“I’m as mad as hell, and I’m not going to take this anymore!”
While Auditor General Michael Ferguson may not have used the exact words of Network anchorman Howard Beale to describe the Canada Revenue Agency’s appallingly long delays in processing tax appeals, he may as well have.
“That type of performance just isn’t acceptable and the government departments need to find a way to design their services so that they actually meet the needs of the citizens,” Ferguson said in a news conference after the release of his Fall reports on Tuesday.
The auditor looked at five fiscal years of tax objections and found that the CRA took, on average, 143 days to resolve low-complexity objections from the time they were filed by the taxpayers to the date of their resolution. Medium-complexity objections took 431 days and it took 896 days for high-complexity objections to be resolved.
Yes, you read that correctly — 896 days. That’s nearly two and half years from the time a taxpayer files an objection to their return until their file is resolved by the CRA. If we dig deeper into the numbers, approximately 79,000 objections took the CRA five or more years to resolve. These 79,000 objections represented about $3.8 billion of taxes in dispute. Of these, 7,800 took the CRA ten or more years to resolve. As the Auditor General wrote in his report, “In our view, the Agency did not meet its mandate to provide a timely review of income tax objections.”
So how, exactly, does our income tax appeals system work and what is considered to be a “timely” review?
For starters, our Canadian tax system is one of self-reporting, where each individual files their own tax return reporting their worldwide income and claiming various deductions and credits, as appropriate. After the return is filed, the CRA assesses your return and, in some cases, may make changes to it. For example, the CRA may issue a reassessment if you missed a T5 slip reporting investment income that you forgot to include on your return. Or, perhaps you claimed a medical expense that was invalid.
If you disagree with the way the CRA has assessed your return, you can object to your assessment, formally, by filing a “Notice of Objection” setting out the reasons you’re objecting. The deadline for submitting an objection is one year from your normal filing due date (generally April 30) or 90 days after the date printed on the Notice of (Re)Assessment, whichever is later. If you miss that deadline, you can still apply to the CRA for an extension of time to object to an assessment. If the CRA denies your application, you can further appeal to the Tax Court to have the application granted but you must do so within 90 days of the CRA’s refusal letter.
The CRA deals with your objection through its Appeals Branch. This branch has a mandate to consider your objection “fairly and impartially, to agree or disagree with it, and to inform the taxpayer of its decision.” If you don’t agree with the CRA’s decision, you have the right to appeal to the Tax Court of Canada, and then to the Federal Court of Appeal, and ultimately, if you’re granted leave, to the Supreme Court of Canada.
Once the CRA has received your objection, it must review it and notify you of its decision in writing. Although the Income Tax Act does not specify how long the CRA should take to resolve an objection, the Act does say that the CRA should do this “with all due dispatch.” Similarly, the CRA’s “Taxpayer Bill of Rights” gives taxpayers the right to “complete, accurate, clear, and timely information,” but it does not define “timely.”
The Auditor General, in the absence of a definition of “timely,” compared the CRA’s appeals performance with that of similar tax administrations in other countries to determine whether our processing timelines were comparable and reasonable. An international benchmarking study reported in 2011 by the United Kingdom’s tax authority showed that among seven countries studied, Canada took the longest time to resolve tax objections, taking an average of 276 days compared with an average of 70 days for the other six countries. Clearly, this is unacceptable and the recommendation from the Auditor General was that the CRA should explicitly define what it considers to be “the timely resolution of an objection” by looking at other comparable organizations to help it determine what is reasonable.
The biggest cause of the processing delays seems to be with staffing. In the past ten fiscal years, the inventory of outstanding income tax objections increased by 171 per cent while the number of employees dedicated to resolving these objections increased by only 14 per cent. According to the Report, “this large increase in the number of outstanding objections challenged the Agency’s ability to process the objections in a timely manner.”
The CRA is taking the Auditor General’s recommendations seriously. In a statement issued after the release of the report, Diane Lebouthillier, Minister of National Revenue, said “Canadians must have access to the highest level of quality services when they engage with the CRA…. Budget 2016 provided funding to improve the CRA’s client services. An action plan is already underway to reduce processing times and it will be ready at the beginning of 2017.”