Questions and answers – Liaison Officer Initiative (LOI)

1. What is the Liaison Officer Initiative (LOI)?

The Liaison Officer Initiative (LOI) is designed to help small and medium-sized businesses meet their tax obligations. This approach involves activities that are designed to provide taxpayers with education and support. A visit from a Liaison Officer (LO) does not constitute an audit and will not result in any CRA-driven changes to past tax filings. The focus of the LOI is to help businesses “get it right from the start” by providing them with in-person support and guidance at key moments of their business life cycle. The CRA undertakes three types of activities as part of the LOI:

  • Small Business Support Visits
    • Specially trained CRA Liaison Officers (LOs) will visit businesses from selected industry sectors that have voluntarily agreed to participate to provide income tax support and guidance. LOs will address tax related questions and concerns raised by the taxpayer, provide general information about tax obligations and highlight income tax errors common to their industry or business sector.
  • Books and Records Reviews
    • The LO will review the taxpayer's books and records and provide advice and guidance on the accuracy and completeness of the taxpayer's records, so that any potential issues can be addressed prior to tax filing.
  • Compliance Support Arrangements (CSA)
    • Following a visit or review, or when information has been provided, in order to reinforce the opportunity for learning and awareness, LOs will ask taxpayers to sign a CSA as an acknowledgement that they have understood the nature of their tax responsibilities, those of the CRA and the information they received.
      • The CSA highlights the key responsibilities of both parties, identifies unintentional or recurring income tax errors that are common to the taxpayer's business sector and outlines industry benchmarks that the taxpayer can use to compare their performance to the sector in general

2. Is the LOI a new approach?

The LOI was adopted by the CRA in April 2014 and many of the concepts on which it is based have been adopted by other tax administrations around the world. The LOI focuses on helping Canada's small and medium-sized businesses understand what their tax obligations are and get their tax filing “right from the start.”

3. Why did the CRA adopt the LOI?

98% of Canadian businesses are small and medium-sized. By adopting an innovative approach that promotes tax compliance through direct support and education, the CRA is working to build and strengthen its relationships with Canadian businesses, enhance the services it provides to taxpayers while reducing red tape, and equally important, reduce the level and frequency of tax reporting errors.

4. Why does the CRA feel that this approach is useful to Canadian businesses?

While most Canadian businesses are compliant with Canada's tax laws and regulations, there are some that could improve their level of compliance if they could avoid the unintentional or recurring errors they make on their tax returns. The CRA wants to help Canadian businesses avoid tax-related problems and additional red tape by helping them understand their tax obligations. By meeting their tax obligations, businesses can potentially avoid time-consuming audits or other interventions from the CRA.  

Other tax administrations around the world have reported much success through the approach adopted under the CRA's LOI.

5. What other countries have adopted similar approaches?

The CRA is part of a group of tax administrations around the world that exchange and share best practices in tax administration and income tax compliance. Some countries that have had success with similar types of approaches to improve business compliance include the US, the UK, Australia, New Zealand, Sweden, Ireland and the Netherlands.

6. When was the LOI launched?

The CRA launched the LOI as a pilot project from certain Tax Services Offices throughout the country in April 2014. The LOI became a permanent program in April 2015.

7. How will industry sectors be selected for the LOI?

The goal of the LOI is to provide support and guidance to businesses so that they can correctly file their returns. Interactions with Liaison Officers will provide taxpayers with the information they need to better understand their industry and how they fit within it, address questions and concerns, and avoid common tax reporting errors. The program is not about identifying high-risk non-compliers and assessing past tax filings. That responsibility will remain with CRA's audit programs. Industry sectors will be selected for the LOI based on the following criteria:

  • The sector is not the focus of significant audit treatments or special projects;
  • The sector has historically experienced low to moderate rates of change to tax returns as a result of audit activity.

8. How are specific businesses selected for the LOI?

After the industry sector has been chosen, businesses from within that sector are randomly selected and provided the opportunity to participate in the LOI.

