Section 91(3) of the Constitution Act, 1867, provides the ability for the federal government to tax, and section 92(2) provides that ability for the provinces to tax. It was not until 1917 that the federal government started to apply an income tax, which was imposed to help finance World War I. At the time of the war, more than 90 percent of tax revenues were from indirect taxes; a number which has decreased sharply over the years. Today, income tax provides the greatest component of taxes collected by the government, and it has never disappeared from the Canadian landscape.

      The Canada Revenue Agency (CRA) is a federal agency responsible for administering the tax laws of Canada such as the Income Tax Act and the Excise Tax Act, as well as the laws of many provinces and Aboriginal governments.

      Formed pursuant to the Canada Revenue Agency Act, the CRA is the backbone of taxation in Canada, without which nobody would file returns or pay taxes and the entire country would grind to a halt. Our airports and borders would stop operating. Our soldiers wouldn’t be paid to protect our country, and the police wouldn’t be paid to patrol our cities. In short, the CRA is a necessity, and in order to achieve its mandate of administering the taxation system, it has been given very broad powers to get the job done.

      Besides the administration of the domestic tax system, the CRA is the body that is involved with the administration of tax agreements between Canada and various other countries. It also administers various types of social benefits and incentive systems such as the Canada Pension Plan and Employment Insurance, and it oversees the registration of Canadian charities.

      1. Your Relationship with the CRA

      Taxpayers have a complicated relationship with the CRA. When it comes time to pay their taxes, taxpayers are not too pleased with the CRA; however, when taxpayers receive benefits or tax refunds, attitudes quickly change for the better. The relationship is complicated by the fact that there are certain obligations that taxpayers have towards the CRA, which they may not always wish to respect, and in turn there are certain rights that taxpayers have when dealing with the CRA — rights the CRA routinely overlooks and violates.

      1.1 Your rights

      Some of the taxpayers' rights come from statutes such as the Canadian Charter of Rights and Freedoms and the Income Tax Act. Certain other rights come directly from the Taxpayer Bill of Rights.

      Put forth in 2007, the Taxpayer Bill of Rights includes a series of 15 rights that in theory (and not always in practice) are supposed to be guaranteed to each taxpayer. Some of these come directly from statute, such as the right to relief from interest and penalties that arise due to extraordinary circumstances, while other rights, such as the right to expect the CRA to be accountable, are service-related rights, complaints about which are overseen by the Taxpayers’ Ombudsman.

      According to the Taxpayer Bill of Rights poster available from the CRA, you have the right —

      • to receive entitlements and to pay no more and no less than what is required by law;

      • to service in both official languages;

      • to privacy and confidentiality;

      • to a formal review and a subsequent appeal;

      • to be treated professionally, courteously, and fairly;

      • to complete, accurate, clear, and timely information;

      • as an individual, not to pay income tax amounts in dispute before you have had an impartial review;

      • to have the law applied consistently;

      • to lodge a service complaint and to be provided with an explanation of the CRA’s findings;

      • to have the costs of compliance taken into account when administering tax legislation;

      • to expect the CRA to be accountable;

      • to relief from penalties and interest under tax legislation because of extraordinary circumstances;

      • to expect the CRA to publish its service standards and report annually;

      • to expect the CRA to warn you about questionable tax schemes in a timely manner; and

      • to be represented by a person of your choice.

      1.2 Your obligations

      Simply put, the obligations of a Canadian taxpayer are to respect tax legislation and do all the things required by such legislation and by the CRA in the time frame required. This means that taxpayers must file returns and pay their taxes when required to do so, and cooperate with the CRA’s requests for information during the course of an audit or investigation, unless the investigation is criminal in nature, in which case the taxpayers may avail themselves of the Canadian Charter of Rights and Freedoms against self-incrimination and unreasonable search and seizure.

      As long as Canadian taxpayers honestly and diligently discharge their duties to the CRA (which includes keeping all documents for the CRA if that time comes), they usually have nothing to fear. However, if a taxpayer runs into trouble, or has a fire that destroys his or her documents, he or she may be in for a rough ride — regardless of how honest and diligent he or she has been.

      2. What the CRA Knows about You

      The CRA knows a great deal about taxpayers because it keeps extensive and detailed records. Like a giant computerized elephant, the CRA does not forget recorded taxpayer information, and as its databases and computer systems become more sophisticated over time, it is better able to use this information to its benefit — often to the taxpayers’ detriment.

      A taxpayer must trust that the CRA will use every piece of information at its disposal against a taxpayer. When it comes time to freezing a taxpayer’s bank account, the CRA remembers each payment made and the financial institution from which the cheque was drawn; when it comes time to granting (or denying) a request for taxpayer relief, the CRA will be able to point to that time 20 years in the past where the taxpayer was late on filing his or her return by a day, and will use this delinquency as a basis to deny relief which theoretically is guaranteed as a right.

      Some personal information that the CRA has in its database comes directly from taxpayers. Every time you file an income tax return with the CRA, the information from your returns becomes part of the permanent record. If you are audited, the CRA learns more about you and adds this information to its database. If you speak to the collections officers, they take detailed notes which are also added to your record. The CRA knows when you have