Questions and answers – Proposed Registration of Tax Preparers Program (RTPP)
- What is the three-point plan?
- What is the Liaison Officer Initiative (LOI)?
- What is the Registration of Tax Preparers Program (RTPP)?
- Why has the CRA consulted on the RTPP?
- Who participated in the consultations?
- What were the key issues identified during the consultations on the RTPP?
- When will the registration program be implemented?
- Who will be affected by this program?
- How does this program reduce red tape?
- What happens if a tax preparer continues to make errors?
- What kinds of sanctions will be in place?
- Why is Canada not introducing the certification of tax preparers?
- Is there any cost for a tax preparer to register for the program?
- What are the next steps for the RTPP?
- When will the other two components of the three-point plan be implemented?
The Canada Revenue Agency (CRA) recognizes that tax preparers play a crucial role in Canada's self-assessment system. In fact, the majority of tax returns are prepared by tax preparers. As such, they are influential in promoting good compliance. The CRA has developed a new compliance approach for small and medium enterprises (SME) which includes a three-point plan to assist SMEs and improve voluntary compliance.
1. What is the three-point plan?
The CRA's three-point plan is about reducing red tape and making it easier for those who want to comply and more difficult for those who choose not to comply. The plan consists of the Liaison Officer Initiative (LOI), the Registration of Tax Preparers Program (RTPP), and an enhanced focus on high-risk files.
2. What is the Liaison Officer Initiative (LOI)?
The Liaison Officer Initiative (LOI) is a new approach the CRA has launched to help small and medium-sized businesses meet their tax obligations. Through the LOI, businesses receive in-person support and information at key points of their business cycle that will assist them in understanding their rights, navigating the tax system, cutting through red tape, and more easily complying with their tax obligations. More information on the LOI is available at www.cra-arc.gc.ca/loi.
3. What is the Registration of Tax Preparers Program (RTPP)?
Competent, professional tax preparers file thousands of accurate returns every year. However, recurring errors continue to be prevalent. Our most recent statistics indicate that almost 35% of self-employed individual filers and 28% of corporate SME filers had errors of $1,000 or more.
The RTPP proposes to register tax preparers so that the CRA can better identify and address common and recurring errors before tax returns are filed.
This will allow the CRA to assess individual tax preparer compliance, identify and assess risks, and determine where recurring errors can be avoided. As a result, taxpayers and their representatives will have a better understanding of their tax obligations and responsibilities, and we expect that the need for traditional, "after-the-fact" interventions with taxpayers, such as auditing a taxpayer's tax return, will decrease.
A well-informed and competent tax preparer community can prevent recurring errors, possibly saving taxpayers from costly problems later on and reducing red tape.
As part of the proposed RTPP, the CRA will implement a strategic compliance approach to help tax preparers improve the accuracy and completeness of returns. Where errors are found in returns prepared by a tax preparer, the CRA will visit the tax preparer and discuss the errors. Where errors continue, possible interventions include follow-up visits, action plans, or auditing of the tax preparer's clients.
This program is being designed in consultation with the tax preparer community.
For more information, read the consultation paper.
4. Why has the CRA consulted on the RTPP?
The CRA consulted on the RTPP to ensure that the program design will result in the outcomes expected and that the aspects of the program dedicated to enhancing service to tax preparers will meet their needs.
5. Who participated in the consultations?
In February 2014, the CRA hosted in-person consultations across Canada to discuss the proposed RTPP with interested parties including taxpayers, tax preparers, and organizations representing tax preparers. Discussion sessions were held in Halifax, Montréal, Toronto, Winnipeg, Calgary, and Vancouver.
Stakeholders were also able to provide their input online or in writing until May 31, 2014. The CRA received 174 written submissions from a broad range of stakeholders, including self-employed tax preparers, employees of businesses that offer income tax preparation services, national accounting firms, tax preparation firms and national associations whose members include tax preparers, such as the Chartered Professional Accountants of Canada and the Certified General Accountants Association of Canada, which together represent approximately 185,000 accountants.
