André Lareau is an associate tax law professor with Laval University Law School in Québec City, and Christiane Maurice is a tax lawyer, accredited mediator, and senior manager with BDO Canada LLP in Montreal.
This article is based on Lareau’s presentation to the 2nd International Conference on Taxpayer Rights, held earlier this year in Vienna.
In this article, the authors provide an overview of the nonjudicial tax dispute resolution mechanisms in Canada, focusing specifically on the province of Québec, and explain why the existing processes are inefficient at the federal level.
Taxpayers who reside in the Canadian province of Québec are governed by two administrative entities for tax matters: the Canada Revenue Agency at the federal level and the Revenu Québec (RQ) at the provincial level. Each jurisdiction — the federal government and the Québec government — has its own tax laws, and the dissimilarities between the systems create increased complexity for taxpayers.
At both levels, conflicts between the tax administration and taxpayers may be resolved through the judicial system. In some situations, at the federal level and the provincial level, taxpayers can also use alternative means for resolving tax files. This article gives a broad overview of these nonjudicial mechanisms for resolving tax issues and concludes that the tools available at the federal level are, unfortunately, both superficial and inefficient.
The Federal Level
At the federal level, a taxpayer who is not satisfied with the CRA services, the assessment of tax, or a determination made by the CRA, is invited to present his case to the auditor assigned to the file. If this procedure is unsuccessful, the taxpayer should bring the file to the attention of the officer’s supervisor. In practice, many files are resolved at this stage. However, if this is also unsuccessful, the taxpayer can escalate the dispute further up the supervisory chain.
The CRA Service Complaints Program
When a taxpayer’s grievance concerns service received from the CRA — such as a misunderstanding or omission, undue delay, problematic officer behavior, provision of poor or misleading information, or other service-related issues — and the grievance has not been resolved at the auditor level, the taxpayer can file a complaint with the CRA service complaints program. This program is designed to provide another level of review for individual or corporate taxpayers. Details can be found in the guide RC4540, “Complaints and Disputes,” published by the CRA.
However, when the taxpayer’s complaint is not related to services, the only recourse is to follow the judicial process, because the CRA service complaints program is usually not the appropriate forum for disputes regarding the substance of an assessment or the legal basis of an officer’s decision.
The Taxpayers’ Ombudsman
If a complaint about service is not resolved to the taxpayer’s satisfaction, the taxpayer may, assuming specified conditions are met, reach out to the next level of review: the taxpayer’s ombudsman. The Office of the Taxpayers’ Ombudsman and the Taxpayer Bill of Rights were introduced in 2007 by the government of Canada “to ensure Canada Revenue Agency is more accountable to Canadians.”1
The Taxpayer Bill of Rights2 enumerates 16 rights that taxpayers have when dealing with the CRA at various levels of the administration. The rights relate to the treatment that a taxpayer can expect from the CRA, including the way in which the CRA administers the law and also the ultimate amount of tax payable. For instance, if both of the following rights could be enforced, they would be quite significant for the taxpayer:
“1. You have the right to receive entitlements and to pay no more and no less than what is required by law.”
“8. You have the right to have the law applied consistently.”
Notably, however, only eight of the 16 enumerated rights actually fall under the jurisdiction of the taxpayer’s ombudsman. These eight rights are:
“5. You have the right to be treated professionally, courteously, and fairly.”
“6. You have the right to complete, accurate, clear, and timely information.”
“9. You have the right to lodge a service complaint and to be provided with an explanation of [the CRA’s] findings.”
“10. You have the right to have the costs of compliance taken into account when administering tax legislation.”
“11. You have the right to expect [the CRA] to be accountable.”
“13. You have the right to expect [the CRA] to publish [its] service standards and report annually.”
“14. You have the right to expect [the CRA] to warn you about questionable tax schemes in a timely manner.”
“15. You have the right to be represented by a person of your choice.”
Nothing in the mandate really permits the ombudsman to seriously address a substantial tax issue affecting the amount of tax payable or to give an interpretation of the law. The more substantial rights that are part of the Taxpayer Bill of Rights do not fall under the jurisdiction of the taxpayer’s ombudsman, in essence leaving the taxpayer alone against an intimidating agency with huge powers.
