Accounting for Law
Tax

Report shows CRA stats affecting taxpayer treatment at audit

A newly released report by Canada’s auditor general appears to show that Canada Revenue Agency (CRA) targets may be driving the way in which taxpayers are being treated at audit, Canadian tax lawyer David J. Rotfleisch tells AdvocateDaily.com.

Overall, the Auditor General’s 2018 Fall Report to Parliament, which examined the CRA’s compliance activities, found that the agency “did not consistently apply tax rules when it audited or reviewed taxpayers’ files, even though the Taxpayer Bill of Rights includes the right to have the law applied consistently.”

The report cited a number of reasons for these inconsistencies, including the judgment of agency staff conducting compliance activities, the region in which the file was reassessed, as well as the type of taxpayer, whether a small business or a large corporation.

“Taxpayers in one region waited an average of 7 months longer than those in another region for the Agency to complete an audit. In one region, it took the Agency more than 40 weeks to process taxpayers’ requests for adjustments, while in another region, the Agency took 12 weeks.”

The report also found that the agency’s targets for additional revenue “may have influenced how it conducted its compliance activities, such as the timing to complete audits.”

“We found that each year, these targets increased, although they would be expected to decrease if the compliance activities were effective. The Agency usually met or exceeded its targets,” says the report.

Supporting these findings, the report cited factors such as an unclear methodology to establish targets for additional revenues and incomplete reporting.

Rotfleisch, founding tax lawyer with Rotfleisch & Samulovitch Professional Corporation, says the auditor general also noted that the CRA closes many files prior to their year-end reporting deadline. 

“The majority of audit files were closed between December and March, coinciding with the Canada Revenue Agency’s deadline to meet its annual targets for additional revenues by 31 March,” says the report.

“Because the calculations of additional revenues were not adjusted if assessments were overturned or revenues were not collected, targets may have pushed auditors to close files early. The Agency was unable to tell us the amounts of additional revenues reported that were actually collected from year to year.”

As Rotfleisch points out: “Our tax law firm has encountered many cases where audit files are closed inappropriately. CRA has been reporting these types of files as collected revenue even if an appeal is subsequently filed and no taxes end up being owed. So it appears that CRA statistics are driving the way in which many taxpayers have been treated at audit.

“This results in unnecessary professional fees and delays for the taxpayer.”

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