Tax breaks for Canadians inconsistent: audit

Updated Sat. Jan. 17 2009 12:16 PM ET

The Canadian Press

OTTAWA — The Canada Revenue Agency is so inconsistent about the way it grants breaks to delinquent taxpayers there’s a risk people will go “shopping” to various tax offices for the best deal, a new audit suggests.

The agency has failed to communicate rules to field offices, says the audit, and doesn’t adequately monitor the way its employees dole out relief to taxpayers who face interest charges and penalties on unpaid taxes.

“Processing inconsistencies existed, between offices and between different work areas within offices,” says the newly released report.

Under so-called “fairness provisions” dating from 1991, the Canada Revenue Agency can waive interest and penalties for taxpayers who through circumstances beyond their control have not been able to pay their taxes or have been late.

More than 341,000 taxpayers benefited from the waivers in 2007-2008, being excused from $618 million in payments.

Most of that relief was dispensed directly by agency computers, based on formulas built into the software. But almost 30,000 of those taxpayers had to be vetted by employees, who granted them $314 million in relief.

The auditors, who sampled 761 files, found a highly decentralized system for making decisions, and inconsistencies in the treatment of taxpayers asking for a break.

For example, head office sometimes updated the rules — but neglected to tell field employees in a timely way of the changes.

“This resulted in taxpayers being treated differently, depending on whether their files were processed before or after updated instructions were issued to field office employees,” says the report, dated October 2008.

The investigators cited several instances in which key information on how to make decisions was not disseminated for months, in one case for more than a year.

The agency also owns computer systems so antiquated that annual reports filed to Parliament on waived charges are partly based on manual calculations, and their accuracy is dubious.

The problems outlined in the audit are remarkably similar to criticisms levelled by the auditor general of Canada in a 2002 report to the House of Commons.

“The controls the agency has put in place to guard against inappropriate forgiveness of interest and penalties are deficient,” Sheila Fraser warned.

“A taxpayer expects the same treatment from every tax services office across Canada given the same set of facts.”

Her report noted that the agency was concerned about the way inconsistent decision-making could increase the “potential for `shopping’ for the best fairness deal.”

A spokeswoman for the agency said numerous steps have been taken since the audit to tighten the system, including the hiring of an external consultant to review procedures. The project runs until March 31, 2009.

Training measures, more updates of the rules, and a revamped form for requesting relief have also helped to improve the system, Caitlin Workman said in an email response to questions.

“The CRA understands that the current economic situation places financial pressure on Canadians, and will endeavour to provide relief when circumstances warrant,” she added.