Approved by Kamloops & District Chamber of Commerce members at the March 14th Public Policy Debate
Issue
In these more complicated times of red tape and bureaucracy, business in Canada is finding it more and more difficult to focus on what’s important, mainly providing goods and service to the Canadian consumer at a reasonable price.
One of the main stress points in any business today is the dreaded letter, email, or phone call from CRA regarding an issue with one of their tax returns. Many can relate to how CRA will want to review and discuss a return from many years ago.
This policy resolution is intended to put CRA on notice that the distractions and expenses it creates must come with some sort of accountability and responsibility.
Background
The first Income Tax Act was passed into legislation in 1917 to fund World War 1. It was about 10 pages long. The Tax Act is now over 3000 pages long including amendments, and regulations.
Canadian taxpayers and businesses must deal with unwarranted CRA requests, in many cases, resulting in a reversal of the same request. This is all after incurring time and expenses to clear up the request.
The following are common examples of actual cases where CRA created unnecessary cost and frustration from prominent Kamloops business owners. The first example would fall under the heading of – “Oops, sorry, our mistake.”
“In recent years, we have noticed a substantial increase in audit activity by the CRA. This is obviously their prerogative, however, one unfortunate side effect of that is the fees we have to pay our accountant (and staff) to deal with this.
What becomes particularly egregious is when errors are made on their side. One of our companies recently underwent a GST audit and the results came back that we owed a very substantial amount of money. We felt that this was in-error and took it to our accountant for review. As you are likely aware, taxation specialists are very expensive, and we paid over $23,000 in invoices to have this matter resolved. The resolution, as it turned out, was that the CRA admitted an error on their part, determined that they actually owed us a small amount of money, but we still paid over $23,000 in fees as a result of their error.
It seems very unfair that the CRA has no consequences for this. There are substantial and costly impacts to businesses for these but no compensation available.”
Another member issue brought up falls under the heading of “Do as I say, not as I do.”
In this situation, the member mistakenly sent double payroll deductions payment to CRA. In an attempt to have the extra payments refunded, CRA clearly noted that their policy on any refunds requires lengthy forms to complete, and don’t expect to see anything for at least 6 months. However, on the flip side, if a taxpayer is found to owe anything to CRA, it is payable immediately, and interest charges and possible penalties apply immediately.
A third of many examples fall under the heading of “Ha! You missed the rule change, you did it wrong, now pay up!”
CRA is now in the habit of changing the way they like things done, in many cases, to make it easier for them. In this case, a contractor is required to submit a form on each contractor they did business with by completing and submitting form T5018. Historically, the forms were individually prepared on paper and sent to CRA for them to process. In this case, as of January 2024, CRA decided the form T5018 needs to be submitted electronically and not by paper. The contractor meticulously filed the paper forms for the year 2023, CRA received them and processed the paper forms, then slapped the contractor with a $125.00 fine because they never submitted electronically.
In order to create an illusion of accountability, cooperation and supportiveness, the Taxpayer Bill of Rights was introduced[1]. This included a commitment to the individual taxpayer as well as small to medium, size businesses.[2]
Under subsection 10 of this bill, they mention the cost of compliance. It goes on to show how to reduce the cost of compliance but does not take into consideration the actual dollars required for a small business to spend on additional accounting services, or the additional internal administration cost required to dedicate employees to manage the request.
Further, the Office of the Taxpayer Ombudsman was created to improve the service of the CRA. To exemplify the position of this paper, Taxpayer Ombudsperson, Francois Boileau, states: “CRA generally succeeded in upholding its values of professionalism and respect when working with Canadians. However, the high number of enquiries and complaints we received this year shows Further, the Office of the Taxpayer Ombudsman was created to improve the service of the CRA. To exemplify the position of this paper, Taxpayer Ombudsperson, Francois Boileau, states: “CRA generally succeeded in upholding its values of professionalism and respect when working with Canadians. However, the high number of enquiries and complaints we received this year shows there is room for improvement, notably in terms of better, timelier, and more transparent communication with the public.”[3]
Both CRA and The Taxpayer Bill of Rights must take its intent and commitment to the taxpayer to the next level.
First, there needs to be some financial accountability to the taxpayer for costs incurred on information request from CRA. Understandably, if CRA deems a return as being inaccurate, they have the right to question and request additional information. However, in the event the stated return is accurate in the submission, the costs incurred should be recoverable.
In many cases, the requests are unreasonable and create a winner/loser scenario. An example of crown corporations being financially responsible for its actions is the Rogers/Shaw merger where the Commissioner of Competition challenged the merger without merit. Rogers and Shaw incurred great expense convincing them the merger was legitimate. Subsequently, the Competition Tribunal ordered the Commissioner to pay Rogers and Shaw, $13 million in costs; thereby, setting the stage for CRA to be financially responsible for its requests.
Further, in the words of the Ombudsperson, CRA must tighten up its communication, and professionalism relating to any communication with the taxpayer.
In addition, in the event of an unprofessional or technically incorrect request, the taxpayer needs access to an impartial 3rd party to vet the request to ensure the review is legitimate. This will prevent the bulk of requests a business has to deal with before they even start.
The Chamber recommends:
That the Federal Government:
- Establish a cost recovery mechanism to allow the taxpayer to recover costs related to unwarranted tax auditing request.
- Establish an additional level of CRA accountability and measures related to its communication and professionalism in addition to the Ombudsperson.
Submitted by the Kamloops & District Chamber of Commerce
[1]. Tax Payer Bill of Rights: https://www.canada.ca/content/dam/cra-arc/formspubs/pub/rc4417/rc4417-12-13e.pdf
[2]. Commitment to Small Business in Tax Payer Bill of Rights: https://www.canada.ca/en/revenue-agency/corporate/about-canada-revenue-agency-cra/taxpayer-bill-rights.html?utm_campaign=not-applicable&utm_medium=vanity-url&utm_source=canada-ca_taxpayer-rights#h-2
[3]. 2022 – 2023 Annual Report: https://www.canada.ca/en/taxpayers-ombudsperson/news/2023/11/20222023-annual-report-of-the-office-of-the-taxpayers-ombudsperson-emphasis-on-the-taxpayer-bill-of-rights.html