In this article on the CRA review by the Auditor General of Canada our expert Canadian tax lawyers analyze the report and explain changes to the tax Notice of Objection process that CRA has agreed to implement.
The Auditor General of Canada went through the settlements of objections to assessments of personal and corporate income tax returns in the five years ending March, 2016, and examined:
- Time taken by the CRA to provide taxpayers with decisions on their income tax objections
- Delays occurred at various stages in the processing of objections
- Usage and communication of information on tax court decisions
The Auditor General came up with eight recommendations in two broad headings which the CRA agreed with:
- Processing of objections and measures taken thereof
- Communication of measures within the CRA
Processing of Objections and Measures Taken Thereof
The Auditor General concluded that the CRA did not fare well in processing income tax objections timely and adequately. It inaccurately reported the time taken to process such objections.
Inefficacious dealing by the CRA caused delays in settlements of tax objections.
Depending on the intricacy of objection, the CRA should make known to a taxpayer the expected time required to settle it.
By the end of 2016-17 fiscal year, the website of the CRA will contain:
- Expected and actual times with respect to each settlement of objection
- Steps to be taken to settle tax disputes
- Action plan with targets and its implementation with a view to reduce backlog of tax disputes to a reasonable level
The CRA is required to develop an action plan with targets and its implementation with a view to reduce backlog of income tax disputes to a reasonable level.
The CRA has already identified some areas causing delays in settlements of tax notices of objections. It is about to come up with a strategy to overcome them. It is going to finalize it in early 2017.
On review of its overall process of settlements of objections, the CRA should bring in suitable modifications in the process so as to reduce backlog of disputes to a reasonable level.
By the end of 2016, the CRA will review its overall process of settlements of objections. In early 2017, it will approach the taxpayers, if needed, for providing missing information required to make their filing exhaustive for settlement.
The Auditor General came up with a few more recommendations with a view to improving functional efficacy of the CRA.
The Auditor General Proposes and the CRA Disposes.
The CRA could not set consistent expected times with respect to settlements of tax objections. Nor did it accurately report the actual times taken to process such notices of objection. It may take a cue from similar other organizations in determining what is reasonable.
The CRA should be more conspicuous in defining time required for settlements of objections as it did not provide any discernible information for the same.
The CRA categorizes objections in three groups and sets out to settle them with the following time frames:
- Low complexity – these will processed within 180 days according to a new service standard which is about to be implemented and publicly reported in the 2017-18 fiscal year
- Medium complexity – a policy will be adopted by the end of 2016-17 fiscal year and be published in 2017-18 fiscal year
- High complexity – these will remain on continuous monitoring by the CRA
The CRA will continue to look through other comparable organizations for its improvements.
The CRA should judiciously reset its performance indicators leading to timely review of objections. The trends of consistency can be ascertained from its performance over time. The outcome of performance should be made known to parliament and the public.
Presently it is not only introducing new indicators leading to timely review of objections but also improving upon them. It will describe complexity of objections on its website by the end of the 2016-17 fiscal year.
Internal control and information systems linked to processing of objections have to be revamped.
With a view to addressing identified data needs and validities, a proposal on modernization of systems is under way. It will be linked to other systems functional within the CRA. Besides, it will :
- Effectively communicate the existing procedural controls to the appeals officers
- Identify additional controls that may be necessary
- Monitor the effectiveness of these controls
Communicating the results of objections within the CRA
It transpired from the observations of the Auditor General that the CRA did not sufficiently disseminate information on settlements of objections to its tax auditors, assessors or appeals officers. It deprived the CRA of getting adequate feedback and dampened chances of improvement from learning.
65% of total settlements of objections happened to be fully or partially in favor of the taxpayers.
Incidence of objections can be minimized if the CRA identifies the reasons thereof and settle the issues before they are filed.
From the third quarter of the 2016-17 fiscal year, the CRA will start reporting to tax auditors and tax assessors in every quarter. It will pave the way for improvements in documentation, training and processing thereby improving service to the taxpayers by the CRA.
The decisions on objections and appeals should be shared within the CRA so that improvements in appraisal of performance can be made in future on the basis of shared information.
The CRA is strengthening its practice of sharing information on business intelligence relating to objections and appeals. It will enable the CRA to more effectively analyze the trends, which, in turn, will help to frame procedures, policy resolutions and legislations in both Tax Appeal Branch and Tax Audit and Assessing Branch.
Improved quarterly data analysis reports will be shared in the third quarter of the 2016-17 fiscal year. This will be followed by upgrade of systems and changes in process. It is likely to better identification of the source in the process of tax assessment which gives rise to an objection.