Finance Committee on June 12th, 2006

[John Kowalski]

Our largest audit coverage is with large corporations. Of the large corporations we audit, virtually all of their tax returns are filed on a biannual basis, so every second year we'll audit two years' worth of corporate tax returns. We do this taking into account the complexity of the transactions large corporations enter into, because of the dollar amount involved, because of the frequent legislative changes that affect large corporations. It's an area we've identified as high risk, and one we look at very closely.

In doing so, we bring a team of tax avoidance and international specialists to bear on it in order to identify the kinds of triggers that would require further action. Whether it's a transfer pricing type of issue or a particular arrangement or scheme we might find offensive, we bring folks to bear on it.

The large number of small and medium-sized enterprises is where risk assessment and risk management is critical for us. We risk assess and risk score each and every one of the some 24 million individual returns that are filed, each of the two million business returns that are filed, and all five million to six million GST returns that are filed. Over the years we've developed a series of indicators—I don't think I have the exact number, but it's in the ballpark of about 200 different indicators—that are in the computer system to assist us in risk scoring a particular return to try to identify particular risk factors.

To take a relatively simple example, if you live in a certain neighbourhood that is well beyond the income you report, that will be one trigger that will show up. If you have a certain business where your gross operating profit or margins are significantly different from what is the norm for that particular industry, that is another risk factor that will show up.

There are other reasons we'll do an audit. We might do a follow-up audit on a previous audit we've done, just to ensure that in fact there is compliance. We have a leads and assistance program, so sometimes we receive leads from external sources. We will look into those where it's warranted. We have a core audit program as well, and we have a small number of people—around 50 or so—who do a series of random audits. We do that just to benchmark our risk assessment systems in order to ensure that they are as effective as possible.

So there are many reasons why we would carry out an audit, but generally speaking it's all risk-based.

[The Vice-Chair, Bloc, Yvan Loubier]

Thank you, Mr. Kowalski. Thank you, Mr. Scarpaleggia.

Unfortunately, Mr. Turner has lost his turn.

Mr. Christopherson, you have five minutes.

[David Christopherson, NDP, Hamilton Centre, ON]

How sweet is that? All right, thank you, Chair.

We try not to be petty, but we are—at least I can be.

[Some hon. members]

Oh, oh!

[David Christopherson, NDP, Hamilton Centre, ON]

Coming back to a couple of things, I do have a question. On page 37, you say the CRA continues to maintain good working relationships with the unions. On page 53, you also talk about “expanding and improving both the range of service offerings available to Canadians and the variety of channels through which these services are available”, and yet on both fronts you have major problems. You've closed the cash counter—you no longer allow Canadians to pay with Canadian currency anything they may owe—and yet you brag about expanding and improving service while you've just cut service to Canadians. That has triggered a campaign from the union, and I'm sure I'm not the only one receiving these cards from the union—your union—who are extremely upset about the diminishing of services to Canadians. Maybe you can explain the discrepancy for me.

[Michel Dorais]

There are two things there. The first thing is the relationship with the union. I'd like to think we have an excellent relationship with both unions of employees, and I encourage the committee to ask them the question. We've been working very hard on all sides to develop that relationship, and I have the utmost respect for the work the unions are doing.

That said, they had us change our mind on the payment counters. The original decision was the abolition of all payment counters. The unions came, and we had long discussions and changed that decision, allowing payments in all our offices, except the cash payments, which require a particular infrastructure to accept and are more difficult to handle.

On the counters, we agreed to disagree; the unions obviously do not share the rationale for the decision. We happen to believe that with the opening of the Service Canada offices—300 offices across the country where general information would be available—with the availability of online services, and with the possibility for people to make an appointment, overall after everything is in place taxpayers will get a better service in the end.

[David Christopherson, NDP, Hamilton Centre, ON]

Thanks, and I'm sure we'll get a chance to ask the union.

I have a quick question before I move to my main question. Do you know if you now apply GST to transit passes? Does anybody know that?

[Michel Dorais]

I don't have the answer, but we can provide it.

[David Christopherson, NDP, Hamilton Centre, ON]

I thought you might know.

If you do, could you give me a start date when you were advised to begin? Thanks.

[Michel Dorais]

Was that from the last budget?

[David Christopherson, NDP, Hamilton Centre, ON]

I don't know; I'm fishing. I'll be right up front. I don't know the answer. I'm hoping you can help me.

I brought an easy question for you to end. You mentioned earlier—and I'd like you to repeat and expand on it—that moving to an agency has been an improvement. Could you touch on that again and give us some concrete examples of where we are doing better as a government—overall, Parliament—in providing the taxation collection services through the agency, as opposed to what it was before? That's not a loaded question; it's meant to be open-ended. Go for broke.

