Finance Committee on June 12th, 2006

[Yvan Loubier, Bloc, Saint-Hyacinthe—Bagot, QC]

Thank you, Mr. Chairman.

Congratulations on your appointment, Mr. Baker.

And welcome Ms. Gauvin, Mr. Dorais, Mr. O'Connor and Mr. Ralston.

Mr. Dorais, I'd like to ask you a few questions. A few years ago, the Auditor General, who was Mr. Desautels, I believe, revealed that, on December 24, 1991, an advance ruling had been made on the transfer of two family trusts to the United States, and subsequently perhaps elsewhere. We don't know, because we lost track of them. There were some senior officials from the Department of National Revenue, the Department of Finance, the Department of Justice and other departments. This decision authorized that family to transfer those trusts without requesting guarantees and without taxes being paid to Revenue Canada.

Eighteen months later, the Minister of Finance at the time introduced a bill providing that, every time advance rulings were made on asset transfers—either through family trusts or other vehicles—the party transferring those assets would have to post guarantees in advance to avoid being exempted from its tax obligations in Canada.

I subsequently questioned the Deputy Minister of National Revenue, before the Agency was created, and I was told that Revenue Canada was not equipped to monitor those investors who were transferring assets, that there were no specialists monitoring these people closely. If these people realized their assets in less than 10 years, they had to pay a certain amount to Revenue Canada. If they did it more than 10 years later, there was no problem.

So I ask you whether you now have any specialists who have enough resources to closely monitor these people who transfer assets outside Canada.

[Michel Dorais]

Thank you, Mr. Chairman.

Yes, we're able to monitor them, but I'm sure the member won't be content with that answer. Since these people work for Mr. Kowalski, I'll ask him to add to my answer.

[John Kowalski]

In 1996, the Department of Finance did announce certain measures to tighten the migration rules for individuals, including trusts, who emigrated from Canada, and these received royal assent in 2001 and were retroactive to 1996.

Essentially, under the new rules, people who leave Canada must calculate their taxes as if they had disposed of their property, other than certain taxable Canadian property, and they can either pay that tax immediately or else, as you noted, they can post security for that amount. Depending on whether they're an individual--a person--or a trust, there are certain forms they have to complete and certain information requirements they have to provide to the agency. And when they emigrate, they need to identify all the properties they hold.

We do have a system that tracks this information and tracks each of the properties they reported in the year of emigration. Anybody who chooses to defer payment of the tax owing is required to provide security before the due date of the return or to contact us to make an arrangement.

These accounts are in fact monitored on a yearly basis, and each and every year we issue letters to remind the taxpayers, after emigrating from Canada, that if they dispose of any properties, they should notify the Canada Revenue Agency of those transactions.

So that kind of monitoring and tracking system does in fact exist.

[Yvan Loubier, Bloc, Saint-Hyacinthe—Bagot, QC]

All right, but are you telling me, with regard to the guarantee that taxpayers must provide before transferring assets outside Canada, that it is equal to the amount they would get by realizing those assets in Canada? I think it must be a smaller guarantee than that. Is that correct?

[John Kowalski]

They have the choice of either paying the full tax involved or else providing security that is sufficient to cover the amount of tax. So it wouldn't be for the value of the property; it would be for the value of the tax that would be owing.

[Yvan Loubier, Bloc, Saint-Hyacinthe—Bagot, QC]

But if these people, whom you're monitoring, dispose of their assets outside Canada, the guarantee they've posted on leaving is refundable after a regulatory 10-year period, so starting in the eleventh year.

[John Kowalski]

Do you mean if they pay the tax at the time of emigrating?

[Yvan Loubier, Bloc, Saint-Hyacinthe—Bagot, QC]

Let's suppose they leave a sufficient guarantee, as you say, but that it doesn't equal the amount of tax they would have to pay if they realized all the assets in the trust. Let's imagine they are outside Canada for more than 10 years and that, at the end of the tenth year, they realize the portfolio. If they pay taxes outside Canada, they can claim the guarantee from you that they left before leaving, can't they?

