Canada Revenue Agency (CRA): What it Means, How it Works

What Is the Canada Revenue Agency (CRA)?

The Canada Revenue Agency (CRA) is the federal department that collects taxes and administers tax laws for the Canadian government and for many of Canada's provinces and territories. Also known as the Agence du Revenu du Canada, it also oversees a variety of social and economic benefit and incentive programs via the tax system, along with legislation that impacts international trade.

Understanding the CRA

The Canada Revenue Agency (CRA) is the equivalent of the U.S. Internal Revenue Service (IRS).

CRA was previously known as the Canada Customs and Revenue Agency (CCRA) until the agency's customs and revenue activities were split into two separate organizations in 2003.

Like the IRS, the CRA is the definitive source on the nation's tax laws, how they are interpreted, and how they are applied. The CRA collects taxes from Canadians and oversees the social programs that are funded by those tax dollars. The CRA manages many different taxes including personal income tax, business income tax, trust income tax, partnership income, and excise taxes.

The commissioner and chief executive officer is the head of the CRA and its Board of Management, which consists of 15 members, 11 of whom are nominated by the provinces and territories.

All Canadian citizens as well as foreigners living and earning money in Canada are required to file tax returns with the CRA and pay taxes.

Benefits Paid Through CRA

The CRA oversees child and family benefits that are paid for by tax dollars, including the Canada Child Benefit (CCB). This benefit is a tax-free monthly payment made to eligible families to help with the cost of raising children up to 18 years of age. Payments through the CCB might include the Canadian child disability benefit and any related provincial and territorial program benefits.

The Canada Revenue Agency uses information from Canadians’ income tax and benefit returns to calculate the amount of CCB payments for which individuals are eligible. To receive the CCB, eligible individuals must file tax returns every year, even if they did not have taxable income in the year. Spouses and common-law partners must also file returns every year to be eligible to receive CCB payments.

The government pays the Canada Child Benefit over a 12-month period from July through the following June. Benefit payments are recalculated every July based on information from a household’s income tax and benefit returns from the previous year.

The CRA also administers the working income tax benefit (WITB), which is a refundable tax credit intended to provide tax relief for eligible working low-income individuals and their families.

CRA Structure and Framework

The Minister of National Revenue plays a important role in overseeing the CRA's activities. That role makes sure the CRA operates within the broader government framework and treats clients fairly. The Minister must ensure that the CRA functions effectively and efficiently in serving the taxpaying public.

The Board of Management, comprising 15 members appointed by the Governor in Council, also has an important part in the CRA. The Board is responsible for supervising the organization and managing the CRA. They take lead on the development of the Corporate Business Plan, and they oversee management of policies related to resources, services, property, and personnel.

The Commissioner, serving as the CRA's Chief Executive Officer, is responsible for the day-to-day administration and enforcement of program legislation delegated by the Minister. The Commissioner is accountable to the Board of Management for managing the CRA's daily operations. That role is also tasked with overseeing employees and implementing policies and budgets.

Finally, the Chair, as the presiding director of the Board of Management, leads the Board's activities. The Chair makes sure the Board fulfills its responsibilities effectively. The Chair guides the Board in managing its affairs and functions to maintain transparency and accountability within the CRA's operations.

CRA Audits

The CRA also performs a variety of reviews and audits discussed below. More information on each type of audit can be found on CRA's website, and additional audits beyond what is listed below may exist.

Pre-Assessment Reviews

A pre-assessment review is a pretty standard practice conducted by the CRA after you file your tax return. It'll happen before the official assessment. During this process, the CRA scrutinizes your return for any discrepancies or missing information to make sure your return looks correct. If the CRA identifies issues, you'll get a letter requesting additional documentation or information. It's important to respond quickly with the requested details to prevent any delays in the assessment process and potential adjustments to your tax return.

Desk Audit

Desk audits are carried out by CRA tax auditors at their offices and often focus on specific tax issues or deductions. If you're selected for a desk audit, you'll receive a letter outlining the audit's scope and the specific information or documentation required. Very similar to the pre-assessment review, provide the requested documents and be prepared to respond to any inquiries from the CRA tax auditor.

Field Audit

Field audits involve CRA auditors physically visiting your place of business or residence to review your financial records and transactions. These audits are generally more in-depth due to the risk of operations not be accounted for right. An auditor will schedule an appointment, explain the audit's scope, and request access to financial records, ledgers, invoices, and other pertinent documents.

Net Worth Assessment

A net worth assessment is a unique audit method that determines your income based on changes in your net worth over a specific period. The CRA may request bank statements, investment records, and documentation related to property acquisitions and disposals to ascertain your net worth. During this audit, you'll need to be able to explain any big changes to your wealth that might have happened in a short amount of time.

GST/HST Audit

GST/HST audits are focused on the Goods and Services Tax/Harmonized Sales Tax (GST/HST) reporting and payments. The CRA will review your sales and purchase records to make sure you've remitted the right amount. You may be asked to provide invoices, receipts, and other supporting documents to prove your GST/HST payments.

International and Transfer Pricing Audit

International and transfer pricing audits are performed on multinational corporations to make sure they're following arm's length rules. This audit really only matters for companies that may have intercompany activity. These audits involve a review of transfer pricing documentation, intercompany transactions, and international financial data to make sure what that happens between entities are conducted at fair market values.

Scientific Research and Experimental Development (SR&ED) Review

SR&ED reviews assess claims for tax incentives related to scientific research and experimental development activities. These reviews involve a detailed examination of SR&ED project papers, technical reports, financial records, and supporting evidence for your claims.

The Bottom Line

The Canada Revenue Agency is the federal agency responsible for administering tax laws and regulations in Canada. Its primary mandate includes the collection and management of tax revenues, the administration of tax programs, and the delivery of social and economic benefit programs to Canadian residents.