Tax Audits are Working for the CRA

Evelyn Jacks

The government has invested in the Canada Revenue Agency because it brings great returns.  Consider the results in the latest CRA Departmental Report, described below.  Then, consider the additional powers and money behind them granted to the department in the latest federal budget and in particular the concerning new provisions that introduce a Notice of Non-Compliance into the mix.

CRA and their results.  The tax department has noted in their departmental plan that for 2022-2023:

• $379 billion in tax revenue was collected, representing approximately 85% of government annual revenue
• $10.4 billion of tax earned by audit
• 12 cases referred to the Public Prosecution Service of Canada
• $89.1 billion in tax debt resolved
• $46.4 billion in benefits were issued

However, the CRA was also challenged by taxpayers:

•  64,711 objections were received
• 1,498 CPP/EI Appeals were referred to the Minister
• 89,689 Taxpayer relief requests received

Unfortunately, the turn around time on these requests are very long. The government notes that wait times are up to 180 days.  That’s in addition to the hours of time taxpayers and their advisors spend on the phone trying to speak to someone knowledgeable about their tax questions and issues before they get to the appeals stage. 

The April 2024 budget did bolster the financial bench strength of the CRA significantly in these areas:

• Call Centres.  The CRA will get  $336 million over two years, starting in 2024-25, to maintain and improve the efficiency of its call centres.
• Crypto Currency.  Just under $60 million was allocated over five years, starting in 2024-25, to look into crypto-transactions.
• Real Estate Transactions.  Non-compliance here will be faced down with funding of $73.1 million over five years, starting in 2024-25, and $14.7 million per year for a total of $87.9 million.  
• Investment Tax Credits.  Up to $90.9 million was set aside over 11 years, starting in 2024-25, to administer new investment tax credits and provide funding for Natural Resources Canada and the Department of Finance.

Notice of Non-compliance.  However, a concerning development is the introduction of a new tax audit tool:  the Notice of Non-Compliance.  CRA can issue this for anyone who does not provide and deliver, in a reasonable manner any information or additional information the CRA may request – even if the requested information was partially delivered. While the taxpayer may appeal this requirement to the Federal court of appeal, there is a daily penalty of $50 which is capped at $25,000. 

Further any person may be summoned to answer CRA’s questions. . . any questions. . .by oath or affirmation, orally, or by affidavit under new section 231.41 of the Income Tax Act.  This is very problematic according to an explanation by law firm Dentons, which notes “ taxpayers who provide false information under oath or affirmation with an intent to mislead may be subject to criminal charges for perjury.”

Even worse, the statute of limitations under which CRA can request information, which is normally 3 year in most cases, is extended indefinitely under this provision until the Notice of Non-Compliance is cleared up. 

Bottom Line.  Tax Audit defence has just gotten more expensive.  Worse, tax accountants are inundated with difficult tax compliance work and short deadlines.  Clients will need to look to a collaborative approach to family wealth management to keep more of it in their own pockets for the future and that increasingly requires the help of a professional financial support team:  tax accountants, financial advisors well versed in tax planning and  legal help in case of audit.