Appeals

Our Day-to-Day Activities

Taxpayers can dispute assessments and determinations pertaining to income tax and commodity taxes, and Canada Pension Plan/Employment Insurance ( CPP/EI) assessments and rulings. If taxpayers are not satisfied with the results of our review process, they can then appeal to the courts.

Our Service Complaints process provides taxpayers with a formal avenue of recourse to the service rights contained in the Taxpayer Bill of Rights. If taxpayers disagree with a decision resulting from our Service Complaints process, they can file recourse actions with the Taxpayers’ Ombudsman.

Our goal

In 2009-2010, our goal was to provide a fair and timely redress process, both when taxpayers dispute CRA decisions about income tax, commodity tax, and CPP/EI issues, and when they register their complaints about the services they have received from the CRA.

Our outcome

In 2009-2010, we demonstrated fairness in our review of taxpayers’ contested decisions. However, it has taken us more time to provide decisions due to a sharp increase in disputes related to aggressive tax planning schemes.

Service complaints and the taxpayer relief provisions were administered consistently, in support of our commitment to fairness.

Our challenge

Our challenge is to manage CRA business processes to effectively respond to the increased volume of income tax disputes resulting from targeted compliance activities that focus on questionable tax planning and other schemes.

Spending Profile

Our 2009-2010 priorities

To achieve excellence in program delivery, we committed to undertake a number of initiatives that focused on strengthening service and reinforcing trust.

Strengthening service

In 2009-2010, as in 2008-2009, a significant increase in the volume of taxpayers’ income tax disputes continued to strain our processing capacity.

As described in the section of this report entitled “Achieving Our Tax Services Strategic Outcome”, the CRA’s focus on questionable aggressive tax planning schemes has resulted in a significant increase in income tax “class-action” type disputes from taxpayers. To date, taxpayers participating in questionable aggressive tax planning schemes have also chosen to litigate confirmed assessments.

In response, the CRA has put in place a number of administrative strategies to deal with the high volume of disputes. We have reallocated existing resources to address the front-end administrative management activities of our dispute resolution process. Also, we strengthened service by allowing less complex disputes to be distributed and assigned to available resources throughout the country. This increases management flexibility and is expected to improve processing time for this category of work. About $1.5 million was reallocated in the fourth quarter of 2009-2010, our busiest period, to hire and train more staff.

We also launched a review of the reasons for the increased volume in our disputes resolution program, with a view to strengthening the CRA’s overall response. This increased volume of disputes resulted largely from the CRA’s focus on specific aggressive tax planning schemes. The CRA will strive to enhance its planning capability to more effectively address the higher volume of disputes.

We renewed our protocol with the Department of Justice Canada. The changed protocol improves flexibility in resolving certain issues under appeal to the courts. The Department has more latitude to make decisions without having to consult with us. This enhanced flexibility supports our goal of improving taxpayer service by providing decisions sooner.

In 2009-2010, we continued the initiative of integrating the Service Complaints and the Problem Resolution programs to better respond to our clients. The integration is intended to permit staff throughout the CRA to address taxpayer concerns, and enhances how we identify and resolve service issues. The integration will be completed during 2010-2011.

The CRA has successfully integrated the staff and disputes workload received from the Corporate Tax Administration for Ontario initiative. Now, Ontario corporations will file one return and, if needed, file one dispute, and have to contact only one government organization.

Reinforcing trust

A key factor in our commitment to fairness is our mandate to consider relief from penalties and interest due to circumstances beyond the control of the taxpayer. These relief provisions are contained in the various acts we administer. In support of our commitment, we implemented a new Taxpayer Relief Registry System that is intended to improve our analysis and decision-making processes.

We further refined our online presence to improve taxpayers’ access to appeals services. During 2009-2010, we enhanced the online formal dispute service for businesses so that users can better understand the submission requirements for disputes involving the Canada Pension Plan and Employment Insurance. We expect that our staff will be able to address user concerns more quickly.

We believe that these priority initiatives contributed to improvements in productivity, consistency, and accessibility. We will continue to identify opportunities to improve the evolving environment of disputes and service complaints.

Expected results

Our expected results are the criteria we use to measure our activities and report to Canadians on their effectiveness. We carry out our Appeals activities to achieve two expected results.

Our main priority is to ensure that all taxpayers have access to an impartial dispute resolution mechanism. An impartial and timely process fosters trust in the integrity of our self-assessment tax system, which, in turn, promotes voluntary compliance with Canada’s tax laws. To demonstrate the impartiality with which the CRA strives to administer the disputes process, we believe our disputes resolution process must exercise exemplary levels of transparency, consistency, and timeliness.

Our measurement of transparency evaluates whether we offered to provide to the taxpayer all relevant information supporting issues under dispute—including auditor records, but excluding information held in confidence under governing legislation. As noted in our Performance Report Card, we exceeded our transparency targets for both income tax and commodity tax cases.

