Finance Committee on June 12th, 2006

[William Baker]

I'd like to comment, Mr. Chair.

One of the things the agency is taking a hard look at, as we do what all modern organizations have to do, which is look at the right critical mass necessary to deliver a service.... We have the good fortune of having such a terrific, competent, distributed workforce across the country, including places as small as Thunder Bay. So we're looking at what we can deliver, using the talent where it resides, because you're absolutely right, we do know that there are situations where even in a smaller office, it may not only be a lower-cost place to do business, but you might have a workforce that is more experienced because they tend to stay attached to the organization longer.

I want to add one other thing, Mr. Chair.

From a career perspective, I don't think there is a federal agency that comes close to Revenue in offering the opportunity of starting at the ground level...you can go from a clerk and work your way to the most senior assistant commissioner level without having to come to Ottawa. I don't think there are too many organizations that offer this kind of career opportunity to employees.

[The Chair, Conservative, Brian Pallister]

Thank you very much.

Mr. Boshcoff, thank you for your questions.

I'll ask Mr. Dorais something.

Some of our subsequent witnesses will, of course, as you're aware, be raising issues of concern to you and to your agency, and I'd like to invite you back on behalf of the committee—perhaps next week at some point—if you would be open to that, because I know the committee members will likely have other questions for you as a consequence of other testimony we'll be hearing. Would this be something that would be possible?

[Michel Dorais]

Absolutely, Mr. Chair. The model of the agency is very important for all the senior management, and we'll be here as often as you request us to be here.

[The Chair, Conservative, Brian Pallister]

Thank you, sir. I know committee members will appreciate that.

Mr. Loubier.

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

I'd like to know whether you've observed a significant increase in cases since the money laundering legislation went into effect.

A few years ago, the Auditor General told us that there were a lot of problems involved in the implementation of that act and that the number of complaints filed and investigations conducted had not necessarily increased.

[Michel Dorais]

With your permission, Mr. Chairman, I would ask Mr. Kowalski to answer that question.

[John Kowalski]

We have noticed a significant increase in cases referred since the introduction of the money laundering act.

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

How big is that increase, Mr. Kowalski? What does it represent in percentage terms? Is it due to the money laundering act or to an increase in staff at the Canadian Revenue Agency?

[John Kowalski]

It's not an area I'm personally familiar with. I wouldn't want to mislead you. I know there are certain provisions in the money laundering act, and both provisions have to be met before a referral can be made to the agency. I don't quite recollect all of the details, but because of the two-step approach followed by the folks in FINTRAC, a limited number of referrals ultimately do come to the agency's attention from that route. We do receive quite a number through police forces, such as the RCMP and others.

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

Do you know whether your Agency has a report on the effect of the money laundering act, among other things, on the number of cases handled? If so, would it be possible to send it to us?

[Michel Dorais]

We look for it if there's something available.

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

All right.

I'm finished, Mr. Chairman.

[The Chair, Conservative, Brian Pallister]

Merci, Monsieur Loubier.

To continue, we have Mr. Dykstra. You have five minutes, sir.

[Rick Dykstra, Conservative, St. Catharines, ON]

Thank you.

I'm referring back to a couple of points made in the Auditor General's report of 2006. I look at it from a significant perspective, in that maybe I'll read it and ask you to comment on it. It's a question that has a longer history to it.

Overall, the Agency has not made satisfactory progress in addressing the recommendations of our 1994 audit. Its approach to assessing files for risk continues to lack sophistication and has major weaknesses that impede the timely collection of tax debts.

What's your response to that? From a history perspective, it obviously goes back a little while. Could you comment?

[Michel Dorais]

Mr. Chairman, we don't disagree with this. We're not satisfied that we've made enough progress either. The thing to understand is it is not as if we've done nothing since 1994. The issue is that we were confronted with a series of priorities, and this one has not moved as quickly as we would have liked. When you look at it independently from all the other activities we do, we have not achieved the progress we wanted to achieve; we're getting to it.

We have achieved enormous progress in other areas--that's probably where the investment went at that time--but we don't disagree with the assessment of the Auditor General. We know our system is not what it should be, and we're working on it.

[Rick Dykstra, Conservative, St. Catharines, ON]

In terms of areas of progress, would it be possible for you to comment on two or three of them?

[Michel Dorais]

Actually, we created the agency in that period of time. That was a major investment.

