Canada Revenue Agency
Departments of the Government of Canada
|Canada Revenue Agency|
|Agence du revenu du Canada|
|Responsibilities||To administer tax, benefits, and related programs, and to ensure compliance on behalf of governments across Canada, thereby contributing to the ongoing economic and social well-being of Canadians.|
The Canada Revenue Agency (CRA) (formerly Revenue Canada and the Canada Customs and Revenue Agency) is a federal agency that administers tax laws for the Government of Canada and for most provinces and territories, international trade legislation, and various social and economic benefit and incentive programs delivered through the tax system. It also oversees the registration of charities in Canada, and tax credit programmes such as the Scientific Research and Experimental Development Tax Credit Program.
The Canada Revenue Agency was previously known as the Canada Customs and Revenue Agency (CCRA) until a federal government reorganization in December 2003, when customs enforcement was moved into the Canada Border Services Agency, part of the Public Safety Canada portfolio.
The CCRA was short-lived, having been created in a November 1999 reorganization of the federal government where it had been known for many years under its statutory name the Department of National Revenue. It was also referred to as Revenue Canada under the Federal Identity Program of the Treasury Board of Canada.
The Commissioner and Chief Executive Officer is the head of the agency and its Board of Management, consisting of 15 members, 11 of whom are nominated by the provinces and territories. The current Commissioner and Chief Executive Officer of CRA is Andrew Treusch, appointed in December of 2012.
Head office is in Ottawa and responsible for budgeting, planning, training of managers, rulings, reporting to the minister, and other high level functions. CRA is divided into 5 regions for administrative purposes, including Atlantic, Quebec, Ontario, Prairie, and Pacific. Each region has a few tax services office, which carry out field works, such as audit and collections.
Tax services office (TSO)
TSOs are the field offices of the CRA. Their functions mainly include audit and collections.
Taxation centre (TC)
TC is responsible for processing tax returns and conduct limited reviews of the returns filed. Canada has 7 TC, including Jonquière Tax Centre, Shawinigan-Sud Tax Centre, St. John's Tax Centre, Sudbury Tax Centre, Summerside Tax Centre, Surrey Tax Centre, and Winnipeg Tax Centre.
Most of the executives and managers are not represented by unions. Many CRA employees are represented by Union of Taxation Employees, which is a component of Public Service Alliance of Canada. Auditors, investigators and computer systems employees are represented by Professional Institute of the Public Service of Canada.
Processing of tax returns
The Canadian tax system is based on voluntary compliance or self-assessment system. Every taxpayer is obligated to file their tax returns on time. Penalties may be imposed if returns are filed late. The CRA processes most tax returns with very limited review and promptly issues a Notice of Assessment. The Notice of Assessment is a legal document and provides a summary of each entity's income, credits and deductions. If a taxpayer disagrees with an assessment, they may file an appeal which may lead to challenging the assessment in tax court. Once a tax return is assessed, it may be subject to review. In some cases, a tax return could be reviewed before being assessed.
Income tax returns
A resident of Canada is required to file an income tax return every year. Non-residents may have to file a tax return under certain circumstances. An individual files a T1 return; a corporation files a T2 return; a trust files a T3 return. A trust is not an entity in common law but treated as a taxable entity by the Income Tax Act. A legal representative of an estate of a deceased person may have to file a T3 return for the estate if it has properties that has not been distributed. Unlike US, a family could not file a joint return under the Canadian tax law. A partnership is not taxable entities for income tax purposes and its income is taxed in the hands of its partners.
An individual taxpayer can file their T1 return by paper file, or netfile. A software program, provided by commercial vendors and not the CRA, is required to netfile. Accountants usually use efile method, which requires registration with CRA and not normally available to non-accountants.
Many benefits, such as Canada Child Tax Benefit (CCTB), are determined by the income reported on the T1 returns. If returns are not filed, benefits will be unavailable. Registered Retirement Savings Plan (RRSP) contribution room is also depends on the taxpayer's reported income.
T1 returns are due April 30 for most taxpayers. If one has self-employed income, they could file the return by June 15, but the interest on their tax owing starts accruing after April 30.
A taxpayer could file the return themselves or get an accountant to file it for them. Every taxpayer is responsible for their tax liabilities, not their accountant. If a tax return is audited and a larger tax bill is the result, the taxpayer is responsible, not their accountants.
