Risky business: Managing tax practice risks and how to mitigate them

Tax legislation is becoming increasingly complex, bringing ever more risk for those of us who practice tax. Find out the most common sources of insurance claims filed against tax practitioners and how to mitigate risk.

Tax is a highly contested practice area in our profession. Statistics show that the highest volume and value of professional liability insurance (PLI) claims for small and mid-sized firms are related to tax services. With an increasingly complicated tax system, it is quite easy to see why tax is the top of the list when it comes to insurance claims and complaints. It is therefore crucial that practitioners take care when practicing tax, keeping up with the latest tax changes and implementing quality controls within their practice.

At CPA Canada’s 2019 One Conference, our Tax team joined with CPA Canada Professional Liability Plan Inc. to present The Risky Business of Tax. The presentation highlighted some of the most common sources of tax risk, as shown by recent tax-related insurance claims and concerns over trends.


1. Lack of expertise – errors due to practitioners advising on technical tax matters when they didn’t have adequate experience or knowledge, including:

  • family trusts and the financial impact of invoking the attribution rules
  • timing and calculation errors related to designating a capital dividend
  • failure to file information returns, especially T1134 and T1135 forms

2. Lack of attention to detail – errors that could have been avoided if there had been procedures and controls in place, including:

  • shareholder loans outstanding for more than a year
  • late-filing information returns, especially T1134 and T1135 forms
  • late-filing corporate tax returns, causing the taxpayer to miss out on dividend refunds and, when there is a holding company, lose the ability to offset Part IV taxes payable

3. Lack of documentation – failing to maintain evidence of client engagement terms or tax filing positions in working paper files, including:

  • failing to detect the client’s GST/HST errors or omissions when it was unclear whether checking GST compliance was part of the tax practitioner’s mandate (engagement letters are a key tool for reducing this sort of risk)


1. Only take on work within your circle of competence

Tax practitioners can avoid many of these risks by only accepting work for which they have either adequate experience or the ability to outsource the work to qualified tax specialists.

2. Implement quality control systems in your business

Quality control systems can not only help you avoid common pitfalls and manage risk, they can also help you improve your practice effectiveness.


  • Use checklists: A best practice for your practice is to create general tax preparation and review checklists for all of your staff to use. Also consider using specialized checklists for common tasks and issues encountered within your practice, such as a cross-border tax checklist for clients that are expanding into or outside of Canada or a checklist for setting up family trusts.
  • Implement a task and deadline tracking system: A task tracking system can help you monitor client filings and meet their due dates. It is also important that the system stores tax filing confirmations. Finally, when doing this year’s work, consider reconfirming that last year’s filings have been acknowledged by the Canada Revenue Agency (CRA) and other relevant tax authorities.
  • Follow client acceptance practices: Before you take on new clients, it’s wise to determine their past filing history and any issues encountered with the CRA and their past advisor.
  • Invest in education: The Canadian tax system is complex and constantly changing, so your practice should continually invest in staff education. Regular tax updates and advanced topic courses, including CPA Canada’s professional learning and development courses, will help your staff identify tax issues and mitigate the risk of financial loss to your client.
  • Document all material advice in writing: Your client working paper files should always include records of filing positions taken as well as client correspondence confirming the relevant facts. When you give your client material verbal advice, you should also document a summary of the discussion in case an issue arises later.
  • Obtain professional valuations: When related parties transact with each other in significant transactions including reorganizations, professional valuations should be obtained to avoid the significant risks associated with an unreasonable valuation. If your client doesn’t want to obtain a valuation, you should decide on whether the work should be done at all. At a minimum, the risks should be communicated and documented in your working paper files.

Most importantly, be sure to keep tax risk top of mind and make tax risk management a top priority as you run your day-to-day business.

To help you evaluate the level of risk in your business, check out CPA Canada’s Tax Risk Management Guide. This publication can help you identify possible risk factors and steps you can take to manage your tax practice risk more effectively.


Other than the Tax Risk Management Guide, what additional resources could CPA Canada develop to help you manage your business’s tax risk? Post a comment below.


CPA Canada’s Tax Blog is designed to create an exchange of ideas on tax policy and practice issues, and their impact on those who practice tax. Your comments can provide helpful input into the public interest advocacy positions developed by CPA Canada.

About the Author

Bruce Ball, FCPA, FCA, CFP

Vice-president, Taxation, CPA Canada