Aug 16, 2022
What is EFILE, and which accounting firms, accountants are eligible to participate?
EFILE is an electronic service that allows tax preparation service providers in Canada to file their clients’ tax returns with the Canada Revenue Agency (CRA) directly from their tax preparation software. To participate in the EFILE program, the tax preparation service providers (or eFilers) must apply and be approved by the CRA. To file tax returns, the tax preparation software must also be certified by the CRA.
A tax preparation service can use any legal form of business: a firm, an organization, or an individual, but an employee who prepares tax returns as part of his or her work duties is not eligible for registration.
To become an EFILE participant, an applicant must pass the suitability screening by the CRA. Once becoming a participant, the participant must renew the EFILE status every year. Registration for new participants and renewal of existing status open each October in preparation for the next filing season and will take about 30 business days to process.
How EFILE participants are screened
To be eligible to apply for EFILE status, the individual applicant or the person having management and control of the applicant must be a Canadian resident of at least 18 years of age and, if applicable, be a discharged bankrupt.
To be approved as an EIFLE participant, the applicant must have:
- Not failed to register, to file a return, to pay or remit tax, to be assessed a penalty, or to have an outstanding tax liability in accordance with the Income Tax Act (ITA) or the Excise Tax Act (ETA) or any income tax act of a province or territory;
- Not been convicted under the Income Tax Act (ITA), the Excise Tax Act (ETA) or any income tax act of a province or territory;
- Not failed to maintain adequate books and records as required under the Income Tax Act (ITA) or the Excise Tax Act (ETA);
- Not made any misrepresentation on the registration or renewal application or any related correspondence or communication;
- Not engaged in fraud, dishonesty, breach of trust, or other conduct of a disreputable nature;
- Not engaged in any activities that resulted in a suspension of EFILE status in a previous year;
- Not been rejected for EFILE application in either one of the two previous filing seasons; and
- Not employed by or accept help (e.g. by using or allowing EFILE access) from anyone who has been or would have been suspended or rejected for EFILE status.
The CRA may still approve an applicant who is otherwise rejected for EFILE status in special circumstances, such as where the violation was minor, was an isolated incident, or occurred a long time ago.
Obligations of EFILE preparers
As a participant in the EFILE program, the tax preparation service must comply with the following obligations:
- Deal directly with clients, i.e. no subcontracting of the tax preparation service whatsoever;
- Prepare and file the clients’ returns in Canada;
- Verify the identity of the clients and the clients’ documents (such as information slips and receipts) before filing;
- Keep client’s information confidential;
- Keep access to EFILE confidential, i.e. not share EFILE access with anyone;
- Only use tax preparation software that is certified by the CRA; and
- Have clients complete and sign Form T183, Information Return for Electronic Filing, before transmitting their returns.
Furthermore, in the advertisement of the tax preparation services, an EFILE participant may not imply a special relationship with or an endorsement by the CRA, may not use the CRA’s signature or marking, and may not use the words “authorized” or “agent” to prevent client’s mistaken belief of an association of any nature with the CRA.
The CRA monitors the EFILE system as well as complaints against the participants. It will investigate any irregularities in the system and complaints about a participant. Failure to comply with any of the above obligations will allow the CRA to revoke the EFILE status of the violating participant.
Moreover, the CRA will also revoke EFILE status where there is concern about the deterioration in the preparation and filing quality, cumulative error rate, significant number of complaints, unethical professional practices, or disreputable conduct of a participant.
Pro tax tips-Administrative review process for rejected applicants or revoked participants
Applicants who are denied EFILE status and participants who are suspended can request an administrative review in writing to the CRA Chief of Appeals. The time limit for filing the administrative review request is within 90 days from the denial or suspension notice.
If the CRA does not resolve the request to the satisfaction of the applicant or participant, the applicant or participant can request a judicial review in writing to the Federal Court. The time limit for applying for judicial review is within 30 days from the decision of the CRA regarding the administrative review.
The applicant or participant should consult with an experienced Canadian tax lawyer for advice on any e-filing status problems or to file an administrative review or judicial review request.
FAQ
I am handling too many tax returns for clients. May I hire outside staff for tax preparation?
Subcontracting out your tax preparation and filing work is strictly prohibited because it compromises the security of the EFILE system as well as the confidentiality of the clients. Moreover, if you subcontract overseas, you also violate another obligation of EFILE participants to prepare and file clients’ returns in Canada.
If you are unsure of how to expand your business while remaining compliant with tax laws and regulations, you should speak with an experienced Canadian tax lawyer.
I have been suspended from the EFILE program. What should I do?
You should follow the legal remedies available to you, which are to first request an administrative review with the CRA within 90 days. If the CRA affirms its decision to suspend you, you may then retain a knowledgeable Canadian tax lawyer to file a judicial review application with the Federal Court within 30 days.
Please note that once you are suspended and if you are unsuccessful with your administrative review or judicial review application, you will not be approved to participate in the EFILE program again, unless the CRA later deems your case to be of a special circumstance, such as when a violation occurred many years ago.
DISCLAIMER: This article just provides broad information. It is only up to date as of the posting date. It has not been updated and may be out of date. It does not give legal advice and should not be relied on. Every tax scenario is unique to its circumstances and will differ from the instances described in the article. If you have specific legal questions, you should seek the advice of a Canadian tax lawyer.
