Canadian Federal Budget Proposes Amendments to CRA’s Information Gathering Powers
By: Amit Ummat and Alisha Butani
Chrystia Freeland, the Canadian Deputy Prime Minister and the Minister of Finance, tabled the 2024 Canadian Federal Budget on April 16, 2024 (the “Budget”). The Budget’s Tax Measures Supplementary Information (“TMSI”) proposed amendments to the information gathering powers provided to the Canada Revenue Agency (“CRA”) in the Income Tax Act R.S.C., 1985, c. 1 (5th Supp.) (the “Act”).
The intention of the proposed amendments was to augment the effectiveness and efficiency of tax audits and the collection of tax revenues. In this article, we explore some of the key proposed amendments.
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Questioning Under Oath
The Budget’s TMSI proposes to amend the Act, to provide the CRA with the right to include in a requirement or a notice to a taxpayer, the requirement that the taxpayer provide any requested documentation or information (whether it be oral or written) under oath or affirmation.
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Notice of Non-Compliance
The Budget’s TMSI proposes to amend the Act by introducing a new type of notice that the CRA can issue to a taxpayer who has not complied with a notice or requirement issued by the CRA that is requesting assistance or information from the taxpayer (“Notice of Non-Compliance”). A taxpayer who receives a Notice of Non-Compliance has the right to request the CRA to review the issued Notice of Non-Compliance. The CRA will then be required to reconsider the issuance of the Notice of Non-Compliance and if the CRA determines that it was unreasonable to issue the Notice of Non-Compliance, or that the taxpayer had reasonably complied with the initial CRA requirement or notice at the time the Notice of Non-Compliance was issued, the Notice of Non-Compliance will be vacated. The Act will also include an additional statutory right of review by the Federal Court of Canada.
It is important to note that the normal reassessment period for a taxation year to which the Notice of Non-Compliance pertains to will be extended by the time which the Notice of Non-Compliance is issued to the taxpayer (or a person that is non-arms length with the taxpayer) is outstanding.
The Budget’s TMSI notably proposes a penalty that will be imposed on a taxpayer who has an outstanding Notice of Non-Compliance. The penalty will be $50.00 CAD per day up to a maximum of $25,000.00 CAD. However, if the Notice of Non-Compliance is vacated by either the CRA or the Federal Court of Canada the penalty will not be applicable.
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Penalties Imposed on Compliance Order
Under current legislation, the CRA has the right to obtain a compliance order from a court of competent jurisdiction that instructs the non-compliant taxpayer to comply with the CRA’s request for information and assistance. The practical impact of these compliance orders has been generally ineffective. This was the catalyst for the proposed amendment to the Act which will provide the CRA with the right to impose a penalty on a taxpayer when the CRA successfully receives a compliance order from a court against the taxpayer. The penalty would be equivalent to 10% of the aggregate tax owing by the taxpayer for the taxation year or years in which the compliance order pertains to. Importantly, however, the penalty will only be applicable if the owing tax in respect of one of the taxation years in which the compliance order pertains is in excess of $50,000.00 CAD.
The Budget’s TMSI also proposes an amendment that expands the scenario when the CRA can seek a compliance order to include situations when a taxpayer fails to comply with a requirement to tender foreign-based information or documentation.
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Stopping the Reassessment Limitation Clock
Under existing legislation, there are stop-the-clock rules that extend the reassessment period in situations where a taxpayer seeks judicial review of a notice or requirement it has received from the CRA. The reassessment period is extended by the amount of time it takes for the judicial review to be disposed of. There is a comparable rule applicable for compliance orders. It is important to note that the stop-the-clock rules are not applicable in all situations where a taxpayer fails to comply with a CRA-issued requirement or notice.
The Budget’s TMSI includes a proposed amendment which will expand the applicability of the stop-the-clock rules to situations when a taxpayer seeks judicial review of any CRA-issued requirement or notice issued by the CRA to the taxpayer that relates to the audit and enforcement process, or during the period when a Notice of Non-Compliance is outstanding.
Conclusion
The proposed changes discussed above would be applicable to all other federal tax statutes administered by the CRA, such as but not limited to the Excise Tax Act, R.S.C., 1985, c. E-15, that have similar provisions to the Act, and thereby will also need to be amended, as needed, to incorporate the proposed amendments discussed above.
The proposed amendments discussed above will come into force on royal assent of the enacting legislation.
