Income Tax Audit Manual

Compliance Programs Branch (CPB)

Disclaimer

To avoid renumbering cross-referenced material, when it has become necessary to delete or relocate information in the manual, the section or chapter has been marked as “for future use” or “section removed.”

Hyperlinks to external or unaffiliated websites are for information purposes only. The Canada Revenue Agency (CRA) is not responsible for the content or practices of such websites. While efforts are made to make sure that hyperlinks are current and up-to-date, it is not guaranteed.

Chapter 1.0 The Income Tax Audit Manual – Organization, Purposes, and Uses

Table of Contents

• 1.1.0 Acknowledgements
• 1.2.0 Background
• 1.3.0 Sources of Information for the Income Tax Audit Manual
• 1.4.0 Intended Users
• 1.5.0 Scope and Authority
• 1.6.0 Maintenance of the Income Tax Audit Manual
• 1.7.0 Organization of the Income Tax Audit Manual
• 1.8.0 Updates
  • 1.8.1 What's New
• 1.9.0 Recommending Changes or Additions to the Income Tax Audit Manual and Letter Templates
• 1.10.0 The CRA Electronic Library
• 1.11.0 Accessing and Navigating the Income Tax Audit Manual
  • 1.11.1 Local Area Network (LAN) Version
  • 1.11.2 Local Install
  • 1.11.3 References

1.1.0 Acknowledgements

The Compliance Programs Branch recognizes the hard work by subject matter experts and the support of management from the tax services offices (TSOs) in developing and maintaining this manual.

1.2.0 Background

The Income Tax Audit Manual (ITAM) consolidates operational policies and procedures for the administration of income tax. Before November 2012, the Audit Manual was a combined income tax and goods and services tax / harmonized sales tax (GST/HST) manual.

The material in the ITAM reflects national audit policies and recommended procedures. The taxation operations manuals (TOMs) and GST/HST audit manuals have been taken out of circulation. Communiqués, directives, and policy statements will be archived for reference when out of date or cancelled when superseded by new policy or legislation.

The unsevered ITAM is available to Canada Revenue Agency (CRA) auditors in the CRA Electronic Library. For more information, go to 1.10.0, The CRA Electronic Library.

The severed ITAM is available to the public on the Canada.ca website at Income Tax Audit Manual. Due to its size, chapters of the ITAM are being added to the website as they become available.

Printing the ITAM is not recommended.

1.3.0 Sources of Information for the Income Tax Audit Manual

The ITAM includes information from TOMs 10, 13, and 14, communiqués, directives, memoranda, and policy statements.

1.4.0 Intended Users

The ITAM is written for employees involved in the audits of income tax for small and medium-sized businesses; however, the information can also be applied in other areas such as large business and specialty audit.

1.5.0 Scope and Authority

The contents of the ITAM reflect the national policy on operations, procedures, and technical applications as authorized by the program areas and the Policy Section within the Small and Medium Enterprises Directorate.

The ITAM is a single source of reference for audit policies and procedures and technical application guidelines about audit issues. To conduct research efficiently and effectively, use the ITAM search system to access information to plan, prepare, conduct, and complete an audit. The ITAM includes:

• examples of audit checklists and working papers
• audit techniques
• technical information to apply legislation administered by the CRA
• references to court cases

1.6.0 Maintenance of the Income Tax Audit Manual

The Policy Section of the Small and Medium Enterprises Directorate and the Policy Section of the GST/HST Directorate work together to make sure common audit issues are addressed consistently.

1.7.0 Organization of the Income Tax Audit Manual

A Table of Contents at the beginning of the ITAM lists the chapters, with links activated to each chapter. The ITAM is organized in two sections.

Section I - Audit Policies and Procedures

• Chapter 0 – What’s New
• Chapter 1 – The Income Tax Audit Manual – Organization, Purposes, and Uses
• Chapter 3 – Taxpayer Rights and Taxpayer Relief
• Chapter 4 – Auditor's Standard of Conduct, Authorities, and Responsibilities
• Chapter 6 – Organization of the Audit Division in the Tax Services Office
• Chapter 8 – Business Intelligence and Quality Assurance
• Chapter 9 – Audit Planning and Preparation
• Chapter 10 – Conducting the Audit
• Chapter 11 – Completing the Audit
• Chapter 12 – Specific Audit Guidelines and Checklists
• Chapter 13 – Audit Techniques
• Chapter 15 – International Audit Issues – Under Review
• Chapter 16 – Clearance Certificates 
• Chapter 17 – Estates and Trusts – Under Review
• Chapter 19 – Objections and appeals

Section II - Technical Issues

• Chapter 20 – Valuation of Inventory
• Chapter 22 – Elections, designations, and discretion 
• Chapter 24 – Transactions Involving Related Persons, Corporations and Shareholders, Dividends, etc.
• Chapter 27 – Income
• Chapter 28 – Penalties
• Chapter 29 – Losses

Chapter 40 Sector Profiles have been moved from the ITAM to: CRA Electronic Library > Compliance Programs Branch Reference Material > Audit > Income Tax Sector Profiles.

