Sample Engagement Letter — The CRA’s Reassessment with a Fee Based on Hourly Rates

Dear Client:

This letter[1] is to confirm our understanding of the terms of our engagement to represent you in contesting the Reassessment to your 20XX tax return and to clarify the nature and limitations of the professional services we will provide.

We will represent you in contesting the proposed CRA adjustments contained in the CRA’s letter of (date), a copy of which is attached. Such representation will include:

  • Preparing and filing a Notice of Objection with the CRA;
  • Negotiations with and submissions to the CRA’s Appeal Office;
  • Review with you of alternative possibilities for settling the controversy.

The majority of tax controversies taken to the CRA’s Appeals Office are settled at that level. Of cases not settled at the Appeals Office but carried forward for possible litigation, the majority are settled without an actual trial.

In the event that a satisfactory settlement of your case is not reached at the Appeals Level and you decide to carry the matter beyond the CRA, we will assist legal counsel selected by you. Such assistance will include technical support in docketing the matter with the Tax Court of Canada, or filing a refund claim and then bringing suit in Tax Court and participation and support in continuing settlement negotiations with the CRA throughout.[2]

Our fees will be based on our time at our standard billing rates for this type of service,[3] plus out-of-pocket cost incurred. We estimate that the total cost if the matter is settled at the Appeals Level will not exceed $(amount).[4] We will bill you as the work progresses and will review the situation with you in the event that it appears we will ultimately exceed that estimate.

Please sign, date, and return the enclosed power of attorney authorizing us to represent you in this matter.[5] Your signature on the CRA Authorization will signify that you have read this letter and agree that it satisfactorily sets forth the understanding pursuant to which we will represent you.

To proceed with this engagement, we must have the enclosed CRA Authorization returned to us in time for us to prepare and submit a Notice of Objection to this reassessment by (date), ninety days from the date of the CRA’s Notice of Reassessment, which is the time the CRA allows for such submission.[6]

We want to express our appreciation for this opportunity to work with you. If you have any questions, please do not hesitate to call.

Yours very truly,

[1]An engagement letter has legal implications that vary from province to province. This engagement letter is intended as a guide only and should not be adopted or adapted without the advice of legal counsel.

[2]This letter presumes that the practitioner will be the leader of the tax controversy team. He or she will assist the taxpayer in selecting a lawyer in the event litigation becomes necessary, and will play a pivotal role in continued efforts to settle the case without trial.

[3]Note that fees are at standard billing rates “for this type of service”. Handling tax controversies should be at premium rates as compared to preparing or reviewing tax returns.

[4]If an estimate is given, it should be carefully monitored. The client is justified in objecting to total billing above the estimate if reasonable advance warning has not been given.

[5]The form for Authorization (See Practice Aid 5.3) should be obtained at the time the engagement letter is signed. One approach, as was done here, is to enclose the Authorization with the engagement letter. Another approach is to send the Authorization with its own transmittal letter.

[6]The Notice of Reassessment sets a deadline by which a Notice of Objection must be filed. Be sure to remind the client that it is necessary to have the Notice of Objection in hand in ample time to meet that deadline.