The Architecture Gap in Canada’s Tax Dispute System

Executive Summary

Canada’s tax-dispute and litigation system operates without coordinated architecture or design leadership. No institution is responsible for aligning conduct, accountability, and proportionality, or for maintaining a shared design lens across stakeholders with different levels of representation and influence. In the absence of that unifying structure, system behaviour reflects institutional incentives rather than coherent design.

This report explains how fragmented governance produces incremental and uneven reform, identifies the pressures that drive misalignment, and assesses the risks created by uncoordinated procedural change. It also outlines why a whole-of-system design approach is needed and provides a foundation for more deliberate and transparent system governance.

The Missing Architecture: A System Without Coordinated Design Leadership

Canada’s tax-dispute and litigation system operates without a coordinating body to align design decisions across all stakeholders. No group carries the mandate to ensure that conduct, accountability, and proportionality operate as a coherent whole, or to sustain a unifying tax-dispute design lens shared across different taxpayer segments, government, the private bar, and the courts.

In the absence of this cross-stakeholder design function, several essential responsibilities remain unaddressed:

• aligning conduct, accountability, and proportionality
• stewarding system-wide coherence and shared principles
• managing the polarities embedded in dispute resolution
• evaluating procedural changes for their system-level impact

Committees and mechanisms exist, and each plays a legitimate role. But they refine individual processes rather than steward the system's design as a whole. No group holds the overall tax-dispute map or provides the design leadership required to balance all stakeholder interests and maintain coherence.

As a result, the system operates as a set of strong, active parts, each with different levels of representation, sophistication, and influence. Each part operates from its own vantage point, without a shared architectural view to coordinate, balance, and align decisions.

The Consequence: Fragmented Reform and Ad Hoc Governance

Without coordinated leadership, reforms tend to move through narrow institutional pathways. Each initiative reflects the priorities of the institution advancing it, the constraints and incentives of its vantage point, and limited visibility into system interdependencies.

This produces ad hoc governance: changes are incremental, uncoordinated, and often disproportionate to their system-level relevance. Institutional priorities can outweigh system needs. Without countervailing perspectives, reforms can assume more weight than their place in the broader architecture warrants.

Fragmentation does not arise from bad intent. It is the predictable outcome of a system distributed across multiple institutions, where stakeholders operate with different levels of representation, sophistication, and influence, and without a shared, unifying tax-dispute design lens.

A Current Example: Informal Procedure Thresholds

A recent Budget 2025 request to explore potential updates to the Informal Procedure thresholds illustrates this dynamic. What began as an exploratory signal from one part of the system quickly became a procedural idea carried forward through institutional channels.

The idea itself is not the issue; it shows how a single suggestion can gather momentum and advance without a unifying design lens or coordinated governance discipline. Through no fault of those advancing it, an adjustment viewed from one vantage point can create effects elsewhere in the system that are neither anticipated nor visible within the current governance model. This is not an oversight; it is the predictable behaviour of a system designed without a central coordinating function or shared architectural view. The pattern reflects the underlying structural gap.

The pathway Budget 2025 activated makes this visible. The request moved through a narrow executive-branch process: internal Department of Justice analysis, followed by a technical review by the Joint Committee. DoJ assesses feasibility and coherence from within its own institutional mandate, not from a system-wide or cross-stakeholder perspective. The Joint Committee reviews drafting mechanics. Neither institution carries a mandate to evaluate cross-stakeholder effects, system-level impact, or taxpayer experience.

The limits of these mandates matter. The Joint Committee’s role is technical, focused on coherence within the Income Tax Act. A change in numerical threshold raises minimal technical issues, so its contribution is naturally narrow. In a system built without a mechanism to integrate cross-stakeholder insights or to manage competing institutional polarities, the gaps between mandates become gaps in governance. Because every formal mandate in the dispute system sits within government institutions, the system’s visibility is one-sided. The structure consistently reflects institutional vantage points but not the taxpayer’s. No institution is positioned to assess how procedural changes affect proportionality, access, or the lived experience of different taxpayer segments.

This example shows how exploratory ideas can move through institutional channels without a shared architectural lens. It is not the problem itself; it is the latest expression of an uncoordinated design environment.

Live System Example

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Informal Procedure Threshold Review

A Budget 2025 signal that shows how a procedural idea can advance without system-level visibility or coordinated design review.

Budget 2025 signalled a potential review of the Informal Procedure thresholds. The proposal moved through institutional channels with limited public visibility into the analysis underpinning it.

The focus is on government efficiency considerations and the 2013 update to the thresholds. There is no comment or description of the Department of Justice’s internal analysis or any structured evaluation of effects across the Informal Procedure, the General Procedure, or different taxpayer segments.

The Canadian Bar Association’s Joint Committee on Taxation responded to a DoJ request for comment. However, the Joint Committee’s mandate is technical. A numerical threshold change raises few, if any, drafting issues, so its contribution is naturally narrow. The Joint Committee's role does not extend to evaluating taxpayer experience, access implications, or system-level effects.

