Taxation law

Objection settlement practices of the Québec Revenue Agency reviewed by the Québec Ombudsman

Mar 18th, 2020

By Frédéric Delisle

In December 2015, the Québec Ombudsman (link here, French version available here) published its annual report, a section of which dealt with various practices of the Québec Revenue Agency (“QRA”). The relevant section of the Québec Ombudsman 2015 annual report is available here (French version available here).

As per this section of the Québec Ombudsman 2015 annual report, certain QRA practices were harshly called into question, such that the publication of said report gave rise to an “action plan” published by the QRA in response to same. This “action plan”, only available in French, can be consulted here.

The most notable aspect of this “action plan” was the creation of the Charter of Taxpayers’ and Mandataries’ Rights, available here (French version available here).

Following the publication of the Québec Ombudsman 2015 annual report, the publication of the QRA’s “action plan” and the coming into effect of the Charter, it has been the undersigned’s experience that certain QRA practices that existed prior were indeed modified, and that an increased willingness to listen and cooperate so as to resolve cases in a more fair and objective manner resulted. The undersigned’s experience is shared by many other professionals dealing with the QRA, professionals whose prior perception was, rightly or wrongly, much less favorable.

On February 27, 2020, the Québec Ombudsman published a special report dealing with settlement agreements reached between Québec taxpayers and the QRA at the objection level. An English “executive summary” of the report is available here, while the full version of the report, in French, is available here.

This report deals with the Ombudsman’s review of the various policies, guidelines and considerations used by the QRA in order to determine if a settlement agreement (in French a “transaction”) should be reached at the objection level, the whole in application of sections 2631 and following of the Québec Civil Code. This report does not deal with settlement agreements reached between Québec taxpayers and the QRA either at the audit or at the judicial level.

An analysis of this report and the conclusions thereof are, unfortunately, troubling.

In year 2000, the QRA published a specific directive called CMO-2976 Transactions conclues avec les contribuables et les mandataires en vertu des articles 2631 à 2637 du Code civil du Québec, which was updated in 2009, and which is available, in French, here. This directive, which is now under review following the publication of the Quebec Ombudsman’s report, specifically provided, at section 4.2.2 that:

Lorsque les faits présents au dossier ne pourraient vraisemblablement pas, selon l'évaluation qu'en fait le fonctionnaire, soutenir la position du Ministère dans l'éventualité d'une contestation devant les tribunaux et que le Ministère ne peut, par ailleurs, constituer une preuve adéquate, le Ministère peut alors proposer ou accepter une offre de transaction du dossier. Cette offre doit être raisonnable eu égard aux circonstances du cas en l'espèce.

Il est possible que le Ministère puisse être en mesure de constituer la preuve nécessaire pour le traitement du dossier, mais que le travail exigé pour ce faire soit hors de proportion par rapport aux bénéfices qu'il peut en retirer. Dans de telles circonstances, le Ministère peut également procéder par voie de transaction.

Accordingly, as per this directive, it was the QRA’s position that where there was a lack of sufficient facts to support the position adopted by the QRA, a settlement could be envisioned. Furthermore, a settlement could also be proposed to a taxpayer when the QRA did not have the necessary proof to support its position and when obtaining same would be overly costly in relation to the benefits that would result to the QRA.

The Québec Ombudsman, rightfully, denounced such an approach as contrary to the very purpose of the QRA’s role and mission, which is to tax that which is fair and appropriate, nothing less but nothing more. As indicated by the Québec Ombudsman, if a position adopted by the QRA is unsupported or untenable, then the reassessments resulting therefrom should be fully cancelled, rather than the subject of haggling. The undersigned would go even further and suggest that one can question the validity of a “transaction” reached under such an approach: a “transaction” necessarily involves reciprocal concessions by both parties. It is questionable whether one is really making a concession when one is giving up part of a claim to something that one is self-evidently not entitled to.

The Quebec Ombudsman’s report also outlines other issues in relation to settlement agreements reached with the QRA at the objection level, notably that:

  • informed consent to the settlement is not systematically addressed or examined;
  • all relevant consequences, resulting directly or indirectly from the settlement, or that may follow the settlement, are not systematically addressed or examined;
  • there does not seem to be uniform and proper training for the QRA agents that are enabled to conclude such settlement agreements.

As a consequence of its findings, the Quebec Ombudsman outlined eight recommendations that it requires the QRA to follow-up upon, including the preparation of a new action plan and a schedule to put same into place. Said recommendations are to be complied with before April 30, 2020. In that vein, directive CMO-2976 is already being revised. One hopes that such recommendations will result in a “change of culture”, as did the publication of the Quebec Ombudsman’s 2015 annual report.

In closing, as per the above, the Quebec Ombudsman’s report, as well as the section of the Quebec Ombudsman’s 2015 annual report dealing with the QRA, it is clear that Québec taxpayers who are navigating the objection process face difficulties in ensuring that their rights are fully protected and that any settlement reached is fair and impartial. Accordingly, the use of a seasoned tax professional is clearly something that all Québec taxpayers should consider. If you are presently in need of advice in your dealings with the QRA, please do not hesitate to contact the undersigned.