ARCHIVED - Systemic examination of service issues arising from the Canada Revenue Agency’s interpretation and application of the June 2011 legislative changes affecting the Canada child tax benefit

March 9, 2016

The Office of the Taxpayers’ Ombudsman is closing, without recommendation, its systemic examination of service issues arising from the Canada Revenue Agency’s (CRA) interpretation and application of the June 2011 legislative changes affecting the Canada child tax benefit (CCTB).

Background

The June 2011 federal budget included a legislative change that required CCTB recipients to notify the CRA of any change to their marital status before the end of the month following the month in which the change occurred. For example, if the change in marital status occurred in September 2011, the benefit recipient was required to notify the CRA of the change before the end of October 2011.

The legislative change applied to all marital status changes that occurred after June 30, 2011. Prior to the change, benefit recipients could notify the CRA of changes to their marital status at any point during the year, including when they filed their income tax return. The CRA then used a most beneficial calculation administrative policy to determine the recipient’s CCTB entitlement before and after the date of the marital status change. The CRA then applied the most beneficial rate for the remainder of the benefit year (July1st to June 30th). The legislative change ended this administrative policy.

In August 2012, my office began hearing complaints from taxpayers and benefit recipients to the effect that the CRA was incorrectly administering the legislation change. The complainants, who had reported their marital status change when they filed their 2011 income tax return, stated that the CRA was no longer applying the most beneficial calculation to marital status changes that occurred before July 1, 2011.

On August 24, 2012, the CRA’s Income Tax Rulings Directorate issued a technical opinion stating that the legislative change and elimination of the most beneficial calculation policy only applied to marital status changes that occurred after June 30, 2011. The opinion stated that there was no legislative requirement imposed on benefit recipients to notify the CRA prior to filing their 2011 tax returns, if the marital status change occurred on or between January 1, 2011 and June 30, 2011.

In September 2012, the Honourable Gail Shea, then Minister of National Revenue, acknowledged in the House of Commons that the CRA had made an error in administering the legislative changes affecting the CCTB. Subsequently, she requested that my office examine the cause of the error and determine whether recommendations could be made to ensure such errors did not recur.

Findings

As a result of the original misinterpretation of the legislative change, the CRA provided incorrect instructions to its employees on how to calculate CCTB eligibility for benefit recipients with changes to a marital status occurring before July 1, 2011. It resulted in incorrect benefits for thousands of recipients.

From September to December 2012, the CRA communicated the correct interpretation to its employees as well as instructions on how to process requests from benefit recipients who were affected by the error.

In October 2012, the CRA sent targeted communications to benefit recipients who reported a change to their marital status in the first six months of 2011 or who reported a change to their marital status on their 2011 income tax return. On the “Child and family benefits” webpage, the CRA instructed benefit recipients who reported a marital status change when filing their 2011 income tax return to contact the CRA if the change had occurred on or between January 1, 2011 and June 30, 2011. As a result, the CRA began issuing CCTB redeterminations in November 2012 based on the correct interpretation.

Additionally, the CRA implemented a permanent change to the information technology system supporting benefits administration to ensure that future payments to recipients who reported a marital status change that occurred on or between January 1, 2011 and June 30, 2011, were calculated correctly.

After addressing the immediate concerns and correcting the error, the CRA reviewed how it implements new administrative policies following a legislative change.

In the fall of 2012, the CRA introduced measures to strengthen its implementation of legislative changes. These measures included: involving the appropriate program manager and employees in the drafting sessions with the Department of Finance to ensure that the program area has input into the proposed wording; providing program areas affected by the change the opportunity to ask questions to ensure the legislation is fully understood and applied correctly; and putting in place a review and approval process to ensure that information technology systems are updated to support and conform to the legislation change.

The CRA stated that it strengthened the messaging used in all benefit-related publications to emphasize the requirement for benefit recipients to inform the CRA of changes to marital status before the end of the month following the month of the change. Beyond updating the publications, the CRA added information to the Tax Information Phone Service (TIPS) and the interactive voice response (IVR) system for taxpayers calling the CRA’s general enquiries and benefits telephone lines. In addition, since March 2013, the CRA accepts notification of marital status changes over the telephone, providing one more method for benefit recipients to comply with the requirement of informing the CRA within the required time frame.

We concluded that the CRA’s actions adequately addressed the issues identified by the former Minister. No further recommendations are warranted.

Next steps

A copy of this memorandum will be published on the Office of the Taxpayers’ Ombudsman’s website 60 days following its receipt by your office. A summary of our findings may also be included in our 2015-2016 annual report or published in a future newsletter on our website.

Should you require additional information, please do not hesitate to contact me.

Original signed

Sherra Profit