The Federal Budget and Fall Economic Statement (FES) are key government statements, outlining the government’s fiscal, social and economic policies and priorities. These statements are critical to the work of the CRA as they often include proposed tax measures which result in new or amended legislation that the CRA is mandated to administer. The FES was tabled in the House of Commons on December 16, 2024.
The Minister of Finance directs the Budget process on behalf of the Government of Canada, typically by sending a call letter to members of Cabinet. The call letter solicits proposals for the Budget in the early fall and prescribes their scope. As part of this process, the Minister of National Revenue regularly puts forward funding and revenue generation proposals and/or proposals to amend legislation to improve the administration of the tax system in response to Minister of Finance call letter. [Redacted]
Responsible Government Spending
Budget 2023 announced the requirement to conduct a comprehensive government-wide responsible government spending (RGS) exercise to continue to serve Canadians most effectively and bring the pace and scale of spending back to a pre-pandemic level.
The CRA fully contributed to the first phase of the RGS exercise by identifying reductions of $154.8M annually by 2026-27, while minimizing the impact on services and revenues for the Crown and Canadians.
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Service issues, including contact centres
The duration of calls tend to be longer and call volume has increased since pre-pandemic, and funding continues to decline. Demand to speak to an agent is greater than agent capacity.
This can lead to long wait times, which can be frustrating to Canadians. We are working to improve the client experience when calling the CRA while also nudging people to self-service options.
Additionally, there are increased pressures to access benefits and credits as a result of significant population growth.
The CRA remains committed to providing adequate services to Canadians that are efficient while ensuring that operations are cost effective.
Automatic filing
To ensure more low-income Canadians have the ability to quickly and easily auto-file their tax returns, Budget 2023 announced that the federal government will increase the number of eligible Canadians for SimpleFile by Phone (formerly File My Return) to two million by 2025—almost triple the current number.
Budget 2023 also announced that the CRA would pilot a new automatic filing service that will help vulnerable Canadians who currently do not file their taxes receive the benefits to which they are entitled. Following consultations with stakeholders and community organizations, the CRA is to present a plan in 2024 to expand this service even further.
The Budget also announced that the government will continue to explore other avenues, including potential legislative changes, to ensure vulnerable Canadians receive the benefits to which they are entitled.
The FES has also proposed introducing legislation that would allow the CRA to automatically file tax returns on behalf of certain lower-income Canadians using available information, starting as early as the 2025 tax year
Charities
The CRA is the de facto regulator of charities in Canada due to the tax benefits that registered charities can receive.
The Agency ensures that charities comply with the requirements associated with the Income Tax Act, as well as relevant common law.
The CRA oversees all program activities related to charities including registration, client services, and responsible enforcement.
The Agency is committed to engaging in meaningful dialogue with the charitable sector, and ensuring that the regulatory environment supports the important work they do.
Pandemic compliance and collections
Since Summer 2020, the CRA has been undertaking compliance activities to verify the eligibility of recipients of CRA-administered pandemic benefits.
Verifications have been completed for 768,000 individuals of the 875,000 planned, which identified $10.41B in overpayments.
The CRA plans to complete most first reviews in 2024-25, leaving recourse and Federal Court reviews to continue next year. Results of verification and collection activities are reported quarterly to the Public Accounts Committee (PACP).
As post-payment audits for the business subsidies have generally demonstrated high compliance, the majority of this work is winding down this year. Some cases of aggressive and/or willful non-compliance have been identified. [Redacted]
Canadian Emergency Wage Subsidy post-payment audit results are updated regularly on the CRA’s website, on the Compliance Snapshot page, and a comprehensive status update was published in November 2023.
Privacy breaches
Treasury Board of Canada Secretariat (TBS) policy instruments include the mandatory reporting of material privacy breaches to their office and to the Office of the Privacy Commissioner (OPC). Material privacy breaches are those that could reasonably be expected to create a real risk of significant harm to an individual.
Despite the many controls in place, given the vast amount of personal information managed by the CRA, privacy breaches occur and have garnered significant attention from the OPC, TBS, Parliament, and the media.
The OPC tabled a special report in Parliament in June 2024 on the summer of 2020 cyber attacks which affected the CRA and ESDC. All items in the CRA’s Management Action Plan in response to the OPC’s recommendations have been completed or are on track for completion.
