The 7 Most Expensive CRA Mistakes CPAs Make

And How to Avoid Them

If you've been practicing tax in Canada for more than a year, you've probably made at least one of these mistakes. Some of them cost clients money. Some of them cost you time. And some expose you to professional liability you didn't even know existed.

Here's what nobody tells you in your CPA program — and what most practitioners learn the hard way:

1
Confusing Payment Deadlines with Filing Deadlines
Most practitioners know the basic filing deadlines. But many don't fully understand the payment deadline rules or, more importantly, the interest and penalty consequences when payments are late even if the return is filed on time.

❌ The Mistake

Telling a client "your return is due June 15" when they're self-employed, without emphasizing that payment is actually due April 30. Or not understanding balance-due day vs. installment requirements for corporations.

💡 Real-World Scenario

Client incorporates partway through 2024. You file their first T2 before the deadline. But you didn't calculate installments for the following year based on the previous year's tax. CRA assesses installment interest even though the final payment was on time. Client asks: "Why am I paying interest when I paid everything I owed?"

💰 What This Costs

  • Prescribed interest charges: Currently over 10% annually, compounding daily
  • Late-filing penalties: 5% of balance owing plus 1% per month (up to 12 months)
  • Repeated failure penalties: Double penalties if late in any of the prior 3 years
  • Client frustration and potential liability claims: "Why didn't you tell me?"

✓ How to Avoid This

  • Always distinguish payment dates from filing dates: Make this explicit in client communications
  • Understand the installment system: When required, how calculated, interest on deficiencies
  • Use engagement letters that clarify responsibility: Who calculates installments, who reminds client of payment deadlines
  • Calculate and communicate required installments early: Don't wait until year-end
  • Know the interest offset rules: When overpayments reduce interest on underpayments
2
Missing Mandatory Special Reports That Trigger Automatic Penalties
Beyond the regular T1, T2, T3, there are dozens of special information returns. Miss certain ones and you face automatic penalties – sometimes even when there's no tax owing and no actual benefit claimed.

❌ The Mistake

Not knowing which situations trigger mandatory reporting. The most commonly missed: T1135 (foreign property), T106 (non-arm's length transactions with non-residents), T1142 (interests in non-resident trusts), RC4649 (Part XIII.2 tax on investment income in life insurance), Form T2200 for employee deductions.

💰 What This Costs

  • T1135 penalties: $25/day up to $2,500, even if no income to report
  • T106 penalties: $25/day up to maximum of $2,500 per return
  • T1142 penalties: $25/day up to $2,500 plus 5% of income/gains
  • Extended reassessment periods: 3 additional years if you don't file required forms
  • Gross negligence penalties: When CRA decides the failure was more than careless

✓ How to Avoid This

  • Use comprehensive intake questionnaires: Ask about foreign property, foreign affiliates, trusts, etc.
  • Know the five major categories of mandatory special reports: Foreign reporting, transfer pricing, shareholder benefits, specified transactions, business structures
  • Understand when voluntary disclosure can help: If you discover a missed filing
  • Train your team on red flags: What triggers special reporting requirements
  • Review prior years: Sometimes discovering missing returns requires retroactive filings
3
Incomplete or Incorrect Voluntary Disclosures
When you discover a past error or omission, you need to decide: voluntary disclosure, amended return, or do nothing? Get this wrong and you can make things worse.

❌ The Mistake

Either (a) not making a VDP when you should, exposing client to penalties that could have been avoided, or (b) making an incomplete VDP that gets rejected because you didn't understand the technical requirements, or (c) making a VDP when a simple amendment would have been better.

💡 Real-World Scenario

You discover a client's corporate tax return from 3 years ago missed some income. You file a voluntary disclosure. But you didn't include all related years with similar issues. CRA rejects the disclosure as incomplete. Now all years are under scrutiny, penalties apply, and the voluntary disclosure window is closed.

💰 What This Costs

  • Penalties that could have been waived: Late-filing penalties, failure to report penalties, even some gross negligence penalties
  • Limited-penalty voluntary disclosure is gone: As of 2023, regular VDP only relieves prosecution and potentially some penalties, not all
  • Failed disclosure makes matters worse: CRA now knows about the issue, clock is ticking
  • Interest still applies: VDP doesn't eliminate interest

✓ How to Avoid This

  • Understand the VDP program changes: Different rules after March 2023
  • Know when VDP is mandatory vs. optional: When is simple amendment sufficient?
  • Complete all required elements: All years, all related issues, valid explanation, payment arrangement
  • Consider the no-names policy for sensitive disclosures: When to use it, when not to
  • Document your decision-making: Why you chose VDP vs. amendment vs. nothing
  • Understand how working papers affect your options: What if auditor finds the error first?
4
Inadvertently Waiving Solicitor-Client Privilege
As a CPA, your working papers can be compelled by CRA through a Requirement. But if you're working with a lawyer, certain documents may be privileged – unless you inadvertently waive that privilege by how you use or store those documents.

❌ The Mistake

Mixing privileged legal advice with your working papers, forwarding privileged communications without marking them appropriately, or claiming privilege for documents that don't qualify. When CRA issues a Requirement for your working papers, you lose the privileged documents because you didn't properly segregate or protect them.

💡 Real-World Scenario

A lawyer provides advice on a tax position. You summarize it in your memo to file alongside your tax calculations. CRA issues a Requirement for your working papers. The entire memo – including the lawyer's advice – must be produced because you've integrated privileged legal advice into non-privileged working papers.

