CRA’s compliance programs

Read about Canada Revenue Agency (CRA) initiatives in response to the work of the federal Red Tape Reduction Commission.

The federal government’s initiatives to reduce the red tape and the cost of providing programs and services are affecting CRA’s compliance programs, requiring CRA to shift audit resources and upgrade its auditors’ skills and knowledge. Among other things, CRA is also taking a risk-based approach to the audits of taxpayers, introducing new compliance programs for small and medium-sized businesses and engaging in consultations on a proposed tax preparer registration program.

The federal Red Tape Reduction Commission’s consultations with small businesses, launched in 2011, identified about 2,300 regulatory irritants. A key issue regarding CRA’s tax audit program was auditor knowledge, training and interpersonal skills. In response, CRA intends to put a new emphasis on professionalism and soft skills in its audit training program and offer new training for auditors on the Taxpayer Bills of Rights. CPA Canada is collaborating with CRA on technical and audit education programs for CRA auditors.

Efforts to reduce the cost of the CRA’s compliance program proved to be challenging.  For many years, audit resources have not kept up with the fast pace of small business creation, requiring CRA to develop new approaches to traditional audit methods. To this end, CRA is effectively segmenting its taxpayer population by perceived risk, focusing its audit resources on high-risk taxpayers, with emphasis on the underground economy.

A variety of approaches are used to promote compliance among lower-risk taxpayers, such as those that are opportunistically non-compliant (i.e., usually compliant except when situations for non-compliance present themselves) and those who would be compliant if not for clerical or interpretational errors. These approaches could include pointed reminder letters to taxpayers in sectors where non-compliance has been problematic and educational visits to assist first-time filers.

New approaches also include legislative tools to address chronic problem areas. For example, specific legislative provisions in the 2013 federal budget address the electronic suppression of sales by imposing monetary penalties and criminal offenses. Other new legislation requires taxpayers to report certain high-risk transactions to CRA.

In the future, we expect CRA to continue its more sophisticated approach to compliance by putting more emphasis on risk assessment and compliance-oriented legislation and by strengthening relationships with tax practitioners as partners in the compliance effort.

Tax practitioners are key partners in this new approach. On January 17, 2014, CRA unveiled a proposal to register practitioners who prepare tax returns for a fee and is now consulting with the tax preparation industry on the proposals. CPA Canada is taking an active role in these consultations.

What do you think of the CRA’s new approaches to making compliance easier and non-compliance more difficult? Is CRA headed in the right direction? Do tax practitioners have a role in working with CRA in its compliance efforts?

Email Gabe Hayos to share your views.