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Auditor General Provides Recommendations for Improving CRA Review of Objections

Under the federal Income Tax Act, the Canada Revenue Agency must consider a taxpayer’s objection and must vacate, confirm or vary the underlying tax assessment. This review must be completed “with all due dispatch”.

Unfortunately, no specific timeline is required for the CRA’s review of an objection (unlike the many specific deadlines imposed on taxpayers pursuant to the Income Tax Act or otherwise). Generally, a taxpayer’s only recourse in a case of excessive delay is to request interest relief or make a service complaint to the Office of the Taxpayer’s Ombudsman. The CRA has stated that it is aware of these potential delays, and has implemented service standards in respect of the various types of objections it receives each year

On November 29, 2016, the Office of the Auditor General of Canada released its report on the CRA’s review of income tax objections and included the following summary of its conclusions:

We concluded that the Canada Revenue Agency did not process income tax objections in a timely manner.

Although the Agency had developed and reported performance indicators for the objection process, the indicators were incomplete and inaccurate. Specifically, there was no indicator or target for the time that taxpayers should wait for decisions on their objections.

In addition, the Agency did not adequately analyze or review decisions on income tax objections and appeals, and there was insufficient sharing of the results of these objection and court decisions within the Agency.

This issue is very well-known to many Canadians (and their professional tax advisors) who have filed and pursued objections, and it is not surprising when you consider the CRA currently has an inventory of more than 171,000 objections in respect of personal and corporate income taxes totaling more than $18 billion.

Interestingly, the report notes that the amount of federal income tax dollars in dispute more than tripled from $6.2 billion in 2005-06 to $18.8 billion in 2013-14, and the amount in dispute has remained around $18 billion in 2014-15 and 2015-16.

The report recommends the following:

  • The CRA should provide timelines for resolving objections
  • The CRA should develop and implement an action plan with defined timelines and targets for reducing the inventory of objections
  • The CRA should review the objection process to identify and implement modifications to improve the timely resolutions of objections
  • The CRA should modify its performance indicators so that it may accurately measure and report on its performance
  • The CRA should review and share the results where objections are decided in favour of taxpayers in such a way that may improve the quality of audit results

Minister of National Revenue Hon. Diane Lebouthillier released a statement in response to the Auditor General’s report, and stated (in part): “An action plan is already underway to reduce processing times and it will be ready at the beginning of 2017.”

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Auditor General Provides Recommendations for Improving CRA Review of Objections

Taxpayers’ Ombudsman Addresses CBA Meeting

On January 27, 2016, Sherra Profit, the Taxpayers’ Ombudsman, addressed a meeting of the Canadian Bar Association Tax Section on the subject of assisting taxpayers in resolving their service complaints.

The Office of the Taxpayers’ Ombudsman handles individual complaints from taxpayers where he/she was not able to resolve a service complaint through the CRA’s internal process or if the complaint process hasn’t been tried and there are compelling circumstances for the Ombudsman to review it. Such compelling circumstances could include, for example, situations in which an auditor repeatedly contacts a taxpayer when the taxpayer has asked them to deal with their authorized representative, or unexplained delays by the CRA in processing a refund.

The Ombudsman’s mandate with respect to individual complaints is strictly on the service side, and no technical tax issues will be considered in the investigation.

The Ombudsman also handles systemic investigations in respect of which she reports directly to the Minister of National Revenue. Such investigations have addressed processing delays, or system-wide mistakes (i.e., a large number of individual taxpayers being erroneously classified as deceased in the CRA’s database). These systemic investigations could arise out of recurring complaints, requests from tax professionals, or otherwise.

The Office of the Taxpayers’ Ombudsman operates independent of the CRA and attempts to be impartial and fair in the review of service-related complaints. The Ombudsman is ultimately accountable to the Minister, not the CRA.  All information communicated to the Ombudsman through the complaint process is kept confidential, except to the extent a taxpayer gives consent to its release to assist the investigatory process.

Ms. Sherra also provided a list of tips for tax professionals for assisting their clients with service-related complaints:

  1. Manage the taxpayer’s expectations
  2. Use the CRA Service Complaints Program first, unless compelling circumstances exist
  3. Provide a signed consent to authorize a representative
  4. Submit detailed information

Contact information, if a complaint is contemplated, can be found on the Ombudsman’s website.

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Taxpayers’ Ombudsman Addresses CBA Meeting