Official gets tax agency to back down on Phoenix revenue assessment errors

A federal government official recently managed to push the Canada Revenue Agency back after he sued the agency to force it to admit that his tax assessment – based on inaccurate T4 slips – was wrong.

The T4 slips were wrong thanks to Phoenix, the federal government’s troubled payroll system, launched three years ago.

According to Marilyn West’s 2016 T4 slip, she saw no income tax withheld that year. He also under-reported his EI and CPP deductions.

As a result, West faced a tax bill of $ 2,864.80.

“The fundamental problem is that the CRA is relying on a T4 rather than the reality of what the person has been paid or what has been deducted,” said Gerry Campbell, tax specialist at Liberty Tax Service East Toronto. Campbell has represented West and speaks for her now as she battles serious illness.

Campbell submitted West government-issued pay stubs and other documents to show what she was actually paid and what deductions were made.

“They were always wrong”

The government issued an amended T4. It was also incorrect.

“Maybe the CRA has experts who don’t know how to use a calculating machine,” Campbell said. “I couldn’t believe they were always wrong. We sent them all the information and they were always wrong.”

West has filed formal objections with the CRA, but Campbell said the agency has responded that it will stick to the information on the latest Q4.

“And then I decided I would file in tax court, because it’s ridiculous,” Campbell said. “I continued to reassure (West) that this was a fixable problem. It just needed to get out of the hands of the CRA and the hands of the Department of Justice.”

Yet the Department of Justice’s initial response to West’s appeal to the Tax Court was to conclude that it was appropriate to base its tax assessment on the information contained in the T4. He also argued that the tax court does not have jurisdiction over withholding taxes for tax assessments.

But as the court date approached, something changed. Two weeks ago, the Justice Department called Campbell to accept the numbers on the pay stubs he and West provided.

“If we hadn’t gone to court, they would have kept sending her collection letters. Throughout this process, every three or four months, she receives a letter saying she owes money.” Campbell said.

“What this shows is that the fastest way for them to resolve these issues, rather than waiting 10 years, is to fight in tax court.”

And there are thousands of public servants in difficult situations similar to the one West found himself in.

The CRA says that in 2017-18, it processed nearly 51,941 T4s that were changed due to Phoenix. The agency points out that Public Services and Procurement Canada (PSPC) is responsible for correcting T4 slips and sharing amended slips with the agency.

The agency indicates that as of February 2019, it had received approximately 156,000 modified Q4s related to the Phoenix pay system for the 2018-2019 fiscal year.

The president of the Professional Institute of the Public Service of Canada (PIPSC), one of the unions in the federal public service, said the problem was widespread.

“If your pay has not been calculated during the year, you can count on an incorrect Q4,” says Debi Daviau.

“So it’s pretty common. I’d say three-quarters of the public service can expect some kind of problem with their T4s and have to file taxes with the wrong information.”

‘2016 has never been corrected. I dropped’

The CRA says it has asked all of its appeals officers to work with taxpayers to resolve Phoenix-related issues and that these officers can review evidence, such as pay stubs and bank statements.

But officials say that’s not the case in practice.

Daviau said the CRA’s resistance to accepting pay stubs and other documents is frustrating for workers.

“They’re basically being asked to lie on their tax forms… they know the information is inaccurate and they’re obligated to submit it anyway,” Daviau said.

The impacts of those mistakes – incorrect tax bills and sloppy benefits – add up with each year the mistakes stay put.

A Facebook page for public servants having problems with Phoenix has plenty of stories about wrong T4s and the extreme difficulty in correcting them.

“Based on my Q4, I made $ 20 working for a department I don’t work for. And that’s all I earned,” says a publication.

“2016 has never been corrected. I gave up … maybe my children will one day receive the corrected Q4,” said another.

Kathy Dickenson, an Ottawa official, said she saw five T4s issued for 2017, all fake.

She said she thought she found a workaround when she filed her taxes on paper rather than online, using the information on her pay stubs rather than T4s. But she said the CRA told her she needed proof that the deductions made – like those for her pension – were in fact deposited into a certified pension account. She needs her employer – the government – to deliver this proof, but she said she saw no sign that she would get what she needed anytime soon.

“Demand has fallen into a black hole,” Dickenson said in an interview with CBC News, adding that his 2018 Q4 was also wrong – over-reporting his income by 150%.

“I am resigned to the fact that my taxes will be a nightmare for at least the next five years,” she said.

The CRA did not respond to CBC questions for this article.

Esther L. Steinbach

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