CRA PROCESS - COST OF INEFFECTIVE PROCESSES ON BUSINESS AND MANAGEMENT (2024)

Issue

In these complicated times of red tape and bureaucracy, businesses in Canada are finding it increasingly difficult to focus on what’s important, mainly providing goods and services to the Canadian consumer at a reasonable price.

One of the main stress points in any business today can be a letter, email, or phone call from CRA regarding an issue with one of their tax returns. Many can relate to how CRA will want to review and discuss a return from many years ago.

This policy resolution is intended to address areas where process costs and expenses may be managed more cost-effectively and efficiently.

Background

The first Income Tax Act was passed into legislation in 1917 to fund World War 1, and was about ten pages long. The Act is now over 3000 pages long, including amendments and regulations.

Canadian taxpayers and businesses must deal with all CRA requests, some of which can result in a subsequent reversal of the same request. This can cause businesses to incur material costs of time and expenses to clear up the request.

The following are a few examples of actual cases where a CRA request created cost and frustration for prominent Kamloops business owners. The first example is a case where CRA made a mistake.

“In recent years, we have noticed a substantial increase in audit activity by the CRA. This is obviously a CRA prerogative; however, when a CRA request is caused by errors made within the CRA, an unfortunate side effect can be the fees we have to pay our accountant (and staff) and potentially tax experts to deal with the request.”

 “One of our companies recently underwent a GST audit, and the results came back that we owed a very substantial amount of money. We felt that this was in error and took it to our accountant for review. As you are likely aware, taxation specialists are very expensive, and we paid over $23,000 in professional fee invoices to have this matter resolved. The resolution, as it turned out, was that the CRA admitted an error on their part. The CRA determined that they actually owed us a small amount of money, but we had still paid over $23,000 in fees as a result of their error”.

“It seems unfair that the CRA has no consequences for this, where there can be substantial and costly impacts to businesses with no compensation available.”

Another business member issue brought forward involved a particular CRA process requirement whereby the delays by CRA are not penalized consistent with how a business would be penalized – a clear inequity. In this situation, the business mistakenly sent double payroll deduction payments to CRA. In an attempt to have the extra payments refunded, CRA clearly noted that their policy on any refunds requires lengthy forms to complete and delays for up to at least six months. Conversely, if a taxpayer is found to owe anything to CRA, it is payable immediately, with interest charges and possible penalties, which may apply immediately.

It would appear that some logical system changes could result in substantial cost-effectiveness for both the CRA and for businesses and equity in the penalties for holding cash or not complying on a timely basis.

A third example can involve missed rule changes. CRA can and does change how they like things done to make it easier for them.

In this case, a contractor was required to submit a form on each contractor they did business with by completing and submitting form T5018. Historically, the forms were individually prepared on paper and sent to CRA for them to process. In this case, as of January 2024, the CRA decided the form T5018 needs to be submitted electronically and not on paper. The contractor meticulously filed the paper forms for the year 2023; CRA received them, processed the paper forms, and then charged the contractor with a $125.00 fine because they had not submitted the forms electronically.

The Taxpayer Bill of Rights was introduced to create accountability, cooperation, and supportiveness. This included a commitment to the individual taxpayer and small- to medium-sized businesses.

Under subsection 10 of this Taxpayer Bill, they mention the cost of compliance. The bill goes on to show how to reduce the cost of compliance but does not take into consideration the actual dollars required for a small- or medium-sized business to spend on additional accounting services or the additional internal administration cost required to dedicate employees to manage the request.

Further, the Office of the Taxpayer Ombudsperson was created to improve the service of the CRA. To exemplify the position of this paper, Taxpayer Ombudsperson Francois Boileau states: “CRA generally succeeded in upholding its values of professionalism and respect when working with Canadians. However, the high number of enquiries and complaints we received this year shows there is room for improvement, notably in terms of better, timelier, and more transparent communication with the public.” The Ombudsperson has said that the CRA must tighten up its communication and professionalism regarding any communication with the taxpayer. Communication is likely not the only significant improvement needed.

Both the CRA and the Taxpayer Ombudsperson, as well as the Taxpayer Bill of Rights, could provide more cost-effective services if they used a comprehensive concept (assessment model for decision-making and measurement of outcomes) for their services. A comprehensive concept for their services could include a filter that intentionally considers the costs and requirements of businesses regarding their interfaces and interactions with the CRA. The following provides a few examples of what might be developed with a more comprehensive approach.

1. Where the CRA has an accurate submission from a business queried by the CRA which is found to be accurate, the business costs for responding to the CRA queries should be eligible to be submitted to the CRA, and the costs incurred should be recoverable, potentially from any other assessments, penalties or interest revenues.
2. Where CRA processes cause costs and requirements for businesses that may be more cost-effectively managed to deliver the same service objectives, these should be identified and incorporated into plans for upgrading the CRA processes to capture the benefits in the future.
3. Where the CRA’s service processes interact with taxpayer businesses, the CRA could maintain a set of metrics to collect data regarding the cost-effectiveness of its performance. This could lead to continuous improvement in the effectiveness and efficiency of CRA processes for both the CRA and the business.

An example of crown corporations being financially responsible for their actions is the Rogers/Shaw merger, where the Commissioner of Competition challenged the merger without merit. Rogers and Shaw incurred great expense convincing them that the merger was legitimate. Subsequently, the Competition

Tribunal ordered the Commissioner of Competition to pay Rogers and Shaw $13 million in costs. This demonstrates a potential for government processes to be accountable for their cost-effectiveness regarding their interactions with businesses.

THE CHAMBER RECOMMENDS

That the Federal Government:

1. Establish within the CRA a more comprehensive approach to providing its services to the business community to enable the delivery of more cost-effective services.
2. Establish an additional level of CRA accountability and measures reporting to the Ombudsperson on the cost-effectiveness of the CRA services, including the incorporation of the costs to businesses.
3. Establish a cost recovery mechanism to allow the taxpayer to recover costs related to tax auditing or assessment when no wrongdoing is found.