Proposal - Registration of Tax Preparers Program - A SUBMISSION TO THE CANADA REVENUE AGENCY Chartered Professional Accountants of Canada ...
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Proposal — Registration of Tax Preparers Program A SUBMISSION TO THE CANADA REVENUE AGENCY Chartered Professional Accountants of Canada Certified General Accountants Association of Canada May 2014 TAXATION
May 30, 2014 Shawn O'Toole Director Director’s Office Canada Revenue Agency 112 Kent Street Ottawa, Ontario K1A 0L5 Email: Shawn.O'Toole@cra-arc.gc.ca Re: Proposal: Registration of Tax Preparers Program Mr. O'Toole: In response to Canada Revenue Agency's (CRA) call for comments on its proposed Registration of Tax Preparers program, the attached submission sets out the joint views of Chartered Professional Accountants of Canada and the Certified General Accountants Association of Canada. A French version of this submission will follow shortly. Our organizations and the professional accountants we serve support measures aimed at improving the completeness and accuracy of tax returns and ensuring that taxpayers are well served by qualified tax professionals who are publicly accountable, provided the increased compliance burden is in proportion to the benefits. As the work proceeds on the program’s detailed design, we encourage the CRA to continue to consult and actively involve tax professionals in this initiative. We look forward to working with the CRA and other stakeholders to ensure all parties involved realize the proposed program’s shared common benefits. Regards, Gabe Hayos Carole Presseault Vice-President, Taxation Vice-President, Government and Regulatory Affairs Chartered Professional Accountants of Canada Certified General Accountants Association of Canada Email: ghayos@cpacanada.ca Email: cpresseault@cga-canada.org
i Table of Contents Executive Summary 1 List of recommendations 5 Introduction 9 Key concerns of tax preparers and other stakeholders 10 CRA’s Consultation Questions — Views and Recommendations 13 1.0 Errors found in tax returns 13 2.0 Requirement to register 17 3.0 Personal and entity identification numbers 19 4.0 Publication of registrant lists 20 5.0 Strategic approach, sanctions and redress 22 6.0 CRA services to support tax preparers 24 Conclusion 27 Transparency and trust — addressing perceptions of rising tax preparer responsibilities 27 Appendix A — CPA Canada Stakeholders Forum — Participants 29 Appendix B — Summary of stakeholders’ key concerns 31
1
Executive Summary
In January 2014, the Canada Revenue Agency (CRA) proposed a
program to register tax preparers. The CRA’s goal is to improve the
accuracy and completeness of tax returns by working closely with
tax preparers through the proposed program.
In this submission, Chartered Professional Accountants of Canada
(CPA Canada) and the Certified General Accountants Association
of Canada (CGA–Canada) present our joint recommendations in
response to questions posed in the CRA’s consultation paper.
An overarching theme of our response is that the success of the
proposed program depends on building a foundation of confidence
and trust among preparers and the CRA while keeping the system
as simple as possible in light of its intended objectives.
Errors found in tax returns
In its consultation paper, the CRA asks why errors are found in income
tax returns that are prepared by tax preparers but does not define
what is considered an error. Until “error” has been well defined, the
reasons why errors occur will remain speculative.
An important concern is whether the CRA considers an error to have
occurred where a taxpayer has taken a well-researched, supportable
filing position that differs from the CRA’s position. Differences in inter-
pretation should not be considered as errors on the preparer’s part.
The CRA’s error statistics do not differentiate errors due to incomplete
or inaccurate information provided by the taxpayer to the preparer.
Tax preparers rely on information provided to them. Their professional
obligation does not extend to review or audit of the return, unless2 Proposal — Registration of Tax Preparers Program
otherwise agreed between preparers and their clients. The registration
program should not impose new standards on tax return preparers
beyond those already provided in the current tax law.
Requirement to register
Under the CRA’s proposal, registration would be open to all tax prepar-
ers, without regard to their training or competency. As professional
accountants, we strongly believe that the public interest in the tax sys-
tem depends on a tax preparer’s personal integrity and technical tax
competency. Factors such as codes of personal conduct and education
and training for tax preparation should be a fundamental part of the
registration program.
Further, the consultation paper proposes registration for individuals
who are held accountable for the completeness and accuracy of tax
returns. Where multiple preparers are involved in preparing the same
return, the ultimately responsible preparer is in the best position to
determine an error’s source and take any necessary remedial action.
We support limiting registration to ultimately responsible preparers.
Personal and entity identification numbers
In the interest of simplicity and reducing red tape, we urge the CRA to
harmonize all of its various identification numbers, including Business
Numbers, efile identification numbers or RepID numbers.
Because registration does not in itself imply any pre-qualification,
consumers could be misled regarding the entity’s standards of compe-
tency, experience or conduct. Entity identification numbers could serve
to communicate not only whether the entity is registered but also
whether the entity is a regulated professional accounting firm or
an organization with similar standards.
Publication of registrant list
The publication of a list of registered tax preparers may be beneficial
in helping consumers find an individual to prepare their taxes.
As noted, however, since anyone may be registered, such a list may
give the false impression that registered preparers are “approved” by
CRA when they have neither the personal traits nor the competency
to help the taxpayer.Executive Summary 3
We believe that the CRA has a duty to clearly communicate that
registration does not imply that the preparer has met any eligibility
standards based on competency, experience or conduct. Such com-
munication should emphasize to taxpayers that they remain ultimately
responsible for the completeness and accuracy of their tax returns.
