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Canada Revenue Agency Reorganization
Budget 2025 announces that the Canada Revenue Agency (the "CRA") will "wind down its business units that are no longer connected to government priorities" as well as make greater use of "AI and process automation" in "compliance and collection activities", such as "risk scoring".1 In layperson's terms, it seems that the Government aspires to use AI to help identify which tax returns to audit, as well as potentially to formulate initial queries to a taxpayer or even to propose audit adjustments. Greater "process automation" might also entail more computer-generated letters that may or may not be appropriately tailored to a taxpayer's specific situation.
Budget 2025 predicts that these initiatives will "free up resources to tackle complex cases requiring human intervention and to address the backlog of tax debt", estimating that these initiatives will allow total recurring savings of $113.5 million a year plus additional tax collection of some $1.1 billion a year.2 These figures imply that the CRA—notwithstanding an eye-popping expansion of its operations over the past ten years (from $4.6 billion of total expenses in 2014, to $16.8 billion in 2024)3—still fails to collect over $1 billion of taxes owing every year.
Disappointingly, Budget 2025 does not seem to address the underlying reasons for so much tax revenue going uncollected, including the hyper-complexity of Canada's tax legislation that renders it largely incomprehensible even to the officials responsible for administering it. Alas, calls for comprehensive tax reform have gone unheeded.
Increasing the Informal Procedure Thresholds in the Tax Court of Canada
The Tax Court of Canada's Informal Procedure4 applies (generally speaking) to income tax disputes under $25,000 and to GST/HST disputes under $50,000. Informal Procedure cases have no filing fees and generally proceed directly to trial without document production or examinations for discovery. In addition, in Informal Procedure cases, taxpayers may also be represented by an "agent", such as an accountant, rather than counsel. As of 2022, Informal Procedure cases make up about 40% of the Tax Court of Canada's workload.5
Budget 2025 announces the intention to increase the Informal Procedure thresholds as one of the initiatives to improve the efficiency of the Department of Justice. While Budget 2025 acknowledges that the initiative may "lower litigation cost for Canadians and Canadian businesses",6 the primary impetus seems to be to reduce costs and workload at the Department of Justice.
Whatever the Government's motives may be, an increase in access to the Informal Procedure is welcome and likely to be particularly useful for small corporations, who currently need to retain counsel to litigate any disputes in the General Procedure,7 which can render pursuing a dispute to verdict uneconomical regardless of the strength of the taxpayer's case.
Addressing Misclassification of Employees as Independent Contractors
Budget 2025 announces measures to combat the deliberate misclassification of employees as independent contractors, so that their employers can avoid making required withholdings and remittances, such as for income tax, Canada Pension Plan premiums and Employment Insurance premiums. Employees misclassified as independent contractors can also be deprived of their entitlements under applicable labour laws, including paid vacation, overtime, sick leave and recourses against wrongful dismissal.8 Deliberate misclassification of employees in federally-regulated industries is an offence under the Canada Labour Code9 that is enforced by Employment and Social Development Canada ("ESDC").10 The CRA also investigates alleged misclassifications of workers, including when auditing employers for compliance with their remittance obligations, or else when auditing deductions claimed by the employee.
The measures announced in Budget 2025 include:
- amending the Income Tax Act and the Excise Tax Act to allow the CRA to disclose taxpayer information to ESDC "solely for the purpose of administering and enforcing the Canada Labour Code as it relates to the misclassification of employees";11
- allocating approximately $19.2 million annually to the CRA "to implement a program that addresses non-compliance related to personal services businesses";12 and
- with respect to the trucking industry (which is identified as having particular issues with deliberate misclassification), ending a moratorium—which has been in place since 2011—on enforcement of the requirement to report (typically on a T4A slip) all amounts paid to other businesses for services.13
Enhanced CRA Audit Powers
Budget 2025 announces the Government's intention to proceed with proposals announced on August 15, 2025, including with respect to "Non-Compliance with Information Requests".14 This is presumably a reference to measures initially announced in Budget 2024 with respect to "Notices of Non-Compliance" and compliance orders, discussed in our previous bulletin Budget 2024: Government Audit Powers to be Significantly Enhanced.
Footnotes
1 Government of Canada, "Budget 2025: Canada Strong", (November 4, 2025), online: p 295 of Annex 3[Budget 2025].
2 Budget 2025, p 295 of Annex 3.
3 Canada Revenue Agency, Annual Report to Parliament 2013-2014, p. 99; Canada Revenue Agency, 2023–24 Departmental Results Report, Table 8.
4 See generally Tax Court of Canada Act, R.S.C., 1985, c. T-2, ss. 18-18.29.
5 Hon. Eugene Rossiter and Wayne Adams, "Fireside Chat with Chief Justice Eugene Rossiter of the Tax Court of Canada," in Pooja Mihailovich and John Sorensen, eds., Tax Disputes in Canada: The Path Forward (Toronto: Canadian Tax Foundation, 2022), 28:837-50, at 28:839 and 28:847.
6 Budget 2025, p 316 of Annex 3.
7 Tax Court of Canada Act, R.S.C., 1985, c. T-2, s. 17.1(1.1)-(2).
8 Budget 2025, p 165.
9 R.S.C., 1985, c. L-2, s. 167.1. This is also the case under Ontario's Employment Standards Act, 2000, S.O. 2000, c. 41, s. 5(1).
10 Employment and Social Development Canada, Misclassification – IPG-105.
11 Department of Finance Canada, Notice of Ways and Means Motion to Amend the Income Tax Act and the Income Tax Regulations, at "Information Sharing – Worker Misclassification"; Department of Finance Canada, Notice of Ways and Means Motion to amend the Excise Tax Act, at "Information Sharing – Worker Misclassification".
12 Budget 2025, p 165.
13 Canada Revenue Agency, Reporting fees for service.
14 Budget 2025, Tax Measures: Supplementary Information, p. 362.
The foregoing provides only an overview and does not constitute legal advice. Readers are cautioned against making any decisions based on this material alone. Rather, specific legal advice should be obtained.
© McMillan LLP 2025
