Consultation needed before expanding CRA audit powers
The Joint Committee on Taxation, Chartered Professional Accountants of Canada and the CBA have significant concerns about proposed audit powers for the Canada Revenue Agency
In a nutshell
While the Joint Committee on Taxation supports enhancing tax audit efficiency and effectiveness, it stresses the importance of procedural safeguards, including a right to appeal. As currently drafted the proposed legislation falls short; with several provisions potentially infringing fundamental rights, including solicitor-client privilege.
Enhanced information gathering
The proposed power to compel testimony under oath or affirmation is not necessary. The CRA already has extensive powers to demand documentation and punish taxpayers who provide false or misleading information. Forcing taxpayers to testify under oath will not make audits more efficient but will increase compliance costs for individuals and small businesses.
Solicitor-client privilege and notice of non-compliance (NNC)
The proposed legislation would allow the Minister to serve a Notice of Non-Compliance (NNC) for failing to meet a requirement fully, imposing a daily penalty of $50 up to a maximum of $25,000. This is concerning because NNCs may be issued against taxpayers who have complied with their legal obligations under the ITA or made reasonable efforts to do so. As well, the CRA should not issue an NNC without judicial authorization when a taxpayer has withheld information on the grounds of solicitor-client privilege.
Automatic penalty for a compliance order
An automatic penalty of 10 per cent of the total tax payable for each year covered by a compliance order is problematic, as it is arbitrary and lacks a clear connection to the severity of the taxpayer’s conduct. Penalties should be proportionate to both the taxpayer’s misconduct and the amount of tax at issue, aligning with the Income Tax Act’s regulatory intent. Such a penalty should only apply in cases of clear, egregious behavior.
Suspension of the normal reassessment period
The proposed legislation would significantly expand the circumstances in which the normal reassessment period is suspended, allowing the Minister to reassess a taxpayer outside the usual timeframe
The stated purpose of these provisions would be to “address situations where the CRA is requesting the information it needs to accurately review and reassess a taxpayer’s filing position and, because of proceedings to challenge those information requests, the time runs out to properly review the requested information.”
The stated aim is to enable CRA to review taxpayer filings accurately, especially when information requests are delayed by legal proceedings. However, the Committee raises concerns that reassessment periods could be suspended for reasons beyond the taxpayer’s control or due to scrutiny of non-arm’s length entities with unrelated tax issues.
Call for greater consultation
In addition to these concerns, the submission notes that the impact of the proposed changes to the CRA’s audit powers have not been properly assessed.
“Before making significant changes to CRA’s audit powers,” the letter concludes, “greater consultation with taxpayers is needed to understand how the tax system operates and the how the current audit powers are being used.”
Read the submission.
