As announced in the Liberal-NDO Coalition Government’s 2024 Budget, and at a time when the government seems hard-pressed to increase taxation in Canada to deal with the massive spending over the last few years, the Canada Revenue Agency (“CRA”) has been given some brand new tax Audit powers – which to some respects are downright frightening.

Oral & Written Submissions Under Oath

The issue of how taxpayers should respond to CRA’s requests for interviews has been ongoing since the Federal Court of Appeal (the “FCA”) decision in Canada v. Cameco Corporation.  In a prior blog, we noted how the FCA viewed an oral interview as a much broader form of an examination for discovery but without the same procedural safeguards, and provided a setback to CRA’s attempts in that case.  Not agreeing with the outcome, the government has been gradually increasing its powers.

The 2024 Budget further expands those powers to give CRA the authority to require that oral or written submissions be provided under oath or affirmation (i.e., sworn statements, subject to punishment for perjury!).

Notice of Non-Compliance Rule

Budget 2024 also introduces a notice of non-compliance rule (called a “Notice”) that CRA will be able to issue to taxpayers who have not complied with a requirement or notice to provide assistance or information to the satisfaction of CRA.  Once such a Notice has been issued, the taxpayer will be subject to a penalty of $50 per day of non-compliance, to a maximum fine of $25,000.  The issuance of the Notice would be reviewable by CRA and the Federal Court, and only if the Notice is vacated on review would the penalty be vacated.  When one considers the cost of asking the Federal Court to lift a $10,000 fine, one worries that these fines will be like a larger version of a parking ticket (i.e., costing more than the penalty to fight).  These rules also extend the limitation period for CRA assessments by the time it takes to deal with Notices – including the review process.

Compliance Order Penalty

Currently, CRA can apply to the Federal Court for a compliance order when a taxpayer has not complied with a CRA’s request for information (“RFI”).  Failing to comply with the compliance order can result in a contempt order from the Court.  While those contempt orders may land the non-compliant taxpayer in jail (see our previous article on Canada v. Money Stop Ltd.), these are not often issued. 

Budget 2024 proposes amendments to impose a monetary penalty when CRA obtains a compliance order.

Takeaway

Even before the 2024 Budget, CRA had incredibly powerful Audit powers, with the balance of power in tax affairs clearly on the side of the government.  It is thus difficult to understand – and morally accept – why even stronger powers were given to CRA.  

The idea that $25,000 penalties can be thrown around by CRA just because it does not like the quality of an answer is really frightening, and it is expected that these rules will just increase litigation and drive up the costs of tax compliance for ordinary Canadians.

While CRA is a bit of an “elephant in the room” and will be hard to move off established positions, good legal assistance is the first step. 

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