Tax Shelters – CRA Is Not Playing Fair

So (don’t you just know there is a problem when I start a blog with the word “so”) a client go a letter from the CRA (didn’t see that coming did you?  Insert eye roll here).  The letter said that the CRA was not going to assess the client’s 2012 return because the client did a donation tax shelter.  They said that they were going to audit the tax shelter and would not assess the clients return until the tax shelter audit was completed.  The letter also said that if the client wants to renounce the tax shelter permanently then the CRA would assess the return immediately.  I have more than a few problems with this which I will lay out for you.

Firstly, The Income Tax Act actually says

• “152. (1) The Minister shall, with all due dispatch, examine a taxpayer’s return of income for a taxation year, assess the tax for the year, the interest and penalties, if any, payable and determine
  • (a) the amount of refund, if any, to which the taxpayer may be entitled by virtue of section 129, 131, 132 or 133 for the year; or
  • (b) the amount of tax, if any, deemed by subsection 120(2) or (2.2), 122.5(3), 122.51(2), 122.7(2) or (3), 125.4(3), 125.5(3), 127.1(1), 127.41(3) or 210.2(3) or (4) to be paid on account of the taxpayer’s tax payable under this Part for the year.

Now so far I have not been able to find a definition for “with all due dispatch”, but I am reasonably sure that it means within a reasonable period of time, and I am also sure that normal procedures should be followed vis-a –vis the assessment process.  However in this case CRA is making up new rules as they go. Guess what?  The only rules that matter are the ones in the Income Tax Act.  Therefore if it’s not in the Income Tax Act it cannot be done. 

I was able to find some synonyms for dispatch (see below).  They all seem to imply a large degree of speed and promptness.  Just sayin’.

Definition

dispatch (Promptness), noun - expeditious performance, fast rate, fastness, feverish haste, flurry, haste, hastiness, hurry, immediateness, impetuosity, inability to wait, punctuality, quick discharge, quickness, rapidity, rush,  speed, speediness, speedy completion, speedy disposition, swift execution, swift rate, urgency.

Number two, I have a real problem with the CRA unilaterally deciding something is not allowed.  If the donation is not allowed, deny it, assess the return and move on, and let the client appeal.  Funny thing is that they are not doing that.  They are blackmailing the client to try and get them to “voluntarily” change their return in order to get it assessed.  In any event the client has submitted their return with various claims and it is up to the CRA to assess the return.  In assessing the return the CRA can accept it, ask for more information, or make changes.  In any event they must assess the return in a reasonable period of time.  There is nothing in the Income Tax Act that says assessments can be held up pending possible actions against another taxpayer.  Telling the client that they must revise their return is ludicrous.  It is especially problematic since there are tax shelters nagging the CRA to go to Tax Court and the CRA keeps dragging it’s heals.  In fact, the tax shelters waiting to go to court date back to 2006.  Further, the CRA usually wait until the last moment (three years) to start the audit process and reassess.

Thirdly, and this one is a big one, Section 241 of the Income Tax Act deals with confidentiality.  The CRA is not allowed to disclose to anyone (except the party under audit or their representative) who is under audit (translation: if you tell someone who is not authorized to know, stuff about a taxpayer you loose your job).  If I would have done this I would have lost my job.  So here we have a flagrant disregard for the law in that the CRA is actually telling someone who is not authorized to know, information they shouldn’t about another taxpayer that is going to be under audit (ooooppppppsssss!).

So in summary, the CRA is not following the legislation of the Income Tax Act “with all due dispatch”, they are basically blackmailing people to change the way they filed their tax return (highly illegal under the criminal code), and they are violating the confidentiality sections of the Income Tax Act (I think someone should be losing their job over this one).  Any how this one is far from over in that I am sure that it will be a fight with the CRA to get them to stick to the rules.  I guess this proves that rules were meant to be broken, at least if you are the CRA.