To avoid renumbering cross-referenced material, when it has become necessary to delete or relocate information in the ITAM, the section has been marked “for future use” or “section removed.”

Chapters 2, 5, 7, 14, 18, 21, 23, 25, and 26 have been removed.

1.8.0 Updates

1.8.1 What's New

"What’s New" in the Compliance Programs Branch Reference Material lists updates to the CRA Electronic Library every two months, including communiqués, memoranda, letter templates, revised sections of the ITAM, and other operational manuals.

Communiqués, memoranda, and letter templates can be viewed directly under “Audit” by expanding (click the + sign) the section.

When a section of the ITAM is updated, the section reference is included in the listing under Operations Manuals > Audit Manuals > Income Tax Audit Manual. Within the chapters, updated text is marked with a sidebar, which is removed in the next publication.

The ITAM is published every two months and there are always changes as the Policy Section updates for policy changes, legislative changes, broken or outdated links, and language clarity.

"Corrected text" normally means corrected grammar, or spelling errors OR to make the French and English text mean the same.

"Clarified text" normally means that the phrasing has changed or an additional line of explanation has been added. The meaning of the text remains the same, but it may now be clearer for some.

Most other changes are clearly described as to what the change was.

For more information on revisions, email Income Tax Audit Manual / Manuel de la vérification – Impôt (CRA/ARC).

1.9.0 Recommending Changes or Additions to the Income Tax Audit Manual and Letter Templates

The ITAM and letter templates are regularly updated. Comments and suggestions for improvement are welcome.

Please email all recommendations and suggestions to Income Tax Audit Manual / Manuel de la vérification – Impôt (CRA/ARC).

1.10.0 The CRA Electronic Library

As well as the Income Tax Audit Manual, the CRA Electronic Library includes other internal documents and a full range of public information bases. This allows users to access many sources of information in one place. Hyperlinks help improve the efficiency of conducting research.

The Compliance Programs Branch Reference Material includes:

• Corporations Tax Act Manual (Ontario)
• Criminal Investigations Manual
• Excise Tax, N15, and Air Travellers Security Charge Audit Manual
• GST/HST Audit and Examination Manual
• Large Business Audit Manual
• Provincial Sales Tax Administration Reform (PSTAR)
• Scientific Research and Experimental Development (SR&ED)
• Tax Avoidance Manual

The CRA Electronic Library uses Folio Views software.

1.11.0 Accessing and Navigating the Income Tax Audit Manual

The CRA version of the electronic library houses the ITAM and includes a comprehensive coverage of income tax, excise tax, GST/HST, provincial taxes, and customs information, as well as links to other tax-related information.

The CRA version of the electronic library can be accessed through the Centralized Technology Platform (CTP). The use of the CTP ensures the user access to the most recent information.

1.11.1 Local Area Network (LAN) Version

Follow the steps below to access the ITAM:

Step 1

Use this path to access the CRA Electronic Library:

Single left-click on the Windows icon and the "All apps" start menu will open

Expand the "CRA Electronic Library {CTP-PTC}" folder

Single left-click on "CRA Electronic Library – EN"

Note: If you do not see "CRA Electronic Library {CTP-PTC}" after clicking on the Windows icon and you are a regular user of these applications, please call or email your local IT Service Desk and ask that they install the Common User Desktop (CUD) on your workstation. Your local IT section will fill in a request form and send it to the CTP project team to add your user ID.

Step 2

When the library appears, it may be divided into as many as three panes. Choosing the "Browse" tab at the bottom of the screen will display two panes.

The screen is now divided into two panes – the "navigation pane" on the left and the "contents pane" on the right.

Step 3

In the contents pane, scrolling down will reveal the section for “Internal English Infobases.” By selecting “Operations Manuals,” the following screen will appear:

Step 4

The "Income Tax Audit Manual" link in the contents pane can be used to access the start of the ITAM content. However, the navigation pane on the left is a more efficient way to navigate the ITAM. Expanding titles in the navigation pane, then clicking on a specific title, display that section in the contents pane on the right. Collapsing titles will reduce the list of contents.

The navigation pane will now appear like the image above and the contents pane should not have changed at all.

To explore the ITAM, including displaying “Search” hits, go to Accessing and Navigating the Income Tax Audit Manual, under Using the ITAM.

1.11.2 Local Install

For a copy of the ITAM on a hard drive to use off-line, make a request through the IT Self‑Service Portal under Software. IT will normally put an icon for the CRA Electronic Library in the Windows start menu.

A Monthly Infobases Update icon is also installed. Clicking on this icon will update the information in the library. Do not try to open the CRA Electronic Library while the update is running.

1.11.3 References

For more information, go to learning product HQ1074-000, Tax Research Reference Guide:

• 3.2, How to access databases on Folio Views
• 3.5, Ernst & Young Databases