Ombudsperson Final Update – Fair Warning

On April 7, 2017, we announced the opening of this systemic review. The examination looked into the Canada Revenue Agency’s (CRA) practices on providing legal warnings to taxpayers when collecting a debt. At the time, complainants alleged the CRA took legal action, but did not notify them first. The legal action could include freezing bank accounts and garnishing wages, and in some cases it was creating financial hardship, and stress.

Our examination focused on the CRA’s debt collection policies, processes, and the procedures on legal warnings, and how it informs Canadians. We also examined the CRA’s debt collection process to consider the timing and issuance of the legal warning, as well as for clarity and consistency. In addition, we examined the letter templates and telephone scripts that CRA agents used to communicate with Canadians.

Our findings revealed:

• most Canadians receive a legal warning, prior to the CRA taking legal action
• some Canadians do not understand the consequences of not paying their debt
• legal warning scripts differed in the CRA’s Debt Management Call Centre Manual

To address the findings, the Taxpayers’ Ombudsperson made the following recommendations to the Minister of National Revenue and the Chair of the Board of Management of the CRA, for both Tax Programs and Government Programs:

1. Change the validity period of the legal warning back to 180 days, from 365 days.
2. Update its legal warning policies to ensure the following information is provided to taxpayers when a legal warning is given:
   • An explanation of the meaning of the legal warning;
   • The validity period of the legal warning;
   • The consequences of non-payment; and
   • What legal actions can be taken by the CRA.
3. Update the information available to taxpayers, to include:
   • An explanation of the collection process, including all levels of collection;
   •  An explanation of the legal warning policy;
   • The validity period of the legal warning;
   • An explanation of when the legal warning is not required;
   • Exceptions about the renewal of the legal warning;
   • The consequences of non-payment;
   • When and what legal actions can be taken by the CRA; and
   • Definitions of terminology.
4. Update its internal and external messaging to ensure all debt payment and collections related terminology is clearly and consistently defined and used; and information communicated and available to taxpayers is clear, in plain language, complete, and consistent. External messaging includes, but is not limited to, information relayed using: the CRA website, correspondence sent to taxpayers, and procedures/scripts used to inform and direct taxpayers (for example, the Debt Management Call Centre Manual, the National Collections Manual, and the Individual Services Technical Help Guide (ISTHG), etc.).
5. Ensure sufficient training is provided and knowledge is transferred to:
   • All CRA employees who may be involved in the collection process so they are able to accurately speak with a taxpayer about the taxpayer’s debt and their particular circumstances;
   • All CRA employees who provide legal warnings, so they are able to provide an explanation of the meaning of the legal warning, the validity period of the legal warning, the consequences of non-payment of debts with the CRA, including legal actions that can be taken by the CRA; and
   • All CRA employees who may be contacted by taxpayers about collection matters (including agents at the individual tax enquiries line) so they are able to provide information to taxpayers about the consequences of non-payment of debts with the CRA, including legal actions that can be taken by the CRA.
6. Conduct a fulsome review of processes, policies and information regarding payment arrangements, to ensure clear, fulsome, and consistent information and wording in external messaging to taxpayers, manuals, training products, policies, and procedures for CRA employees involved in the collection process and who may be contacted by taxpayers about collection matters.
7. In the course of reviewing its processes, policies and information regarding payment arrangements consider:
   • Making information available to taxpayers on the parameters and other requirements for a binding payment arrangement;
   • The need for clarity and consistency in its terminology and definitions;
   • The need for clarity and consistency in its processes; and
   • Making information available to taxpayers to explain the differences in the types of arrangements for payment, which are not binding payment arrangements, the consequences for non-payment in each situation, and which CRA agents can make binding payment arrangements.
8. Send the payment arrangement confirmation letter to all taxpayers who make a payment arrangement, unless the taxpayer requests not to receive the letter.
9. Regularly review its payment and collection policies and procedures to ensure they align with a service approach consistent with the Taxpayer Bill of Rights.

The CRA accepted all of the recommendations.