Sanctions and redress
The consultation paper states that the association of a preparer
with non-compliant returns will lead to compliance actions ranging
from benign (educational visits) to punitive (third-party penalties and
deregistration). Whether or not a regulated professional accountant
has failed to take reasonable care and exercise proper due diligence
or has evaded their lawful responsibilities is a matter that requires
the judgment of the profession exercised under provincial regulatory
authority. It would not be acceptable for the registration program
to override the profession’s own standards for reasonable care and
due diligence or its existing disciplinary processes.
For preparers who are not members of a self-regulated profession
or employees of tax preparation businesses with sufficiently rigorous
qualification, training and behavioural standards (as determined by
the CRA), the CRA should have a role in providing and overseeing
acceptable standards of training and quality control and appropriate
disciplinary processes.
To ensure sanctions are systematically, fairly and uniformly applied
across all preparer types, the CRA should establish an independent
committee comprised of stakeholders from government, the tax
preparation industry and members of self-regulating professions.
The committee could also serve in an advisory role to help the
government design and operate the program.
Benefits to preparers
Since tax preparers may assume increased risks and costs as a result
of the program, the CRA should consider service enhancements to
reward low-risk tax preparers and alleviate their compliance burden.
These benefits could include electronic enhancements that ease the
filing burden, resolution of filing deadline and proof of delivery issues,
and faster access to technical advice from the CRA.4 Proposal — Registration of Tax Preparers Program
Conclusion
Realizing the shared common benefits of the program depends on
establishing more transparency and trust. We believe it is important
for the CRA to be transparent about its objectives and assure the tax
preparer community that any tax preparer registration proposal, if
implemented, would not aim to transfer tax enforcement responsibili-
ties to tax preparers.
Further, the program should be developed with an eye to minimizing
the introduction of any additional complexity or red tape to our tax
system. The CRA should avoid taking steps that would complicate
the registration process or heighten the compliance burden.
CPA Canada and CGA-Canada look forward to working with the CRA
and other stakeholders to ensure that taxpayers are well served by
qualified tax professionals who are accountable to the Canadian public.5
List of recommendations
Errors found on tax returns
Recommendation 1.1.1: The CRA should develop a clear and reason-
able definition of “error.” The definition should specifically exclude
instances where the CRA has assessed a taxpayer based on a
reasonable difference in interpretation between the CRA and the
taxpayer, provided the taxpayer’s position is appropriately supported
and documented.
Recommendation 1.1.2: The CRA’s error tracking should aim to
identify and correct systemic errors. A tax preparer error should only
have implications for the tax preparer where the assessed amount
exceeds a de minimis threshold.
Recommendation 1.2.1: The CRA must explicitly acknowledge that
the tax preparer registration program will not increase a tax preparers’
obligations beyond that which is agreed between the taxpayer and the
tax preparer, including the ability for tax preparers to rely on taxpayer
summaries unless the preparer has reason to believe that the informa-
tion is not reliable. The CRA’s error tracking should distinguish errors
that result from incomplete or inaccurate information provided by the
taxpayer to the preparer.
Recommendation 1.3.1: The CRA should provide feedback on errors
according to category of error and preparer type. Separate error
feedback processes should be established for preparers of T1
and T2 returns.6 Proposal — Registration of Tax Preparers Program
Requirement to register
Recommendation 2.1.1: The CRA should collaborate with the tax com-
munity to develop appropriate minimum standards for personal suit-
ability, conduct, education and ongoing training prerequisites for reg-
istration under the program. Regulated professional accountants and
employees/members of organizations with similar standards should
be exempt from these requirements.
Recommendation 2.2.1: Registration should be restricted to only those
individuals who are ultimately responsible for the return. The decision
as to which individual(s) should be registered within a tax preparation
business should be made by the business itself.
Personal and entity identification numbers
Recommendation 3.1.1: The CRA should put a high priority on harmo-
nizing its various tax preparer identification systems.
Recommendation 3.2.1: Entity identification numbers should include
a suffix that indicates whether the entity is a regulated professional
accounting firm or an organization with similar standards, as deter-
mined by the CRA.
Publication of registrant list
Recommendation 4.1.1: The CRA should allow access to the registry
of tax preparers on its website so that taxpayers can make a request
to determine whether or not a specific tax preparer is registered. The
registry should include a protocol for communicating that registra-
tion does not imply that the preparer has met any eligibility standards
based on competency, experience or conduct.
Recommendation 4.1.2: The CRA should launch a broader commu-
nication campaign to inform the public that registration (as currently
proposed) does not entail any sort of training, experience or other
qualifying requirements. These communications should emphasize tax-
payers’ accountability for their tax return’s completeness and accuracy.
Recommendation 4.1.3: The CRA should consider having registered
tax preparers include in any correspondence with their clients a stan-
dard disclaimer stating that registration does not imply qualificationList of recommendations 7
based on competency, experience or conduct. Regulated professional
accountants and members/employees of organizations with similar
standards should be exempt from this requirement.
Sanctions and redress
Recommendation 5.1.1: For tax preparers who are members of a self-
regulated profession and those who are associated with an organiza-
tion with sufficiently rigorous qualification, training and behavioural
standards as determined by the CRA, any sanctions or redress involv-
ing these individuals should be the responsibility of that organization
or self-regulating body. For other preparers, CRA should take responsi-
bility for setting and enforcing such standards and applying sanctions
as needed (subject to appropriate independent oversight to ensure
standards and application of sanctions are comparable — see 5.2).
Recommendation 5.2.1: Tax preparers should be granted the right to
appeal a registration-related decision of the CRA through the courts.
Recommendation 5.2.2: The CRA should establish an independent
oversight body comprised of tax preparers and other stakeholders to
provide direction on detailed program design and oversight of
the program including the application of sanctions.
