Budget 2024 proposes several amendments to the information gathering provisions of the Income Tax Act ("ITA"), notably "Notices of Non-Compliance," aiming to enhance the efficiency and effectiveness of tax audits and facilitate the collection of tax revenues on a timelier basis. Proposed amendments in the ITA allow the Canada Revenue Agency ("CRA") to issue these notices to individuals or entities failing to comply with CRA requests for assistance or information. The CRA can review these notices upon request, with a subsequent judicial review option available.
Notice of Non-Compliance
Budget 2024 proposes to amend the ITA to allow the CRA to issue a new type of notice (referred to as a "Notice of Non-Compliance") to a person or entity that has not complied with a requirement or notice to provide assistance or information issued by the CRA. The issuance of a notice of non-compliance would be reviewable by the CRA on request of the person. After reconsideration, the notice of non-compliance would be vacated if the CRA determines that it was unreasonable to issue the notice of non-compliance or that the person had reasonably complied, at the time the notice of non-compliance was issued, with the initial requirement or notice. There would be a further statutory right of review by a judge of the Federal Court.
Where a notice of non-compliance related to a taxpayer has been issued, the normal reassessment period for any taxation year to which the notice of non-compliance relates would be extended by the length of the period of time the notice of non-compliance is outstanding.
To further improve compliance with information requests, Budget 2024 proposes to impose a penalty on a person that has been issued a notice of non-compliance of $50 for each day that the notice is outstanding, to a maximum of $25,000. This penalty would not apply if a notice of non-compliance is ultimately vacated by the CRA or a court.
Sworn Statements
Budget 2024 proposes to amend the ITA to allow the CRA to include in a requirement or notice that any required information (oral or written) or documents be provided under oath or affirmation.
Compliance Directives
Currently, the CRA can obtain a compliance order from a court that directs a noncompliant taxpayer to comply with the CRA's information requests. However, the use of compliance orders has generally not been effective in compelling compliance. This is likely due to the fact that the primary consequence for not complying is a contempt order, which is time-consuming to obtain and does not generally impose a material financial cost on the taxpayer. Budget 2024 proposes to amend the ITA to impose a penalty when the CRA obtains a compliance order against a taxpayer. The penalty would be equal to 10% of the aggregate tax payable by the taxpayer in respect of the taxation year or years to which the compliance order relates.
The proposed penalty, which would apply when the CRA is successful in obtaining a compliance order, would incentivize taxpayers to comply with the original request for information or assistance. The penalty would only be applied if the tax owing in respect of one of the taxation years to which the compliance order relates exceeds $50,000.
Budget 2024 further proposes an amendment to allow the CRA to seek a compliance order when a person has failed to comply with a requirement to provide foreign-based information or documents.
Reassessment Duration Limits
Under existing rules, a taxpayer may seek judicial review of a requirement or notice issued to the taxpayer by the CRA. In these circumstances, the reassessment period is extended by the amount of time it takes to dispose of the judicial review. A similar rule applies in respect of a compliance order. These rules are intended to ensure that the CRA has the time to properly review any information obtained before expiry of the statutory reassessment period fixed by the ITA. These "stop the clock" rules currently do not apply to all situations where a taxpayer does not comply with a requirement or notice issued by the CRA.
Budget 2024 also proposes to amend the stop the clock rules to provide that they apply when a taxpayer seeks judicial review of any requirement or notice issued to the taxpayer by the CRA in relation to the audit and enforcement process or during any period that a notice of non-compliance is outstanding. Similar rules would apply where a requirement or notice has been issued to a person that does not deal at arm's length with the taxpayer.
CRA Administration of Tax Statutes
Budget 2024 proposes that other tax statutes administered by the CRA, which have provisions similar to the ITA, also be amended, as needed, to address the issues discussed above. Those statutes include the Excise Tax Act (e.g., GST/HST, fuel excise tax), Air Travellers Security Charge Act, Excise Act – 2001 (alcohol, tobacco, cannabis, and vaping duties), the Underused Housing Tax Act, and the Select Luxury Items Tax Act.
Overall, there have been substantive changes to the CRA's powers and ability to 'force' compliance in the new Federal Budget. Taxpayers and Corporations should consider all their options (including obtaining legal assistance) when faced with these challenges.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
We operate a free-to-view policy, asking only that you register in order to read all of our content. Please login or register to view the rest of this article.