Finance Committee on March 1st, 2007

[William Baker]

It doesn't make the pie bigger. I do not have the adjustments with me, but they're relatively minor year over year. We collect about $300 billion a year--actually more than that in total receipts--and we're only talking about a few million dollars a year. If you're a province, a million dollars is a million dollars, and it's important that we can get it right.

[David Christopherson, NDP, Hamilton Centre, ON]

Who was it that said, enough millions of dollars and you're talking real money? Some politician somewhere said something like that.

Why $5.5 million? It seems like a lot of money for a minor adjustment.

[William Baker]

This is to set us up to increase our capacity for a long time. The area of provincial income allocation was not a particularly sophisticated part of our audit programs. Provinces have asked that we make investments in this, and this is exactly what this is designed to do.

[David Christopherson, NDP, Hamilton Centre, ON]

I see.

This came out of public accounts also. Along this same line, foreign income, there's a real problem identified by the Auditor General with your agency's ability to identify foreign income taxes owed. One of the examples was that there were absolutely no auditing experts for this kind of taxation in Toronto, and 40% of that dollar value comes through Toronto.

Have you begun to address that yet? If so, what are you doing?

[William Baker]

Certainly. You're referring, of course, to the latest Auditor General's report—

[David Christopherson, NDP, Hamilton Centre, ON]

I am.

[William Baker]

—on international tax.

If I could provide a point of clarification, the observation from the Auditor General was that people working in the international tax area of the Canada Revenue Agency have, on average, only two years' experience. I should point out that refers to two years' experience doing international tax work, but they have many, many years experience as auditors working for the Canada Revenue Agency.

International tax is the most sophisticated audit work we do in the agency, and you don't get to do that work until you have cut your teeth doing audits of various-sized corporations and working in tax avoidance and so on. So these are experienced auditors, but only having spent a couple of years—

[David Christopherson, NDP, Hamilton Centre, ON]

I realize, but it's the Auditor General's point that because of the level of expertise required, the fact that you didn't have it in Toronto is a problem. She identified that as a gap.

[William Baker]

It is.

[David Christopherson, NDP, Hamilton Centre, ON]

Let's not quibble about what the problem is. We can have that battle, if you want, but I think that's been determined; there's a problem. What I was looking for was, what are you doing about it?

[William Baker]

First of all, that's been a challenge for the agency for a long time in markets like Toronto. People who possess the kinds of skills to do international tax work for the CRA are in tremendous demand by the private sector. They're often recruited from us at a certain point, and we can't do anything about that. What we are doing is we're beefing up our training programs and beefing up the experience of our more junior auditors to get them in a position to be able to do that work and increase our capacity.

I must say, Mr. Chair, there is no magic solution to this. We're dealing with an area in demand and we're dealing with public service wages in a competitive market, and that will always be a challenge for us in places like Toronto.

[David Christopherson, NDP, Hamilton Centre, ON]

I accept the fact that it's a challenge, and the Auditor General has a problem even in her own shop, but nonetheless, the challenge has to be overcome. We can't leave the situation where we don't have the experts to determine taxation levels, especially if it's being earned elsewhere and it needs to be here in the Canadian economy. All the more important that we identify that money and get it here in Canada.

Thank you, Chair.

[The Chair, Conservative, Brian Pallister]

Thank you, Mr. Christopherson.

Dealing with a point I have some sympathy for, what you've said is that as soon as you develop the expertise so that you can score on the people trying to avoid tax, they hire away your big scorers, like small market/big market NHL teams: they take away your people. Or should I argue that they are the defencemen? I don't know which analogy works best.

But is that what you're saying, that the people with the greatest expertise on the side of tax fairness get hired away for that expertise, which then creates a shortage of people who have the ability to ascertain what taxes are really owing at the corporate level, in terms of some of these international or offshore operations?

[William Baker]

Mr. Chair, I wouldn't want to leave the committee with the impression that there's a mass exodus, but there is a demand for these people. If you were to look at just about any of the major accounting firms, and, for that matter, legal firms in the country, many of their top people who are working in this field, such as transfer pricing, which is a huge specialization, come from the Canada Revenue Agency. They've cut their teeth working for us, and these people can triple their salary going to the private sector.

Fortunately, very few actually do, but when you're dealing with a small group of specialists, every loss is a loss. We're blessed, frankly, that most of our auditors are public servants for the right reasons and they're happy to continue serving, and we bank on that. We're very fortunate.

[The Chair, Conservative, Brian Pallister]

Mr. Christopherson alluded to the most recent Auditor General's report. Of course, we're aware that a series of the Auditor General's reports previously have pointed out the same challenge, the same problem. It's worth noting, and I appreciate Mr. Christopherson raising it.

We move to Mr. McCallum now.

[John McCallum, Liberal, Markham—Unionville, ON]

Thank you, Mr. Chair.

How much time?

[The Chair, Conservative, Brian Pallister]

Very little.

[John McCallum, Liberal, Markham—Unionville, ON]

I'd like to focus on this panoply of little tax credits in general and the children's fitness tax credit in particular. In terms of how you determine eligibility for that fitness tax credit, I'm told that really depends on the amount of sweat involved in the activity. Soccer and hockey would clearly qualify, I guess, but violin and piano playing wouldn't. But then you have intermediate cases like ballet or yoga. I'm not sure if those generate sufficient sweat.

My question is how you monitor, control, and enforce that. Does one need to have random checks such that agents from CRA go out and measure the beads of perspiration on the foreheads of the children of the nation? How does one administer such a program.

[The Chair, Conservative, Brian Pallister]

The chair should point out that the perspiration level in no way alludes to the fact that Mr. McCallum does work up a sweat running for a smoke break.

[Some hon. members]

Oh, oh!

[The Chair, Conservative, Brian Pallister]

Mr. Baker, go ahead please.

[John McCallum, Liberal, Markham—Unionville, ON]

I'm probably too old, too.

[William Baker]

We're continuing to work, as the member might be aware, with the Department of Finance to flesh out all of the parameters around the proper application of the fitness tax credit. I can't provide any more specific details on that today, but certainly if the committee were interested, we'd be pleased to provide information, either in a meeting or offline, with respect to the state of development on that.

We will not be measuring sweat. If we were, I guess our supplementary estimate fee would be considerably higher.

[John McCallum, Liberal, Markham—Unionville, ON]

Is this $4 million for these little tax credits a one-time expenditure, or is it an annual expenditure? Is it going to rise over time?

[William Baker]

It wouldn't generally rise. Whenever we have a new tax measure, the first year is always higher, because that's when we have to do the reprogramming and so on. After that, to the extent that a new tax credit adds another line to a return or adds another calculation, there is some continued downstream cost, but it's never as great as the first year.