Mr. Chair, thank you for this opportunity to present the results of our report on income tax objections. Joining me at the table is Jean Goulet, who is the principal responsible for the audit.
This audit focused on whether the Canada Revenue Agency efficiently managed personal and corporate income tax objections.
A taxpayer can file an objection if the taxpayer disagrees with the agency's assessment of an income tax return. The agency must provide an impartial and timely review of a taxpayer's objection. If not satisfied with the agency's decision on the objection, the taxpayer can appeal to the courts.
In the 2014 calendar year, the agency processed roughly 30 million income tax returns, worth about $235 billion in income taxes. During that time, taxpayers filed almost 67,000 objections that put $4.8 billion in income taxes into dispute. As of March 31, 2016, the agency had close to 172,000 objections outstanding, worth over $18 billion in income taxes.
To assess the efficiency of the objection process, we looked at the time the agency took to provide taxpayers with decisions on their objections. We also examined the various stages in the process to identify where delays occurred.
Our audit found that the agency took too long to decide whether a taxpayer's objection was right.
We found that the agency took about five months to settle straightforward objections, which made up about 60% of files. For medium-complexity objections, the agency told taxpayers they could wait up to a year before hearing from an appeals officer. It took the agency five or more years to resolve 79,000 cases worth almost $4 billion in income taxes.
During the five-year period covered by our audit, we found that 65% of the time, the agency ruled in whole or in part in favour of the taxpayer. When the taxpayer pays up front and the agency takes a long time to rule in favour of the taxpayer, costs are incurred not just for the taxpayer involved, but also for the economy as a whole.
We also examined the Canada Revenue Agency's performance targets for the objection process and found that the agency did not consider timeliness from the point of view of the taxpayer. For example, the agency did not count the days that it took to assign files to appeals officers. This means that the time to decide on objections reported by the agency was much shorter than the time taxpayers actually waited.
Without complete and accurate information on the time the agency takes to process an objection, taxpayers have no way of knowing how long they will have to wait for a decision. Furthermore, the agency has no way of knowing if it is getting better or worse at meeting its mandate for timely review of objections.
Assessment decisions that are overturned either by the agency's objection process or by the court's own appeal may signal issues with either the original assessment or the agency's subsequent reviews.
We found the agency did not adequately use the information coming out of its own decisions or of those of the Tax Court to learn and improve its processes and performance.
We made eight recommendations to the Canada Revenue Agency. The agency agreed with all of them and has committed to taking corrective action.
Mr. Chair, this concludes my opening remarks. We would be pleased to answer any questions the committee may have.
Thank you.