News Article

Tax Pros Confirm: CRA Increasingly Aggressive with Audit Practices

Posted: December 05, 2017 By : Knowledge Bureau Staff
Posted in: Strategic Thinking, Financial Literacy, CRA, Financial Advisor, tax credits, knowledge bureau, Canada Revenue Agency, Evelyn Jacks, income tax, tax courses, taxpayer bill of rights, financial education, tax preparer, filing tax returns, tax deductions tax audits, taxation issues, CRA audits, tax refunds

The majority of tax and financial services professionals agree: CRA has stepped up audit activity on returns of average Canadian tax filers.  Knowledge Bureau Report’s November poll found this trend emphasizes the value that financial and tax preparers can offer to Canadian taxpayers, as they grapple with a less-than-satisfactory experience with their tax department.

We asked, “In your opinion, has CRA stepped up audit activity on returns of average Canadians tax filers?” Close to 92 percent of the 335 respondents voted yes; and only 8.36 percent voted no. Many of the comments reflected frustration and even anger at the level of service CRA has been providing and confirmed that average people are being affected.

This feedback echoes criticisms in the Fall Auditor General Report released in late November, with reader comments adding a more personal perspective on audit-related issues, as well as the challenges in contacting and receiving accurate information from CRA representatives.

Here are some of the issues outlined by our readers:

  • CRA is targeting low- and middle-income people with legitimate claims who may be unable to afford professional tax services, yet these folks who can least afford to pay for professional help, can’t get through on the CRA phone lines.  When they do, they often reach CRA employees who are unable to provide the information requested.  Further, CRA appears to be more aggressive with younger and older demographics, as well as small business owners, who have a greater compliance burden.
  • CRA is highly disorganized in requesting further documentation for deductions, belaboring the process.  It has been observed that rather than appropriately reviewing data received, CRA is rejecting claims and then sending the issues directly to appeals.  CRA appears to be applying penalties, even after clarification or proof of the legitimacy of the claim has been provided by taxpayers.  CRA frequently claims documents were lost or never received, and still penalizes taxpayer.  Tone and manner with taxpayers is increasingly aggressive.
  • Common deductions are requiring additional documentation – moving expenses, medical expenses, and claiming an eligible dependent and in some cases, legitimate deductions are being disallowed, the individual handling the files at CRA is unreachable,  all of which means clients are needlessly incurred third party fees.  Adding to the chaos has been the consolidation of tax centres, which appears to lead to even more objections and court appeals.
  • Further, CRA is failing to pay refunds to taxpayers in a timely manner.
  • While there is lots of scrutiny of minor claims, CRA is embarking upon more deep audits, and there’s greater activity on pre- and post-assessment reviews, but there are Inconsistencies in terms of documentation requirements year over year.  For example, foreign documents even with a simple translation are no longer accepted:  CRA now requires fully notarized translations.

There are other complaints:  Northern Residents Deduction frequently audited, the same taxpayers are audited year after year, audits and reviews are not conducted in a timely.

Here are some additional, insightful comments received from our readers this month.

Too many do-it-yourselfers:  Katherine has a point in CRA’s defence.  “I think the increase in CRA reviews and audits is quite simply because there are more do-it-yourselfers each year. It is so easy with the tax [software] programs that are available, and the ads that say how easy it is to file your own returns, that people have the misguided notion that they have the knowledge and experience to file and claim what makes sense to them, maybe not what they can actually legally claim. Of course in a self-assessment society there must be checks by the authorities (CRA), to make sure these returns are filed correctly.”

   

Don’t reject legitimate claims:  Kathy is a frustrated pro.  “I have been doing taxes for 30 years and can certainly agree with all the above… an incredible increase for requests and for the most ridiculous things ... looking for receipts for a small amount, or the opposite ... for one client asked for ALL charity, business expenses, employment expenses, medical expenses and tuition receipts. Had to resubmit some twice again, one because they said they didn’t get the T2200 (IT WAS included but they purposely lost it so they can reject the expenses). I find more and more they are rejecting allowable expenses or SOMEHOW losing the forms we send in because they think people will not bother resubmitting. They can justify the staff they need because of all the money they are raking in from unfairly holding back on refunds. They no longer care for the interest of the clients but for how good their department looks.”

Intimidation, harassment and waste:  Ken is frustrated, too.  “For 2015 and 2016, CRA has been questioning amounts claimed as income and deductions, which they already have on file. It seems they have taken on a policy of intimidation rather than verification. On one occasion, they would not accept a translation provided by a company issuing an income slip; they required the taxpayer to get a certified translation, meaning a $300.00 bill, to prove the company was not lying. They are harassing individuals in nursing homes, even though the claims have been reviewed and substantiated, along with the disability tax credit, in previous years. We have clients that have not been assessed their 2016 T1 as of yet. ”

Last word goes to Ron who says the system is broken.  “The CRA is out of control. They have been instructed by the Nanny State to collect as much money as possible. They are lucky if they answer 50 percent of the calls they get. They provide incorrect information to taxpayers 30 percent of the time or more. They waste money auditing people when the extra tax collected, if any, will not pay for their audit time. They constantly waste taxpayers’ money. They do not deal fairly and above board with taxpayers.  And why do we put up with this?  The system is broken. There is no real leadership or direction at CRA! Too many rules on top of rules. Too many interpretations and CRA just change them when it suits their agenda. Time to introduce a simple flat tax.”

Many thanks for all your comments and please participate in this month’s poll – which contemplates how we can help taxpayers take better advantage of the one tax provision that keeps giving back:  charitable donations in the season of giving.

Consider this month’s question and leave your comments, answering: “In your opinion are tax and financial advisors taking enough time to help clients understand the benefits of charitable giving?”

Additional educational resources: Real Wealth Manager Designation, Introduction to Personal Tax Preparation

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