Finance Committee on June 21st, 2006

[The Chair, Conservative, Brian Pallister]

Welcome to committee members and to our guests.

We are meeting pursuant to Standing Order 108(2) and section 89 of the Canada Revenue Agency Act, the study of the first five years in statutory review of the act. We have the opportunity to continue that discussion today.

With us we have guests from the Certified General Accountants Association of Canada. I understand there will be some brief introductory comments, and we'll follow that with some questions for our witnesses.

Mr. Colby, would you like to proceed?

[Everett Colby, Chair, Tax and Fiscal Policy Committee, Certified General Accountants Association of Canada]

Thank you very much, Mr. Chairman and honourable members.

We welcome this committee's review of the CRA's mandate. From the agency's launch, CGA-Canada has played an active role in providing important input that has helped its administration of Canada's tax system. It's a task we embrace, as we believe we have something very unique and valuable to contribute to the further development and refinement of a fair and equitable tax system. After all, we are accountants.

At the time of its creation, the Canada Revenue Agency was assigned three very important objectives: one, to deliver better service to Canadian taxpayers and businesses; two, to achieve greater organizational effectiveness and efficiency; and three, to establish a closer partnership with the provinces and territories. We believe the agency has achieved some success in each of these, though we also see room for improvement.

We support the Public Policy Forum's view that a focus on improving service and reducing costs to the taxpaying public is the best catalyst for thinking about future directions. In its bid to better serve Canadians by becoming a customer-driven organization, we suggest the agency focus on strengthening its performance in four key areas.

Number one is rendering consistent, predictable decisions. Consistent decision-making is critical to a just and defensible application of tax laws and regulations. We're happy to provide examples of issues where you can have the same set of circumstances with the taxpayer but get a different result, depending on whether that taxpayer is in Halifax or Calgary.

Number two is delivering expertise and well-informed counsel. The reliability of information and that of its sources is a make-or-break issue for professional accountants. This speaks to the training requirements of agency personnel in the interest of delivering even-handed, well-informed information to clients. In this regard, we urge this committee to consider the benefits of maintaining the agency's current advisory committee structure.

I'm a member of the TPAC that was recently disbanded, whose purpose it is to provide ongoing information and advice on needs and interests specific to particular sector and client groups. One of the reasons we believe this is very important at a multitude of levels is that effective communication is two-way communication. So the use of these types of committees allows for more two-way communication between the, in a sense, administrators--the middlemen, us--the taxpaying public who communicate through us, and the representatives of CRA.

Number three is communicating effectively with Canadians. With 24 million tax filings each year, the task is daunting. The CRA is to be commended for its introduction of new technologies aimed at improving Canadians' access to better, more timely information. While we see this as a healthy start in the right direction, the implementation of cutting-edge, web-based information systems is undermined by the requirement to maintain antiquated paper-based records for auditing purposes, one that is costly, confusing, difficult to manage, and quite frankly, no longer necessary.

Number four is treating Canadians fairly and respectfully. As taxpayers, we're obligated under the law to report the truth about how much money we earn each year. In return, the taxman--in this case, the CRA--should treat us with the fairness and respect we've come to expect and deserve. We think the CRA's approach to risk assessment ought to better reflect that, in the real world, honest mistakes can and do happen.

An underlying principle of the Income Tax Act itself is self-assessment, and it is the job of the professional accountant to assume the burden of accountability on behalf of his or her clients.

We wanted to keep our comments brief so that it would give you more of an opportunity to ask questions, which we would be happy to answer, and I welcome those questions at this point.

[The Chair, Conservative, Brian Pallister]

Thank you very much, Mr. Colby.

To facilitate, given the shortage of time and the intensity of our agenda today, colleagues, I'm going to take the liberty of shortening the time for questions to allow more members to engage.

I'll ask Mr. McKay to begin. Five minutes, please.

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

Thank you, Chair.

Your item 3 has to do with paper-based records for auditing purposes. I can see that from the Revenue Agency's standpoint and I can also see it from the taxpayers' standpoint, but I don't see how you can change that. Tell me, what would it be? Would it be a change in regulations or a change in legislation with respect to the obligation of the taxpayer to hold those kinds of records in order to substantiate his or her return?

[Everett Colby]

Quite frankly, the legislation talks about records; it doesn't necessarily specify that they must be paper. But it is the position of the tax department, in almost every audit we encounter, that those records need to be paper-based to be produced--in most cases.

But look at today's business world. Let's take a self-employed individual. You have Bell Canada, you have your Internet, you have all of these offering you e-bills to try to help improve and make things more efficient. I still have to print those off in order to have a copy, just in case I get audited three years down the road. Why should it be a problem for me to maintain my business records in that electronic format, provided that this electronic format is readily readable and available to the auditor who comes in?

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

Is that requirement simply a requirement of the agency, rather than a regulation in law?

[Everett Colby]

I'm not a lawyer, but my understanding of the section dealing with records is that it does not specify that they must be paper-based.

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

So really, it's just a matter--

[Everett Colby]

It's policy.

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

--of practice.

[Everett Colby]

Yes, “practice” is a better word.

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

I take it that your group would recommend that practice, that there be an equivalency between electronic records and paper records.