Benefits to preparers
Recommendation 6.1.1: The CRA should consider implementing the
following services or improvements to ease the compliance process
for tax preparers and the CRA alike:
• Expand tax preparers’ online access to CRA’s T3, T4, T5 and
similar information so tax preparers can efficiently determine
whether the slips provided by their clients match the CRA’s current
information and that no slips are missing, which could greatly
reduce the potential for errors and adjustments.
• Enhance CRA’s online services, for example, by providing faster
efile response rates, allowing efiling of returns for years prior
to 2012, and expediting authorizations requested through the
“Represent a Client” service.
• Enable the electronic submission of all common individual income
tax forms and elections together with T1 personal tax returns.8 Proposal — Registration of Tax Preparers Program
• Investigate a method to allow the optional electronic transmission
of slips and other documentation within the T1 efile system
(i.e., for slips and other documents that would normally be sent
with a paper return), rather than having to deal with CRA informa-
tion requests later.
• Ease the late filing penalty under subsection 163(1) and allow some
form of safe harbour for missing and late-filed slips and for slips
that report only nominal amounts of income.
• Adopt a policy to be sensitive to tax preparers’ work cycle, for
example, by not issuing audit requests for taxpayer information
during the T1 preparation season.
• Devote more resources to CRA auditor training to ensure that
auditors have the needed tools at their disposal to provide well-
informed and reliable information and advice.
• Promote CRA participation in educational initiatives for taxpayers
and preparers, for example, on common filing errors and non-
compliance issues, new tax rules and documentation requirements.
• Allow CRA auditors discretion to use their own judgment on
whether to pursue audit requests resulting from computer-
generated assessments.
• Introduce a dedicated telephone helpline for regulated profes-
sional accountants and members/employees of organizations
with similar standards, staffed by more experienced personnel.
Increasing the number of fax lines during the day and allowing
email and voicemail communications from these preparers
would also be helpful.
• Introduce a program of designated agents, who would serve as
relationship managers between CRA and larger tax preparation
organizations
for purposes of preparer registration and feedback.
• Simplify the initial tax preparer registration process by allowing
tax preparer organizations to register their ultimately responsible
preparers in bulk.
• Institute a pre/post assessment review rating system so that clients
of regulated professional accountants with low error rates experi-
ence a reduced number of pre- or post-assessment reviews.
• Expand information provided through code 2139, which now sim-
ply notifies the preparer, as part of an efiling acknowledgement, that
the return has been selected for pre-assessment review verification;
code 2139 notification could also inform the preparer of the reason
for the file’s selection so the preparer has the ability to take action
before the eventual receipt of an information request.9
Introduction
In January 2014, the Canada Revenue Agency (CRA) released a con-
sultation paper1 that proposes a program to register tax preparers. In
announcing the proposals, the Honourable Kerry-Lynne D. Findlay, P.C.,
Q.C., M.P., Minister of National Revenue, said that the CRA’s goal is to
improve the accuracy and completeness of tax returns by having CRA
work closely with tax preparers through the proposed program.
In this submission, we present our responses to questions posed in
the CRA’s consultation paper. Our recommendations were developed
collaboratively by the Chartered Professional Accountants of Canada
(CPA Canada) and the Certified General Accountants Association of
Canada (CGA–Canada). 2
As the Minister acknowledges in her foreword to the consultation
paper, tax preparers play a crucial role in Canada’s self-assessment
system and in promoting good compliance on the part of Canadian
taxpayers. Similarly, CPA Canada, CGA-Canada and the professional
accountants we serve support measures aimed at improving the com-
pleteness and accuracy of tax returns and ensuring that taxpayers
are well served by qualified tax professionals who are accountable
to the Canadian public, provided the increased compliance burden
is in proportion to the benefits.
Confidence, trust and simplicity
Throughout this submission, our overarching theme is that the success
of the proposed tax preparer registration system depends on building
a foundation of confidence and trust while keeping the system as
simple as possible in light of its intended objectives.
1 Canada Revenue Agency, Proposal — Registration of Tax Preparers Program, January 17, 2014.
2 CPA Canada and CGA-Canada are currently in discussions to unify under the CPA Canada banner.
CPA Canada was officially formed through the unification of the national offices of the Canadian
Institute of Chartered Accountants (CICA) and The Society of Management Accountants of Canada
(CMA Canada) and became operational April 1, 2013.10 Proposal — Registration of Tax Preparers Program
Confidence in the integrity of the system is a critical component of
Canada’s self-assessment system. When tax returns are accurate, com-
plete and filed on time, the confidence that Canadians have in their tax
system improves. The program is intended to improve taxpayer confi-
dence. Achieving this may be possible if the program is well designed
and properly managed as a joint undertaking of the tax preparation
community and the CRA. Tax preparers and the CRA share a common
interest in the benefits that the program hopes to deliver.
Achieving these benefits will require greater trust between the tax
preparer community and the CRA. In order to build this trust, it will
be important for the CRA to ensure the program does not expand tax
preparers’ responsibilities beyond their current role. The CRA should
clearly communicate that taxpayers are and will remain ultimately
responsible for the accuracy and completeness of their tax filings
under Canada’s self-assessment tax system.
We also urge the CRA to design the program with an eye to minimiz-
ing the introduction of any additional compliance costs, complexity
and red tape to the tax system, and to use or adapt existing relevant
processes where possible.