The CRA has noted a significant increase in unauthorized use of taxpayer information by a third party (UUTP) privacy breaches over the past few years. On October 29, 2024, the OPC launched an investigation following a complaint, as a result of a recent CBC story related to over 31,000 of these types of breaches dating back to 2020.
Community Volunteer Income Tax Program
The Community Volunteer Income Tax Program (CVITP) supports community organizations that host free tax clinics for people with a moderate income and a simple tax situation, allowing them to complete their tax returns and access the benefits and credits designed to support them. The program is administered jointly with Revenu Québec known under the Income Tax Assistance - Volunteer Program (ITAVP) in Quebec.
Last year, the program helped over 750,000 individuals (exceeding the target of 725,000) access over $2 billion in payments, and resulted in 869,660 returns filed. Also, 41 new CVITP clinics were established in designated underserved areas, exceeding the target of 20 new clinics. A CVITP Grant pilot program was started in 2021 to provide grants to participating community organizations with over $6M in grant payments this fiscal alone.
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Fisheries
The CRA is working with the Department of Fisheries and Oceans (DFO) and other partners to share information that could complement tax audit and risk assessment efforts to identify and prevent unreported cash sales, unexplained revenue, or tax evasion in Canadian fisheries.
While DFO is the lead on this file, the CRA has developed a Letter of Intent outlining its commitment to collaboration and information sharing.
Personal services businesses and trucking
The CRA is addressing concerns raised by the trucking sector regarding the use of personal services businesses (PSBs).
Generally speaking, a PSB exists where an individual would be considered to be an employee of the payer if not for the existence of the corporation.
PSBs are subject to specific rules in the Income Tax Act, and have different responsibilities, benefits, and entitlements than regular employees, including limitations to expenses and deductions they may claim and an additional 5% tax.
The CRA continues to undertake compliance and education efforts, in close coordination with federal government partners, including Employment and Social Development Canada and Transport Canada, to address instances of possible non-compliance in the trucking sector.
Outstanding legislation including trust reporting requirements, capital gains
There are 44 commitments in Budget 2024 that fall on the CRA to administer. The current taxation and benefit year is particularly challenging due to the high number of tax and benefit measures announced this year, their level of complexity, the extent of work required to get CRA systems and documentation ready to administer them, and the fact that corresponding legislative and financial authorities have not yet been approved by Parliament. The Agency will need to provide clear communications to the public on its administration of budget measures, particularly those related to capital gains and trust reporting requirements.
On October 29, the CRA published a Tax Tip noting that bare trusts will be exempt from filing a T3 return unless the CRA makes a direct request for these filings. This is a continuation of the exemption from the trust reporting requirement that was issued for bare trusts for the 2023 tax year.
Although the proposed changes to capital gains are subject to parliamentary approval, consistent with standard practice, the Canada Revenue Agency is administering the changes to the capital gains inclusion rate effective June 25, 2024, based on the proposals included in a Notice of Ways and Means Motion tabled September 23, 2024. For all taxpayers, the new inclusion rate will apply to capital gains realized on or after June 25, 2024. Impacted forms for individuals, trusts and corporations are expected to be on Canada.ca as of January 31, 2025. Arrears interest and penalty relief, if applicable, will be provided for those corporations and trusts impacted by these changes that have a filing due date on or before March 3, 2025. The interest relief will expire on March 3.
Aggressive GST/HST schemes
Aggressive GST/HST schemes have become a significant concern in Canada over the last several years, where wilfully non-compliant registrants collaborate for the purposes of obtaining unwarranted GST/HST refunds.
The CRA remains committed to combatting these aggressive GST/HST schemes that circumvent the spirit of Canada’s tax laws. These aggressive schemes are typically aimed at receiving unwarranted refunds.
The carousel scheme, which is the scheme most often seen by the CRA, involves GST/HST registrants colluding together to claim unwarranted refunds to intentionally avoid complying with our tax laws.
Although investments made in this area over the last several years are resulting in more effective measures being put in place to fight these aggressive schemes, the topic continues to be of interest to the public, media and Parliament.
Write-offs
Write-offs were the subject of recent parliamentary and senate questions, as well as media coverage which highlighted large write-offs recorded in fiscal year 2023-24.
Write-offs will also be published as part of the Public Accounts of Canada, following their tabling by December 31, 2024.
