The Canada Revenue Agency (“CRA”) conducts audits to ensure that taxpayers are paying or remitting the correct amount of taxes. In Canada, the CRA enforces Canada’s income tax, Goods and Services Tax (“GST”), Harmonized Sales Tax (“HST”) and federal payroll taxes laws. These tax systems all have an element of self-reporting.
If the CRA auditor is correct, then the taxpayer would accept the proposed reassessment and make arrangements to pay the reassessment. If the CRA auditor had made calculation errors, the taxpayer would like to bring the errors to the attention of the CRA auditor and ask that the errors be corrected. However, sometimes a large assessment (in the eyes of the taxpayer) may be proposed and the taxpayer does not agree with the auditor. The rest of this article addresses the situation where there is a major disagreement.
CRA auditors are supposed to fairly apply and interpret Canada’s tax laws. Sometimes, a disagreement can arise between an auditor and a taxpayer – and the CRA auditor is not always right. The CRA auditor is an administrator and not a judge. The CRA auditor cannot make up new laws or enforce laws they wish existed. The must apply the law as written and fulfill the intention of Parliament (as they passed the laws). The CRA should not read into a law words that are not there. The disagreement between the taxpayer and the CRA often comes to a critical point when the CRA auditor issues a proposed assessment or proposed reassessment and gives the taxpayer 30 days to respond.
First, if you have 30 days to respond to the proposed reassessment, use the time wisely to prepare your response and provide evidence that contradicts the position taken by the CRA auditor. Often the proposed reassessment is sent by mail and can eat into your 30 day response time. If you do not respond, the CRA auditor may push the button of the reassessment. He/she is not likely to call you up to offer you more time to respond.
Usually (but not always), the proposed assessment or proposed reassessment sets out the CRA’s position. Sometimes the position is stated in the briefest of terms and sometimes in great detail. You cannot adequately respond without knowing the CRA’s position. If what has been provided to you is unclear, ask for a meeting with the CRA auditor and their supervisor to obtain the clarification required. If you ask for a meeting with the CRA auditor and his/her supervisor and the CRA auditor tries to talk you out of it, that is a good sign that the supervisor has not been involved in the file and does not know much about the proposed reassessment. If you ask for a meeting with a supervisor, the auditor is obligated under internal protocols to set up that meeting. Do not take “no” for an answer.
The additional steps (in addition to preparing a response to the auditor) you can take are as follows:
- Submit an ATIP (Access to Information) request to access the auditor’s files, any previous audit, any ruling, or anything else you believe may be of assistance to you (do this as soon as the dispute is evident – even before a proposed reassessment). If you do not know what to ask for (e.g., you do not know what is a T2020 form – it is the auditor’s notes of the discussions he/she has had regarding your file), hire a tax lawyer to help you ask for the right documents. The information received from an ATIP request can be just what you need to respond to the proposed reassessment. It is difficult for an auditor to argue with you when you know something important is being ignored. See also “How to Find Out What Is In The Canada Revenue Agency’s Files About You?“
- Submit a complaint to the CRA Ombudsman if you believe that the auditor has not followed the proper process or is ignoring CRA policy. Any filed CRA Ombudsman complaint is sent to the manager in the auditor’s office and the auditor’s file and their supervisor’s file will be reviewed. Be cautious about what you write in a complaint because the auditor will see a copy. Be factual and fair. Do not let your emotions get the better of you.
- Go to your Member of Parliament and ask them to request information using the MP CRA hotline. There is a telephone number that MPs have to call the CRA to make inquiries on behalf of their constituents. MPs cannot stop an audit and cannot interfere with an audit. But, they can ask questions to help constituents maneuver the CRA bureaucracy. When the CRA receives an MP call, they must prepare an answer for the MP. The auditor, his/her supervisor and person above the supervisor all must participate in the preparation of the response.
- Submit a service complaint with the CRA if your complaint relates to your treatment. There are many legitimate reasons why a taxpayer may file a service complaint against an employee of the CRA. The first place to start is the “Taxpayer Bill of Rights” and RC17 “Taxpayer Bill of Rights Guide: Understanding your rights as a taxpayer”. The next document to consider when completing a service complaint is the CRA’s “Service Standards 2016-2017“. The CRA has also prepared a publication on “Complaints and Disputes”. You may also wish to consult your accountant, lawyer or bookkeeper to assist you with the drafting of the service complaint. Also see How to File A Service Complaint with the Canada Revenue Agency. Be cautious about what you write in a complaint because the auditor will see a copy. Be factual and fair. Do not let your emotions get the better of you.
If you wish to limit the Reassessment to what you really owe, then you must do everything you can before the Reassessment is issued. Once the Reassessment is issued, the auditor closes his/her file and you must file a notice of objection. Once a Reassessment is issued, the CRA Collections Department starts to call and take collections actions because the amount is now a “debt due to Her Majesty”. So, if you wish to prevent an unfair or incorrect Reassessment, devote time and resources to stopping the Reassessment.
That being said, sometimes there may be strategic reasons to stop dealing with an unreasonable auditor and their audit manager. You still want to know the reasons for the proposed reassessment so that you can adequately address the issues in your Notice of Objection. If the reassessed taxpayer would like to get to the Tax Court of Canada before the CRA makes a decision after receiving the Notice of Objection, it may be possible to file a Notice of Appeal to the Tax Court of Canada 180 days after the filing of the Notice of Objection.
If the issue relates to the discretion exercised by the CRA auditor, you may even pursue a judicial review (however a judicial review must be filed within 30 days of the decision at issue).
For more information, please contact Cyndee Todgham Cherniak at 416-307-4168 or email firstname.lastname@example.org.