Audit Defence Plans. Is it for you?

Posted by admin on February 17, 2009 in Taxes

As previously reported by Michael James and Canadian Capitalist, QuickTax is offering this year “Audit Defence Services” for $39.99. The company is part of a growing trend in the tax, book-keeping and accounting fields to offer this option to traditonal tax prepartion and filing services. What exactly is the nature of this service and is it for you? As a precusor to my post, here is a quick review of what happens when you are audited (again with a Canadian perspective) and here is the full Audit Defence Membership Agreement provided by QuickTax (albeit under a separate legal entity known as “Canada TaxResources, Inc.” which is a subsidiary of an American company which appears to be providing the same audit defence plans).

What is Audit Defence Service?

As the name implies, a representative of the entity that sold you the service will designate a representative to assist you in an income tax audit in the tax years that you bought the service for. In other words, if you bought the service for the 2008 tax year only, the service does not apply to an audit for the 2007 tax year. As my previous post indicated, an audit may simply be triggered by some clerical error on your part (for example,you forgot to include a T5 slip)- which would most likely not get you out of the reassessment phase- or it could mean a full blown review of particular tax years. But, in a non-criminal audit, the service is triggered no matter how serious the scope of the audit subject to the exclusions below.

It usually takes 2-3 years for the government to inform you an audit has began unless a reassessment is due to errors of a clerical nature. Thus, the service may not be used for some years.

What do I get?

QuickTax/Canada TaxResources Inc.’s services include “…defend[ing] you through the completion of any income tax audit for the tax year return identified on the membership certificate…” which includes correspondence with CRA, negotiations up to Tax Court, settlement discussions and collection assistance if additional taxes are due.

Please note that this service is not a substitute for a lawyer at Tax Court. In fact, this is an exclusion of the service.

In the member’s obligation section, there’s an interesting term that you are asked to comply with the audit procedure and strategy recommended by the service provider. If you are unable to make this commitment, the service provider can terminate its service. In other words, if you get a 2nd opinion on the matter and it is contradictory to the strategy being executed and you end up disagreeing with QuickTax/Canada TaxResources Inc., you can be fired. Thus, you better trust that your service provider knows what they are doing.

What don’t I get?

The service is not for corporate, partnership, trust or estate tax returns. Essentially, it is a product only for individuals. It also will not assist you in book-keeping, amending your return or instances where civil or criminal fraud is alleged. It will also not assist you if you filed your taxes late, are a tax protester or under investigation of the Criminal Investigations Program of CRA. The service will not apply to GST and payroll audits. In other words, it is a service to assist in issues arising out of the simplest of tax returns.

One other important exclusion- the plan does not provide assistance for collection where the plan did not defend the audit. In other words, you filed taxes and you owe money but you did not pay it. In this case, the Audit Defence Plan will not help you cut a deal on payment terms. The issue arises not from claiming the wrong deduction but non-payment.

Given that many taxpayers may be in this situation in the upcoming year, this is an important exclusion to note. Audit Defence plans are not debt consolidation services. They will not help you negotiate a better deal to pay if you have past tax debt that CRA is beginning to turn their mind to collecting.

What else should I know?

If you have serious tax issues (non payment for many years, overly aggressive deductions, complicated individual tax planning), an Audit Defence Service is not for you. You simply have too complicated of a file to fall under a $40.00 service.

The service is also not provided by a lawyer or law firm which means your information is NOT subject to legal privilege and confidentiality. Again, if your matter is of a serious nature, you should hire a lawyer so that the information can be afforded proper legal protection.

One practical consideration to note- $40.00 is not a lot of money. It is a helpful service but how extensive will the services be for $40.00? Will the negotiations be quick and dirty to minimize any additional expenses incurred by the service provider? You get what you pay for in life. If you think you may be a little off-side on some tax issues then it is a good piece of mind service. But how do you really know if you are a little or a lot off-side?

Also remember that the service does not help you review your book-keeping, organize your records or other clerical tasks. You still have to do some heavy lifting and this may include hiring an accountant to review your returns if you filed them yourself.

Is it for me?

If your first language is not English or French (since, at the time of writing, the service was not in multiple languages), you are a plain vanilla taxpayer (basically, you have employment income and some investment income and nothing fancy in the way of inclusions or deductions) and your tax issues are relatively minor, it is a pretty decent program for its cost. But anything past Audit review 101 would most likely take it out of its sweet spot and one most likely should hire a professional to assist.

As a value play, the question becomes what provides greater piece of mind: (a) buying QuickTax and the Audit Defence Plan; or (b) using that money towards hiring an accounting to help file your taxes (I understand that option (b) would likely cost you more)?

As a marketing point, the audit defence service would probably gain a lot of traction if they had service representatives that spoke a wide variety of languages and it was advertised as such (not sure if they do or not; the feature is not advertised heavily). Taxpayers who’s language is not English/French could probably benefit merely from having someone explain what is happening in a dialect they understand.

10 Comments on Audit Defence Plans. Is it for you?

By Michael James on February 17, 2009 at 9:18 am

Thanks for mentioning my post. Also, thanks for the analysis. It should be helpful for those considering using this service. I think the most important open question is one you asked: “how extensive will the services be?” We can speculate, but we probably won’t find out until we poll people who buy the service and actually get audited.

