I have been a Canadian tax lawyer for almost 30 years. Being a tax lawyer is not as sexy as being a famous criminal defence lawyer like Brian Greenspan or Marie Heinen. For the most part, I toil in the tax trenches and fight with Canada Revenue Agency (CRA) officials.
Having dealings with CRA for three decades, you form an opinion on the calibre of the people, the quality of the work being done, the management and the organization's overall effectiveness.
I wish I had good news for Canadian taxpayers.
My experience has been that CRA staff are unreasonable. Some tax audits seem like make-work projects or a game of "chicken," but the problem in many cases comes down to lack of training or plain smug behaviour. Too often, the CRA creates problems rather than solving them.
The issues of inadequate training compounded with ample attitude are worse now than 20 years ago. I was speaking to a colleague who had complained about this to a senior CRA official. His response was that CRA expects tax lawyers and accountants to help train their people.
Do you train your roofer, plumber, or mechanic?
You can expect to get put through the wringer by CRA auditors who defy logic and reason.
CRA has extraordinary powers that inspire fear and loathing. The Income Tax Act gives collections officers the power to garnish amounts owing from a taxpayer who has an outstanding balance on their tax account. This can include an employee's wages, accounts receivable, and the seizure of bank accounts or investment accounts, all without court authorization.
If you get audited, you can expect to get put through the wringer by CRA auditors who defy logic and reason, even when presented with clear evidence of no wrong-doing. For the record, about five to 10 per cent of Canadians have ongoing issues with CRA in any given year; these are unpublished figures.
So, fighting with CRA really is like the proverbial "fighting City Hall."
Here's an example. We have a client who is a car dealer. He buys cars, generally at auction and exports them to Africa and the Middle East. When you buy a vehicle, you pay HST. When you export it, the HST is supposed to be refunded. When dealing with volume, the amount of HST paid quickly adds up. Our client applied for the refunds which were denied. The arguments made by the CRA auditor made no sense.
We filed an appeal and refuted every point made by the tax auditor. The appeal officer kept asking for more paperwork, much of it unnecessary. We advised our client to comply. After almost two years from when the refunds were first denied, our client received his refund cheque for $900,000, including interest. However, the client's business had serious cashflow problems for two years.
The CRA is wasting our time, energy and taxpayer's money.
Here's another example. We have a file that is now in appeals after the CRA auditor ignored a 30-page submission, with detailed schedules, showing how our client did not have $25 million in unreported earnings, based on a wrong CRA analysis of casino records.
Armed with a detailed explanation of each report, we sent an analysis to CRA that showed the auditor was completely wrong in his determination. The auditor did not respond and we kept following up, with no reply. Finally, the auditor came up with a new unreported amount of over $10 million, without responding to any of the points raised in our submissions.
Our request for a meeting with the CRA team leader was ignored and the auditor confirmed the tax assessment at $10 million. A tax appeal is still ongoing.
The CRA is wasting our time, energy and taxpayer's money in pursuing this. And our client is incurring more legal fees.
In November 2016, the auditor general of Canada released a damning report on CRA's performance. The handling of tax appeals was a particular target of opprobrium; there is a huge backlog, generally well in excess of a year. So, CRA has to hire more people and implement better systems because tax auditors get it wrong so often.
CRA has repeatedly said that the underground economy — everyone using cash and not charging HST/GST — is a major target of CRA tax investigations. Waiters and waitresses in P.E.I. are being audited, with other communities having been targeted in the past.
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Last week, it was announced that under threat of court action from the Parliamentary Budget Office (PBO), CRA was finally releasing the so-called tax gap information to the PBO. The tax gap measures the size of the tax loss to the underground economy.
Importantly, CRA has fought the release of the tax gap for years. We suspect that the information, when finally available, will not show CRA as being especially effective at clamping down on big-time tax cheats. No date was given for the release of the tax gap.
So, the rest of our tax bills have to be raised to compensate for the inability of CRA to collect what is owed by tax crooks.
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