Since the report was published the CRA created an action plan. The action plan did not sufficiently address all aspects of each recommendation. However, the CRA did provide updates on its action plan, and the updates have addressed our main findings. This is examined below.

In the CRA’s response to Recommendation 2, the CRA highlights that it has made many improvements to its webpages. However, Recommendation 2 requested the CRA provide the following information to taxpayers, when a legal warning is given:

While the CRA may provide this information, or a link to this information, to Canadians, when a legal warning is given, its action plan, and the update it provided, did not confirm this. Therefore, we reached out to the CRA to get clarification on this.

In response to our request for clarification, the CRA provided us with additional information, and a copy of its standardized legal action letter. This demonstrated to us the CRA informs Canadians of the consequences of non-payment and what legal action it can take. In addition, the second page of the letter directs the recipient to canada.ca/cra-collections, for more information.

We reviewed the webpages that link off of canada.ca/cra-collections and found Canadians can access sufficient information on legal warnings.

We are satisfied with the information the CRA provides to Canadians, when a legal warning is given. 

In Recommendation 3 we requested the CRA provide information on various situations to Canadians. We reviewed the webpages that link off of canada.ca/cra-collections, and found Canadians can now access most of this information. In addition, the CRA indicates that it updated its collections manual to ensure it consistently provides information to Canadians, when a legal warning is given. Therefore, we have considered the CRA has sufficiently addressed the spirit of this recommendation. 

In Recommendation 4 the overall objective was for the CRA to provide consistent messaging to taxpayers. From a review of its external products, it is clear the CRA has refined its messaging, and it is more consistent. The CRA should remain cognisant of the need to maintain consistency in its messaging, and should ensure that any new products, follow suit.

In addition, Recommendation 5 highlighted that the CRA should provide sufficient training on legal warnings to all CRA employees who may be contacted about legal warnings, so it can provide a consistent message.

The CRA’s response to our Office indicated that it felt the training it currently provides to its non-collection agents was sufficient. The CRA highlighted that its non-collection agents do not provide legal warnings, and therefore, should direct the taxpayer to its webpages for more information on legal warnings and what can happen if they do not pay their debt.

However, it also indicates:

The CRA will review messaging to other non-collection agents, such as [Individual Income Tax Enquiry] IITE agents, to ensure that they provide sufficient information to taxpayers and direct those requiring more information to the Collections program.

Meanwhile, its 2020 update only indicates:

The CRA conducted a review of all of its formal training products as well as the National Collections Manual to ensure that all information provided about legal warnings and the related processes are consistent in their messaging.

This does not confirm the information provided by its non-collection contact centre agents was reviewed. Therefore, we reached out to the CRA to provide us with an update on this. We wanted to ensure that it has reviewed and updated its messaging provided by its contact centre agents, where appropriate.

In response to our request for clarification, the CRA indicated it reviewed the non—collections procedures in other areas, including the Individual tax enquiries, and the Business enquiries, and confirmed sufficient information is available, or the agent refers the caller to the Collections program.

We are satisfied with the actions the CRA took to address this recommendation.

Recommendation 6 requested the CRA do a fulsome review of its collections processes and products to provide consistent messaging.

The CRA indicated it:

Conducted a review of its National Collections Manual, processes, and letters as well as its call centre scripts to ensure that they contain consistent messaging related to payment arrangements.

All of the information contained within these products is consistent in its explanation of the payment arrangement process to be followed and information to be provided to taxpayers.

We are satisfied with the actions the CRA took to address Recommendation 6.

Recommendation 7 requested the CRA consider providing more complete information on payment arrangements to taxpayers. 

We are satisfied with the information the CRA provides about payment arrangements on its webpages. However, we encourage the CRA to make its collections information, including payment arrangements, more accessible, by improving how it is displayed. 

Recommendation 8 requested the CRA send a payment arrangement letter to all taxpayers, after they make a payment arrangement.

In the CRA’s action plan it indicated it would offer a payment arrangement letter to taxpayers who make a payment arrangement. The CRA refers to this offer, as an active offer of service. The CRA also indicated it would conduct a cost/benefit analysis on providing the letter to all taxpayers.