Key concerns of tax preparers
and other stakeholders
Our approach
Our views and recommendations set out in this paper were developed
in consultation with tax preparers and the broader tax and accounting
community through several forums:
• CRA consultation meetings — Members served by CPA Canada and
CGA-Canada and their provincial institutes actively participated in
all of the town hall meetings that were held across Canada in early
2014 as part of the CRA’s consultation process.
• Stakeholder meetings — CPA Canada hosted two informal round-
table forums to engage with a range of stakeholders, discuss
common concerns and develop practical solutions. Participants
included representatives of many of Canada’s leading tax prepara-
tion companies, small and large professional accounting firms,
industry associations and self-regulating bodies. Participating
organizations are listed in Appendix A.Introduction 11
• CPA Canada’s “Conversations about Tax” blog — A February 26,
2014 blog on the proposals on CPA Canada’s website by Gabe
Hayos, Vice President — Tax, garnered a considerable number of
public postings and emails from concerned tax preparers and
others. The blog and readers’ posted responses can be viewed
on CPA Canada’s website.
• CGA-Canada survey — CGA-Canada distributed an online survey
to close to 3,000 public practitioners, including tax preparers, and
received a total of 239 responses. A summary of survey responses
can be viewed on CGA-Canada’s website.
Summary of key concerns
The most widespread and pressing concerns raised by stakeholders
that emerged in the course of our consultations are summarized in
Appendix B. In brief, the top concerns are as follows:
• The proposal would shift the role of tax preparers from
intermediaries to CRA agents.
• Registration could create false credibility, misleading the public
into perceiving all registered tax preparers as qualified, competent
or “CRA-approved.”
• The proposal lacks clarity over how errors are defined and how
responsibility for the errors would be assigned to preparers.
• The registration program would inevitably increase tax preparation
costs and red tape.
• The program may create an underground of unregistered,
unscrupulous tax preparers.
Many of our responses in this submission to questions posed in the
consultation paper aim to help the CRA address these concerns.
Because the proposals in the CRA’s consultation paper are more of
a conceptual description than a detailed plan, we expect that some
concerns are due to an absence of certainty and will likely be resolved
when details of the program are announced.
However, the comments also highlight that the historically adversarial
nature of the relationship between the compliance program branch
and tax preparers may be an obstacle for the program. The level of
practitioner mistrust can be moderated with a program development
plan that is explicitly transparent, considers professional accountants
to be important and trustworthy participants in the self-assessment tax
system, and provides tangible administrative benefits to tax preparers.13
CRA’s Consultation
Questions — Views
and Recommendations
1.0 Errors found in tax returns
Consultation question — “The CRA is interested in feedback on the
reasons why errors are found in income tax returns that are prepared
by tax preparers.”
1.1 Definition of “error”
Determining why errors are found in tax returns first requires a clear
and common understanding of what is meant by “error” in this context.
The CRA’s consultation paper does not define what was considered an
error in determining the error rate. Until “error” has been well defined,
the reasons why errors occur will remain speculative.
Some common errors may arise due to flaws in the tax administrative
system. For example, many errors may result from transposition errors
due to the number of different amounts that appear on T3 slips, many
of which are irrelevant for tax reporting purposes. The CRA should
track and remedy these systemic errors separately, without assigning
responsibility for them to preparers.
Further, the CRA’s consultation paper does not appear to set any
proportionality threshold for distinguishing errors with nominal revenue
impact. In keeping with Canada’s Taxpayer Bill of Rights, taxpayers
have the right to have the costs of compliance taken into account
when administering tax legislation (item 10). Small errors made by14 Proposal — Registration of Tax Preparers Program
many taxpayers may have a significant combined revenue impact,
so it is important to track and correct them where possible. However,
it is not in the interest of the CRA or taxpayers to risk-assess or
follow-up with tax preparers on the basis of errors that have little
economic consequence.
An important concern is whether the CRA considers an error to have
occurred where a taxpayer has taken a well-researched, supportable
filing position that differs from the CRA’s position. If so, this would
raise a number of questions:
• For example, is it an “error” if a CRA auditor reassesses a taxpayer’s
deductible home office expenses based on a difference in view of
the method for allocating personal versus home office expenses
(i.e., proportion of square footage)?
• If such an “error” has been included in the CRA’s statistics and the
taxpayer’s position ultimately prevails, is there a means for the
CRA’s tracking mechanism to reflect that no error has occurred?
• Is there a means to compensate for errors caused in the
CRA’s assessment process, for example, due to incorrect
CRA assessments?
Another contributing factor to the error rate is the rising pressure on
preparers due to the increasingly compressed time period for gather-
ing taxpayer information and preparing and filing tax returns, particu-
larly T1 returns. As we have submitted to the CRA on previous occa-
sions, the CRA could reduce the potential for errors by introducing
staggered reporting and filing deadlines for information slips and tax
returns. CPA Canada’s position paper on this topic can be viewed
on CPA Canada’s website.
Finally, we note that the consultation paper attributes the majority of
CRA tax return adjustments to recurring errors due to “a lack of knowl-
edge or inattention.”3
Professional accountants in the tax preparation business have passed
rigorous examination requirements, met the profession’s requirements
for practical experience and are regulated through the provincial
institutes. The processes governing tax return preparation in profes-
sional accounting firms and established tax preparation businesses
are subject to varying levels of internal controls designed to minimize
the possibility of errors in returns. Further, CPA Canada is currently
developing best practices guidance for tax for use by all its members
3 CRA, Proposal — Registration of Tax Preparers Program, at page 5.CRA’s Consultation Questions — Views and Recommendations 15
to ensure a consistent standard is established. Given this emphasis on
quality control, it seems unlikely that the significant error rate in returns
with which a professional accountant or tax preparation business may
be associated can generally be attributed to “a lack of knowledge or
inattention.”
