is not consistent. If they see if it changes a lot from year to year, goes up and goes down, like they're gonna ask questions. When you're a salaried employee, your risk of being audited is much less because they feel your income is just what's in your T4 and that's it. Um people, small businesses, and anything bigger than that.

SPEAKER_00 36:32

Well, I think part of, I mean, certainly part of the problem, as you said earlier, they're running crazy deficits, they're printing money like there's no tomorrow. Yeah. And they need revenue. Where do they get their revenue? Their revenue comes from us, of course. Right? The hardworking Canadians.

SPEAKER_02 36:49

Yeah.

SPEAKER_00 36:49

So this is certainly troubling. Just the whole idea of overstep, doing what they want. You gotta prove that you're innocent. It's all very, very troubling.

SPEAKER_03 37:04

No, it's it's it's it's absolutely very troubling and it's very disconcerting. And I think I think that the one message that people need to know is that it is possible to fight back. Because I think a lot of people don't realize that. A lot of people think, oh man, the government wants this, the government wants that. If it's the government, uh they must be right. You know, the government, they must be right, they must know what they're doing, they must be allowed to do what they're doing. So I just better give them what they want without even a second thought. And the message is no, that's not true. You can always fight back. A lot of times the government asks for things they're not entitled to. A lot of times the government says you owe tax that you don't really owe, so you can fight back. Now, you have to know when to fight back and you have to know how to fight back, but it's important to know that you can fight back. It's not just okay, the government gets to do whatever they want. No, the citizens can also take matters into their own hands and can bring the fight to the government. That's for sure.

SPEAKER_01 38:04

And and you know, for you they're listening, you don't have to figure it out, you know, when and how to fight back. Right? You just have to reach out to Dov here, and he will gladly tell you when and how. So exactly. But I love that. That's like the positive no. Like it has been, I would admit, has been a difficult episode today because there's like a lot of bad news, and it feels like you're trapped. You're trying to find, like, my mind is just trying to find like, you know, how do we protect against it? And we do our best. And even ourselves, you know, in the profession that we have, what we do here, both George and I, like, we try to protect your wealth. We try to protect as much as we can everything that you have built. We try to help you build a legacy that you can pass on to the next generation without a predatory clawback into your wealth. And that's basically the core of what we do here. In the age of AI, Dov, do you see how are they keeping up with AI? Are they using AI to trigger audits? Are they using big data? Or tell us about it. Or they're pretty much very rudimentary for now.

SPEAKER_03 39:14

I mean, they're definitely using AI. Again, you know, they're not particularly transparent about exactly what they do or how they do things. They really don't like to discuss their audit methodologies. But we do know that they use AI. Um, we we know that they scour things. That's the thing to remember, right? Like the government has so many tools at its disposal and so many resources available to it that sooner or later they're they're gonna find stuff, you know? And it doesn't mean that it works well and doesn't mean that they're right, but they certainly have access to a lot of computing power.

SPEAKER_01 39:54

They're not the brightest, but they have access to unlimited resources, and that compensates pretty much, exactly. Yeah, yeah.

SPEAKER_00 40:03

I think that your message there, Dove, what you you just summarized a few minutes ago, is so important. I think that's really the crux of the matter, right? That that's the whole purpose of this podcast episode is to let people know that there you can fight back, there are resources available to help you fight back, and we do not have to succumb to you know what the government wants us to do for their benefit, not for ours, right? Exactly. Um, let's do things that benefit us and our families and our businesses. Stay within the rules, absolutely, but you don't have to be the compliant follower, blindly doing whatever you're told to do. So that's part of our whole message is you know, as a sovereign capitalist, you want to work not necessarily in the system, because the systems are all created for someone else's benefit, not for your benefit. So let's work in a place that is going to benefit us, and that's what we help people do all the time, and we teach them. And and it's so important to know that there is an option.

SPEAKER_03 41:09

Absolutely.

SPEAKER_00 41:10

You don't always have to just bow down and comply when things are not fair, right? I really, really appreciate you sharing that message with us. Of course, my pleasure.

SPEAKER_01 41:23

How can people reach out to you if anyone is interested?

SPEAKER_03 41:27

Uh well, you can certainly share my contact information, my email address, and my phone number. And people are more than welcome to contact me if they have questions, if they have issues, if there are disputes with the government. We have a whole team of people here whose job it is only to fight the government.

SPEAKER_01 41:43

Yes, that's great. And we have also a whole team here of people that their only mission is to make sure that your wealth and everything you built for is protected. So you guys are our second layer, and we appreciate that.

SPEAKER_03 41:57

Amazing.

SPEAKER_01 41:58

All right, well, thank you. Thank you for listening, and I see you on the next episode. Thanks everyone. Thanks, Duff. Thank you. This episode of the Sovereign Capitalist Podcast was provided with the understanding that the staff and contributors of Asteris Capital Advisors are not herein engaged in rendering tax, legal, or financial advice. For such matters, please consult your own tax legal or financial advisor.