An employee normally has income tax withheld on each pay check by their employers, who remit the tax withheld together with payroll taxes to the CRA. A contractor is normally required to pay installments for income tax to CRA during the year. Once a tax return is filed, a tax refund will be available if the tax withheld or the installments are more than tax owing calculated on the tax return. If the tax return results in a balance due, it must be paid in full by the due date or interest will accrue daily.
GST/HST is governed by Excise Tax Act, which requires many entities to register for a GST/HST account and remit GST/HST collected. Theses entities include sole-proprietors, partnerships, corporations, etc. Not-for profit organizations are normally exempt for income tax purposes but not for GST/HST purposes. Even universities and hospitals are required to register for GST/HST.
GST/HST returns are due monthly, quarterly, or annually depending on the volume of sales. If sales are less than $30k per year, a business may qualify as smaller suppliers, who are not required to register for GST/HST.
Payroll tax returns
An employer is required to withhold income tax and payroll taxes, such as CPP & EI, and to remit the withheld amount to CRA monthly, quarterly, or annually depending on the amount of withholding. By the end of every February, an employer is required to file a T4 return, that is, a T4 summary for total wages paid by the business, and T4 slips for wages paid to each employees, to CRA.
Collection of taxes
CRA collects income tax, excise tax, payroll tax, etc. GST/HST is governed by Excise Tax Act. CRA does not collect provincial taxes, such as sales tax and gas tax, or municipal taxes, such as property tax. CRA does have agreements with some province to collect outstanding debts for provincial programs. For example, CRA could use personal income tax refund to offset outstanding debts to BC medical program if so requested by the Province of BC.
The Canada Revenue Agency collects most individual income taxes in Canada, except those for residents of Quebec. Tax collection from provincial corporations in Canada is administered by the CRA except for the provinces of Alberta and Quebec. Ontario administered corporate taxes for fiscal years up to 2008. As of January 1, 2009, the CRA collects Ontario corporate tax.
CRA not only collects federal income tax but also provincial income tax on behalf of many provinces.
Goods and Services Tax (GST)
The Canada Revenue Agency collects the Goods and Services Tax (GST) (the Canadian federal value added tax) of 5% in all provinces except Quebec. Revenu Québec administers its own Quebec Sales Tax (QST)and the GST on behalf of the CRA. The Goods and Services Tax was introduced in 1991 at 7% added to the value of most sales of goods and services. The GST was reduced to 6% in 2006 and 5% in 2008, the current rate.
Harmonized Sales Tax (HST)
In British Columbia, New Brunswick, Newfoundland and Labrador, Nova Scotia and Ontario the Goods and Services Tax (GST) has been replaced by the Harmonized Sales Tax (HST). The Harmonized Sales Tax combines the national GST and the provincial sales tax into a single tax. The HST is administered by the CRA. Each province that has Harmonized Sales Tax receives their portion of the HST from the CRA.
It should be noted British Columbia in 2013 removed HST after public protests against the newly taxed items under HST not previously taxed under the PST/GST system.
Administration of benefits
CRA administers many benefit programs. Most notable benefits to Canadian family include Canada child tax benefit (CCTB) and Universal Child Care Benefit (UCCB). CRA also manage many programs on behalf of the provinces. Personal income tax returns are generally required to be filed before any benefits could be paid.
Canada child tax benefit (CCTB) is non-taxable income for taxpayers. It ties to a taxpayer's family income, which could include the income for a taxpayer's spouse. It requires all tax returns filed for a taxpayer's family before the amount of benefits could be determined. The rationale is to pay more to low income families so that their kids could grow up healthy. A prescribed form has to be filed to get this benefit.
Universal Child Care Benefit (UCCB) is taxable income for taxpayers. It is not tied to family income. UCCB is $100 a month paid to each child under 6. A prescribed form has to be filed to get this benefit.
CRA has a large army of auditors working on audit files. Most of the time, the outcome of an audit results in a reassessment, that is, a taxpayer under audit will get a tax bill. The tax bill not only includes tax payable but also could include penalties and interest. An audit will not result in criminal charges or jail time.
A few audit files will be referred to Investigations. The outcome of an investigation would very likely result in criminal charges and possible jail time. A taxpayer under investigation is protected by Charter of Rights and could remain silent as it is up to the investigator to make the case and lay the charges.