We felt the CRA’s active offer of service was sufficient. Therefore, we reached out to the Commissioner of the CRA in 2019 to inform the CRA that an active offer of service was sufficient to address this recommendation. We also expressed that there was no need for any further review.

The CRA has had this active offer of service since February 8, 2019. Therefore, we consider Recommendation 8 addressed.

Recommendation 9 requested the CRA regularly review its collections policies to ensure they align with the Taxpayer Bill of Rights.

The CRA has confirmed it would do so on an ongoing basis.

We are satisfied with the CRA’s response and believe using the Taxpayer Bill of Rights as a foundation to reviewing policies will help the CRA ensure Canadians are provided the rights they are entitled to.

The key issues in the initial examination were we heard from Canadians who alleged the CRA took legal action, such as freezing bank accounts or garnishing wages, without notifying them first, and it was creating financial hardship, and stress.

We found most Canadians received a legal warning, prior to the CRA taking legal action, but some Canadians did not understand the consequences of not paying. We also found that legal warning scripts differed in the CRA’s Debt Management Call Centre Manual.

We continue to receive complaints about collection efforts, many of which indicate the CRA is causing them hardship, by it collecting too much money, at one time. While we acknowledge collections efforts can be difficult on both sides, there has to be cooperation on both sides for collection efforts to be effective. Cooperation also helps prevent the taxpayer from being put in financial hardship, this allows them to express, how much is too much, to the CRA.

There is no better time for cooperation as this year is unique, in that the Canadians who received emergency benefits in response to COVID-19 can now benefit from the Government of Canada’s targeted interest relief.

Canadians who meet the following criteria are eligible for interest relief for their 2020 taxes owing:

• Taxable income of $75,000 or less
• Received at least one COVID-19 benefit in 2020:
  • The validity period of the legal warning
  • The consequences of non-payment
  • What legal actions can be taken by the CRA
  • Canada Emergency Response Benefit (CERB)
  • Canada Emergency Student Benefit (CESB)
  • Canada Recovery Benefit (CRB)
  • Canada Recovery Caregiving Benefit (CRCB)
  • Canada Recovery Sickness Benefit (CRSB)
  • Employment Insurance (EI) benefits
  • Provincial or territorial emergency benefits
• Filed their 2020 tax return

Interest relief for qualifying taxpayers remains in effect until April 30, 2022. This means that although the 2020 tax debt is still due to be paid when assessed, these individuals can spread out their payments until April 30, 2022 without having to pay any interest on the past due amount. All remaining 2020 individual taxes payable, if any, will start to accumulate interest after April 30, 2022.  This should help many Canadians, as it does allow them “more time and flexibility to pay if they have an amount owed.”Footnote1

In complement, the CRA wanted to add this as to further elaborate on their context:

The gradual resumption of business activities for the CRA includes a re-engagement with Canadians to help them resolve their outstanding amounts owing with greater flexibility, especially for vulnerable populations and taxpayers that need more time to pay. A deeper understanding of the financial circumstances of Canadians, with an empathetic approach to collections is the CRA’s priority.

The CRA is providing greater flexibility with expanded payment arrangements for Canadians that need more time to pay, in keeping with the CRA’s commitment to the People-First philosophy. 

Therefore, we encourage Canadians, and the CRA, to cooperate and establish a payment arrangement, when an amount is owed. Then the CRA is not compelled to take legal action. This is especially important right now, knowing that collections efforts will likely significantly increase this year, considering the CRA’s post-compliance work for the Canada Emergency Recovery Benefit (CERB) will commence in September 2021 until approximately March 2023.Footnote2

While we believe the CRA has made substantial improvements by carrying out its action plan, in response to our recommendations, we do, however, feel the information on its webpages can still be improved. As such, we will provide feedback and collaborate with the CRA to identify opportunities for service improvement. While we will stop monitoring the recommendations made in this report, we will continue to monitor the complaints we receive as well as outreach and media reports.