Ethics for CPAs
Tax advice claims account for 56% of professional negligence cases against CPAs. Custom-written for CPAs managing professional liability and ethical compliance.
Nancy YanCPA, CA, TEP
Understand duty of care standards, identify high-risk opinion levels, and recognize trust structure mistakes that create liability. You will learn common tax errors leading to claims, how courts measure negligence, and ethical obligations when serving multiple parties in trust arrangements.
A client claims your tax advice caused their CRA assessment. They want you to pay interest, penalties, and additional taxes. You advised them to bonus corporate income to nil in year 1. Year 2 the corporation had a loss. They could not carry back against year 1 income. Tax otherwise recoverable if income left in year 1.
Tax advice generates 56% of professional negligence claims against CPAs. Courts hold you to the standard of reasonably competent practitioners. You owe duty of care to known limited classes. Breach of duty with resulting damages creates liability. Common errors include surplus stripping, capital gains exemption denials, late filings, section 85 mistakes, and trust attribution problems.
This program covers three critical areas of professional liability and ethics:
- Accountants' Liability: duty of care evolution from Haig v Bamford to Hercules, standard of care for tax advisors, damages including interest and penalties, common errors, practice tips
- Measuring Risk: opinion spectrum from Will (90%) to Should (70%) to Balance of Probabilities (50%), CRA challenges, risk evaluation, limitation of liability
- Ethics and Trusts: attribution under subsection 75(2) and section 74.4, trust term mistakes, conflicts of interest serving multiple parties, sham indicators
You give advice without documenting the opinion level. Client assumes Will Opinion meaning 90% certainty. Your analysis supported Should Opinion at 70% certainty. CRA reassesses. Client claims negligence. Courts measure whether you met standard of reasonably competent practitioner. Did you inform client of risk level? Did you document the advice given? Did you get client acknowledgement? Without documentation you cannot prove you warned the client.
Professional liability claims are costly and time-consuming. This program gives you the framework to protect your practice. You will understand when duty of care exists, how to document opinions at the appropriate certainty level, what engagement letter clauses limit your exposure, and where ethical conflicts arise in trust work. Learn to identify high-risk areas before they become claims, communicate risk levels properly to clients, and apply the ethical principles that keep you on solid professional ground.
This program provides 3 hours of CPD covering accountants' liability, risk measurement in tax practice, and ethics in trust services. Learn at your own pace with instant access.
Ethics for CPAs
Seminar Snapshot
Course Syllabus
Accountants' Liability
Understanding duty of care, standard of care, and damages in professional negligence claims
Rules of Professional Conduct
- Five fundamental principles: professional behaviour, integrity and due care, professional competence, confidentiality, objectivity
- Cannot sign or associate with false or misleading documents or oral representations
- Must perform services in accordance with generally accepted standards
- Must ensure financial statements presented fairly in accordance with GAAP
Claims Based on Contract Law and Tort
- Third party users lacked privity of contract with auditor
- Negligence is failure to perform duty with requisite standard of care
- Four elements: duty of care owed, duty breached, damage resulted, proximate connection between breach and damage
Duty of Care Evolution Through Case Law
- Ultramares (1932): court reluctant to impose duty to "indeterminate class"
- Hedley Byrne (1964): relationship sufficiently proximate creates duty, allowed recovery of pure economic loss from negligent misstatement
- Haig v Bamford (1976): duty arises when accountant knows results relied on by plaintiff in known limited class
- Hercules (1997): duty limited to when auditor knew identity of plaintiff and statement used for specific purpose prepared
- Sino-Forest (2013): class action under Securities Act, plaintiff no longer needs to establish reliance
- Livent (2014): $85M judgment, minimum standard is reasonably competent accountant but circumstances may require more
Ordinary Negligence Versus Gross Negligence
- Ordinary negligence: courts limit duty to known and smaller class of reasonably foreseeable third parties
- Gross negligence or fraud: court more likely to impose duty on broader group
Standard of Care for Tax Advisors
- Standard of reasonably competent tax specialists at time advice given
- Must exercise reasonable skill and care in performance of professional duties
- Specialists held to higher standard in their area of practice
- Practice within area of knowledge and expertise, beware dabbling in unfamiliar territory
Damages and Contributory Negligence
- Liability for interest, penalties, additional taxes owed to CRA
- Liability for other losses if tax planning changed legal status and economic position
- Contributory negligence: if both parties made mistakes, advisor liable only in proportion to involvement
- CPA should be advisor, not decision maker
Nature of Tax Errors and Damages
- Timing errors: pay now versus defer, difference may be time value of money
- Technical error versus question of interpretation: may not be negligent if interpreted uncertain rule reasonably and notified client of risk
- Additional tax: accountant may not be liable if uncertainty in interpretation and client informed of risks
