CRA in hot seat over buildup of tax assessment disputes

The slow speed of government decisions, which can take months or years, costs Canadians time and money to resolve tax disputes, the federal auditor general says.

In reviews of the Canada Revenue Agency and Transport Canada, auditor general Michael Ferguson said long delivery and decision times, especially in an era of technological advances and instant communications, fail to meet the public’s expectations.

Ferguson’s message is that departments measure timely decisions against their internal processes, not what might be timely for the taxpayers they serve.

The CRA agreed with the recommendations in the audit, vowing to craft new policies, strategies, internal processes and reporting standards to show they have heeded Ferguson’s calls.

Ferguson’s auditors found that the revenue agency often leaves taxpayers in the dark about how long it will take to handle an income tax objection, with people waiting months to hear from the agency after formally objecting to tax assessments. Appeals officers can wait more than a year when they request help from other areas of the agency.

The audit said it takes the taxman an average of 263 days to process an objection from an individual or corporation and 1,503 days for so-called group cases, that can include suspected tax evaders.

Auditors found that over the last 10 fiscal years, the inventory of outstanding cases grew by 171%, while the number of employees dedicated to resolving them grew by only 14%.

In his message, Ferguson says, “In the 2014 calendar year, the [CRA] processed roughly 29,640,000 income tax returns, with the related tax income totalling almost $235 billion. During that same calendar year, taxpayers filed 66,864 objections, for which the income tax amount in dispute totalled $4.8 billion.

“As of 31 March 2016, the Agency had an inventory of 171,744 objections outstanding for personal and corporate income taxes, which represented more than $18 billion of federal taxes.”

The report warns that the inventory of appeals will grow unless more resources are put towards handling cases.

“It is critical for government departments to understand that their services need to be built around citizens, not process–or they can expect that those services will be disrupted,” Ferguson wrote in his message to parliamentarians.

Auditors also raised questions about the assessment process, after calculating that tax filers were successful in their appeals 65% of the time.

Of the 174,158 objections that were reviewed during the audit, excluding those the agency dismissed, $6.1 billion out of a total of $11.6 billion in dispute were allowed to taxpayers, with most of the amounts claimed allowed in full. During the five-year period ending March 31, the CRA cancelled almost $1.1 billion in penalties and interest related to the objections, the audit said.

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CRA’s response

Diane Lebouthillier, CRA’s minister of national revenue, delivered a statement in response to the federal audit (the audit was included in the 2016 fall reports of the Auditor General of Canada and tabled in Parliament).

Lebouthillier said, “I thank the Auditor General and his staff for their hard work and dedication to improving service to Canadians. Canadians must have access to the highest level of quality services when they engage with the Canada Revenue Agency (CRA). This is at the heart of my mandate letter and I’m wholeheartedly committed to making every effort to reach this.”

She noted, “That’s why Budget 2016 provided funding to improve the CRA’s client services. An action plan is already underway to reduce processing times and it will be ready at the beginning of 2017.”

Futher, she explained, “Every year the CRA carries out millions of actions related to individual and business tax returns. Of the 66 million transactions with taxpayers in 2014-2015, only 0.1% resulted in an objection. The ability to file an objection is a key foundation of a fair tax administration, which is why the CRA is already taking concrete steps to strengthen the way these are managed.”

Lebouthillier concludes, “The Budget 2016 investment in client service will help the CRA deal with tax objections in a timely manner. By taking action, the CRA will give Canadians the certainty they need about their tax affairs to make decisions for themselves and their families. The CRA will build on the progress that it has made in resolving income tax objections in an accurate and timely manner to provide helpful, client-focused service to Canadians.”

The government is investing $444.4 million to hire more auditors and enhance investigation work, according to Budget 2016.

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