Finance Committee on Dec. 13th, 2010

[Daniel Paillé, Bloc, Hochelaga, QC]

You are saying that this is not evasion, and that's fortunate, because otherwise this would be a mockery. Regardless of what the case may be, the Conservative Government of Canada, in accordance with its tax policy, is not going to go after this amount of $1.5 billion in taxes in these tax havens, money which is sitting there and could be recovered. Is that what you are telling me?

[Brian Ernewein]

I think the policy has been in place since at least 1938, so it does predate this government.

The main point is that I don't believe it is tax avoided. It's the application of Canadian laws to say that foreign companies owned by Canadians won't be taxable in Canada simply because of having Canadian shareholders.

[The Chair, Conservative, James Rajotte]

Mr. Hiebert.

[Russ Hiebert, Conservative, South Surrey—White Rock—Cloverdale, BC]

Thank you, Mr. Chair.

Just to follow up on a couple of questions that have been raised, if I heard correctly, Mr. Pacetti and the Liberals were suggesting that a tax amnesty might be a good idea or something to consider. Would that not basically reward tax dodgers and create an incentive for people to hide as long as possible, knowing that the longer they hide, the more they can save?

[Brian Ernewein]

That's what I had suggested earlier as a concern. There are considerations going the other way, that you can try to bring people back into the system, and that's helpful, too. But certainly one of the objections or concerns with having an amnesty is that yes, it would reward the non-compliant and perhaps provide an incentive for repetitive behaviour.

[Russ Hiebert, Conservative, South Surrey—White Rock—Cloverdale, BC]

I also understand that the NDP has said that the U.S. compiles an amount as to how much money is lost to tax havens. Mr. Layton was calling on Mr. Harper to begin publishing annual estimates of the tax dollars Canadians are losing to wealthy tax cheats in some corporations.

The United States is doing this now. Every year $100 billion in revenue is lost in tax havens. This is a huge amount that has to be recovered for citizens.

I presume that estimate comes from the U.S. IRS. Would that be a good source for that information?

[Brian Ernewein]

Actually, the suggestion was made that it comes from the U.S. treasury, but I don't know, so I can't confirm that.

[Russ Hiebert, Conservative, South Surrey—White Rock—Cloverdale, BC]

Do you think there is any benefit to your department taking the time to figure out what the estimate would be, or would that be considered a waste of time?

[Brian Ernewein]

I don't want to characterize it as a waste of time, but I think it would be a very difficult exercise. The number of assumptions one would have to make to arrive at a number would make the exercise perhaps of less utility than one would hope.

[Russ Hiebert, Conservative, South Surrey—White Rock—Cloverdale, BC]

It would seem to me the department might better spend its time actually trying to find the tax dodgers than creating estimates of their number.

Earlier in your presentation you also said you had some additional rules you could expand on, given the opportunity. Well I'm here to give you that opportunity.

[Brian Ernewein]

Thank you. I'll just take a moment to elaborate a little bit on what we have in the international context. There are obviously others that apply domestically.

There have been foreign reporting rules that have been in place for a number of years and these are not, as I said earlier, declarations of income but rather simple declarations of the existence of foreign assets, which can be used as an indicator for the Canada Revenue Agency as to whether to conduct further investigations to determine if all income associated with those assets is being reported.

We also have rules in place dealing with investments in so-called foreign investment entities—offshore mutual funds and the like—where a tax is payable if the investment was tax motivated. There are proposals pending. There were some modifications to these in the 2010 budget to tighten our non-resident trust regime to ensure that people don't...not evade, because these are people who are seeking to be compliant with the law, but in terms of making investments in non-resident trusts, that a fair amount of tax is paid even when investing outside of Canada through a non-resident trust.

And finally, in the 2010 budget we have a proposal to institute new reporting obligations for those who participate in aggressive tax transactions. If the transactions with which they're involved have some confidentiality agreement with the adviser or the promoter, or there is a fee associated with it that is based on the tax plan working or not or being successful or not, or if there is any sort of insurance or coverage in case the thing fails, those criteria, together with having a tax avoidance transaction in the first place, will impose a positive reporting obligation on the taxpayer, and in some cases on their adviser or promoter, in order to declare the transaction to CRA and again for CRA to now have the leg up, if you will, to investigate further.

[Russ Hiebert, Conservative, South Surrey—White Rock—Cloverdale, BC]

Thank you.

[The Chair, Conservative, James Rajotte]

Mr. Szabo.

[Paul Szabo, Liberal, Mississauga South, ON]

I'd like to pursue the future strategies, because I think it's really important that we come out of this meeting with a little bit of dialogue.