I don't have a follow-up after that, Chair.

[Michel Dorais]

The creation of the agency brought into what was the revenue department individuals from the private sector who imposed their judgment on the various elements of the management of the agency. That has yielded an extreme rigour within the agency. Because I came from another department into the agency, I can tell you from experience that as a result, the nature of the issues around the management table are very different.

As to what we've been able concretely to accomplish, I think the report shows a number of elements of success. We've been able to grow steadily, since 1999 up until now, and all of this has been financed through efficiency measures. Ahead of everyone in the government, we developed the consolidated procurement systems to save an enormous amount of money, and we can provide the committee with the actual savings that have taken place. We've integrated our IT system four years before the rest of the government is thinking about implementing it. We've tested and successfully achieved it.

I'd like to believe that the creation of the agency introduced the rigour of a corporate structure into the public sector environment, while keeping the political accountability.... Frankly, it is a challenge to all of us to make that work and see if we can demonstrate to Parliament and others that this slightly different model of managing a highly operational part of government can work and give good results.

[The Vice-Chair, Bloc, Yvan Loubier]

Thank you, Mr. Christopherson. Thank you, Mr. Dorais.

Mr. Turner.

[Garth Turner, Conservative, Halton, ON]

Thank you. The change from a department of the government to an agency to a commission has been fundamental to your evolution, and because of some fluke of history, I ended up in charge of Revenue Canada for a while. I was struck by the ability for political interference in the system. I'm wondering if you can give us some characterization of how that presumably has diminished with the change.

[Michel Dorais]

I can comment only on the year and a half that I've been there. I can tell you that the act provides that the agency has to give the Minister of National Revenue all the information he or she asks for. So there's a flow of information that takes place. As the commissioner, I have never been asked to audit or not audit, to investigate or not investigate, or to assess or not assess a particular taxpayer, firm, or any other organization. Questions have been asked and answered. We owe the information to the minister, but there was no political interference on files.

[Garth Turner, Conservative, Halton, ON]

All right. I believe one of the chief benefits of the move has been to depoliticize the whole operation, and that's great.

Let's move on to GST for a moment. We're now in the midst of reducing the GST from 7% to 6%. In this committee, we talked previously a bit about the cost of doing that. Could you reiterate the cost of the reduction program, and will it be a similar cost when we reduce from 6% to 5%?

[Michel Dorais]

We do have that information. Mr. Baker has the answer.

[William Baker]

We're estimating the cost for the current fiscal year—and this is just the cost for conversion, notification, and all the systems changes—at $8.6 million. Then that virtually goes away, and in 2007-08 there's a residual cost of $1.3 million.

[Garth Turner, Conservative, Halton, ON]

Do you anticipate a similar thing with the next point reduction?

[William Baker]

As you know, having been at the helm of this organization, little things are big because of the need to make sure that all of our system is lined up to reflect the proper amount of tax. That means all our forms and publications, whether electronic or physical, all the scripts we provide employees--everything. Of course, because it's an input tax credit system, you have to do it on the coming-in as well, and there are implications across the organization for a reduction.

What's important to us, whether it's $3 million or $5 million, is that we get it right, because if we get it wrong, we impose a terrible burden on GST registrants.

[Garth Turner, Conservative, Halton, ON]

This government may be moving down the path towards the elimination of the GST. We're certainly moving in that direction as opposed to the other one, so it bears this question: what is more efficient to collect, income tax or GST?

[William Baker]

At this point, we have now been collecting the GST for 16 years; as for income tax, the temporary tax goes back 90 years to 1917.

I think it's fair to say after all those years, whether you're talking 16 or 90 years, that we have developed the systems and capacity and expertise to collect both taxes quite efficiently right now. So it would be difficult I think for anybody to say which one is cheaper to administer in terms of the incremental dollar.

Perhaps the Department of Finance has done studies to that effect, but I'm not aware of any.

[Garth Turner, Conservative, Halton, ON]

How do we compare with other countries that have the value-added tax, in terms of the efficiency and the cost of collection of our value-added taxes? Have we done studies?

[William Baker]

No. What I can tell you is that some of our international partners have self-assessing systems with value-added tax and income tax, and we tend to mark ourselves against that; we've attempted to benchmark our progress against them. It's been a very difficult thing, because every value-added tax in the world is different for various reasons and because of the interplay between the value-added tax and, say, the provincial tax systems--we have a harmonized sales tax, of course, in the three Atlantic provinces and in Quebec--so we really have not been able to derive meaningful indicators of our performance vis-à-vis other jurisdictions.

[Garth Turner, Conservative, Halton, ON]

My last question is on a different topic, and that is income splitting. It certainly has been part of our government's theoretical platform to allow income splitting, and I'm thinking particularly with--