North·In Depth

Federal minister to look at 'abnormal' number of tax reviews in Northern Canada

National Revenue Minister Diane Lebouthillier has committed to taking a closer look at the issue of tax reviews in Canada's northern territories, and she promised statistics to show how widespread the problem may be.

'It's not normal to reassess someone 10 times in 10 years in a remote region,' minister says

National Revenue Minister Diane Lebouthillier looks out over Iqaluit during her visit in April. In an interview with CBC News, she committed to take a closer look at the issue around northerners being overly reassessed, and to provide statistics on how widespread the problem may be. (Jeremy Ghio/Office of the Minister of National Revenue)

National Revenue Minister Diane Lebouthillier has committed to taking a closer look at the issue of tax reviews in Canada's northern territories, and she promised statistics to show how widespread the problem may be.

Lebouthillier was in Iqaluit earlier in April, meeting with business and territorial leaders. Speaking with the Iqaluit Chamber of Commerce, she found the issue around the number of Nunavummiut who are reassessed — commonly, and often inaccurately, referred to as "audited" — every year was a prominent topic.

"Everyone who was there seemed to have been reassessed multiple times. One person told me they were reassessed 10 times in the last 10 years," Lebouthillier said in French in an interview with CBC News.

"That's not normal. It's normal for the agency to do reassessments, but it's not normal to reassess someone 10 times in 10 years in a remote region. So there's work that's going to be done on that."

Lebouthillier's comment was a change of tone from what she, and officials with the Canada Revenue Agency, have maintained when previously questioned on the issue.

Nunavut's MP Hunter Tootoo raised it in the House of Commons last year, asking Lebouthillier whether she'd look into the process.

Lebouthillier sidestepped the question at the time, saying every taxpayer is treated fairly. But she recently said things changed when she heard people in Nunavut telling her it's an active problem.

"When it was personally confirmed, you get a real sense of what's happening," she said. "We have work to do, and we're going to do it better."

How widespread is the problem?

While there's anecdotal evidence of northerners being overly reassessed to prove their claim for the northern residents deduction, it's hard to actually put a number on the problem.

Lester Landau, one of the largest accounting firms in Nunavut — currently handling about 10 per cent of all income tax returns in the territory — at one point tracked how many of its clients were being reassessed. The company said from 2005 to 2007, 15 to 20 per cent of its clients were being reassessed, about five times the national average.

In a previous statement to CBC News in a 2016 story on the issue, a Canada Revenue Agency spokesperson said the agency doesn't track how many reassessments come from the North.

But that's not accurate.

Since 2016, CBC News has filed three separate Access to Information requests with the CRA trying to get some hard numbers on the issue.

Those revealed that not only does the CRA have information on how many returns are reassessed from each territory, it also keeps track of how many tax returns were reassessed specifically asking the taxpayer to support their claim for the northern residents deduction.

The Canada Revenue Agency headquarters in Ottawa is shown in a 2011 file photo. Since 2016, CBC News in Nunavut has placed three separate Access to Information requests to the CRA to find out more on how many northerners are asked to prove their residency every year. But that information has been hard to obtain. (Sean Kilpatrick/The Canadian Press)

While the CRA released information on the number of reassessments in the territories, it would not go as far into revealing how many tax returns were reassessed specifically for the northern residents deduction, citing a section of the federal Access to Information Act which allows information to be redacted if it would "be injurious to the enforcement of any law of Canada or a province or the conduct of lawful investigations."

Upon further explanation from the CRA, it said, in essence, it didn't want to tip tax cheats to how often it may, or may not, reassess someone for a particular tax deduction.

But CBC argued that if someone is filing from an eligible area and claiming to live there year-round, then it's reasonable to assume a person will claim the northern residents deduction. It was also important to distinguish between taxpayers who live in the North for the entire year, and those who may not — such as temporary workers who file taxes from one of the territories.

When told of the struggle to access this particular information, in order to understand the depth of the problem in the territories, Lebouthillier told CBC News in her interview: "Listen, I can tell you I'll get those statistics, and I'll commit to giving them to you."

How often? And why?

Again, numbers are hard to come by specifically for people who live in Nunavut the entire year — and their whole lives — and are still being asked to prove they live in the territory, which is one of the most common gripes among Nunavut taxpayers.

CBC was able to collect information on the number of reassessed returns in each territory — for any reason, not just the northern residents deduction — as well as nationally, for 2014 and 2015. CBC was also able to collect information on the total number of returns filed in each of these jurisdictions for 2016.

Assuming these numbers are similar from year to year, the reassessment rate in this period appears to be between 12 to 15 per cent in Nunavut, 11 to 14 per cent in the Yukon, and 13 to 16 per cent in the Northwest Territories.

During that same period, the national reassessment rate is around 4.6 per cent.​

Nunavut Finance Minister David Akeeagok met with Lebouthillier during her visit, and they talked about the reassessment issue.

Akeeagok said from what he understands, the CRA uses an algorithm to trigger reassessments.

"She informed me of their computer system. It's very advanced. Once you start adding the salary dollars, the northern residency, and a few others, then it triggers an automatic reassessment," Akeeagok said.

"And that's one of the challenges that she'll have is with her computer software system, where it shows when to trigger an assessment."

Nunavut Finance Minister David Akeeagok, left, shows National Revenue Minister Diane Lebouthillier his hometown of Grise Fiord on a map. The two spoke about the issue of the high number of Nunavummiut whose income tax returns are reassessed each year. (Jeremy Ghio/Office of the Minister of National Revenue)

What's being done?

Since 2016, both the CRA and the agency's ombudsman, Sherra Profit, have toured the territories to gather feedback from northerners.

During Profit's tour, she too heard northerners complain of being frequently reassessed. And though her office received no official complaints, it was enough to begin preliminary research as part of a systemic examination of the issue.

But as the CRA was also touring the territorial capitals, culminating in a "Serving You Better report" released last fall, Profit said her office opted to wait and see what work the CRA itself would do on the issue.

"We're satisfied with what's been done so far, which is why we haven't opened up a systemic examination at this point," Profit told CBC News.

"But we will certainly continue to monitor it and keep an eye on what the CRA actually does to meet the action items that they've raised, and meet the issues and problems that we've heard about the northern residents deduction."

Federal taxpayers' ombudsman Sherra Profit says her office is satisfied with how the Canada Revenue Agency has addressed the issue of northerners' income taxes returns being overly reassessed. (Alyssa Mosher/CBC)

The action items, listed on the CRA's website with a status tracker, include providing more information on the northern residents deduction, and a checklist for claiming it.

"One of the things we've been told by the CRA is the northern residents deduction is one of the things that has a high rate of errors. Which, to me, obviously speaks to the fact that it's confusing," Profit said.

"It's difficult for taxpayers to figure out what information they need to provide and how to get that information."

About the Author

Nick Murray is a CBC reporter, based in Iqaluit since 2015. He got his start with CBC in Fredericton after graduating from St. Thomas University's journalism program. He's also worked two Olympic Games as a senior writer with CBC Sports. You can follow Nick on Twitter at @NickMurray91.

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