Each year I help over 500 clients file their Canadian and US tax returns as well as plan for both their Canadian and US investment accounts. I also regularly help new US clients plan for their move to Canada.
I would normally not point out someone else’s mistakes or omissions. We all make mistakes and should only be judged based on how we take responsibility for these errors and subsequently help to resolve them.
Being a public institution, however, we should hold the Canada Revenue Agency to a much higher standard. (note that this assessment was released a few years ago as I didn’t want to post anything until the case was fully resolved and had permission from my client).
I might also have been much more patient with the department if it wasn’t for their long history of unsympathetic judgments towards public taxpayers. Here’s a great example why CRA needs to review their policies and procedures to ensure they serve the public and not to push forward current government agendas.
In late 2018 I received a call from a client regarding a CRA call and subsequent letter requesting payment for overdue taxes. What made this particular notice very different was the fact that my daughter’s client, an employee of a local coffee house, was assessed $8,000,000 of tax on $17,000,000 of income. Given the recent CRA scams being perpetuated, I assumed this was simply a fishing expedition from another fraudulent actor. However, I was also informed that her bank had withdrawn $5,000 of her remaining funds from her bank account.
I quickly obtained authorization to her account and uncovered that in fact the amounts of income assessed of $17,000,000 and $8,000,000 of tax were actually real. I proceeded to then call CRA collections. Let me first say that the agent was very respectful and sympathetic about the situation. I don’t often have issues with specific CRA agents, but rather, with the actual policies and procedures of the CRA as a whole. He explained to me that although he was not aware of why the amounts were assessed he did call her on various occasions with no success, and he had not received any response to his mailed collections letter.
He then proceeded to pull as much money from her bank account as possible. Unfortunately for her, she has an uncommonly large amount (for her) in the account at that particular time. The full balance of $5,000 was pulled from her bank account pursuant to instructions from CRA. It’s still not clear at the time of this writing how the error happened. My client’s daughter had her return prepared by a large national tax preparation company and I did not have access to her originally filed return. It’s possible it was an error on the part of the preparer or one made internally at CRA. The cause of the error, although interesting, is not my main concern.
How does a $17,000,000 assessment, that subsequently goes to collections is not reviewed by an agent that can apply some judgment to the case.
I just wish that the department had the ability or motivation to make informed and commonsensical decisions on tax matters. I am consistently disappointed by the lack of judgment and decision-making at the department. This wouldn’t be so difficult to endure if it wasn’t for the high standards CRA puts on taxpayers. If they only held themselves to the same standard they would realize how one-sided the system actually is.
How does a $17,000,000 assessment, that subsequently goes to collections, is not reviewed by a senior agent that can apply some judgment to the case. Someone reviewing this assessment for 5 minutes would have concluded that it was likely a mistake. Then appropriate steps could have been taken to inform the taxpayer. Rather, the department simply sent out the assessment, moved it over to collections, and subsequently garnished her bank account.
I don’t often have issues with specific CRA agents, but rather, with the actual policies and procedures of the CRA as a whole
You can imagine what it may feel like to receive a statement like this:
Our public institutions are maintained for specific purposes, and in most cases are there to help support the population of taxpayers. I understand that CRA’s mandate does include the collection of taxes, but the way in which they exercise this mandate is often at the expense of the taxpayers. In many cases, and based on recent audit reports they often give inaccurate information to taxpayers instead of being honest about what they may or may not know about current tax rules. Outlined below are some examples I face in dealing with CRA on a regular basis:
As most personal Canadian tax returns are e-filed, CRA “sample reviews” deductions and credits claimed on taxpayer’s returns each year to ensure tax returns are being accurately prepared and filed.
Even with a current success rate of over 98% at our office, CRA continues to review taxpayers for relatively small amounts claimed on tax returns. CRA foreign tax credit reviews are especially aggravating. As a result of mandatory e-file requirements imposed by CRA, the department does various verification “checks” on tax returns to ensure amounts claimed on tax returns are valid. I do understand how important this practice is to ensure the accuracy of tax returns filed.
However, when experienced tax firms are held to the same level of review scrutiny, regardless of whether they have a high success rate, something needs to change. The insignificance of some of these reviews simply does not justify the fees required to respond to these CRA queries. In some cases, the amounts are less than $50. A skeptical observer may conclude that CRA is sending out these reviews in hopes taxpayers simply don’t have the technical ability or professional help to respond. In these cases, regardless of whether the amounts are correct, CRA gets additional revenue without much effort at all (many of these letters are automated).
In my opinion, CRA needs to:
1) implement a de minimis rule for these reviews. Some are simply not worth the department’s effort to review and
2) apply a risk factor to firms that process these returns. Firms with higher success sample rates would be reviewed much less often. As their success rate dropped, the reviews would increase.
CRA Form Penalties
As most tax practitioners are aware, CRA assesses penalties not only on late tax payments but also on late filing of specific forms. Many of these forms are not known to taxpayers when they attempt to file their own returns. As an example, form T1135 (foreign income and asset reporting) results in a $25 a day penalty until the $2,500 maximum penalty is reached. As you can imagine, most taxpayers don’t simply file this form a few days late, rather missing the form completely and incurring the full $2,500 penalty. CRA is very quick to assess this penalty and it’s almost impossible to have the amounts abated. In most cases, taxpayers that miss filing the form have correctly reported all income from foreign sources. In this case, does the punishment really fit the “crime”?
I have to assume that maintaining these penalties is much more about additional revenue collection and less about foreign income reporting and taxpayer compliance.
These are simply 2 examples of procedures that need to change at CRA. I believe the same level of taxpayer compliance success can be maintained with a more balanced, experienced, and thoughtful systems. Unfortunately, the gap between government tax compliance bureaucrats and Canadian tax professionals is wide.
We cannot forget that CRA is not a private institution. It is a public government body designed to help serve the taxpayers of Canada. In my experience working with clients, taxpayers are completed frustrated and fed up with the lack of judgment and compassion for ordinary Canadians while some continue to escape the clutches of CRA because of a lack of resources at the department. One of the most prominent examples include:
Canadian Real Estate Transactions
Over the last few years, CRA has started requiring taxpayers to report the sale of their principal residences directly on their tax return, regardless of whether they had a taxable gain on the property sale. I would argue that this is many years too late. Not unlike other government initiatives, these new rules should have been in place for years. I can’t imagine how many non-principal residences have been sold in the last 10 years that were never reported or taxed for Canadian tax purposes. Many Canadian taxpayers have not paid capital gains tax on property sales simply by virtue of the fact that no reporting to CRA is required on real estate sales.
In the end, I wrote this article not to berate the CRA as there are many that do a much better job than I on the subject. Rather I wanted to underline the absolute inequity built into the tax system.
I guess I just miss the days where I could call up a CRA agent and work through simple issues over the phone. Most small issues can take 5 to 10 minutes to fix. Now, in order to resolve simple matters with CRA multiple letters, faxes, and calls to the department are necessary. CRA, you’re moving backward, not forward, time to make positive changes that benefit rather than hinder and inconvenience Canadian taxpayers.
Correction: in the original post the taxpayer in question was reported as 23 years old. At the time of the original assessment, the taxpayer was 18 years old.