- Interest and penalties: accountant probably liable if unwittingly incurred by client following professional advice
Common Errors Leading to Claims
- Surplus stripping (section 84.1)
- Taxable benefits and shareholder remuneration (section 15(1))
- Capital gains exemption disallowed for failing QSBC requirements
- Late payment of bonus or withholding tax
- Poor post-mortem estate planning
- Late filing, section 85 rollovers, overpaying CDA, eligible versus ineligible dividend
- Recommending tax shelters
Dealing With a Claim
- Notify insurer at earliest signs of trouble
- Do not admit anything
- Make notes early when memory fresh
- Consider independent review by outside expert
- Do not try to fix yourself then involve insurer later (may not be covered)
Legal Process and Practice Tips
- Statement of claim, statement of defense, discovery, mediation (mandatory in Ontario), pre-trial, trial
- Most cases settle before trial, entire process could take several years
- Ensure client understands tax, legal, and economic consequences
- Document advice given and client instructions
- Document reasons when client departs from recommendations
- All records discoverable in litigation
- Set out terms and expectations in engagement letter
- Include limitation of liability clause
Solicitor-Client Privilege and Family Law Issues
- CPAs and accountants do not have privilege
- Privilege may be preserved if accountant acts as agent of client seeking legal advice from solicitor
- Opinions privileged, not documents
- Family law and estates issues sensitive and fraught with risks, emotions trump rationality
- Client may be deceased making further evidence impossible
Measuring Risk in Tax Practice
Understanding opinion levels, CRA challenges, and risk evaluation
Duty of Care and Standard of Care
- Tax advice most common reason CPAs sued
- Negligence more than being wrong: requires duty of care, breach of duty, damages result, damages flow from breach
- Standard is what reasonable prudent CPA would do
- Not necessarily best solution but reasonable result others would commonly do
Risk Spectrum of Opinion
- Will Opinion: 90% chance of successful outcome, true correct and complete (standard for tax return), CPAs often give without realizing
- Should Opinion: 70% certainty, normal standard for formal opinion, needs sound basis (plain reading of Act, case law, CRA views, tax literature)
- Balance of Probabilities: just over 50%, threshold to win in tax litigation, standard for opinion with warning of adverse outcome
- If 50/50 then CRA wins because taxpayer has burden of proof
Misconduct Levels and Penalties
- Misrepresentation (carelessness, neglect, willful default): standard for CRA to open statute barred year, can be wrong but not careless
- Gross Negligence: beyond negligence, reckless, indifferent, great negligence, lack of reasoned defense, CRA can apply 50% penalty
- Culpable Conduct: knew or should have known wrong, CRA can assess penalty to tax advisor, rarely assessed in practice
- Tax Evasion: deliberate attempt to deceive, hide information, false statements, requires intent, criminal prosecution, 200% penalty plus up to 5 years jail
Tax Avoidance Versus Evasion
- Tax Avoidance: facts are true, theoretical position but not how Act supposed to work, CRA applies GAAR or anti-avoidance rules
- Tax Evasion: deliberate deception, false statements, criminal standard beyond reasonable doubt
Minimizing Tax Risk
- Identify opinions being given and document them
- Understand risk spectrum and communicate level of certainty to client
- Work with legal counsel when necessary
- Get second opinion on risky areas
- Get client representation or acknowledgement
- Have engagement letter and limit liability
- Identify risky areas (trusts)
- Manage risk with strategic and conservative action, have plan B
- Communicate expectations realistically
CRA Challenge Types
- Technical Challenge: based on Income Tax Act provisions, anti-avoidance rules, GAAR (examples: bonus not paid within 180 days, golf club dues, CCA on rental property creating loss, capital gains exemption shares not held 24 months)
- Reasonableness Challenge: amount not reasonable, not laid out to earn income (examples: salary to children too high, interest rate on related party loan exceeds reasonable rate, TOSI applies)
- Recharacterization Challenge: amount is something different (examples: capital gain actually income, consulting fee is employment income)
- Valuation Challenge: value too high or too low (examples: stock option strike price above FMV, property sold to family below market, estate freeze preferred shares valued too low)
- Legal Character Challenge: not legally valid, not legally effective, void, did not occur (examples: trust backdated, shares issued but not paid for)
- Sham Challenge: legal relationships not true underlying substance with intent to create false impression (example: note in spousal trust could never be repaid, all parties know)
Risk Evaluation and Adverse Outcomes
- Risk evaluation: risk of outcome times severity of outcome
- Adverse outcome to client differs from adverse outcome to CPA
- Example: land sale reassessed as income instead of capital gain, for client double the tax, for CPA only interest exposure
- Example: capital dividend paid then reassessed as income, creates Part III tax or taxable dividend, CPA should have advised caution
Limitation of Liability and Documentation Dilemma
- Engagement letter clause: liability limited to twice professional fees, no punitive damages, engagement particular to client only
- CPA's dilemma: document risks to protect against client claims but creates roadmap for CRA