💰 What This Costs

  • Loss of strategic advantage: CRA sees your legal advice and planning strategies
  • Increased audit and reassessment risk: Your own documents become evidence against the client
  • Client relationship damage: Client expected confidentiality you couldn't maintain
  • Potential liability claims: If waiver materially affects client's position

✓ How to Avoid This

  • Understand the different types of privilege: Solicitor-client vs. litigation privilege vs. settlement privilege
  • Know what's NOT privileged: Your working papers aren't; accountant-client privilege is limited
  • Establish clear protocols with lawyers: How to transmit and store privileged communications
  • Segregate privileged materials: Keep them separate from regular working papers
  • Mark privileged documents appropriately: Clear labeling and handling procedures
  • Get advance legal advice on structure: When planning significant transactions or aggressive positions
5
Failing to Properly Document Position Disclosure
When you take an aggressive position or make a judgment call, you need to properly document that you disclosed the risks to your client. But do it in a way that protects both you and them.

❌ The Mistake

Either (a) not documenting that you told the client about risks/alternatives, leaving you exposed to professional liability, or (b) documenting it in a way that CRA can access and use against the client, or (c) writing in such detail that you're effectively building CRA's case.

💰 What This Costs

  • Professional liability claims: "My CPA never told me this was risky"
  • Penalty exposure for clients: Your disclosure letter becomes evidence of knowledge
  • E&O insurance issues: No documentation of advice = harder to defend claims
  • Regulatory complaints: CPA conduct issues

✓ How to Avoid This

  • Always document position disclosure: But do it carefully
  • Balance client protection with self-protection: Confirm you discussed alternatives without building CRA's case
  • Use engagement letters effectively: Set expectations about risk assessment and client decision-making
  • Consider privileged routes for sensitive advice: When appropriate, involve legal counsel
  • Keep records of communications: Emails, meeting notes, file memos, but thoughtfully
6
Poor Records Retention Strategy
Most practitioners know to keep records for 6 years. But fewer understand when keeping records longer than necessary actually creates risk, or when destruction is advisable.

❌ The Mistake

Either (a) destroying records too early, creating problems if CRA reopens years, or (b) keeping everything forever, creating unnecessary exposure if old files contain problematic documentation that could be used against clients in unrelated matters.

💡 Real-World Scenario

A firm keeps all client files indefinitely. Years later, CRA audits a client on an unrelated matter and issues a broad document request. The firm produces files going back 15 years. Buried in old files are notes about aggressive positions from a decade ago that CRA now uses to establish a pattern of behavior, supporting penalties in the current audit.

💰 What This Costs

  • If destroyed too early: Can't defend positions or respond to CRA inquiries
  • If kept too long: Old documentation can be used against clients
  • Storage costs: Physical and digital storage for unnecessary records
  • Information security risks: More records = more breach exposure

✓ How to Avoid This

  • Understand the 6-year rule: Minimum retention requirement after tax year becomes statute-barred
  • Know when statute-barred actually means safe: Normal reassessment period vs. extended periods
  • Have a documented destruction policy: Systematically destroy records after appropriate retention period
  • Tell clients about their own retention obligations: Your retention is separate from theirs
  • Consider electronic vs. paper differently: Different rules may apply
  • Include retention terms in engagement letters: Manage expectations upfront
7
Not Understanding Due Diligence Defense
When CRA assesses penalties, a "due diligence defense" can sometimes eliminate them. But only if you understand what due diligence actually means in a tax context and can prove it.

❌ The Mistake

Assuming "we tried our best" or "the client didn't give us information" or "it was an honest mistake" constitutes due diligence, when in fact due diligence requires specific, documented reasonable steps to comply.

💡 Real-World Scenario

A client misses filing a T1135 (foreign property reporting). The CPA says "the client never told me about the foreign property." CRA assesses penalties. The CPA objects claiming due diligence. But there's no evidence the CPA asked about foreign property, had a checklist, sent a questionnaire, or took any proactive steps. Due diligence defense fails.

💰 What This Costs

  • Penalties that could have been avoided: Late filing, failure to report, third-party preparer penalties
  • Client relationship damage: "Why didn't you protect me from this?"
  • Professional liability claims: Client seeks to recover penalties from you
  • Time in appeals: Fighting penalties you could have prevented

✓ How to Avoid This

  • Understand what due diligence actually requires: Reasonable steps, documented procedures, systematic approaches
  • Use checklists and questionnaires: Especially for complex reporting (T1135, foreign property, etc.)
  • Document your process: What you asked, when you asked, what responses you received
  • Follow up on missing information: One request isn't enough if client doesn't respond
  • Understand when due diligence applies: Some penalties have due diligence defense, others don't
  • Study case law: See what courts have accepted as "reasonable steps"

The Pattern Behind All These Mistakes

Notice the common thread? Every single one of these mistakes stems from a lack of systematic, formal training on CRA administrative procedures.

You weren't taught about payment deadlines vs. filing deadlines in your CPA program.

You weren't trained on the five categories of mandatory special reports.

You didn't learn about the nuances of voluntary disclosure, working paper privilege, or records retention strategy.

You've been figuring this out as you go, and sometimes paying dearly for it.

The good news? These aren't knowledge gaps that require years to fill. With proper training organized in a systematic framework, you can master all of this and protect your practice and your clients from these expensive mistakes.

Stop Making These Mistakes

The Dealing with CRA seminar provides comprehensive coverage of these issues and dozens more – organized in the unique Tax Lifecycle framework that mirrors how you actually practice.

February 19, 2026

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www.seminars.cadesky.com/courses/dealing-with-cra-2026

Investment in this seminar: Minimal compared to the cost of even one of these mistakes.
Investment in continuing to make these mistakes: Far too high.

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