The Budget frames the idea as a cost-efficiency measure centred on DoJ workload, system costs, and outdated thresholds. It references improved “access to the informal procedure,” but does not identify corresponding commitments for taxpayers or the Court.

This example shows how a procedural suggestion can gain momentum without a shared design lens or coordinated governance discipline. A change viewed from one vantage point can create effects elsewhere that remain unseen within the current architecture.

Diagnostic points

• Supporting analysis not publicly disclosed
• No cross-procedure or cross-segment assessment
• Efficiency considerations focused on government institutions
• No corresponding commitments for taxpayers or the Court
• Illustrates how proposals advance without system-level architectural review

Why System-Level Design Matters

Systems behave according to the interaction of their components. Without a shared design lens across stakeholders with different levels of representation, sophistication, and institutional weight, even small procedural changes can:

• shift incentives unpredictably,
• activate or suppress institutional behaviours unevenly,
• disrupt core system polarities,
• increase outcome variability, and
• reinforce the patterns the system aims to correct.

A whole-of-system design approach would ensure that:

• proposed reforms are tested for cross-stakeholder impact,
• institutional incentives are balanced,
• accountability and proportionality remain aligned, and
• changes reinforce, rather than fragment, the architecture.

These are design questions requiring shared stewardship, not isolated procedural adjustments.

Practitioner Signal

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Where System Pressure Is Felt

A recent practitioner poll offers a perception-based signal of how pressure is experienced in the tax-dispute system.

Most respondents identified conduct and accountability as the primary areas of pressure, followed by design-and-coordination gaps. Procedural access topics, including Informal Procedure access, drew limited attention relative to these structural concerns.

Note bene: The poll is not representative data, but it provides insight into how practitioners experience the system’s pressure points.

A Starting Point for Coordinated System Design

This report does not present a full architecture. Its purpose is to:

• describe the core structural challenge,
• make the system visible and open to examination,
• clarify why coordinated design leadership matters,
• provide a foundation others can build on, and
• support more deliberate and transparent system governance.

A whole-of-system design lens would help ensure that proposed reforms are assessed for cross-stakeholder impact, that institutional incentives remain balanced, and that accountability and proportionality stay aligned. It would also help keep procedural changes coherent with the broader architecture.

These are design questions that require shared stewardship. They cannot be resolved through isolated procedural adjustments.

A further gap lies in the absence of a coordinated way to reflect the full range of taxpayer experience. The system includes several segments: informal-procedure users, taxpayers whose disputes sit near the line between informal and general, those solidly in the general procedure, mid-market businesses with meaningful financial and governance stakes, and institutional stakeholders who observe patterns across many files. Each group interacts with the system differently. Yet no mechanism brings these perspectives together or provides a shared view of how procedural changes influence them. This lack of cross-segment insight underscores the need for a more deliberate design function.

System Structure

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Taxpayer Segments and System Visibility

The tax-dispute system serves distinct groups, yet no mechanism integrates their perspectives into coordinated design decisions.

The system includes several segments that interact with dispute processes in different ways. Each segment experiences unique pressures, incentives, and constraints. Under the current governance model, no institution is responsible for integrating these vantage points or assessing how procedural changes affect them collectively.

Segments within the system

• Informal Procedure users: Individuals and small businesses navigating resource constraints and accessibility challenges
• Split-stream users: Taxpayers whose disputes sit near the threshold between Informal and General Procedure
• General Procedure users: Taxpayers involved in complex disputes that require full litigation
• Mid-market businesses. Organizations with financial, governance, and capital-management stakes tied to dispute outcomes
• Institutional stakeholders. Practitioners and advisors who observe patterns across many files

The absence of a coordinated view across these segments limits the system’s ability to understand how changes in one area influence behaviour, incentives, or outcomes in others.

Diagnostic points

• Multiple taxpayer segments with distinct needs
• No mechanism to integrate cross-segment perspectives
• Effects of procedural changes remain siloed
• System-level design questions receive limited scrutiny
• Highlights the need for coordinated architecture and shared design leadership

Conclusion

Canada’s tax-dispute and litigation system needs coordinated architecture and design leadership. The forces that shape the system are strong, yet they operate without a unifying structure to guide balance, coherence, and accountability across stakeholders with different levels of representation and influence. As long as reform moves through the vantage points of individual institutions rather than through a shared design lens, structural imbalance will remain.

This report is a starting point. Its purpose is to support a broader and more deliberate conversation about how the system should be designed, governed, and improved.

About the Counter Institute

The Counter Institute is the independent research and policy arm of Counter LLP. Its work focuses on system design, governance, and accountability in tax dispute resolution. The Institute produces independent research to surface system patterns, strengthen understanding, and inform principled improvements in Canada’s tax dispute system.

Media Contact:
Natalie Worsfold
Communications Lead
Counter Insitute
Email: nworsfold@countertax.ca