[John Kowalski]

My understanding--and I can be corrected by my colleague from the accounts receivable area--is that there is no time limit. The monitoring and the tracking will continue.

[Yvan Loubier, Bloc, Saint-Hyacinthe—Bagot, QC]

Are you saying that, even when people have been outside Canada for more than five years, their assets can still be subject to a claim by the Revenue Agency?

[John Kowalski]

I'm sorry. I missed the translation completely. Oh, there was no translation.

[Yvan Loubier, Bloc, Saint-Hyacinthe—Bagot, QC]

Before the reform, it was said that, if assets were realized outside Canada within a 10-year timeframe, a payment to Revenue Canada was mandatory. But you're telling me that that 10-year period has been abolished.

From what I understand, Canadian citizens who transfer assets outside Canada, regardless of where, and who realize those assets 15 years later would still owe the Revenue Agency money.

[Michel Dorais]

I'm going to answer committee members that there is indeed no time limit. However, I would ask them to give me a day to ensure that that information is in fact correct.

[Yvan Loubier, Bloc, Saint-Hyacinthe—Bagot, QC]

All right. That would be appreciated.

[The Chair, Conservative, Brian Pallister]

Thank you, Mr. Loubier.

To continue, we'll have Madam Ablonczy, s'il vous plaît.

[Diane Ablonczy, Conservative, Calgary Nose Hill, AB]

Time goes so quickly.

[The Chair, Conservative, Brian Pallister]

It does.

[Diane Ablonczy, Conservative, Calgary Nose Hill, AB]

We appreciate your being here, gentlemen.

We know that being in the tax collection business does generate, shall we say, some less than desirable publicity at times. I do want to ask you about that, though.

As members of Parliament--at least I speak for myself, and I know other members of Parliament have told me the same--we do have constituents coming to us on a fairly regular basis very concerned about what you might call the culture of the agency on tax collection, in terms of reasonableness, in terms of effort expended for small amounts sometimes. I don't want to get into storytelling, but I think you know what I'm referring to.

Some of the stories I've heard have troubled me a great deal, and my question is as follows. If a taxpayer feels that they have been harassed, treated unfairly, have had their assets sold without proper authorization and then been unable to get the asset back once there's a ruling that it was improperly seized and sold--these kinds of things--is there an ombudsman? Is there a process where taxpayers can bring these issues forward and get some redress?

I know as members of Parliament we've been a little bit frustrated sometimes in trying to get a resolution for actions--and we know individuals don't always act as wisely as they could or should.

What's your corporate culture on dealing with these kinds of issues for ordinary Canadians who are up against the all-powerful department and really don't have the resources to seek redress when they feel they've been very unfairly treated?

[Michel Dorais]

Mr. Chairman, the member is right, being in the tax business is sometimes complicated.

[The Chair, Conservative, Brian Pallister]

Even in the taxpaying business.

[Michel Dorais]

We're all in the same boat, wherever we sit. And we do have millions and millions of taxpayers, so it is not surprising that in some cases we have issues.

Now, on the substance, we do have a very elaborate appeal system that is independent and looks into any problem a taxpayer may have when he or she feels the amount collected or the amount under collection is not the right one.

[Diane Ablonczy, Conservative, Calgary Nose Hill, AB]

Is that through the courts?

[Michel Dorais]

No, there's an appeal system, an appeal branch, and it can be brought from there to the court. But before that, there are literally thousands of taxpayers who go to that service.

[Diane Ablonczy, Conservative, Calgary Nose Hill, AB]

What does that cost?

[Michel Dorais]

For the taxpayer, nothing; it's free. In fact, now they can even apply online to get their situation reviewed that way. It's reviewed completely independently, with the power to settle in some cases.

Now, from there you can go to the tax court and escalate the thing. But there's a large number, the largest number...and our objective is to solve the problem before it gets anywhere close to court.