An analysis of the annual reports published by the ombudsman since the office’s inception shows that a few thousand complaints are submitted by the taxpayers to the ombudsman each year, but only a relatively small number of cases — around 100 or 200 — are actually investigated. Also as part of the office’s reporting duties, the ombudsman is required to identify and review systemic issues regarding the CRA’s service to taxpayers. To date, eight special reports spanning just a few pages each have been published by the ombudsman on various topics. Judging by the small number of comments made by tax specialists after their publication, the annual and special reports appear to be superficial and to lack the substance necessary to capture the attention of the tax community.
In the CRA’s news release announcing the creation of the ombudsman and the bill of rights, the minister mentioned that the ombudsman would “operate independently and at arm’s length from the CRA.” The release further explained that “taxpayers who are unsatisfied with the action or response from the CRA may request the Taxpayers’ Ombudsman, to undertake an independent review.” However, the description of the office also states that the ombudsman acts as an adviser to the Minister of National Revenue. Considering the arm’s-length relationship that should exist between the minister and the ombudsman, we believe that the role of the ombudsman should be redefined to distance the ombudsman from the minister and protect the independence of the office. Given the lack of power now given to the taxpayers’ ombudsman, it appears that the good intentions that may have been present when the office was created have not become reality.
One more factor must be emphasized: An understanding of tax issues is, surprisingly, not a prerequisite for becoming Canada’s Taxpayers’ Ombudsman. Neither the incumbent nor the previous officeholder had any specialized experience in tax, and both possessed very minimal tax knowledge before being nominated. When the leader of an organization does not have the relevant skills, the poor results and lack of attention paid to the work performed by the office should not surprise anybody.
Because of its lack of budget, visibility, and powers, the ombudsman’s role is not well understood in Canada. Very few people, even among tax specialists, have a good grasp of the work performed by that office, and few have reached out to the ombudsman for assistance. Even the courts have noted the institution’s lack of power.3 More troubling, some courts have indicated in their judgments that the taxpayers should seek the help of the ombudsman,4 a recommendation that seems wholly erroneous in light of the realities outlined above.
The office of the ombudsman is a crucial institution, and it has a very important role to play in helping to protect the rights of taxpayers dealing with the tax administration. However, in its current form, the ombudsman has no real power and its role is purely cosmetic. This institution must undergo important changes to justify its existence.
The Québec Level
Taxpayers who reside in the province of Québec must also deal with the Québec tax administration, RQ. Even though the Québec and the federal tax systems have several elements in common, there are some important distinctions in their respective income tax regimes. However, their sales tax legislations have been harmonized and are administered by RQ, including the goods and services tax/harmonized sales tax and Québec sales tax (QST).
Québec taxpayers must file distinct annual income tax returns with each level of government. RQ will generally take into consideration the results of an audit conducted by the CRA, but RQ may also conduct its own audit. A taxpayer could receive a notice of assessment from both the CRA and RQ and, therefore, have to litigate two similar — or even identical — assessments at the same time in both the Tax Court of Canada (federal jurisdiction) and the Québec court. However, an interesting judgment was recently rendered by the Québec court based on the theory of judicial courtesy and the doctrine of abuse of rights. The court refused to hear a case (Construction S.Y.L. Tremblay v. Agence du Revenu du Québec, 2016 QCCQ 15583) when a previous judgment had been rendered at the federal level involving the same taxpayer’s GST assessment, noting that the case brought before the Québec court involved the QST, which is identical to the GST.
Revenu Québec Ombudsman’s Office
Beyond the usual protections granted under the tax laws — objection and appeal — taxpayers in Québec can bring their provincial tax issues to the RQ ombudsman5 who runs the Bureau de la Protection des Droits de la Clientèle.6 This institution, which physically shares offices with RQ, has existed since 1989, but it is only in recent years that taxpayers and tax specialists have gained better knowledge of its services. Its role has become more important since Québec’s Finance Minister Carlos J. Leitão announced the implementation of the Charter of Taxpayers’ and Mandataries’ Rights on October 6, 2016.
The charter provides for the following seven rights:
to be informed;
to be heard;
to be treated impartially;
to quality services performed by RQ;
to the protection of confidential information;
to be represented by the person of its choice; and
to file a complaint.
In contrast with the federal taxpayer’s ombudsman, the RQ ombudsman’s mandate is not limited to services. It can act on all aspects of legislation administered by the RQ minister and do so at any step in the process. For instance, it can examine a tax issue even when tax litigation has already been brought before the court. Its mandate is somewhat similar to that of the taxpayer’s advocate in the United States.
