Thank you, Mr. Chair.
Thank you to the committee for the invitation to appear in front of you today. I've had the privilege of seeing tax disputes from many different angles: as a lawyer in private practice, as counsel to the federal Department of Justice, and as judicial clerk to the Federal Court of Appeal.
My current legal practice focuses exclusively on helping taxpayers resolve controversies with Canadian tax authorities. But I am here today as an individual, and my comments reflect my personal views, not necessarily those of my firm nor our clients.
Against this background, I am pleased to offer whatever assistance I can to the committee as it consider parts 1 to 4 of the federal budget bill. But I'd like to take the opportunity to highlight two initiatives that stem from the budget.
Canada is working hard to balance budgetary needs and foreign policy against the sophisticated tax planning that exists on the global stage. One continuing challenge is ensuring that the CRA has the tools it needs to maintain the integrity of the tax system while respecting the basic taxpayer rights of consistency, predictability, and fairness. After all, our society and our laws correctly recognize each taxpayer's right to arrange his or her affairs in the most business-savvy and tax-efficient manner.
Returning to the bill, Bill C-31 contains provisions touching on two new information-gathering tools aimed at helping the CRA to achieve its mandate. The first is the introduction of the new electronic funds transfer, or EFT, reporting regime in part XV.1 of the Income Tax Act. The second deals with the CRA initiative today called the offshore tax informant program, or OTIP.
The Department of Finance released legislative proposals relating to the new EFT reporting regime this past January, and the proposed rules are contained in Bill C-31. The rules will require most financial intermediaries to file reports with the CRA days after completing an electronic fund transfer of $10,000 or more, flowing into or leaving Canada at a client's request. The new regime includes detailed provisions defining which financial entities must submit reports, a corresponding record-keeping obligation for those entities, the creation of an offence for the failure to comply with that obligation, and rules explaining that EFT information can also be used for non-income tax purposes.
Although the CRA will need resources to properly monitor and analyze this new EFT information, the proposed regime will undoubtedly provide a fuller picture of traditional fund transfers across our borders. In turn, this will make it easier for the CRA to consider whether those funds have been properly accounted for, for tax purposes.
Moving to the second initiative, the offshore tax informant program, this a whistle-blowing program that was first announced in 2013 budget and was formally launched by the CRA in January of this year. OTIP aims to pay awards of between 5% and 15% of federal tax collected as a result of tips provided to the CRA concerning major international tax non-compliance. Anecdotally, I understand that a number of would-be informants have already started approaching professional advisers and have begun opening informant files with the CRA.
In contrast to the detailed legislative framework for EFT reporting, there are no legislative rules defining the new informant regime. There are a number of provisions in Bill C-31 that relate to the informant program—which I've set out in a schedule to my speaking notes—but these generally touch on how award moneys will be taxed, and how informants will be kept abreast of the status of their file.
Otherwise, all rules pertaining to OTIP are left to the CRA. This includes who can be an informant, whether awards could be paid for information concerning domestic non-compliance as opposed to international non-compliance, whether there are limits on how tax information can be obtained, and whether an informant's identity will be protected down the road.
Leaving the framework to the CRA is efficient in some respects. It allows the rules to be changed without the need to pursue legislative amendments, but it also falls short in certain other respects. For example, without legislative rules or regulations, the extent to which CRA policies can be relied upon or enforced by informants is unclear, as is the breadth of the CRA's authority to pay awards out of taxpayer dollars.
There's also a lack of clarity concerning how information can be obtained, and whether viable tips can, or should, be acquired by breaking the law or breaching professional or ethical obligations. An important public institution such as the CRA should not be seen as encouraging taxpayers or their advisers to cheat or steal to obtain potentially helpful tax information in order to make a buck.
Finally, the scope of the informant's obligations in any future tax assessment or enforcement proceeding is unclear. It's also unclear as to what ends the CRA will go to protect an informant's identity.
Legislated rules providing a certain degree of protection for informants would make the system easier to administer and more reliable for taxpayers. For these reasons, we propose legislative rules or regulations would assist in bringing clarity to the program.
Thank you, Mr. Chair.