Our measurement of consistency evaluates whether we reviewed, researched, and addressed the taxpayer’s issues under dispute; applied the law correctly; provided taxpayers with an opportunity to respond to our proposals; and arrived at correct decisions. During 2009-2010, we exceeded our consistency targets for income tax and CPP/EI. Though we achieved 94.9%, we did fall slightly short of our 97% consistency target in commodity taxes. We have put in place an action plan to address this minor gap, and expect improved results over the coming months.

We believe that handling disputes quickly is important in evaluating our service performance. At the same time, we recognize that a quality decision is critical and must not be compromised for the sake of timeliness.

When taxpayers file a notice of dispute, we aim to notify them of receipt of their dispute within 30 days at least 85% of the time, as set out in our service standard. In 2009-2010, we achieved our service standard just 50% of the time, a decline from 2008-2009 due to the sharp increase in disputes received. As described earlier, we increased our operating capacity, which should improve our timeliness performance by 2011-2012. We achieved our service standard 90% of the time for CPP/EI disputes.

Our total Appeals production, as measured by total disputes resolved, increased by 1.2% over 2008-2009. Even though we increased our production, the number of total workable disputes in inventory increased by 25.9% over last year, and the total number of non-workable disputes in inventory increased by 52.8%.

Figure 15 The Appeals workload has increased sharply in recent years (tax planning schemes).

Data quality: Good

Income tax disputes comprised about 90% of the files we received. By far the largest part of new intake came from the reassessed taxpayers involved in the CRA’s targeted aggressive tax planning schemes. As shown in Figure 15, and considering 2006-2007 as a typical year, each succeeding year’s inventory has increased, primarily from disputes relating to tax planning schemes. In 2009-2010, we received about 40% more disputes from these schemes than in 2008-2009, and altogether a 467% increase over 2006-2007. The additional resources required to administer the high volume of these disputes at the front end of the process lengthened the time it took us to resolve disputes in general. This had a negative impact on the timeliness of the resolution process.

Income tax disputes comprise, by far, the largest part of Appeals activities. Despite resolving 1.4% more income tax disputes in 2009-2010, our closing inventory of workable income tax files increased by 23.6% over 2008-2009. This increase included the new volume of work related to the Corporate Tax Administration for Ontario initiative. Non-workable inventory increased by 54.2%, reflecting the large number of disputes from aggressive tax planning schemes held in abeyance pending decisions from the judicial system.

In 2009-2010, we resolved 1.8% fewer commodity tax disputes than in the previous year. This slight decrease was due, in part, to the resources we shifted to manage the increase in income tax disputes. As well, we received 18% more disputes. These factors resulted in an inventory increase of 40.7% over 2008-2009. While this increase is significant in percentage terms, in absolute terms it is small when compared with the increase in the workable inventory in income tax disputes.

In 2009-2010, we took 250 workable days to resolve disputes for commodity taxes, a decline in performance from the 214 days achieved in 2008-2009.

Though the average time to resolve CPP / EI files increased from 117 days in 2008-2009 to 149 days in 2009-2010, we increased our production by 4.1%. These results benefited from both the stability of the intake volume, a 1.3% increase over 2008-2009, and improved productivity.

We believe that, on balance, our actions have begun to address the challenges to our program, and we will continue to develop strategies to reduce the negative effects of the sharp increase in new disputes on our Appeals program. We anticipate an improvement in certain areas of our results in coming periods.

Service complaints help us identify problems and propose solutions in support of the eight service rights outlined in the Taxpayer Bill of Rights. As part of our service complaints program, we established two internal performance standards that reinforce our commitment to service. Meeting these performance standards, combined with the commitments we made in our first service complaints annual report, demonstrates our commitment to provide taxpayers with a consistent and effective service complaints process.

We aim to send the taxpayer a complaint acknowledgement letter within two business days of receiving the service complaint in 90% of cases and, in 2009-2010, we achieved this target 97.9% of the time. Every 15 days thereafter, we are committed to updating the taxpayer on the status of the complaint. In 2009-2010, we succeeded 94.5% of the time against our target of 90%.

We also aim to resolve taxpayer complaints within 30 days. We did so in 92.7% of cases, compared with our target of 90%. Overall, we believe we have made substantial progress in managing service complaints, and we will pursue further opportunities for improvement.

We use a set of quality assurance indicators within the Appeals Program to gauge our administration of the taxpayer relief provisions. Our performance indicators include: the quality of the first and second review, the completeness of the taxpayer relief request, the timeliness of the review, the quality of the taxpayer relief decision report, and the quality of communications with the taxpayer. Altogether, the quality assurance program examines 29 points associated with the taxpayer relief provisions, and we achieved our 95% performance target against these measures as a whole. Based on these results, we believe that we have met the performance criteria for relief granted under the taxpayer relief provisions.

Performance Report Card

Date modified:

2010-11-02