The Government of Canada has recently proposed enhancing the Canada Revenue Agency’s (CRA) audit powers under the Income Tax Act. CRA already has vast powers to compel taxpayers to provide information and documentation. CRA can even force taxpayers to appear for in-person meetings. However, CRA claims this is not enough and new measures will be enacted that will give CRA frightening new powers.
Notice of Non-Compliance
A major development in the proposed new audit rules is the introduction of a “Notice of Non-Compliance” under a newly drafted section 231.9. This notice may be issued when CRA determines that a taxpayer has failed to fully comply with an audit request. Once issued, the notice remains active until the taxpayer either complies or makes reasonable efforts to fulfill the audit request.
Taxpayers subject to this notice could face a penalty of $50 for each day it remains unresolved, up to a maximum of $25,000.
Taxpayers may challenge the notice within 90 days, after which the CRA can maintain, change, or cancel it. A large concern with the new Notice of Non-Compliance is that CRA themselves determine whether reasonable efforts are being made and if a taxpayer wants to challenge CRA’s decision, they will have to apply for judicial review in Federal Court.
Further, while the notice remains active, or the taxpayer challenges it in Federal Court, CRA’s normal reassessment period is suspended.
Testifying Under Oath
New section 231.41 would authorize the CRA to require taxpayers to respond to audit questions under oath, either orally or through an affidavit. This expansion of audit powers means that taxpayers may be compelled to give sworn testimony during an audit.
This will force taxpayers to seek legal representation, and some taxpayers simply can’t afford to hire a lawyer. Taxpayers will be placed in an extremely unfair position.
Stricter Compliance Orders
Taxpayers who refuse to comply with a compliance order could face a penalty equal to 10% of the taxes owed for the relevant years, unless the amount owed is less than $50,000, in which case the penalty would not apply.
Conclusion
These changes will give CRA substantial audit powers, over and above the powers they already wield. The Notice of Non-Compliance and the ability to force a taxpayer to answer questions under oath are of particular concern.
If Taxpayers cannot afford legal representation, they will be forced into legal proceedings without adequate support.
We anticipate that these changes will become law in late 2024 or early 2025.
If you need any assistance, call us today.
Jeff Kirshen, BA, JD(US), JD(CDN)
Partner & Tax Lawyer
Disclaimer
Each article/blog post is only meant to provide general information. It is posted on a specific date. Laws and rules change. Please know that it may be out of date. It is not meant to provide legal advice, and it does not provide legal advice. It cannot be relied on. Every tax situation is unique, and that may mean situations differ from this article/blog. If you have legal questions, please consult a lawyer.