The agency performs audits to ensure compliance with tax laws. Auditors have the right to examine the books and records of a taxpayer, examine the property in an inventory of a taxpayer, enter the taxpayer's premises or place of business, require the owner or manager of a property to give all reasonable assistance and to answer questions, and require a taxpayer or other person to provide information or documents. Taxpayers must cooperate with auditors or face obstruction charges under S. 238 of the Income Tax Act.
Income tax audit could be done by TC and TSO. TC conducts some very limited reviews of the tax returns filed, such as pre-assessment review of donations and tuition fees, post-assessment review of medical expenses and moving expenses. Most audits are conducted by auditors working in TSO. Auditors working in office audit program normally restrict their audit to business expenses reviews. They conduct their audit by correspondence and do not visit business in the field. Auditors working the SME, basic file, and large file programs conduct their audits in the fields, normally at the taxpayer's place of business. The audit of these field auditors are not restricted and could cover many and any issues in a tax return.
GST/HST audits are done by TSO. Prepayment program deals only with a credit return, that is, a GST/HST return that requests a refund. The prepayment audit is a restricted audit of ITC. Post audit is a full audit of GST/HST returns and that covers not only ITC but also GST/HST collected.
CRA operates four investigation programs: Voluntary Disclosures Program, Informant Leads Program, Special Enforcement Program and Criminal Investigations Program.
- Voluntary Disclosures Program (VDP): A program that allows taxpayers to avoid penalty or prosecution if they choose to correct inaccurate or incomplete information, or to disclose information previously withheld to CRA. In order to be accepted into this program, the taxpayer's action or omission must involve the application, or potential application of a penalty by CRA and he/she is willing to make a complete disclosure.
- Informant Leads Program (ILP): This program allows for citizens to report individuals or businesses who may be committing tax evasion or other tax-related offences.
- Special Enforcement Program (SEP): As proceeds of crime are taxable, this program specifically conducts audits and undertake other civil enforcement actions on individuals known or suspected of deriving income from illegal activities. Collections Officers are responsible for collecting taxes owed and to seize assets under the Income Tax Act.
- Criminal Investigations Program (CIP): Investigators from this program are responsible for suspected cases of tax evasion, fraud and other serious violations of tax laws. Criminal Investigators are given badges and can only exercise investigative power in compliance with the Canadian Charter of Rights and Freedoms.
CRA is responsible for making CPP/EI rulings, that is, to determine whether any wages or payments are insurable under Canadian Pension Program and/or Employment Insurance program. The substance of a ruling is to determine whether an individual is an employee or a self-employed contractor. An employee can get EI benefits and contractor cannot. Normally, CPP/EI rulings are requested by Service Canada when they try to determine whether EI benefits should be paid out.
If a taxpayer does not file a tax return on time, CRA may first send a request, like a reminder, to the taxpayer asking them to file the outstanding return. This first letter is called TX11. If the taxpayer still not file the return, CRA may send a second letter demanding that the return be filed. This second letter is called TX14. After that, a third letter, TX14D, could be issued, normally by registered mail, or could be delivered personally by a non-filer officer.
If a return is not filed after the computer generated letters, such as TX11 and TX14, a non-filer officer could arbitrarily prepare a tax return for the taxpayer, normally generating a larger tax bill than what the taxpayer would expect. A notice of assessment under section 152(7) of the Income Tax Act will be issued. This 152(7) assessment is commonly known as an arbitrary assessment. Collection actions may follow. The taxpayer could file an amended tax return to reduce the tax bill. Once the amended returns is filed, an audit is normally triggered.
If a non-filer officer determines that insufficient info is available for issuing an arbitrary assessment, they may refer the file to Investigations, who would then take the taxpayer to court. The taxpayer maybe ordered by court to file the outstanding return, normally being imposed a court fine. If the taxpayer ignore the court order, they will be subject to contempt of court charges.
Taxpayers who believe the Canada Revenue Agency has not assessed the correct amount of tax may dispute the assessment by filing an objection. The objection will be reviewed by the Appeals program of CRA. An appeal officer will make a decision independent of audit. The appeal officer could confirm, vary, or vacate an audit. The appeal officer has the discretion to negotiate a settlement, normally under the condition that the taxpayer will not appeal further to the tax court.