Recommendation 1.1.1: The CRA should develop a clear and reason-
able definition of “error.” The definition should specifically exclude
instances where the CRA has assessed a taxpayer based on a reason-
able difference in interpretation between the CRA and the taxpayer,
provided the taxpayer’s position is appropriately supported and
documented.
Recommendation 1.1.2: The CRA’s error tracking should aim to iden-
tify and correct systemic errors. A tax preparer error should only have
implications for the tax preparer where the assessed amount exceeds
a de minimis threshold.
1.2 Taxpayer-provided information and obligations
of tax preparers
The CRA’s error statistics do not differentiate errors due to incomplete
or inaccurate information provided by the taxpayer to the preparer. In
designing the tax preparer registration program, it is important to bear
in mind that it is the taxpayer, and not the preparer, who is responsible
for the completeness and accuracy of their tax returns under Canada’s
self-assessment system.
It is common practice for tax preparers to prepare returns on the basis
of taxpayer-provided summaries. In many cases, the taxpayer signs an
engagement letter defining the scope of the engagement, delineat-
ing the respective responsibilities of the taxpayer and preparer, and
acknowledging the taxpayer’s ultimate responsibility for return’s
completeness and accuracy. Often, the tax preparer’s sole responsi-
bility is to assemble the information provided for the return, and no
assurance is expressed, implied or expected for the work that is
done to prepare the return.
The consultation paper states that the registration program will “estab-
lish the extent to which a particular tax preparer or tax preparation
business is associated with compliant or non-compliant income tax
returns.” A tax preparer’s association with a non-compliant return or
errors should not presume accountability for those returns because16 Proposal — Registration of Tax Preparers Program
the tax preparer has relied on information provided to them and
because their professional obligation does not extend to reviewing
or auditing the return.
Section 163.2 of the Income Tax Act already imposes a culpable con-
duct standard on tax preparers regarding false statements in the tax
returns they prepare. As the CRA’s consultation paper observes, these
sanctions “apply to those persons who counsel and assist others in
making false statements when they file their returns or who are wilfully
blind to obvious ‘errors’ when preparing, filing or assisting another per-
son in filing a return. The sanctions are not intended to apply to those
persons who make an honest mistake or oversight.”4
The registration program should not impose new standards on tax
return preparers beyond those already provided in section 163.2.
In particular, the CRA should recognize that tax preparers rely on infor-
mation in taxpayer-provided summaries in good faith. Taxpayers should
have the option of summarizing extensive amounts of basic informa-
tion at their discretion to reduce their compliance costs. As long as the
preparer has no reason to believe otherwise, the tax preparer should
accept that the information provided is complete and correct. It is not
the tax preparer’s role to review or audit that information. Further, con-
ducting such verification would add considerable time and expense to
the tax return preparation process, and the taxpayer would ultimately
bear these costs.
Recommendation 1.2.1: The CRA must explicitly acknowledge that the
tax preparer registration program will not increase a tax preparers’
obligations beyond that which is agreed between the taxpayer and the
tax preparer, including the ability for tax preparers to rely on taxpayer
summaries unless the preparer has reason to believe that the informa-
tion is not reliable. The CRA’s error tracking should distinguish errors
that result from incomplete or inaccurate information provided by the
taxpayer to the preparer.
1.3 Distinguishing tax preparer types and categories of errors
The CRA’s statistics do not differentiate error rates among different tax
preparer types — taxpayers themselves, professional accountants, tax
preparation businesses and others. As noted, professional accountants
4 CRA, Proposal — Registration of Tax Preparers Program, at page 8.CRA’s Consultation Questions — Views and Recommendations 17
in the tax preparation business are subject to extensive training, prac-
tical experience and regulation. Similarly, professional accounting
firms and tax preparation businesses generally have robust training
programs, risk management processes, quality control standards and
monitoring mechanisms. On the other hand, no such qualification and
quality control standards apply to preparers who are not self-regulated
professionals or employees of tax preparation businesses.
Given these differences, it follows that differentiating errors both by
type of error (e.g., line item on return) and by type of preparer would
give preparers much more meaningful information against which to
benchmark their own performance. The CRA and the tax preparation
community should agree on a list of defined errors so that a mutually
acceptable baseline error rate can be created. Errors catalogued by
the registration program should be tallied by preparer and error type
so that comparative analysis can be conducted and tax preparers can
review their own performances.
Further, the proposal currently does not take into account the signifi-
cant differences between T1 and T2 income tax returns in terms of the
nature of the engagement, complexity of returns, required technical
skills and training, types of errors and potential causes. Due to these
differences, the error tracking and feedback process for T1s should
be distinct from the process for T2s.
Recommendation 1.3.1: The CRA should provide feedback on errors
according to category of error and preparer type. Separate error
feedback processes should be established for preparers of T1 and
T2 returns.
2.0 Requirement to register
CRA consultation question — “The CRA is interested in feedback on
the registration process, who would be required to be registered and
the challenges this may present for the tax preparation industry.”
2.1 Prerequisite standards for registration
Under the CRA’s proposal, registration would be open to all tax pre-
parers, without regard to their training or competency. In contrast,
tax preparer registration programs operated by other tax authorities,
such as the Australian Tax Office, require tax preparers to meet certain18 Proposal — Registration of Tax Preparers Program
standards for educational achievement, conduct and personal suitabil-
ity (e.g., lack of criminal record, up-to-date tax filings). Tax preparers
must meet these standards because these other tax authorities
have concluded that such standards contribute to the quality of
the tax return.