If you look at our volume of growth, for example, we sustained a growth of about.... If you look at the report on page 64, you see in figure 10 the graph that shows the growth from 1999 to 2004. The agency did not receive a single penny from the government budget process to allow for the growth in revenue. All this was funded through reallocations coming out of efficiency measures.

We certainly did concentrate a huge amount of money in there. We made major investments in fundamental systems that we needed to put in place; the GST redesign that we started a number of years ago required major investment, year after year.

The issue is always the same. We've been quite open about that. We always have choices when it comes down to allocating the money. We did improve dramatically--and I think the Auditor General mentioned it--on the accounts receivable. We were growing and growing every year, and we've now matched the intake. We're at the stage of having stabilized the thing. The board of management has been following that very closely.

So we've made some progress on that front. Have we got the right system to have a really top-notch collection? No, we haven't got that yet.

[Rick Dykstra, Conservative, St. Catharines, ON]

One of the other things in the report indicated that the tax debt has grown. I read this in the context of one of the five elements the agency was established on, that being accountability, and I ask the question from that perspective.

The tax debt has grown at a faster rate than the total taxes paid, while at the same time, management is not collecting the data it needs to understand why the amount of tax debt is growing and what it compromises. Would this not help in determining what is needed to actually reduce the debt and for the collection of the data?

Adding to that, she goes on to talk about information not being available and the effectiveness of various types of collection actions. It seems to me that speaks directly to accountability. Could you comment?

[William Baker]

If I may, Mr. Chair, we've acknowledged that we need far more refined and developed information systems to help us. The business of tax administration is the business of managing risk, and the same applies to tax collection. We have good information right now, but the information is prepared on an individual basis.

For this particular group of taxpayers who demonstrated they're not paying, we're really not as equipped as we would like to be to make intelligent decisions on the best way to approach that particular group of taxpayers. The Auditor General's report refers to some development work under way in the agency to get us to the point where we're more capable. It'll take time and money.

[The Vice-Chair, Bloc, Yvan Loubier]

Thank you, Mr. Dykstra.

Mr. Scarpaleggia, you have five minutes.

[Francis Scarpaleggia, Liberal, Lac-Saint-Louis, QC]

Thank you, Mr. Chair.

I'm curious about audited taxpayers. All kinds of people who are being audited say they've never done anything wrong and the auditor is driving them up the wall. I'm quite curious as to how you decide who is audited and who is not.

Secondly, do you have data--

[The Vice-Chair, Bloc, Yvan Loubier]

Mr. Scarpaleggia, I don't think the interpretation system is working.

[Francis Scarpaleggia, Liberal, Lac-Saint-Louis, QC]

Oh, I see. Is it working now? Yes.

A lot of people wonder why they're being audited, and so on. Can you tell us a little about the criteria that are used to decide who gets audited and who is left alone?

Do you have statistics on the incidence of audits by income group? There's perhaps a misconception that it's the little guy who always gets audited, and the tax department doesn't worry about the big guys.

My second question is in regard to penalties. How do you decide what the rate of interest will be on a late payment? In regard to GST remittances that companies have to make quarterly, I'm told that if you're late in your remittance, not only do you get charged interest, but you get slapped with a penalty. I don't know if this is true. How are these things determined? How do you know it's the best optimal penalty or interest rate?

Thirdly, is changing the tax form in response to a sudden proliferation of tax credits a costly and cumbersome process?

[Michel Dorais]

Mr. Chairman, there are quite a number of aspects to the questions. I will have to defer some aspects to my expert colleagues.

One thing that is very common is that people come to me and say they've been audited. I would ask all members of Parliament to help on that. When we start asking questions, we realize that what the people received were letters asking for more information. That's not an audit. It's simply that people have obviously filed electronically. If there is something unusual, we will send a letter asking for proof of certain claims, and that's not an audit. There's huge confusion out there.

I will ask Mr. Baker, and maybe John, to give more pointed statistics on the audits.

[William Baker]

Mr. Chair, on your first point, there was a time when being audited by Revenue Canada could have been as simple as bad luck on a random selection of a file. Today it isn't bad luck; it's because the Revenue Agency has identified your file for review for a good reason or reasons.

It could be a quantum issue and it's simply the size of the amount that's in question. It could be the nature of the activity that generates the income. For instance, we know certain types of economic activities are more prone to non-compliance than others. There could be more complicated issues with respect to partners or international dealings necessitating that we perform a higher level of due diligence to look inside and determine whether the right amount has indeed been paid.

Mr. Kowalski has extensive experience in that. Perhaps we could ask him, with the permission of the chair, for some further details.