9. What can a selected business or industry association expect from the LOI?

Selected Businesses

The LOI will offer various services aimed at helping businesses meet their tax obligations from the beginning of the tax filing process, thereby reducing red tape and the necessity of future interventions by the CRA to ensure their tax filings are correct. The services offered may vary from one business to another, and may include:

  • General information identifying unintentional or recurring errors made in the selected industry sector and recommendations on how to fix them; 
  • An invitation from an LO to make an appointment for a small business support visit;
  • An invitation from an LO to conduct a books and records review;
  • An invitation from an LO to enter into a CSA. The CSA is voluntary, and is not binding in a court of law. The CSA is meant to outline key responsibilities of both the taxpayer and the CRA, and provide industry benchmarks to the taxpayer to be used for self-comparison.

Industry Associations

Industry associations representing businesses in the selected industry sector, or a tax advisor/preparer representing a selected business, may receive enquiries about this initiative. By contacting the tax information line (1-800-959-5525) or by visiting the CRA LOI website, associations and representatives will be able to obtain additional information to assist their members.  

10. Is the LOI an audit program?

The LOI is not part of the traditional audit program but rather a complement to it. Specially trained CRA Liaison Officers (LO) will visit small businesses to offer information, assistance and general awareness of tax obligations as well as advice about unintentional or recurring errors that are common to the sector. These visits will not result in an adjustment or changes to the balance of previously-filed income tax returns. 

11. What is a books and records review?

A books and records review is a review by the LO of a business's books and records in order to identify any issues that could prevent the taxpayer from meeting their tax obligations. The review enables the CRA to provide the business with relevant, targeted information that will help them accurately file their income tax return in a timely manner. A books and records review can help a business avoid unintentional and recurring errors before the business tax return is filed.

12. What is the purpose of industry “benchmarks”?

Industry benchmarks help businesses assess their performance by comparing themselves to the sector in general.

Industry benchmarks are established using information that businesses report on their financial statements and tax returns. Benchmarks may include financial ratios that can be calculated using financial statements. If a business performance is significantly out of alignment with the performance benchmarks established for similar businesses in its sector, it may signal that there are issues related to its tax affairs that require attention.

13. Should businesses that do not fit into the benchmarks for their industry sector be concerned?

Industry benchmarks are established using information that businesses report on their financial statements and tax returns. They may include financial ratios that can be calculated using financial statements.

Benchmarks can be used by a business to see how it compares to the sector in general.

Businesses that do not fall within the industry benchmarks may wish to contact a tax advisor to discuss the reasons why they fall outside the standards identified for their specific industry sector.

14. Can I refuse to meet with the CRA Liaison Officer?

The LOI is voluntary and intended to help small and medium-sized businesses. When a business owner or representative receives an invitation for a meeting with a CRA LO, he or she is encouraged to take advantage of the opportunity and make an appointment to discuss the business activities and tax situation. The purpose of the visit is to provide useful information that will help a business comply with its tax obligations, and to answer any tax-related questions or concerns.

15. Must I agree to the books and records review and do I have to sign the compliance support arrangement (CSA)?

Some of the businesses chosen to participate in the LOI may be asked to participate in a books and records review and/or sign a CSA. In both cases, the goal is to help Canadian businesses avoid tax-related problems by helping them understand their tax obligations.

The purpose of the books and records review is to support businesses in determining if they are on the right track and their affairs are in order. Based on the books and records review, unintentional or recurring errors may be identified and, with the aid of information provided by the CRA, self-corrected by the business before the tax return is filed.

The intent of the CSA is to outline the roles and responsibilities of both the business and the CRA and to reinforce the opportunity for learning and awareness by remaining as a written reminder of what was discussed. The CSA, which will be signed by the business owner and the LO, is voluntary and is not binding in a court of law.

16. If I notice a mistake on my tax return, how long do I have to correct it?

Taxpayers should correct any mistakes on a previously filed return immediately through a request for adjustment, whether you are a self-employed individual or an incorporated business. For more information, call the business income tax enquiries line at 1-800-959-5525.

17. If I participate in the LOI and errors are found, can I still make a voluntary disclosure?

The Voluntary Disclosures Program allows taxpayers to come forward and correct inaccurate or incomplete information or to disclose information they have not reported during previous dealings with the CRA, without penalty or prosecution. You may make a voluntary disclosure if there has been no audit or criminal investigation (“enforcement action”) started on your file. LOI is not considered an enforcement action. For more details about this program, go to Voluntary Disclosures Program.

18. Where can I find more information about the LOI?

Up-to-date information on the LOI can be found on the CRA website. For further information, you may call the business phone line at 1-800-959-5525.

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