- Solutions: don't put in writing (but no evidence client notified), use legal counsel (expensive, not practical)
Ethics, Trusts, and CPAs
Applying ethical framework to trust services and identifying common problems
Ethical Framework and Five Principles
- Professional Behaviour: maintain good reputation of profession, serve public interest
- Integrity and Due Care: straightforward, honest, fair, act diligently, adequate training and supervision
- Objectivity: professional judgment not compromised by bias, conflict of interest, undue influence
- Professional Competence: maintain professional skills and competence
- Confidentiality: maintain confidentiality, not benefit from confidential information
CPA Services Related to Trusts
- Recommend trust for tax planning, estate planning, asset protection, family law, probate
- Assist in design: develop design (roles, terms, tax status), review deed, explain arrangement
- Tax return and accounting: prepare tax return, financial statements, provide tax planning advice, investment advice
- Distributions: advise on distributions, valuation issues
- Trustee or advisor: act as trustee, act as advisor to trustees, advise beneficiaries
Attribution Structure Problems
- Subsection 75(2) attribution: loss of income splitting benefit, loss of multiplying capital gains exemption, no rollout to beneficiaries at 21 years, foreign tax issues
- Section 74.4 imputation of income
- Subsection 56(4.1) attribution via interest free loan
Inappropriate Trust Terms and Trustees
- Errors in deed or instructions not appropriate
- Too limited or too wide class of beneficiaries
- Named beneficiaries versus class of beneficiaries issues
- Parents over-freeze excluding themselves
- Spouse excluded creating problems
- Income versus capital beneficiaries creates restrictions
- Trustees not suitable, wrong design creates attribution
- Failure to provide for replacement trustees
- Trustees do not act as imagined, self-interested, don't carry out duties
- Trust is sham in extreme case
Inappropriate Actions by Trustees or Advisors
- Fail to make income paid or payable at year-end
- Don't make payments to follow income
- Don't document notes payable
- No resolutions or records
- Distribute for tax minimization ignoring financial implications
- Losses on investment, inappropriate investment choices
Litigious Beneficiaries
- Beneficiary contests entitlement
- Beneficiary disadvantaged over another
- Exercise of discretion arbitrary, not in good faith
- Spouse contests on marriage breakdown
- Lack of documentation and records
- Beneficiary not kept informed
- Inappropriate investment, failed to diversify
Common Issues for CPAs
- Level of skill and competence: is CPA qualified to give advice, is this legal advice, was advice appropriate
- Who is client: settlor, trustees, trust, beneficiaries (all or some), very often CPA advises everyone creating conflicts
- Conflicts of interest: income versus capital beneficiaries, certain beneficiaries over others, trustees self-interest or failure to fulfill fiduciary duties, trustees act in best interests of beneficiaries not settlor
- Disclosure: who has right to information, who should provide it, to whom, what information, what state of records
- Sham: ignoring trust terms, payments without support, lack of documentation, round robin trips, arbitrary income allocations without payment, no intent to create trust
- Acting as trustee: respect for office, carry out duties professionally and competently, good faith, avoid conflict of interest
Failure to Properly Execute Trust
- Cannot show settlement property existed at time of settlement
- Trustees do not possess trust property
- Trustees delegate or abandon fiduciary duties to another person
- No intent by settlor to create trust (did not understand, was not explained, just signed papers)
Meet Your Presenters
Michael Cadesky
Michael Cadesky is the managing partner at Cadesky Tax and a committed contributor to the tax and accounting professions since 1980, earning the title of Fellow from CPA Ontario. He is a past governor of the Canadian Tax Foundation, past chair of STEP Canada and STEP Worldwide, and past chair of the CPA Canada Tax Committee for Small and Medium-Sized Enterprises. Michael is also the co-author of 11 books on tax subjects and the author or co-author of numerous papers and articles on Canadian and international taxation.
Nancy Yan
Practicing in taxation since 2000, Nancy Yan specializes in Canadian and international tax including estate and succession planning, immigration and emigration planning, cross-border transactions, and international business structuring. Nancy presents to various organizations on issues surrounding tax, estate, succession, and purchase and sale of business, and is a board member of Partners for Planning, a not-for-profit organization offering practical strategies, creative tools, and sustainable solutions designed to help families and caregivers of persons with disability to live meaningful lives.
FAQ
When can I access the course?
Immediately upon purchase. All course materials are available on-demand, allowing you to start learning right away.
How long do I have access?
You have 1-year all-access to the course materials. Watch and review the content as many times as you need, at your own pace.
Does the course provide CPD?
Yes. Upon completion, you will receive a verifiable CPD certificate indicating all instructional learning hours and required details.
What's included in the course?
Full video recording of the seminar, plus slides with detailed notes for your reference. Additional resources may be included.
Can I watch on any device?
Yes. Access the course from your computer, tablet, or phone — any device with internet access.