If, after the objection has been assessed, the taxpayer is still dissatisfied, an appeal may be made to the Tax Court of Canada. The Tax Court examines the taxpayer's claim and evidence, then looks at the evidence and arguments made by the government before passing judgment. The CRA becomes a witness for the purpose of providing evidence in tax court. Like any other Canadian court, Tax Court operates by treating each side of a dispute as equals while applying tax law, administrative law, constitutional law and the laws of evidence. In the event the taxpayer feels there has been a clear error in assessment, he or she is encouraged to use the Tax Court of Canada as an accessible way of resolving disputes. In addition, the taxpayer is not responsible for costs in relation to their opponent, but only for their costs related to their own defense. In the event the appeal is successful, however, a repayment of costs from the CRA may be sought.
Tax court deals with income tax, excise tax, and CPP/EI issues. If a tax return has no tax payable, tax court could not deal with it. If it is about a provincial tax, tax court could not deal with it and it has to be resolved in a provincial court.
Tax court has two procedures, informal and general. The informal procedure is cheap and fast. A taxpayer could represent themselves or get a friend or accountant in the informal procedure. Informal procedures only deal with assessments to certain threshold and a taxpayer has to elect to take this route. Decisions from informal procedures are not precedent setting and the judge has more discretion than in general procedures. informal procedures allow limited appeal rights to a higher court. General procedures deal with all assessments and require a taxpayer either to represent themselves or get a lawyer, a friend or an accountant will not do. General procedures could drag on for years and the decisions are precedent setting.
If a taxpayer is still not happy about the tax court decision, they could take it to the federal court of appeals, or even further to the Supreme Court of Canada.
Service Complaint Process
Taxpayers aggrieved by the conduct of the Canada Revenue Agency may file a Service-Related Complaint with the CRA. The complaint is first passed to the office that is the subject of the complaint. If the taxpayer is not satisfied with the way the first office handles it, they may escalate the complaint to the regional office, which investigates the complaint and contacts the taxpayer. If the taxpayer remains unsatisfied, a complaint may be made to the Taxpayer Ombudsman.
Taxpayer Bill of Rights and Taxpayer Ombudsman
In 2007 the Government of Canada announced in Parliament the adoption of Taxpayer Bill of Rights and the Commitment to Small Business. Fifteen rights, including a way for taxpayers to make complaints about the service they receive from the CRA, were declared.
The Taxpayer Bill of Rights was accompanied by the appointment of the Taxpayer Ombudsman to act as an advocate for taxpayers. The Ombudsman investigates complaints from taxpayers reporting breaches of their rights as a taxpayer by the CRA. Investigations are reported to the Minister of National Revenue and the public. Besides looking at matters reported by taxpayers, the Ombudsman has been given the power to investigate alleged rights violations by the CRA.
Remission orders are not commonly known and rarely granted. If a taxpayer agrees to a tax assessment but unable to pay, they could request a remission order to CRA. CRA will make recommendation to the minster, who then recommend to the Governor in Council. The Governor in Council may grant a remission order where the governor thinks the collection of tax is unjust.
Taxpayer Relief Provisions
Taxpayer relief used to be called fairness programs. It is governed by some sections of the Income Tax Act and Excise Tax Act. It gives CRA the direction to cancel some penalties and interest, to pay out personal income tax refund after 3 years of the tax return being assessed, and to accept late-filed elections. CRA will excise their discretion when late filing is caused by extraordinary circumstances, such as flood or earthquake, by CRA delay or error, or by financial hardship. CRA published an Income Tax Information Circular, IC07-1, on this subject.
A taxpayer could request relief on a prescribed form. If the request is denied, a taxpayer could request a second review, which will be done by a higher rank official. If the request is still denied, a taxpayer could request a judicial review of the decision in the federal court, not tax court. The federal court will determine whether CRA excises its discretion reasonably. If not, the court will send the file back to CRA for reconsideration. The court rarely will make a decision for CRA because the discretion is with CRA and not the court. If a taxpayer is not happy with the judicial review decision, they could take it to the federal court of appeals.
- "Single Administration of Ontario Corporate Tax". Canada Revenue Agency. 2009-03-20. Retrieved 2009-06-05.
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