A federal bill giving the Canada Revenue Agency new powers to impose thousands of dollars in penalties on taxpayers who fail to promptly provide requested documents is facing warnings the measures are excessive and potentially unconstitutional.Blacklock's Reporter says tax experts appearing before the Commons finance committee have raised concerns about Bill C-31, including a provision allowing the CRA to issue a Notice of Non-Compliance and impose daily financial penalties.The Tax Executives Institute Inc. of Toronto told MPs the proposed system could punish taxpayers who have legitimate reasons for questioning CRA demands in the same way as those deliberately refusing to cooperate.“The sanctions regime eliminates the distinction between taxpayers who frivolously fail to comply with Agency requirements, and taxpayers who either raise bona fide questions about the lawfulness of such requirements or innocently fail to comply with them, punishing all equally with often grossly disproportionate penalties,” the institute wrote.The group said the provisions could violate the Charter of Rights and Freedoms protection against unreasonable search and seizure.Bill C-31, A Second Act To Implement Certain Provisions Of The Budget, would allow the CRA to impose a $50-per-day penalty on taxpayers who fail to comply with a document demand, up to a maximum of $25,000.Taxpayers could also face an additional 10% penalty if documents obtained by the CRA through a Federal Court order result in a finding that at least $50,000 is owed.“While the Tax Executives Institute understands and supports efforts to enhance the efficiency and effectiveness of tax audits, we have serious concerns about the audit power proposals,” the group said in its submission, Audit Power Provisions.The institute warned the legislation could allow CRA auditors to “threaten taxpayers into disclosing information the Agency is not able to obtain.”It also argued the size of the proposed penalties could turn what is supposed to be a regulatory enforcement measure into a punishment.“The sanctions regime contains penalties so disproportionate to any legitimate regulatory objective so as to constitute a true penal consequence,” it wrote..The institute provided MPs with examples showing taxpayers could potentially face penalties greater than the amount of tax actually in dispute.One scenario involved a single parent earning $50,000 annually who was asked by the CRA to provide a receipt for $5,000 in child-care expenses representing approximately $750 in federal income tax savings.If the taxpayer failed to respond on time and was issued a Notice of Non-Compliance, then provided the document within 30 days, the proposed legislation could still result in a $1,500 penalty.That would be twice the $750 in federal taxes at issue.“This is the context that informs our concerns with the sanction regime,” the institute wrote.The group also said penalties could be imposed even when documents ultimately demonstrate that a taxpayer owes the government nothing.“Under the penalty regime, if the Agency is successful in Federal Court the taxpayer will be subject to an automatic penalty,” it said, adding the penalty “has no relationship to the information sought in the Agency requirement.”The requested information could ultimately demonstrate a taxpayer had complied fully with obligations under the Income Tax Act, it said.“When provided, it may show the taxpayer has fully complied with its withholding obligations under the Income Tax Act such that no additional tax is due, and yet the taxpayer would still be subject to a penalty,” the institute wrote.Bill C-31 was introduced May 6 and passed second reading in the House of Commons without debate specifically addressing the Notice of Non-Compliance penalties.The legislation is now being studied by the Commons finance committee.
