The Architecture Gap in Canada’s Tax Dispute System

Executive Summary

Canada’s tax dispute and litigation system lacks coordinated architecture and centralized design leadership. No single coordinating body is responsible for aligning conduct, accountability, and proportionality, or for sustaining a unifying design lens shared across all stakeholders. In the absence of that integrated view of dispute resolution and balanced system polarities, the system defaults to the independent incentives of its institutions rather than to a coherent structure.

This report examines how fragmented governance produces incremental and uneven reform, outlines the pressures driving misalignment, and explains why Canada needs a coordinated, whole-of-system design approach.

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 proposal carried forward through institutional channels.

The idea itself is not the issue; it is an example of 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 the problem itself; it is the latest expression of the underlying architectural gap.

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.

A Starting Point for Coordinated System Design

This report does not propose a full architecture or a complete solution.
It aims to:

• articulate the core structural challenge

• make the system visible and open to discussion

• clarify why coordinated design leadership is needed

• provide a foundation that all stakeholders can build on

• support more deliberate and transparent system governance

The Counter Institute will continue this work through additional research and frameworks, including tools for principled conduct and shared accountability in tax litigation. These efforts are complementary. One makes the architecture gap explicit. The other begins to address specific parts of it through structured, principled design.

Conclusion

Canada’s tax dispute and litigation system needs coordinated architecture and design leadership. The forces shaping the system are strong, but 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 evolves through the vantage points of individual institutions and not through a shared design lens, imbalance will persist.

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.

The Counter Institute offers this work to promote greater transparency, balance, and institutional integrity in how Canada resolves tax disputes, in the belief that system design is essential to strengthening fairness and trust.

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