CRA’s paper chase continues to undermine T1 efile program

The Canada Revenue Agency’s (CRA) electronic filing program for T1 personal tax returns aims to simplify tax filing, improve efficiency and reduce costs for taxpayers and CRA alike.

The Canada Revenue Agency’s (CRA) electronic filing program for T1 personal tax returns aims to simplify tax filing, improve efficiency and reduce costs for taxpayers and CRA alike. But some tax practitioners say they receive so many post-filing verification requests for receipts – to support charitable donations, tuition fees, medical expenses and other claims – that they wonder whether they might be better off paper-filing the return with the receipts in the first place and bearing the related penalty.

As part of their enforcement processes, it is recognized that the CRA needs to audit a reasonable sample of tax expense claims by asking for hard-copy support documents from taxpayers and their advisers. For many years, tax practitioners say that, in their personal experience, the number of requests they receive seems to go well beyond the CRA’s need to verify expenses submitted by particular taxpayers or tax advisors. 

As one practitioner emailed, “It appears that they want receipts for everyone that has claimed anything of substance.”

In making these requests, the CRA does not appear to take into account the track record of the taxpayer or preparer. This practice appears particularly excessive where the return has been prepared and submitted by a professional accountant who is subject to professional standards for personal suitability, conduct, education and ongoing training.

Given the volume and scope of these requests, responding to them well after the return is completed and filed can take considerable time. Many tax practitioners who receive requests as a taxpayer’s representative have difficulty recovering the costs of this time from their clients. Problems also result when taxpayers receive such requests directly but fail to understand, respond or pass the query to the preparer to deal with.

These concerns are not new. In a joint submission of Chartered Professional Accountants of Canada and Certified General Accountants Association of Canada on the CRA’s proposed Registration of Tax Preparers Program and in other discussions, we have asked the CRA to consider three improvements to make the efile verification process more efficient:

  1. Investigate a method to allow the optional electronic transmission of slips and other documentation within the T1 efile system (i.e., slips and other documents that would normally be sent with a paper return), rather than having to deal with CRA information requests later.)
  2. Automatically notify tax preparers when a tax return is efiled whether the amount or nature of any expenses claimed on the return would trigger a verification request. That way, tax preparers could deal with the request immediately, before the client’s file is closed.
  3. Institute a pre/post assessment review rating system so that clients of professional accountants and other tax preparers with low error rates experience a reduced number of pre- or post-assessment reviews. This would also allow CRA to monitor the cost-benefit that results from these queries by weighing additional revenues raised against the additional time required of CRA staff, tax preparers and taxpayers and to adjust the number and targets of these queries accordingly.

Join in the conversation

Have you experienced an inordinate number of CRA requests to support charitable donation, tuition fee, medical expense claims or other claims? What do you think of the suggestions we have made to the CRA? What other steps could the CRA take to streamline and improve the efficiency of its T1 post-efiling verification processes?

Post a comment below.

Conversations about Tax is designed to create an exchange of ideas on tax policy and practice developments and issues and their impact on Canadian accountants who practise tax. Comments received can provide helpful input to the public interest advocacy positions developed by the Chartered Professional Accountants of Canada.

About the Author

Gabe Hayos, FCPA, FCA, ICD.D

Vice-president, Taxation, CPA Canada