Finance Committee on June 19th, 2006

[Sheila Fraser]

I don't think we noted anything that would require legislative change. The issue isn't the legislation or the laws. I think it is really a question of the management and the sophistication of the management of this. It's a very large sum of money.

I think we all have to recognize that there will always be taxes owing; there will always be people who will not pay their taxes on time; and the amount is always going to be large, because of the volume of money they deal with. They deal with over $300 billion a year, so the amount of receivables or taxes owing will always be very large.

But we think they could do better by having better information both on the taxpayers who owe the money and on the composition of the amount, and by having better information on which types of collection are the most efficient in what case. Basically there needs to be more attention paid to collections.

[Judy Wasylycia-Leis, NDP, Winnipeg North, MB]

I appreciate that, because I don't think we want to go down the path of trying to make amendments if they're not necessary or helpful.

One of the perceptions among folks is that it's actually the wealthier who are able to avoid paying taxes. I know you've got a chart that indicates a breakdown of the debt, and it's not just corporations. A significant portion of tax evasion comes from the personal income tax side.

Do you have a breakdown by income tax bracket for that category?

[Sheila Fraser]

We don't have that information. I don't know if the agency would.

[Judy Wasylycia-Leis, NDP, Winnipeg North, MB]

It's not only a perception of people. We hear more and more stories about the shift taking place in terms of tax evasion, and I know this isn't tax evasion. This is a case of taxes owing. You hear about the shift in the neighbourhood of about $11 billion to $88 billion going offshore in terms of revenue or income, and no taxes being paid according to Canadian laws. You hear about studies out all the time suggesting that there's a much higher percentage in high-income groups than in low-income groups of those who don't pay their taxes. When we raised this issue with the department last year, there was a report out by Brigitte Alepin showing that.

I guess I'm just trying to figure out who the culprit is here and why we aren't going after them. Is it just technology? Is it just the fact that our systems aren't keeping pace? Or is there something else? And how do hard-working Canadians who are struggling day to day feel good about the fact that they're obeying the law when they hear about others who aren't? I don't know if there's an answer to that question, but it is a concern.

I will go back to the final area of attention of our committee, and that is the department, the way it's organized, the way the staff is being allocated to this, and the way it trains staff. I'm wondering if all of these changes associated with going from a department to an agency and now a stand-alone and this constant movement and reorganization with respect to this organization within government don't take away from the need to actually get down to work and collect taxes owing. If that's part of the problem, when will that ever settle down?

Secondly, with respect to staffing, we asked the department last year--because they got a lot more money in the budget--if it was a question of staff or, as the union said, of proper training of individuals and their capacity to deal with the problems. At that time Michel Dorais said,

...we have a lot of money and we're putting a lot of effort into that; $30 million is not insignificant. It means we will assign 250 people to these files over the next while, and that is a huge amount of manpower.

He said they've got amazingly qualified people and so on, but they have to learn more, and they're going to Dublin to learn more, etc.

Is it a question of being preoccupied with reorganization? Is it a question of training staff? Is it a question of actually making this a priority within the department?

[Sheila Fraser]

As I said before, we are planning to do this audit of the human resource system, and some of the questions raised certainly relate to that.

I could perhaps suggest to the committee that if, during the course of the hearings or otherwise, you have concerns about human resource management practices and you would like to suggest that we look at them as part of the audit, we would certainly be glad to consider that, because we haven't really looked at issues like training or movement of people within the organization yet, but those are potential areas, obviously, for audit going forward.

[Judy Wasylycia-Leis, NDP, Winnipeg North, MB]

But to go from $5 billion ten years ago in terms of taxes not paid to $18 billion today, that surely can't all be accounted for in terms of just changes in technology and new systems and information flow. Surely it reflects something more, a deeper issue, a systemic issue.

[Sheila Fraser]

In the tax debt audit we did note that the amount of money owing to the government had increased faster than total taxes. So it isn't simply a growth factor. We would have expected the agency to be able to explain why that was, and they weren't able, so again it comes back to their ability to have good information and analysis of what is happening with this tax debt. That's why we say they need to have more sophistication in how they're dealing with this very large sum of money, and we would have expected them to be able to answer that question.

[The Chair, Conservative, Brian Pallister]

Thank you, Ms. Wasylycia-Leis.

Mr. McKay, you have five minutes.

[John McKay, Liberal, Scarborough—Guildwood, ON]

Thank you, Chair.

Can you tell me how we're collecting $300 billion? Is that value for money?

[Sheila Fraser]

I guess it all depends, doesn't it?

[John McKay, Liberal, Scarborough—Guildwood, ON]

Yes, but you're the only person in Canada of whom we can actually ask that question.

[Sheila Fraser]

I'm not sure that I can give that evaluation. I don't know what percentage of tax is collected automatically by deductions at source, but for a huge portion of taxes, the agency itself doesn't have to make any real collection effort. Obviously they have to manage the money coming in, so they might have comparators with other national tax administrations to see how they do that, but we can't give that kind of information.

[John McKay, Liberal, Scarborough—Guildwood, ON]

So you haven't conducted any studies with respect to other jurisdictions to see whether—

[Sheila Fraser]

No. That would really be getting into an evaluation, which is work that we don't do. We only look to see if the agency itself has done that kind of evaluation work if we feel, in our audits, that it's warranted.

[John McKay, Liberal, Scarborough—Guildwood, ON]

Of that $300 billion, about a third of the money is collected for provinces. In the agreements, do the provinces contribute anything to the cost of running the agency?

[Sheila Fraser]

What happens is that the Canada Revenue Agency collects the money and remits 100% to the province--fairly quickly, actually, through advances--and then there is a settlement once we have completed our audit of the statement. The agency will collect any interest and penalties owing on that, but it also assumes any writeoffs that have to occur.

[John McKay, Liberal, Scarborough—Guildwood, ON]

So if you're collecting $1,000 on behalf of a province, you immediately write a cheque to the province, but if there is interest or a penalty attached, that's collected afterwards.

[Sheila Fraser]

Yes.

[John McKay, Liberal, Scarborough—Guildwood, ON]

And the agency keeps that money.

[Sheila Fraser]

That's right. But if there is a loss--for example, if the $1,000 isn't paid by that individual because the individual goes bankrupt or whatever—the agency assumes that loss.

[John McKay, Liberal, Scarborough—Guildwood, ON]

It's almost a perverse incentive on the part of the agency to be slow in collecting, isn't it, because they would, in effect, benefit from slow collections.

[Sheila Fraser]

As Jamie was saying, the longer they wait, the harder it is to collect, so the risk of losing it goes up. And I'm sure that the Department of Finance wants to have something to say about the cash in and cash out.

[John McKay, Liberal, Scarborough—Guildwood, ON]

I'm sure they do. But there is a kind of perverse quality to the system, at one level.

Of the $18 billion in accumulated arrears, how much is added on an annual basis?

[Sheila Fraser]

I'm not sure. We can check.

[A witness]

It's $11 billion, I think; it was $11 billion last year.