[Everett Colby]

Absolutely. I would also suggest that from an efficiency and an effectiveness point of view, for example, we be allowed to submit receipts or tax slips.... You know, they've pushed the electronic filing a lot to try to make things easier for people. What we find in many instances is that there is a much higher percentage of returns that are reviewed--not audited, but reviewed--requesting receipts, which then requires the paper filing of those receipts. It leaves the accountants in a quandary. Do we charge our clients for the extra time we need to spend processing this for them? Do we leave it up to them, when they may not understand what's being asked? To allow us to submit those T3 or T4 or whatever kind of slips they may be looking for, there should be a method for us to submit them electronically.

To give you an example, at the tax professionals advisory committee meeting last year in November, there was a huge issue about the authorization forms, which the CRA needs in order to disclose information to an adviser. It's a matter of privacy. There are huge--I mean huge--problems in the administration of those, because they're all paper-based. So we asked, because they require a signature, if they could be submitted electronically, perhaps in PDF format. We were told no, it's not a secure basis. Within 10 days of that meeting, there was an article on how the Internal Revenue Service has now gone to allowing PDF file attachments for certain types of documents and forms.

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

This is the U.S. IRS.

[Everett Colby]

It's the U.S. Internal Revenue Service. Why would it be okay there and not here?

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

Those are essentially operational issues that would not require regulatory.... But it may be appropriate for this committee to comment on this in its report.

[Everett Colby]

I believe a comment would be good, because I firmly believe that part of the CRA's job in administering the tax act is to ensure that the intent is carried out, and if this committee or the government expresses a desired intention, then they should be mindful of that intention in the way they administer their policies and practices.

[The Chair, Conservative, Brian Pallister]

Thank you.

You have five minutes, Mr. Bouchard.

[Robert Bouchard, Bloc, Chicoutimi—Le Fjord, QC]

Thank you, Mr. Chairman.

Thank you for your presentation and for appearing before us today.

I think you said that taxpayers or people dealing with the Canada Revenue Agency get different information depending on whether they deal with the Halifax office or a different office. That was my initial comment.

Could this be attributable to the fact that there are so many regulations and that income tax is such a complex matter? Have you noted over the years a lessening of the efforts to reduce regulations and the complexity of the paper work required of taxpayers?

[Everett Colby]

That's a very loaded question. To answer your question in light of the different decisions that might be rendered in one jurisdiction or another, I do not believe in my experience and the experience of practitioners that I have discussed this with across the country that that is as a result of regulation. We believe it is as a result of inefficient communication within the agency itself. Realistically, given the same set of factors, the same taxpayers, and the same circumstances, the decision on something such as whether they are self-employed or an employee should be the same no matter where they live in Canada.

What we find is that there is inconsistency in applying the typical criteria, and part of that, we believe, based on feedback we've gotten from the department itself at some of these committees, is that auditors in Calgary, for instance, rarely have any opportunity to discuss these matters with auditors in Halifax. There don't seem to be the types of team meetings amongst the groups that would allow for discussion of these issues to make sure that everybody is on the same line with that.

As to your question about complexity of the regulations in the Income Tax Act, we have in our budget submissions for the last five years requesting that there be a thorough look at a structural reform of the Income Tax Act, because as we mentioned, people are willing and happy to comply when the legislation is “predictable and reliable”.

What we seem to be seeing is that it has gotten so complex that rules may be introduced to plug a little hole here in the dam, but doing so causes water to pop out over there, and then they plug there. So it seems more of a patchwork approach, rather than a consistent approach to try to ensure proper compliance with the act as a whole.

[Robert Carrier, Bloc, Alfred-Pellan, QC]

Good afternoon, sir. I will be asking the next question.

In your brief, you mention that the Income Tax Act is very complex. I think this is a most appropriate comment. I look after my brother-in-law's affairs. He works outside of Canada and may be exempt from paying income tax on the work he does outside the country. Communications with the Canada Revenue Agency are very complex. I have to begin over again every year. Consequently, I am familiar with the complexity and the need for people to turn to accounting firms such as yours.

Are you not in somewhat of a conflict of interest situation with respect to the complexity of the act, because, ultimately, the more complex the act is, the more contracts you get from the private sector?

[Everett Colby]

To answer from the point of view of complexity and the potential for conflict, the government of the day, approximately six years ago, introduced what is known as the civil penalties legislation, which places a direct financial risk and burden on me as a tax professional to ensure that my clients are in fact complying.

In that respect, it can place me in a conflict, because if the Canada Revenue Agency decides to reassess that taxpayer, and they come back to me, whose interest am I going to look to protect? My overriding concern is to protect the client's interest, but I now indirectly have to also be worried about my own interest, because a fine can be levied against me. So in that respect, the more complex it becomes, the more difficult it becomes for me, as a professional who deals with it on a daily basis, to keep up with the right way of doing things.

My colleague would like to answer that from a different perspective.

[The Chair, Conservative, Brian Pallister]

I'm sorry, we're out of time on this round, but feel free to work your response into a subsequent question.

Mr. Dykstra, to continue, you have five minutes.

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

Thank you, Mr. Chairman. I'll jump right in.

Thanks for coming.

Regarding your first recommendation, how have they not been rendering consistent, predictable decisions up until this point?

[Everett Colby]

How have they not done so?