Taxpayer Bill of Rights and Taxpayers’ Ombudsman Analysis

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Office of the Taxpayers’ Ombudsman

Canadian taxpayers have formal rights that have been set out in the CRA Taxpayer Bill of Rights. To help enforce these rights the Office of the Taxpayers’ Ombudsman was established in 2008 and operates independently from the CRA. Its mandate is to uphold the Taxpayer Bill of Rights and to provide an independent review of unresolved taxpayer service complaints. Ms. Sherra Profit, who is a lawyer, was appointed to the position in April 2015 and is the second person to be appointed Canada’s Taxpayers’ Ombudsman since the Office of the Taxpayers’ Ombudsman was created in 2008.

Mandate of Canadian Tax Ombudsman

The Ombudsman will not review matters that are before the courts, will not deal with complaints relating to tax policy or program legislation and cannot direct the CRA to take action. The role of the Tax Court of Canada is to review specific Canada Revenue Agency assessments and direct them to change the assessment if incorrect. The Taxpayers’ Ombudsman will deal with service complaints. Typically, this includes undue delay; poor or misleading information; staff behaviour; or mistakes, which could potentially result in a misunderstanding. A service complaint can be submitted through one of our top Canadian income tax accountants at Tax Partners if it requires a technical explanation. The Taxpayers’ Ombudsman website also contains information about how to submit a tax service complaint.

Canadian Taxpayer Bill of Rights

The Canadian Taxpayer Bill of Rights is a set of 16 very specific rights that Canadian taxpayers have in their relationship with the Canada Revenue Agency. Here are some of the rights as outlined by Tax Partners.

Right to Receive Entitlements and to Pay no More and no Less than What is Required by Law

The first right seems to be very self-evident, but it is very important. This right means that Canadian taxpayers can expect to receive the benefits, credits, and refunds to which you are entitled under the Canadian Income Tax Act. This means that CRA should inform taxpayers of credits available, and taxpayers can expect to pay no more and no less than the correct amount required under tax law. It is important to realize that taxpayers must still claim for credits that they are entitled to receive. CRA cannot know if, for example, a child has participated in activities eligible for the Children’s fitness tax credit.

Right to Privacy and Confidentiality

Taxpayers have the right for CRA to protect and manage the confidentiality of their personal and financial information in accordance with the laws they administer, such as the Income Tax Act, the Excise Tax Act and the Privacy Act. Furthermore, only CRA employees who need information to administer programs and legislation have access to taxpayer information.

Right to a Formal Review and a Subsequent Appeal

This is the right routinely invoked by our experienced accountants. It means that Canadian taxpayers are entitled to a formal review of their file if they disagree with a proposed income tax assessment. If even after this review, there is no agreement with the tax department then there is a right to file a formal Notice of Objection. The income tax appeals officer responsible for handling the Objection will not have been involved with the original decision under dispute and has an obligation to provide an independent review of the file.

Right to be Treated Professionally, Courteously and Fairly

Canadian taxpayers can expect that CRA will treat them courteously and with consideration at all times, including when they ask for information or arrange interviews and audits. Taxpayers can also expect the Canada Revenue Agency to listen to them and to take their specific circumstances into account.

Right to Relief from Penalties and Interest Due to Extraordinary Circumstances

This is another right routinely exercised by our top accountants by filing taxpayer relief or fairness applications. This right means that Revenue Canada has to consider a request to waive or cancel all or part of any penalty and interest charges if the taxpayer was prevented from complying with tax obligations because of circumstances beyond their control. Specifically included is the right to relief due to financial hardship.

Right to be Represented by a Person of Your Choice

Canadian taxpayers have an absolute right to be represented by a Canadian income tax professional. They can choose a person to represent them and to get advice about their tax and benefit affairs. CRA is required to deal with this representative once they have been properly retained and authorized. Failure to do so is grounds for a service complaint to CRA or to the Tax Ombudsman.

Right to Lodge a Service Complaint or Request a Formal Review Without Fear of Reprisal

CRA employees are expected to act in accordance with the CRA Code of Ethics and Conduct and the Values and Ethics Code for the Public Sector. If a Canadian taxpayer lodges a service complaint or requests a formal review of a CRA decision CRA is required to treat them impartially and they are entitled to receive the benefits, credits, and refunds as set out in the tax law, and pay no more or no less than what is required by income tax law. Taxpayers should not fear reprisal.

Auditor General’s Report on CRA – Auditor General’s Report on CRA Tax Compliance Activities

On September 18, 2018, the Auditor General of Canada released its audit report on the Canada Revenue Agency’s tax compliance efforts. In particular, the Auditor General examined whether the CRA consistently applied Canada’s tax laws during compliance activities—like a CRA tax audit. The Auditor General also looked at how the Canada Revenue Agency measured, monitored, and reported its performance to the Canadian federal government.

Surprisingly—or unsurprisingly, for our accountants, who regularly deal with the CRA—the Canada Revenue Agency fell short on both accounts. The CRA not only failed to consistently apply tax rules but also couldn’t accurately gauge its own performance.

This article summarizes the Auditor General’s findings and provides tax tips for dealing with the Canada Revenue Agency.

