Canada Revenue Agency—Verifying Income Tax Returns of Individuals and Trusts

Approach to verifying personal deductions and credits is sound, but improvements needed for domestic trusts

Chapter 3, November 2005 Report of the Auditor General

Ottawa, 22 November 2005—In her Report tabled today in the House of Commons, the Auditor General of Canada, Sheila Fraser, notes that the Canada Revenue Agency has a sound approach to selecting and verifying the deductions and credits that taxpayers most commonly claim on personal income tax returns. However, the audit found weaknesses in its approach to verifying domestic trust tax returns.

"Personal income tax is the single largest source of government revenue, and the Agency is doing a good job of verifying that people are entitled to the deductions and credits they claim," said Ms. Fraser.

In the case of domestic trusts, the Report notes that the Agency does not systematically consider how much tax revenue is at risk before deciding which returns to verify of the 175,000 filed annually. The audit points out that in the last three years, audits of testamentary trusts—the kind performed most often by the Agency—recovered about one-fifth of what was recovered through audits of other domestic trusts.

"The Agency does well at identifying the personal tax returns that warrant a second look," said Ms. Fraser. "It needs to adopt a similar approach for domestic trust returns."

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The chapter "Canada Revenue Agency—Verifying Income Tax Returns of Individuals and Trusts" is available on the Office of the Auditor General of Canada Web site.

Information:

Julie Hébert, Communications
Tel.: (613) 952-0213, ext. 6292
E-mail: communications@oag-bvg.gc.ca