6. What were the key issues identified during the consultations on the RTPP?
Several key issues about the proposed RTPP were raised by stakeholders, including:
- defining errors more precisely and clarifying the type of error that would be linked to tax preparers;
- making sure we use existing registration systems so that we do not need new registration processes and numbers to support the RTPP;
- allowing registration to occur at the appropriate level within a tax preparation business;
- determining whether we should consider education or tax competency standards as part of the RTPP;
- ensuring that we carry out decisions on sanctions and redress procedures promptly and objectively; and
- improving our services and support for tax preparers to help reduce errors.
Tax preparers also expressed a desire to continue working closely with the CRA on the development of the RTPP.
For further information on the results of the consultations on the RTPP see What We Heard - A report on the public consultation for the proposed Registration of Tax Preparers Program.
7. When will the registration program be implemented?
The consultation process concluded in May 2014. Following analysis of the results, systems changes, and possible legislative changes, we expect a program launch in 2016-2017.
8. Who will be affected by this program?
The requirement to register under the proposed RTPP would apply to all tax preparers that prepare T1 and T2 tax returns for a fee. Other types of returns may be considered for the program at a later date. Other considerations include:
- Registration would be applied at an individual level.
- Registration would apply equally to tax preparers who are residents and non-residents of Canada.
- At this time, we expect that supervised preparers, or those individuals who assisted in the preparation of all or a substantial portion of a return, but who are not accountable for the return, would not be required to register.
- Every business preparing tax returns would also be given an entity identification number, such as that currently issued under the EFILE program. Both a personal identification number and an entity identification number would have to be submitted with each tax return prepared. The CRA is currently considering options to minimize the number of identification numbers necessary to interact with the CRA.
9. How does this program reduce red tape?
Red tape will be reduced by helping tax preparers improve the accuracy and completeness of their clients' returns. When returns are filed accurately, fewer interactions with the CRA are needed, allowing business owners to spend more time running their businesses. Tax preparers will also benefit, over time, as they become educated about common errors and how to avoid them.
Further, it has been designed to ensure it does not create additional red tape for compliant tax preparers or their client businesses.
10. What happens if a tax preparer continues to make errors?
Where a tax preparer has either failed to take reasonable care and exercise proper due diligence to correct errors or was deliberately non-compliant, the CRA may consider other actions such as imposing sanctions. Sanctions will also be required for situations where a tax preparer prepares a return for a fee but has the taxpayer, or another tax preparer, file the return in an attempt to avoid the requirement to register.
11. What kinds of sanctions will be in place?
The CRA consulted on both when sanctions should apply and what those sanctions should be. Sanctions could include reporting the tax preparer to a provincially-regulated accounting or legal body, assessing a penalty, and introducing a period of monitoring. In egregious situations, the CRA would consider the application of the third-party civil penalty under section 163.2 of the Income Tax Act (ITA) or possibly even de-registration.
12. Why is Canada not introducing the certification of tax preparers?
At this time, we do not feel that it is necessary to introduce standards, some of which are already in place among the professional accounting associations to which some tax preparers belong. By registering tax preparers, the CRA will be able to fulfill the goal of this program, which is to identify which tax preparers are making errors and to work with them to prevent these errors before the tax return is filed.
13. Is there any cost for a tax preparer to register for the program?
No fees will be charged to register for the RTPP in Canada.
14. What are the next steps for the RTPP?
The CRA will continue to work with external stakeholders as final program decisions are made, after which the legislative and policy framework will be advanced to support the implementation of the RTPP and the internal infrastructure will be developed. Progress on this initiative will be communicated through periodic updates to the CRA website.
15. When will the other two components of the three-point plan be implemented?
The enhanced focus on high-risk files is already underway. LOI pilots began in the Ontario and Quebec regions in March 2014.
Additional LOI pilots will be launched in the Atlantic, Pacific, and Prairie regions in fall 2014.
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