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Federal Office of the Taxpayers’ Ombudsperson: Update on Examination into CRA Audits

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Federal Office of the Taxpayers’ Ombudsperson: Update on Examination into CRA Audits

The Federal Office of the Taxpayers’ Ombudsperson released a statement with an update about its examination into Canada Revenue Agency (CRA) audits. The statement reflects verbal testimony given by the Ombudsperson, François Boileau, to the Senate Committee on Human Rights.

The statement highlights challenges in accessing taxpayer information, specifically that information gaps make it difficult to compare what is in CRA taxpayer files with information shared by stakeholders about their experiences.

Why Does this Examination Matter?

Every aspect of government interaction a charity can experience … should be free from political interference.

As regular readers know, we have been actively monitoring concerns about charitable status becoming politicized. Where there are questions about fairness in the audit selection process, we have similar concerns – audits should also not become politicized. Every aspect of government interaction a charity can experience – registration, education letters, audit selection, revocation, general inquiries – should be free from political interference.

A suggestion made at the Senate Committee meeting was to disaggregate data about charities that advance religion; specifically, that CRA would disaggregate data to segment those charities by their specific religion. The Ombudsperson indicated that this recommendation would be included in the examination report.

Disaggregated data to segment charities … would be best applied across the entirety of the charitable sector, not just for those that advance religion.

While we will wait to see the recommendation, if this proposal is made and/or acted upon, it would be best applied across the entirety of the charitable sector, not just for those that advance religion. To limit it to religious charities presumes that there is a distinction of treatment only as between charities of different religions. This may or may not be the case, but it excludes the option of measuring distinction of treatment as between religious and non-religious charities. If accurate comparison is the goal, the data should allow for comparisons as between other subsets of charities as well. Consider charities that advance religion and education. If only data on charities advancing religion is disaggregated, their experiences cannot be compared with non-religious charities that also advance education.

Further, if the government proposes to categorize or segment religious charities, it must be done in consultation with representatives from religious charities and communities in order to accurately and appropriately reflect religious distinctions.

Background

The audit examination was prompted by concerns from Muslim-led charities about their experiences with CRA. Additionally, the examination was to look at how files are selected for audit, the quality of services provided to Muslim-led charities, and CRA’s efforts to make its employees aware of any potential biases.

Specific questions for the examination include:

  • How are charities selected for an audit?
  • How are the audits conducted?
  • Is the audit process equitable?
  • Is the audit process understood and transparent?
  • Is the appropriate information communicated to charities, including the CRA’s concerns?
  • Are audit decisions and compliance approaches made in a timely manner?
  • Are the CRA’s audit decisions and compliance approaches fair?

The Statement: Challenges in the Investigation

The main point of the statement is to explain some of the challenges that the examination has experienced. The statement affirmed that:

  • Policies and practices will be assessed
  • Bias training practices will be objectively answered
  • Information collected from stakeholders will be reported

The statement explained the challenge: …it will “be impossible for us [Ombudspersons’ Office] to validate this information [from stakeholders] with what is in these organizations’ files by conducting a comparative analysis.”

Why can’t the Office validate information from stakeholders?

Section 241 of the Income Tax Act (ITA) prohibits disclosure of taxpayer information except in very specific circumstances (e.g. the “administration or enforcement” of the ITA s 241(1)(c); where it relates to “imminent danger or death or physical injury to any individual” ITA s 241(3.1); certain information about qualified donees, such as governing documents, directors’ names, required financial statements, ITA s 241(3.2); and a lengthy list of other situations ITA s 241(3.3)).

The government can disclose information to the taxpayer and, with the taxpayer’s consent, to any other person (ITA s 214(5)). However, there are still parts of a charity’s file that cannot be shared, such as:

  • Risk assessment when selecting a charity for audit purposes
  • National security information
  • Third-party information

The Ombudsperson described this limitation as “listening to only one point of view” and that not having access to all of the facts impairs its ability to:

  • Examine criteria for audit selection;
  • Conduct comparative analysis of files;
  • Detect trends; and
  • Verify information shared by stakeholders

The statement affirms the Ombudsperson’s respect for the legislative framework and the role and mandate of other organizations, but that it was nonetheless important to share the examination’s challenges for purposes of transparency.

Aerial view – two rows of seats at desks with microphones

The Senate Committee Testimony: Potential Recommendations

The Senate Committee on Human Rights meets to examine issues “as may arise from time to time.” The current issue is Islamophobia as it presents in a variety of contexts. As noted above, the Ombudsperson’s testimony at the Committee was the same as the media statement.

During the Committee meeting, the Ombudsperson had two exchanges with the Senators. The exchanges give some insight into what the examination report might include.

Accessing Charities’ Tax Information

The first exchange addressed the challenge of accessing information in taxpayer files, and potential gaps in the examination report. The question was, what should the Committee recommend to the CRA?

In response, the Ombudsperson recognized that the Office knew they wouldn’t have access to all charities’ files but wanted to be able to randomly select files and have CRA redact confidential information so as to compare what was on file with the feedback from charities. They have looked at policies, procedures and directives but feel they cannot validate or negate feedback without looking at specific files. In terms of how access could be given, the Ombudsperson noted that CRA has worked collaboratively with the Office, and these are legislative constraints that would be complicated to amend. It has been challenging to develop compliant and creative solutions to this problem.

It appears that the examination report will include recommendations for the process of any future investigations.

3D bar graph with 4 cubed white bars in descending height

Recording Specifics About Charities Advancing Religion

The second exchange also addressed the matter of information. This time it related to whether the Ombudsperson believes that “CRA should start gathering data that disaggregates charities by religion, at every stage of their experience – registration, audit, revocation- so that we can get a comparative analysis of their treatment.”

Based on the Ombudsperson’s response, it appears that the examination report will include this recommendation.

What’s Next?

The Ombudsperson anticipates submitting a report to the Minister of National Revenue in March 2023. No doubt the report will reflect some of the challenges outlined in the statement and the recommendations suggested in the Senate Committee hearing, among others.

Noteworthy is provided for general information purposes and does not constitute legal or professional advice. Every organization’s circumstances are unique. Before acting on the basis of information contained in this blog, readers should consult with a qualified lawyer for advice specific to their situation.

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