Canada Revenue Agency’s Inconsistent Treatment of Taxpayers

The Auditor General’s first finding was that the Canada Revenue Agency extended favorable treatment to some taxpayers but not others. Specifically, the Canada Revenue Agency burdened some taxpayers with:

  • less time to provide requested information or respond to a proposal;
  • higher standards for penalty-and-interest relief;
  • longer and more involved tax audits; and
  • delayed reassessments resulting in additional interest.

Yet the CRA provided other taxpayers with:

  • more time to provide requested information or respond to a proposal;
  • unprompted penalty-and-interest relief; and
  • delayed assessments resulting in extra time before payments were due.

Notably, the Auditor General discerned that the CRA’s favorable treatment tended to fall upon large international businesses and taxpayers with offshore assets or transactions. For example, paragraph 7.39 of the Auditor General’s report observes that these taxpayers received unprompted penalty-and-interest relief more often:

  • … for small and medium-sized enterprises, international and large businesses, and taxpayers with offshore transactions, the Agency’s compliance activity was more likely an audit. In those cases, the Agency required its auditors to consider offering relief without taxpayer requests.

Likewise, paragraphs 7.31 to 7.33 describe the Canada Revenue Agency’s tendency to apply stringent response deadlines to employees while granting seemingly unlimited extensions for large corporate taxpayers and taxpayers with offshore assets or transactions:

  • Most taxpayers are individuals with Canadian employment income. We found that the Agency requested information from these taxpayers more quickly, and gave less time to respond, than it did with other taxpayers, such as international and large businesses, and taxpayers with offshore transactions.
  • For example, if the Agency asked an individual to provide a receipt to support a claimed expense and the taxpayer did not provide the receipt within 90 days, the Agency would automatically disallow the expense as an eligible income tax deduction. The Agency would assess the taxpayer’s income tax return on the basis of the information it had available and would notify the taxpayer of the taxes due.
  • For other taxpayers, such as those with offshore transactions, we found that the time frame to provide information was sometimes extended for months or even years. … Sometimes, the Agency did not obtain information at all, and the file was closed without any taxes assessed.

The Auditor General attributed these inconsistencies to a number of sources, including the judgement of the CRA tax auditor or agent, the region was the taxpayer’s file was reassessed, and the type of taxpayer—i.e., individual, small business, or large corporation.

As a result of its findings, the Auditor General provided the Canada Revenue Agency with a number of recommendations, such as:

  • setting consistent time limits for audit workloads and, when those time limits expire, enforcing the Income Tax Act’s provisions compelling a taxpayer by court order to produce information;
  • considering proactive relief for taxpayers in all types of compliance activities; and
  • developing a formal tracking process to monitor the time to process an assessment.

In response, the Canada Revenue Agency has promised that by March 2020 it will—depending on the recommendation—either implement the recommendation, review its procedures, or create an action plan.

Canada Revenue Agency’s Failure to Gauge its Own Performance

The Auditor General’s second finding was that the CRA couldn’t accurately measure—and thus didn’t accurately report—its performance. In particular, it found that the Canada Revenue Agency:

  • couldn’t clearly explain how it established annual revenue goals;
  • closed most tax audits and assessed additional taxes by March 31st—just in time to report its annual performance;
  • overstated the revenue it generated by failing to account for taxes that were still under dispute and uncollectable or tax debts that were written off; and
  • neglected to accurately track the relationship between the amount of budget spending it required to generate additional revenue.

These findings prompted the Auditor General to recommend that the Canada Revenue Agency clearly document how it sets additional-revenue targets, accurately measure the additional revenue generated from budgetary funding, and refine its performance indicators to report on actual collected tax revenues.

The Canada Revenue Agency(Taxpayer Bill of Rights) again responded by promising that by March 2020 it will either implement the recommendation, review its procedures, or create an action plan.

Tax Tips – Dealing with the Canada Revenue Agency

Our experienced accountants don’t find the Auditor General’s report surprising. The Income Tax Act grants the CRA expansive tax audit and compliance powers. And courts respect these powers. So, our Canadian tax law firm often deals with CRA tax auditors, appeals officers, and collectors who unfortunately appear ignorant of tax-law principles or administrative-law procedural requirements.

By reviewing the Canada Revenue Agency’s Taxpayer Bill of Rights, you can learn about the CRA’s purported commitments to taxpayers. As a result, you take the first step toward guarding yourself against a lazy or aggressive CRA employee.

But unless you already understand Canada’s tax-law system or know about the administrative-law procedural safeguards to which a CRA agent’s decision must conform, you likely won’t realize that the Canada Revenue Agency treated you unfairly. Moreover, if you’re the subject of a CRA tax audit, you won’t find much legal justification for simply ignoring requests for information.

You’re better off seeking the advice of one of our experienced Canadian tax accountants at Tax Partners, who can advise you on the rights that you do indeed have and ensure that the information that you provide to CRA is both accurate and relevant. Our expert Canadian tax accountants can carefully plan and prepare your response to the Canada Revenue Agency. A properly prepared response not only notifies the CRA about the relevant law—thereby increasing the odds of a favorable decision—but also lays the groundwork for an appeal to the Tax Court of Canada should the CRA’s decision be contrary to tax rules or a judicial-review application to the Federal Court should the CRA’s decision exhibit bias or unfairness.

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