The number of
(CRA) audits on taxpayers has increased over the years. There’s nothing wrong with that since it has an important job to do to administer our country’s complex tax laws and ensure the integrity of our self-reporting system.
However, a good portion of the audits result in reassessments asking for taxpayers to pay more. Some taxpayers will simply pay the revised amounts, but many object, and it is common for such assessments to be outright reversed after a large passage of time and effort.
For example, for the fiscal year ending March 31, 2023, taxpayers filed 64,711 objections to CRA assessments. For the 2024 fiscal year,
to 87,543, a 35 per cent increase.
How many of those objections are ultimately resolved in the taxpayer’s favour? Recent statistics on this are hard to find, but a
from the auditor general showed that almost two-thirds of objections were ultimately resolved in the taxpayer’s favour. I would suggest this trend has continued since then.
Why does this happen? In my experience, many of the assessments are based upon a poor understanding of the tax law or basic principles.
For example, I’m aware of a taxpayer who was recently subjected to a
The audit should have been straightforward because his business is simple and his accounting records are impeccable even though the numbers are large. Instead, the audit process has dragged on for more than 30 months with numerous “meetings” with the auditor.
During the meetings, it was clear that the auditor was “working from home,” with kids playing in the background and the auditor visibly distracted. Eventually, a proposed reassessment was
for millions of dollars.
How was that computed? The auditor was convinced that transfers of monies from one financial account to another financial account of the taxpayer were subject to GST. Of course, most people know that is not the case. The existing monies simply go from one hand to the other with no taxable supply occurring. But the auditor stuck to that silly proposition.
After a lengthy period of time with much back and forth, that position was correctly dropped by the CRA and another much smaller reassessment issued. But the reassessment was incorrect. The taxpayer was left with a dilemma: simply pay the incorrect amount and move on or file a formal notice of objection. The taxpayer chose the latter, mainly out of principle since the revised dollar amounts do not warrant significant professional help.
Another reason why the CRA’s assessments are ultimately resolved in taxpayers’ favour is that the agency is not thorough in trying to understand the relevant facts.
I’m aware of another situation where the CRA reassessed a taxpayer after a lengthy review of an issue. It turns out that the reassessment was based on a complete misunderstanding of the facts by the CRA, notwithstanding that they had the correct facts available to them.
Instead, they relied on other years’ information, which, of course, makes a significant difference in the overall assessment. The taxpayer rightly objected to the reassessment and is awaiting a correct result.
These examples, and many more, are indicative of the significant waste of resources that occurs every time there is a reversal of the reassessment. It’s also a missed opportunity to build public trust. And for small businesses and average Canadians, it can be financially punishing to battle the CRA’s missteps without professional help.
Is throwing more resources at the CRA a solution? No. The CRA’s headcount grew to 59,155 people in 2024 from 40,059 people in 2015, an increase of 47.6 per cent. Has this resulted in better audits or reduced objections? Nope.
And what about more money for the CRA’s overall budget? Its
was $13.2 billion for the 2022-23 fiscal year. For the 2025 year, it was $21.4 billion, an $8.2-billion increase, or 62.1 per cent, in three years. Has this helped reduce objections and improve audits? Again, a resounding no.
Last week, Mark Carney’s government made it known to the various ministries that cost cutting is coming. Finance Minister François-Philippe Champagne sent communications to his cabinet colleagues that they need to find ways to
by 7.5 per cent in 2026-27, 10 per cent the following year and 15 per cent in 2028-29.
That’s a good start, but it
, notwithstanding the
of the public-sector unions and the usual doomsday predictions about such cuts.
Will such cuts affect the CRA? Likely. However, is it the solution to the problems outlined above? Hardly. Such cuts will only scratch the surface of the bloat of the largest government agency.
Instead, it’s my proposition that the following should be done:
- Require all government employees, but especially the CRA, to return to full-time attendance at the office. Administering Canada’s complex tax laws requires constant training and mentorship. This is very difficult to do when working from home.
- Hire better-quality teammates who have improved minimum qualifications when hired. If this requires minimum and maximum base salaries to increase, well, so be it. As long as the bloat has been removed overall.
- Commission an external value-for-money audit, mandated by Parliament or the Treasury Board, to rigorously evaluate the CRA’s operations. If the government won’t materially act on auditor general reports, perhaps a private-sector lens will deliver the wake-up call they’ll actually heed.
The CRA’s ballooning headcount, budget and enabling staff to work from home haven’t improved outcomes; they’ve entrenched mediocrity with taxpayers footing the bill for incompetence. We don’t need more auditors; we need overall improvement. And we need leadership willing to demand that change for the benefit of all Canadians.
Kim Moody, FCPA, FCA, TEP, is the founder of Moodys Tax/Moodys Private Client, a former chair of the Canadian Tax Foundation, former chair of the Society of Estate Practitioners (Canada) and has held many other leadership positions in the Canadian tax community. He can be reached at kgcm@kimgcmoody.com and his LinkedIn profile is https://www.linkedin.com/in/kimgcmoody.
_____________________________________________________________
If you like this story, sign up for the FP Investor Newsletter.
_____________________________________________________________
