On April 16, 2024, the federal government presented its 2024 budget announcing several tax changes, including an increase in the capital gains inclusion rate—a measure that has since been cancelled. But another tax reform, which garnered less attention, could have even greater consequences: the new rules governing the collection of information by the Canada Revenue Agency (CRA).
Changes that fly under the radar
Tax experts agree that these new rules have slipped under the radar of many taxpayers. Yet they're likely to significantly transform the CRA's tax auditing and information gathering practices. These changes need to be better understood, as their impact could be much broader than a capital gains inclusion increase.
What are the new rules?
The Canadian tax system is based on self-assessment, which allows the CRA to collect information from taxpayers. However, a 2018report by the Office of the Auditor General revealed that information requests were often delayed by months or even years. To address this, the 2024budget proposed to bolster the CRA's tax audit and information gathering powers. These measures, supported by a bill (amended in August2024), are designed to make tax audits more efficient and ensure the timely collection of tax revenues.
Four key measures to watch out for:
- The CRA can require a person to be examined under oath (orally or in writing).
- Notices of non-compliance with penalties of up to $25,000 can be issued for failing to comply with CRA requests.
- Automatic penalties can be issued for non-compliance with an enforcement order.
- The limitation period can be suspended in certain situations.
Controversial measures
These measures drew fierce criticism from the tax community. While some practitioners recognize the need for the CRA to have effective tools to conduct audits, many feel that the existing rules are already sufficient. What's more, these new measures could lead to abuses by the CRA in processing taxpayers' files.
Here are some of the concerns raised by tax specialists:
- Examination under oath is likely to entail significant costs for taxpayers.
- The CRA's current powers of document collection are already considerable, and could be sufficient to ensure tax compliance.
- The power to issue non-compliance notices could be used excessively, particularly against taxpayers who, despite having responded to the CRA's requests, object to certain requests they see as abusive.
- Automatic penalties could penalize taxpayers who have already provided most of the information requested.
A suspended but not forgotten reform
In the face of criticism, a working group was set up by the Canadian Bar Association and Chartered Professional Accountants of Canada to study these measures. However, the bill containing the new rules was suspended by the prorogation of Parliament on January 7 at the request of Prime Minister Justin Trudeau. The tax community expects a new bill to be introduced when the House of Commons reconvenes. To be continued...
*This article was published on March 14 on the Finances et Investissement website.
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