Income taxes are a very important thing for any properly working government. Usually it is levied on the on the financial income of people, corporations, or other legal entities. There are various types of income tax systems with varying degrees of tax incidence. The Level of Canadian Taxation is average among Organization for Economic Co-operation and Development (OECD) countries and approximately 70% of the Canadian government's income comes from taxation. Due to such high percentage of income the Income Tax System is protected by serious laws.

Canadian system is built on the principle that people repost their income themselves to the Canada Customs Review Agency (CCRA), by filling an annual return. The CCRA is represented by numerous small offices across the country, the make the whole tax collecting process easier. In most cases there is no problem with people who have a normal job and a corresponding income, the system is targeted at people whose income is expected to be under-reported. Wage earners' income can easily be confirmed by comparing the info given from taxpayer and from his employer. But if a taxpayer has an income from a source that can't be confirmed easily, this person will be most likely chosen for auditing. Even in case if person is suspected he still maintains his rights and has all the possibilities to explain the under-reposted income.

In order to enforce the income tax system the Income Tax Act (the 'Act') has a number of civil penalties like fines or interest charges. So if the taxpayer has fillet the return too late, failed to fill a return, hasn't reported an item of income in the return or made a false statement or an omission on a return, penalties can be laid upon him.

When the CCRA representatives are searching for documents of a suspected taxpayer, they can look through the books and records at a taxpayer's place of business without a search warrant. But any search and review of document at taxpayers house requires a warrant. After an audit is finished the results can lead to a reassessment of the taxpayer's liability. The taxpayer will owe more money to Canadian government and if he does not agrees to this he can contact the local CCRA office and try to resolve the problem. If the problem can't be resolved at the local office the problem can be resolved by appealing serving a Notice of Objection on the Minister of National Revenue through the CCRA office.

When the message is received the case can be presented to the Minister, he will review the case and make a decision to whether uphold, change or cancel the assessment. The taxpayer will be informed of this decision. If the taxpayer disagrees he or she can appeal to the Tax Court of Canada. The type of appeal depends on the sum of tax in dispute. If it is more than $12.000.00 the procedure can be informal and easy, if the sum is larger there will be a formal procedure that is similar to court hearing.

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