As professional accountants, we strongly believe that the public
interest in the tax system depends on a tax preparer’s personal integ-
rity and technical tax competency. Factors such as codes of personal
conduct and education and training for tax preparation are fundamen-
tal to a complete and accurate return and should be a part of
the registration program.
As we discuss in section 4.1, it would not be acceptable for the regis-
tration program to create and override the profession’s own standards
for reasonable care and due diligence or to replace or override its
disciplinary processes under self-regulation.
We recognize that implementing minimum standards for personal suit-
ability, conduct, education and ongoing training at the outset of the
program would be complex. Thus, appropriate standards should be
developed in collaboration with the tax community.
Recommendation 2.1.1: The CRA should collaborate with the tax com-
munity to develop appropriate minimum standards for personal suit-
ability, conduct, education and ongoing training prerequisites for
registration under the program. Regulated professional accountants
and members/employees of organizations with similar standards
should be exempt from these requirements.
2.2 Registration of ultimately responsible preparer
The consultation paper proposes registration for individuals who are
held accountable for the completeness and accuracy of tax returns.
Excluded individuals include volunteers, individuals preparing a return
for their employer, individuals not held accountable by their employers
for accuracy and completeness, and individuals providing mechanical
assistance in assembling the return.
We support limiting registration to ultimately responsible preparers.
Where multiple preparers are involved in preparing the same return,
the ultimately responsible preparer is accountable for any errors that
may occur. The ultimately responsible preparer is in the best position
to determine an error’s source and take any necessary remedial action.CRA’s Consultation Questions — Views and Recommendations 19
Further, professional accounting firms offering tax preparation services
have established their own internal controls over the process and
instituted a variety of checks and balances to ensure accuracy and
completeness. The nature of these controls depends on the size
of the firm and the preferences of the firm’s leadership.
The requirement to register should respect these preferences. There-
fore, partners or senior management of the firm should decide who
should be registered, provided the entity has at least one registrant
individual. If a firm chooses to limit the number of registrant tax pre-
parers, its internal control processes should enable the firm to identify
problem preparers (if any) when the CRA makes comparative informa-
tion available on the firm’s error rate. The firm is properly responsible
for disciplining its own employees or partners, and the registration
program should respect the tax governance processes of the firm.
Further, allowing organizations to determine who and how many
preparers to register could relieve some of the CRA’s administrative
burden by eliminating registration requirements for a large number
of employed preparers that are accountable to their employers but
not ultimately responsible for the tax return itself.
Recommendation 2.2.1: Registration should be restricted to only those
individuals who are ultimately responsible for the return. The decision
as to which individual(s) should be registered within a tax preparation
business should be made by the business itself.
3.0 Personal and entity identification numbers
CRA consultation question — “The CRA is interested in feedback
on the need for both a personal and entity identification number
(PIN; EIN), and the burden that may represent for the tax
preparation industry.”
3.1 Red tape, duplication and overlap
The program will increase red tape to the extent that tax preparer
identification numbers do not correspond to Business Numbers, efile
identification numbers or RepID numbers under the “Represent a
Client” program.
We welcome the CRA’s commitment to examining the possibility of
consolidating other registration numbers and registration programs
into a single program and number. We recognize that the CRA faces20 Proposal — Registration of Tax Preparers Program
considerable practical challenges in consolidating these various sys-
tems. Nevertheless, in the interest of reducing unneeded duplication
and overlap, the CRA should work to harmonize its various identifica-
tion systems in the near term.
Recommendation 3.1.1: The CRA should put a high priority on harmo-
nizing its various tax preparer identification systems.
3.2 Single identification number — individual and entity
Under the proposal, the registration program requires a PIN and an
EIN. We accept that these identifying numbers are essential to the pro-
gram and do not envisage based on the information provided to date
that this will put a significant burden on the tax preparing firms.
However, as discussed in 4.1, registration does not in itself imply any
qualification or eligibility standards, which may be misleading for
consumers. EINs could serve to convey not only whether the entity is
registered but also information about the entity’s standards of compe-
tency, experience or conduct. In particular, EINs should communicate
whether or not the entity is a regulated professional accounting firm
or an organization with similar standards.
Recommendation 3.2.1: Entity identification numbers should include
a suffix that indicates whether the entity is a regulated professional
accounting firm or an organization with similar standards, as deter-
mined by the CRA.
4.0 Publication of registrant lists
Consultation question — “The CRA is interested in feedback on the
publication of a list of registered tax preparers.”