The RQ ombudsman does not represent either the taxpayers or RQ. Instead, its goal is to achieve the right result. Consequently, if the examination of the file proves a taxpayer’s request to be valid, the tax specialists acting for the ombudsman will recommend that RQ endorse that finding. Its recommendations are not binding on the parties involved, but they are usually followed by RQ. If necessary, the ombudsman can take the litigation to a higher authority within RQ. The ombudsman can also act as a mediator upon request. The only types of problems that the ombudsman cannot resolve are cases challenging a tax policy or cases in which the dispute is solely a matter of interpretation of the law. In those instances, RQ insists on getting a ruling from the court.
To conclude, the RQ ombudsman constitutes a substantial improvement in the protection of taxpayers’ rights compared to its federal counterpart. The office also greatly reduces the costs associated with the tax disputes and the time it takes to reach a resolution. Notably, the ombudsman indicates that it will follow up on a taxpayer’s complaint within 35 days in 90 percent of the cases.
Public Protector — The Québec Ombudsperson
The Québec Public Protector, also referred to as the Québec ombudsman or ombudsperson, is an office created by law.7 It is an impartial and independent body that is not related to RQ, and its work is not limited to tax matters. The mission of the Public Protector is to ensure that the rights of citizens are protected in their dealings with the public services.
The Public Protector can assist any person, including individuals and corporations. It shall intervene “whenever he has reasonable cause to believe that a person or group of persons has suffered or may very likely suffer prejudice as the result of an act or omission of a public body,”8 its members, or employees. In order to carry on its tasks, it has complete access to RQ’s information.
Unlike the federal taxpayers’ ombudsman, the Public Protector is not limited to addressing services. It can also deal with the substantive tax issues that are affecting taxpayers. For instance, in December 2016 the Public Protector successfully intervened to protect a taxpayer’s rights when it found that RQ had sent three draft assessments to the taxpayer about a single taxable benefit and “each time, it used a different section of the Income Tax Act as justification.”9
In another case, RQ had used the alternative audit method to calculate the taxpayer’s income. The Public Protector noted the inconsistency of the figures that RQ arrived at and concluded that, “combined with the lack of any trace of undeclared income, [it] was indicative of the unreliability of the audit method employed.” In its report released in October, the Public Protector wrote: “Considering the poor reliability of the audits, the Québec Ombudsman recommended the assessments be cancelled, which Revenu Québec agreed to do.”10
The Public Protector has the power to transmit recommendations to RQ when it concludes that an error or injustice has been committed, so that RQ can correct the situation as quickly as possible. It may also, according section 27 of its authorizing statute, notify the government if the Public Protector feels “that no satisfactory measure has been taken within a reasonable time.”
As reflected in a pamphlet produced by the Public Protector’s office, in most cases the first recourse for protecting a citizen’s rights should be the department that issued the decision that has left the taxpayer unsatisfied.11 A taxpayer faced with a decision rendered by the Québec tax administration could bring its case before either forum: the Public Protector or the RQ ombudsman. However, given the expertise of the ombudsman, especially since the latest reform of the institution, we believe that the taxpayer should only consult the Public Protector after being unsuccessful with the RQ ombudsman. Even though the Public Protector now plays a secondary role in tax matters, this additional layer of protection is important and should remain intact.
Annual Reports and Institutional Change
The Public Protector has played a key role in pushing for the changes that Québec has made to the tax administration in the last five years. In its 2013-2014 annual report, the Public Protector reviewed several cases in which it found that the RQ abused its power and noted that improper and inconsistent actions by the RQ can have fatal consequences for the viability of business operations.
Furthermore, in the 2014-2015 annual report, the Public Protector continued to plead for taxpayers’ rights and argued for more change in RQ’s actions and the conduct of audits. Specifically, the report states the following:
While tax recovery is an important and legitimate mission in this context as always, Revenu Québec must never lose sight of the need to respect citizens’ rights. Yet, based on the complaints it received, the Québec Ombudsman finds that Revenu Québec’s attitude toward taxpayers has become more intransigent. The lofty goals of recovering tax dollars must not be achieved by disregarding respect for taxpayers, procedural fairness and the principles of administrative justice. [Emphasis added.]
