CRA uses Risk Management to deal with notices of objection and with appeals
Canadians need to be aware of the internal workings of the tax department.
The CRA Agency and the departments of Finance and Justice have adopted, and are implementing, a strategy for managing the risks to the tax base in the dispute resolution process.
The key risk is that legislative deficiencies or administrative shortcomings will not be identified in a timely manner and, as a result, the Crown will have to refund hundreds of millions of dollars to taxpayers and registrants following an unfavourable court decision on a case. Therefore CRA is treating notices of objection and notices of appeals very seriously, or at least, the auditors are supposed to analyse tax cases for risk.
The Appeals Branch issued a directive on risk management for income tax and GST objections in July 2003, updating a 1996 directive. The update defined and discussed risk management and provided a tool for risk detection and assessment.
To date there are inconsistencies in the use of the risk detection and assessment tools in the various CRA regional offices. It seems that many CRA officers have not yet fully grasped the importance of assessing risk or of using the risk detection and assessment tools.
Until CRA officers assess the risks of all objections on a consistent basis, the Branch is in danger of not identifying in a timely way any legislative deficiencies or administrative shortcomings that arise through the objections process.
Risk assessments also help identify issues for the “important issues” list that the Agency uses as part of the risk management process. Reviewed by a risk management committee and issued quarterly, the list describes current high-risk court cases and indicates the amount of tax at risk in each case. A case is considered to be high-risk if it involves a lot of money or if it has implications for tax policy, tax administration, or social policy.
The screeners are supposed to be familiar with the important issues list. They use it regularly to determine whether a new objection has issues similar to those on the list. If it does, headquarters is notified so the amount of tax at risk can be included with similar cases on the important issues list, and the objection is set aside until the lead case on the list is resolved. This allows the Agency to keep track of the total tax at risk with each issue, and it prevents officers from making decisions that might be contrary to the law as a result of the decision on the lead case.
This is an important issue for Tax Representatives. If they know of the current cases that are likely to be on the “Important Issues” list, then they can use this information to the clients advantage.
The appeals officers are also supposed to be aware of the important issues list but they do not refer to it regularly to ensure that they are not trying to resolve issues similar to those on the list. It is important that appeals officers refer to the list regularly, because they have a better understanding than screeners of the issues in dispute. Furthermore, objections do not always include enough information for the screener to determine whether the issues are similar to those on the list.
The aforementioned identifies why it is important to be aware of issues when filing a notice of objection. Said issue needs to be highlighted on the notice of objection form. Further at risk dollar amounts need to be duly noted on the forms. There should be specific notation as to the greater risk to the CRA tax base.
CRA has a long way to go in regards to its human resources strategy for the Appeals Branch, including reviewing the competencies and experience required for appeals officers and the related classification levels, and implement it to help ensure that the Branch has the right people at the right levels; and
develop a plan to strengthen appeals officers’ awareness of the importance of managing risks to the tax base and to encourage their use of the tools already in place; implement the plan; and monitor the results.
CRA agrees with the importance of recording the amounts disputed and resolved and we will capture this information in a cost-efficient manner. It is their intent to ensure that the importance of this issue is reinforced to Agency staff, and the Agency will monitor for consistency in the application of the policy.
The Appeals Branch is in the process of implementing changes to its field office organizational structure. This will include a comprehensive human resources strategy to ensure that linkages between classification, competencies, training, and accountability are in place to complement annual and multi-year business plans and budgets.
The process of risk management continues to evolve and the Agency has made significant enhancements to this process. They include an expanded risk management committee, which includes members from other functional areas of the Agency; a risk management working group that leads the identification of important issues and develops strategies thereon; and an ongoing process with field operations to outline the importance of and underlying reasons for risk management, concurrent with the development of regional risk management committees to provide input to the risk management working group.
So in conclusion, what we have here with CRA is an ever growing entity, becoming ever more sophisticated. We have reached a stage where we as Canadians can no longer represent ourselves in dealing with CRA. We need professional help.
Tax Audit Solutions (TAS) as Tax Representatives offer a service to Canadians that allows them to be able to afford top quality help in dealing with CRA.
So what does Risk Management mean to the tax payer who files a Notice of Objection or an Appeal?
What RISK MANAGEMENT identifies is that once you go above the head of an auditor, and you make note of the file having inherent risk to CRA, it will get their attention.
Understanding the thinking that goes on in CRA allows taxpayers to only pay the tax they are legally supposed to pay.
CRA is in the business of making money. Never lose site of that. Remember that old slogan; “A penny saved is a penny earned!” CRA follows that golden rule.
Also remember another golden rule. “He who has the gold makes the rules.” CRA makes the rules and we need to understand the rules if we want to win the game.
So here is what happens when you file a notice of objection.
- There is supposed to be a screener who looks for inherent risks. There is a list of important issues list. The screener compares the objection to the list to see if there will be special consideration for the issue at hand.
- CRA examins the amount of money at risk. There is an upline notice issued.
- Unfortunately appeals does not always check the list. So the issues need to be highlighted by the tax payer.
- You need to know exactly what to do, or your objection is just thrown on the train with the rest of the baggage. There may not be much attention paid to it and you get rail roaded. That is the train game.
We at TAS know that we have to make sure we make it clear to auditors that they are engaging on a risky issue. Don’t count on CRA to pay a lot of attention to your objection if you don’t handle it right.