Navigating Inconsistencies and Inefficiencies of the CRA (Part One)
There have been a number of recent articles in the media on long processing times with the CRA, CRA errors and other concerning matters for taxpayers. In this article, we address common issues faced in our day-to-day dealings with the CRA and suggest some approaches that can be taken when dealing with the CRA to avoid snowballing of these issues. Unfortunately, the CRA claims that they are insufficiently funded and refers to its recent reorganization to explain their ongoing inefficiencies, so there is not much that can be done to improve their processes in the short term. However, each taxpayer can keep in mind the problems described below that may arise (hopefully not) and be prepared for next steps.
Unreasonably long processing times for tax returns, refunds, adjustment requests, review of supporting information etc.
Many of us are familiar with the infamous standard reply from CRA agents – that the matter is in process, no other background details can be provided at the moment, call back in 4, 6 or even 16 weeks later. The problem with these updates given by the CRA agents is that they are never binding. We regularly see that on a subsequent follow-up, after the time given by the CRA agent expires, we often get exactly the same reply or even longer waiting times. As a result, the CRA’s updates lose their value and validity – the only relief they provide is assurance that they have received the documents in question. However, it is always difficult to estimate the time it will require them to process a package of documents or to issue a refund.
More than that, we get very inconsistent replies for different clients in similar situations or with similar timelines. We would be told that they are working on the files on FIFO basis and later the CRA would say that this particular file is delayed due to high volume of returns in process and nothing can be done. If we call back again and check with another agent, we would be told that the file has taken too long and they need to open an internal investigation. It is very confusing for tax professionals, and for clients especially, to understand what the process really is. The vague responses make it hard for the tax firms to communicate these inconsistent updates to the clients due to the perceived (or real) randomness of what we hear from the CRA agents.
OUR TAKE: There is no clear way to escalate or address these issues as an independent body overseeing the CRA’s work does not exist. In the US, the Taxpayer Advocate Service was created to help taxpayers and tax professionals in their dealings with the IRS. The only advice we can provide to our clients in most cases is to prepare for long waiting times and not to expect a fast response from the CRA. Unfortunately, in most cases, this advice appears to be a justified approach and automatically sets clients on the right mindset.
CRA wants proof for any credit or deduction – it is just a matter of time before a taxpayer will receive a request for supporting documents
Are you claiming medical expenses of $300? Maybe you have a deduction of $500 for your investment expenses? Or are you claiming a foreign tax credit for US taxes of $500,000? It doesn’t really matter as we have seen CRA requesting supporting documents for any amount of credits and deductions of any nature. It seems that the CRA casts its net wide anticipating that some taxpayers would not be able to or would not find it necessary to produce sufficient support for claims made on their tax returns. Of course, there is always a certain percentage of credits or deductions claimed by Canadian taxpayers in error or even fraudulently, but it seems that the CRA’s approach isn’t very systematic and taxpayers are often contacted with automated requests for information. This is hardly efficient for two reasons – this puts excessive burden on all taxpayers (we are addressing this below) but also the CRA generates unnecessary work for themselves. Do they really want to see support for a $300 credit from every third taxpayer? This “unnecessary work” can be attributed to the overall delays in their general processing times, as mentioned earlier.
OUR TAKE: Tax firms address this in various ways. Trowbridge has implemented a fixed pricing model which offers a choice of tax packages to our clients. When a client selects a higher level package, this will includes work done on behalf of the client to adhere to the CRA’s requests or other general CRA issues with no extra charges for the taxpayers. This ensures that clients do not incur any unexpected expenses when retaining professional tax assistance and that they remain confident that anything coming from the CRA, expected or unexpected, would be timely addressed, regardless of the scope of a particular issue.
The CRA does not make it easy for the taxpayer to navigate its often convoluted processes. As a result, Canadians are left confused and frustrated without any direction and months of waiting. Watch for Part Two of this article
which will put the spotlight on foreign tax credits, supporting documentation, credit or deduction denial and CRA "assumptions".