4.1 Publication not in public interest
The publication of a list of registered tax preparers may be beneficial
in directing those seeking help in preparing their taxes to those who
are registered. Again, however, the proposal to accept all individuals
who request to register without regard to their qualifications is cause
for concern. The proposed program is unlike programs in other tax
jurisdictions, which generally require registered preparers to meet
personal suitability, personal conduct and training/education standards.CRA’s Consultation Questions — Views and Recommendations 21 The publication of the list may direct individuals to registered tax preparers who appear to be “approved” by the CRA when in fact they have neither the personal traits nor the competency to help the tax- payer. We recognize the need for the public to have access to infor- mation about whether a particular individual is registered. Consumers need to know at the start of the engagement process whether their preparer is registered. We believe such access should only be provided on the basis of a specific request regarding a particular tax preparer made through an online registry. Further, in light of the lack of qualification standards, we believe that the CRA has a duty to clearly communicate that registration does not imply that the preparer has met any eligibility standards based on competency, experience or conduct. Such communication should emphasize to taxpayers that they remain ultimately responsible for the completeness and accuracy of their tax returns. The CRA could also require registered tax preparers to include in any correspondence with their clients a standard disclaimer to the effect that registration is not subject to any qualification requirements. Professional accountants, who are subject to standards for compe- tency, experience or conduct under self-regulation, and members/ employees of organizations with similar standards should be exempt from this requirement. Recommendation 4.1.1: The CRA should allow access to the registry of tax preparers on its website so that taxpayers can make a request to determine whether or not a specific tax preparer is registered. The registry should include a protocol for communicating that registra- tion does not imply that the preparer has met any eligibility standards based on competency, experience or conduct. Recommendation 4.1.2: The CRA should launch a broader commu- nication campaign to inform the public that registration (as currently proposed) does not entail any sort of training, experience or other qualifying requirements. These communications should emphasize tax- payers’ accountability for their tax return’s completeness and accuracy. Recommendation 4.1.3: The CRA should consider having registered tax preparers include in any correspondence with their clients a stan- dard disclaimer stating that registration does not imply qualification based on competency, experience or conduct. Regulated professional accountants and members/employees of organizations with similar standards should be exempt from this requirement.
22 Proposal — Registration of Tax Preparers Program
5.0 Strategic approach, sanctions and redress
Consultation question — “The CRA is interested in feedback on
(i) the strategic compliance approach; (ii) sanctions; and (iii) the
redress process.”
5.1 Sanctions for self-regulated vs. unregulated preparers
The strategic compliance approach focuses on the tax preparer. The
consultation paper states that the association of a preparer with non-
compliant returns will lead to compliance actions with the preparer that
are intended to reduce the rate of non-compliance. The compliance
actions range from benign (educational visits) to punitive (third-party
penalties and deregistration), depending on the egregiousness
of the situation. According to the consultation paper, such sanctions
are to be considered when a tax preparer has “either failed to take
reasonable care and exercise proper due diligence or was deliberately
non-compliant…[or]…when a tax preparer prepares a return for a fee
but has the taxpayer, or another tax preparer, file the return in an
attempt to avoid registration.”5
Whether or not a regulated professional accountant has failed to
take reasonable care and exercise proper due diligence or is evading
their lawful responsibilities is a matter that requires the judgement of
the profession exercised under the authority of the regulatory power
granted by the province. All provincial and territorial institutes have
judged the conduct and competence of their members for many years
in well-established, transparent processes using standards that are well
known to all members. Further, self-regulating provincial CGA and
CPA accounting bodies already sanction members who have not met
the standards of the profession. Protection of the public interest is a
foremost concern for the profession.
It would not be acceptable for the registration program to create and
override the profession’s own standards for reasonable care and due
diligence or to replace or override the disciplinary processes that allow
the profession to regulate itself under the authority of the province.
Further, duplicating these mechanisms would be complex and costly
for the CRA with no added benefit.
5 CRA, Proposal — Registration of Tax Preparers Program, at page 8.CRA’s Consultation Questions — Views and Recommendations 23
We also recognize the many unregulated tax preparation businesses
have in place rigorous training, quality control and risk management
processes, and duplication should be avoided where such processes
are of a standard acceptable to the CRA.
However, there is currently no mechanism for ensuring adequate train-
ing and risk management processes for tax preparers who are not
members of a self-regulated profession or employees of tax prepa-
ration businesses. In the absence of formal standards for these tax
preparers, the CRA should have a role in providing and overseeing
acceptable standards of training and quality control for them. Further,
as we discuss in 5.2 below, the redress processes and sanctions must
be applied fairly and uniformly and be perceived as such across all
tax preparer types.
Recommendation 5.1.1: For tax preparers who are members of a self-
regulated profession and those who are associated with an organiza-
tion with sufficiently rigorous qualification, training and behavioural
standards as determined by the CRA, any sanctions or redress involv-
ing these individuals should be the responsibility of that organization
or self-regulating body. For other preparers, the CRA should take
responsibility for setting and enforcing such standards and applying
sanctions as needed (subject to appropriate independent oversight to
ensure standards and application of sanctions are comparable — see 5.2).
5.2 Independent oversight
The tax preparer registration proposals are silent on how the program
would ensure that sanctions are applied fairly across all types of
registrant preparer groups (professionals, employees of tax prepara-
tion businesses and others). Further, the proposals indicate that a tax
preparer’s rights to appeal a registration-related decision of the CRA
would be through either the courts or through a judicial review of
whether the CRA followed its own policies in making that decision.
Under Canada’s Taxpayer Bill of Rights, taxpayers have the right to
have the law applied consistently (item 8). Taxpayers also have the
right to a formal review and subsequent appeal of the CRA’s decisions
(item 4).
Without independent oversight in the adjudication process, there are
risks that the sanctions will not be systematically, fairly and uniformly
applied across Canada and that processes will not be implemented to
ensure fairness and uniform application. Limiting a tax preparer’s rights24 Proposal — Registration of Tax Preparers Program
to appeal a decision under the program to a judicial review process
would put inordinate power in the CRA’s hands, especially given the
potential impact of sanctions such as deregistration on an individual’s
reputation and livelihood.
Further, as discussed in 5.1, Canadian tax preparers are subject to a
spectrum of different education, quality control and sanctions. It will
be a considerable challenge to avoid duplication while ensuring
consistency under the program for all preparers, from self-regulated
professionals to unregulated preparers who are not employees of
tax preparation businesses.
Oversight could be provided through an independent committee com-
prised of stakeholders from government, the tax preparation industry
and members of self-regulating professions. The committee could
ensure that any sanctions are applied consistently and fairly, whether
by an independent body or the CRA.