Penalties for evasion of income tax in the form of fines range from between 50% and 200% interest. That's pretty awesome. I spent a lot of years as a chartered accountant doing tax returns. I must admit, I have had involvement in some cases where people have said, “I ran into some difficulty. I couldn't pay my taxes. By the time I recovered, I had so much accumulated that I couldn't possibly afford to pay it back. So I had no way out, and I was just playing roulette trying to figure out whether I could continue to go on without getting that phone call. Once you get the phone call, the next thing you do is probably to go and get a rope and hang yourself.” There really are some very clear stories about how it happens. I know that Finance and CRA know very well how people get into trouble.

A voluntary disclosure program is an amnesty of sorts, isn't it? You can come out and you can negotiate a deal, and you don't have to pay 200% interest. You can say, “Let's do the best I can; I want to pay as much as I can, but I also have to survive and live.” It effectively is an amnesty program.

But let's not call it an amnesty. We have a program already that allows people who, in good faith, want to come out and make it right as well as they possibly can over the long term. I'd rather have 80% of something than 100% of nothing. That has to be part of our strategy, I hope.

So if we are now embarking on new initiatives for international treaties and information sharing, and really digging our heels in on those who are using offshore instruments, isn't it time we told Canadians how we feel about this and started to have a public education program that comes out with it, rather than just having the big stick?

[Brian Ernewein]

Forgive me, Chairman. Do you mean how we feel about an amnesty or how we feel about voluntary disclosure, or...?

[Paul Szabo, Liberal, Mississauga South, ON]

No. As I said, the voluntary disclosure program is effectively an amnesty, because you're not going to be paying...you can negotiate down. We have to figure out...and do just what Mr. Mulroney did. He said, “Here's what I have”, and it was just a fraction of what he otherwise would have owed if he had declared it in the first place. You have a tool there already, and it's not being subject to the penalties and interest and all this other stuff. It's just saying, “Let's make a settlement.”

It seems to me that it would cost a lot less if you didn't have to go into court cases and do all the months and months of research for data, when people would be prepared to come forward if we only told them about it. I think the Canadian taxpayers out there are just afraid. They're afraid to come forward under the voluntary program, and we haven't told them that they don't have to be afraid, because, quite frankly, it's a win-win if we can get them on the tax rolls fairly and they're paying their taxes.

What's the thinking here? Are we just going to use a big stick? Are we going to say, “Everybody, come on, take a chance here, we have a program; you can come out, and we want you to get back on the rolls, because the stress is going to kill you a lot sooner than your other natural health problems will”?

[Richard Montroy]

I'd like to clarify one thing. I would hate for the honourable members to leave here today thinking you can negotiate a deal with the voluntary disclosure program. The voluntary disclosure program is a program that allows people to come forward and declare the income that perhaps they didn't declare at first. They do not negotiate a settlement. One of the conditions to be part of the program is that you have to come forward voluntarily and state all the income or assets that you have not declared. Therefore, it's not an opportunity to negotiate what your taxes could be.

However, the CRA, not just for international but for any type of collection or amounts that are due, has a fairness program in place whereby we can listen to taxpayers regarding cases in which the debt has arisen under certain circumstances. We're certainly interested in having a dialogue with the taxpayer to ensure that they comply. Our ultimate goal, as Madam Ricard pointed out at the very beginning, is to achieve compliance. If that means, in cases where taxpayers owe us a certain amount, that we can negotiate a payment scheme with them, we do that on a daily basis.

[Paul Szabo, Liberal, Mississauga South, ON]

I agree, and I know it works, but in my experience a lot of people out there are afraid to give it a chance.

[The Chair, Conservative, James Rajotte]

Thank you.

I have a few questions. I wanted to clarify a couple of issues with CRA. You may have answered it already, but with regard to the $1 billion in 2009 that you uncovered with respect to unpaid taxes involving international activities, can you tell me how much was from assets in an offshore bank account that was owned by an individual? Would you have that information?

[Lyse Ricard]

We don't have it--

[The Chair, Conservative, James Rajotte]

Can you get that for me?

[Lyse Ricard]

--divided into segments of taxpayers. We'll look at what we.... I can't guarantee that we can segregate to that level.

[The Chair, Conservative, James Rajotte]

Okay. Any information you have on that would be helpful.

The second question would be this. You identified the auditing of 6,700 cases--you may have answered this already--but how many cases were there problems with of the 6,700 that were audited since 2006?

[Lyse Ricard]

How many were...?

[The Chair, Conservative, James Rajotte]

It says “Since 2006, the CRA has audited more than 6,700 cases”, so how many cases were there problems with?