Specifically turning to a taxpayer’s right to be heard, the Public Protector reported:
Despite these obligations, the Québec Ombudsman has noted that Revenu Québec is slow to correct some of its practices. Once again this year, the Québec Ombudsman found that the agency frequently failed to meet these requirements, even though they were based on principles of natural justice, i.e. the right to an unbiased decision and the right to be heard. [Emphasis added.]
In early 2016, in response to the Public Protector reports, Leitão announced a plan of action to improve relations between RQ and Québec’s citizens and businesses. RQ faced the situation and took measures to correct the problems identified at the audit level. The action plan is built around five points:
adopting a charter of rights for taxpayers;
providing for the administrative settlement of conflicts and simplifying access to justice;
improving tax audit processes;
improving RQ’s relations with taxpayers and businesses; and
ensuring follow-up on the action plan.
Positive changes concerning taxpayers’ rights seem to be emerging as a result of this action plan.
Access to justice is becoming a serious issue — mediation is seen as one solution that can be used in various areas. In fact, in Québec, mediation is mandatory in family law.
Mediation Under Code of Civil Procedure
Adopted in 2016, Québec’s new Code of Civil Procedure requires that parties consider private dispute prevention and resolution processes before referring any dispute to the courts, even in tax matters. Both taxpayers and tax administrations at both the federal and provincial level must consider using these processes, including negotiation, mediation, and arbitration.
Thus far, the new code has not changed the way business is done in Québec’s tax matters because RQ deems the alternative dispute resolution mandate to be fulfilled when the RQ officer reviews the taxpayer objection. We disagree. We do not believe that this fulfills the goals of the new code because the objection mechanism is already provided for by legislation. Moreover, the decision process is not neutral since the analysis of the objection is made by an employee of one of the parties involved, that is, the RQ. It will eventually be up to the courts to determine whether RQ’s interpretation of the code reflects the intent of Parliament.
Québec Settlement Conference Procedure
Québec’s laws do provide for a settlement conference procedure before a judge before the court hearing. In Québec’s courts, this process is flexible. It is voluntary and no written representations are required; judges hear the parties’ claims and try to assist them with identifying a solution.
At the federal level, the Tax Court of Canada rules provide for a mandatory settlement conference procedure when a judge chooses to initiate that procedure.12 This procedure is more cumbersome as the parties must submit their representations in writing before the conference. This written procedure complicates the process and makes it more time-consuming, which is part of the reason it is not used often.
Mediation at the Small Claims Division
Québec’s latest budget documents provide a new mediation procedure for tax litigation before the small claims court. According to our sources, this should be similar to the procedure that already exists for civil matters in the small claims division. This proposal, which has yet to be implemented, follows recommendations made by the Commission d’Examen sur la Fiscalité after a pilot project on mediation was presented to the commission by the Tax Mediation Association.
Some measures have been introduced in order to protect the rights of Canadian taxpayers at both federal and provincial levels. However, despite the appearance of harmonization between the tax regimes, the discrepancies between the two approaches are substantial. While the federal system is still focused on traditional judicial mechanisms, Québec is proposing alternative methods for dispute resolutions. The first steps are in place, but much work remains to be done.
1 CRA, “Canada’s New Government Announces Taxpayer Bill of Rights and Taxpayers’ Ombudsman” (May 28, 2007).
2 CRA, “Taxpayer Bill of Rights Guide: Understanding Your Rights as a Taxpayer,” RC17(E) Rev. 16 (Sept. 8, 2014).
4 Milca Kwangwari v. The Queen, 2013 TCC 302, para. 12.
5 See Josée Morin, “A Little Known Service at Revenu Quebec,” Canadian Tax Foundation, Conference Report (2015).
6 When it was first created, this office was called “bureau des plaintes.” It has been renamed a few times since.
7 Public Protector Act, CQLR c. P-32.
8 Id. at sec. 13.
9 Le Protecteur du Citoyen, “Revenu Québec Sends a Citizen Three Erroneous Draft Assessments” (Dec. 5, 2016).
10 Le Protecteur du Citoyen, “Revenu Québec and Tax Auditing: A Business Is Wrongly Assessed for Having Supposedly Hidden Income” (Oct. 24, 2016).
11 Quebec Province, Protecteur du Citoyen, “Legitimate, Credible Complaints Office: Complaints Processing in Governmental Organizations” (2001).
12 Rule 126 of the Tax Court of Canada Rules (General Procedure), SOR/90-688a.