By the weakonomist on February 17, 2009 at 9:44 am

sounds like tax audit insurance. Since you can technically insure almost anything, I don’t see a problem with offering this service. It isn’t for me, but I know some people who could have used it a few years ago.

By admin on February 17, 2009 at 10:13 am

Weakonomist- an insurance plan shift risk from the insured to a 3rd party. This is NOT insurance. The risk is still the taxpayers. This is more of an adovocacy service.

By This and That: Canadian common sense edition on February 20, 2009 at 8:51 am

[...] Thicken My Wallet wrote a neat post on who will find Quicken’s Audit Defence of value. [...]

By a dumb immigrant on March 30, 2010 at 7:44 pm

Hi!

Great article! Very informative and helped me decide whether or not to take the service.

One thing bothered me though, I know several people (including myself and my wife) whose first language is not English or French and our taxes are quite beyond “plain vanilla”. I take it you meant to say that people who don’t speak English or French at all have a tendency to have plain vanilla tax returns as most likely they work a low paying job. Which I also take for a trip because that is also profiling, racist and discriminative in nature. Dealing with Canadian stereotyping and racism is way harder than American racism. At least those guys you know for sure they are racist, but Canadians are very subtle to discriminate and meaner. With Americans if you can make them make money, you are in, with Canadians, you will be lucky if they buy a piece of gum from you.

A better statement would probably have been to say that low income families or individuals tend to have simpler tax returns and may benefit from the service. Actually, better still: “If your tax returns is mainly composed of employment income and nothing fancy, this service is for you.”

I will also have you know that many immigrants to Canada are highly educated and oh surprise, more so than many Canadians. A lot have quite the experience and expertise and are unfortunately underemployed, but end up creating a business and making a living for themselves (pretty much as me and my wife’s case).

Last point: In my business I hire other people for different jobs (a marketing agency). In my experience, if you bring immigrant subcontractors or employees, people treat you with deference and doubt your capacity, but if you bring a white, blonde, blue eyed, no accent person (not necessarily Canadian born, just with those characteristics), its like magic. First they are amazed that a “Canadian” would submit to working for an immigrant and then they start treating you with more respect. Subtle, but very visible when you deal with a client for months and suddenly they change. Even had people ask in amazement how the work relationship came to be… love Canada, hate discrimination and racism. Canada, you can do better and each of us can help.

By Nancy Farwell on June 29, 2010 at 9:56 pm

To the writers of Thicken-My-Wallet;

First and foremost, let me congratulate you on a great site. I have enjoyed reading many of the articles related to taxes! This Article, “Audit Defence Plans. Is it for you?” is well done and a great deal of the information is spot-on. I did want to review a few points that are not quite correct or needed a little clarification:

1. We all know the world is not made up of just French and English speakers. We have subscribed for years to Language Line Services which provides us with interpreters fluent in over 170 languages. This is at no cost to our members.
2. And while you, and many others, will be pleasantly surprised, our firm handles extremely complicated issues at that one low price. We have had a few cases, not the norm, that lasted two to three years. You are correct that due to mathematical properties, most cases only take one or two meeting or two to five letters and telephone calls to CRA to handle. Yes, that low price does provide peace of mind for the “simple” things, but if you look at what an accountant would charge you for this same service ($1,000 up to +$5,000 for complicated issues, as you have described), then you have one great bargain! Same great price if you are “a little or a lot off-side.”
3. Normally, there really is very little extra “organizing” required for the taxpayers’ records as these are the same records the taxpayers used to complete their tax returns in the first place.
4. Lastly, you inadvertently stated we do not cover “late filed returns” but as the information in QuickTax shows, we will honor Audit Defence for the 2009 tax year if the return is filed before January 1, 2011.

In closing, keep up the good work! Your information is well appreciated.

By admin on June 30, 2010 at 4:17 pm

Nancy: Thanks for the clarification and updating the information.

By AntiRacist on April 12, 2011 at 5:06 pm

Just wanted to respond to the ridiculous post by our immigrant friend.
Racism only exists if you let it. If you analyze every single word that us “subtle Canadian racists” use, then of course youre going to find something that may SEEM racist to you. You give these things too much power! the sooner you can ignore small comments, or big ones for that matter, the sooner racism will be dead. I am in no way racist – I just hate when people – especially one who might have been a victim to social profiling or racism in the past – choose to make themselves as someone who is almost controlled about it.
anyways I could rant..but Ill stop there.
This is about taxes – so Yes thank you for the article about audit defense, I think it has made me decide to not go with it as I have deductions that apparently if I messed up on, wont get me any support with better book keeping.Thank you!

By Karin on April 29, 2011 at 3:52 pm

Answering AntiRacist.

AntiRacist: the fact that you are so upset about the previous comment makes me think that you ARE racist

By Karin on April 29, 2011 at 3:56 pm

Oh, forgot to say, definitely this sentence:
“If your first language is not English or French (since, at the time of writing, the service was not in multiple languages), you are a plain vanilla taxpayer (basically, you have employment income and some investment income and nothing fancy in the way of inclusions or deductions) and your tax issues are relatively minor”

is discriminative, and looks like based on the author’s preconceptions.