The committee could also serve in an advisory role to help the gov-
ernment ensure that the program is designed and operated in ways
that meet the needs of taxpayers, the CRA and the tax preparer com-
munity. As a result, it may be advantageous for the CRA to establish
such an oversight body as part of its next steps in the consultation and
design of the program.
Recommendation 5.2.1: Tax preparers should be granted the right to
appeal a registration-related decision of the CRA through the courts.
Recommendation 5.2.2: The CRA should establish an independent
oversight body comprised of tax preparers and other stakeholders
to provide direction on detailed program design and oversight of
the program including the application of sanctions.
6.0 CRA services to support tax preparers
Consultation question — “The CRA is interested in feedback on the
types of services that would be beneficial to individual tax preparers
and tax preparation businesses, which would enhance the overall
completeness and accuracy of the tax returns.”
Consultation question — “The CRA is interested in feedback on the
compliance burden for individual tax preparers and tax preparation
businesses associated with the proposed registration program.”CRA’s Consultation Questions — Views and Recommendations 25
6.1 Benefits for preparers
Tax preparers may assume increased risks and costs as a result of the
program. While any additional risks and costs should be avoided where
possible, the program also should incorporate benefits to reward low-
risk tax preparers and alleviate the compliance burden.
In the course of our consultations, stakeholders identified a number
of service enhancements that would help make the tax preparation
business more productive and easier to manage during the busy
tax season in addition to enhancing the completeness and accuracy
of the return.
These benefits, listed in our recommendation below, could include
electronic enhancements that ease the filing burden, resolution of filing
deadline and proof of delivery issues, and faster access to technical
advice from the CRA. See also our comments in 1.1 on the benefits
that would arise through the CRA’s tracking and correction of
systemic errors.
Recommendation 6.1.1: The CRA should consider implementing the
following services or improvements to ease the compliance process
for tax preparers and the CRA alike:
• Expand tax preparers’ online access to the CRA’s T3, T4, T5 and
similar information so tax preparers can efficiently determine
whether the slips provided by their clients match the CRA’s current
information and that no slips are missing, which could greatly reduce
the potential for errors and adjustments.
• Enhance CRA’s online services, for example, by providing faster
efile response rates, allowing efiling of returns for years prior
to 2012, and expediting authorizations requested through the
“Represent a Client” service.
• Enable the electronic submission of all common individual income
tax forms and elections together with T1 personal tax returns.
• Investigate a method to allow the optional electronic transmission
of slips and other documentation within the T1 efile system
(i.e., for slips and other documents that would normally be sent with
a paper return), rather than having to deal with CRA information
requests later.
• Ease the late filing penalty under subsection 163(1) and allow some
form of safe harbour for missing and late-filed slips and slips that
report only nominal amounts of income.26 Proposal — Registration of Tax Preparers Program
• Adopt a policy to be sensitive to tax preparers’ work cycle, for
example, by not issuing audit requests for taxpayer information
during the T1 preparation season.
• Devote more resources to CRA auditor training to ensure that audi-
tors have the needed tools at their disposal to provide well-informed
and reliable information and advice.
• Promote CRA participation in educational initiatives for taxpayers
and preparers, for example, on common filing errors and non-com-
pliance issues, new tax rules and documentation requirements.
• Allow CRA auditors discretion to use their own judgment on
whether to pursue audit requests resulting from computer-
generated assessments.
• Introduce a dedicated telephone helpline for regulated profes-
sional accountants and members/employees of organizations
with similar standards, staffed by more experienced personnel.
Increasing the number of fax lines during the day and allowing
email and voicemail communications from these preparers
• Introduce a program of dedicated agents, who would serve as
relationship managers between the CRA and larger tax preparation
organizations for purposes of preparer registration and feedback.
• Simplify the initial tax preparer registration process by allowing
tax preparer organizations to register their ultimately responsible
preparers in bulk.
• Institute a pre/post assessment review rating system so that clients
of regulated professional accountants with low error rates experi-
ence a reduced number of pre- or post-assessment reviews.
• Expand information provided through code 2139, which now
simply notifies the preparer, as part of an efiling acknowledgement,
that the return has been selected for pre-assessment review verifi-
cation; code 2139 notification could also inform the preparer of the
reason for the file’s selection so the preparer has the ability to take
action before the eventual receipt of an information request.27
Conclusion
Transparency and trust — addressing
perceptions of rising tax preparer
responsibilities
In conclusion, we wish to emphasize that realizing the shared common
benefits of the program depends on establishing more transparency
and trust. In this regard, we urge the CRA to address the widely
shared perception that the CRA’s motive in introducing tax preparer
registration is to shift tax enforcement activities from its auditors
to tax preparers.
This perception may not be unfounded. In the 2012 federal budget,
the government states that, in the context of cost saving, the CRA
will “leverage the expertise of tax preparers to improve its operations.”6
There also is a perceived risk that, as the program evolves, tax prepar-
ers will be asked to take on even more responsibilities, especially in
light of the CRA’s budgetary constraints.
As noted earlier, we believe it is important for the CRA to be transpar-
ent about its objectives and assure the tax preparer community that
any tax preparer registration proposal, if implemented, would not aim
to transfer tax enforcement responsibilities to tax preparers.
Further, the program should be developed with an eye to minimiz-
ing the introduction of any additional complexity or red tape to our
tax system. In developing the detailed program design, the CRA
6 Department of Finance Canada, Economic Action Plan 2012: Jobs Growth and Long-term Prosperity,
March 29, 2012, p 262.You can also read
