Finance Committee on May 28th, 2014

[Brian McCauley]

Actually, that falls under my area of responsibility. We've given testimony on this several times at this committee and at Senate as well. We simply do not take, nor invite or provide any opportunity for any political direction, on any files in terms of the choice of an auditor or who we're auditing in the charity world. It's just not on.

[The Chair, Conservative, James Rajotte]

Thank you.

We'll go to Mr. Keddy, please, for seven minutes.

[Gerald Keddy, Conservative, South Shore—St. Margaret's, NS]

Welcome to our witnesses, and thank you for the answer to Mr. Rankin's last question. I think it's important that Canadians know, because they expect charitable dollars that are raised for charitable purposes to be spent on charitable purposes and not on something else. I don't think you can make any more out of it than that, quite frankly.

We didn't have a chance in your discussion to bring up the voluntary disclosures program, but I do have two questions on it. It's administered by CRA. It promotes compliance with Canada's tax laws, both domestically and internationally. For Canadians who have not been, let's say, entirely truthful in their tax returns, it gives them a chance to comply.

Can you expand on how the program works, and why it is obviously prudent for Canadians who may not have been entirely truthful on their tax returns to take advantage of it?

[Richard Montroy, Assistant Commissioner, Compliance Programs Branch, Canada Revenue Agency]

Thank you for the question, Mr. Chair.

The voluntary disclosures program has existed for years within the agency. In a nutshell, it's a program that allows people who have not been fully compliant with their tax affairs to come forward, and as long as they pay the tax and the interest, they won't be subject to any penalties. There are various conditions, obviously, in the program; they have to come clean and give us all the information we need to assess their returns.

Over the last number of years, our numbers in VDP have been going up steadily. There are many reasons for this. I'd like to think.... One of the major reasons is that there are fewer and fewer places for people to hide their money. Canada has a number of information exchange agreements with various countries. Our tax treaties have been updated. In the last few years a number of measures have been brought in to help us on the offshore front. The CRA has invested heavily in the offshore area. Because of all these items, we're seeing that people are deciding it would be better for them to come in on VDP. A term we like to use is “come see us first before we come see you”.

[Some hon. members]

Oh, oh!

[Richard Montroy]

These are probably the reasons the VDP has been successful.

[Gerald Keddy, Conservative, South Shore—St. Margaret's, NS]

That's catchy—no pun intended.

Thank you for that.

I appreciate the fact that, because of the tax treaties we've signed around the world, there's been a spike on the international side. Do we have any real numbers on how much of a spike we've had? In terms of the growth from the program domestically, the number of disclosures from 2006 to today, is it significant?

[Richard Montroy]

Yes. I don't have them à la portée de la main, but I can certainly provide the committee with the numbers.

They have increased significantly in the last, I'll say, five years because of TIEAs, as I mentioned. It's only in the last five years or so that we've started negotiating and signing TIEAs with the so-called tax haven countries.

Article 26 of the OECD model treaty, which deals with exchange of information, has also been updated to provide banking information. This is another reason for the spike in VDP.

[Gerald Keddy, Conservative, South Shore—St. Margaret's, NS]

In the tax information exchange agreements, which you just mentioned, and our tax treaties.... We have a hundred of them in place around the world. Obviously they have a dramatic effect in helping to prevent tax evasion, but do we have...? Again, I'm looking for some realistic numbers in terms of the individuals who have come forward because of these treaties versus before they were in place. You may not have this information at your fingertips, but maybe you could supply it for the committee at a later time.

[Richard Montroy]

Mr. Chair, we can certainly provide the numbers. We do have them. We keep track of them, obviously, on a yearly basis. We can provide the committee with both the number of people who have come forward and the dollars involved with the VDPs.

[Gerald Keddy, Conservative, South Shore—St. Margaret's, NS]

Thank you.

Finally, I just want to revisit for a moment the cheque that was recalled. I think it needs to be stated clearly at committee that it was never cashed. It was an administrative error through automation. It was recovered, and a full investigation was begun.

Do you have anything to add to that, for clarity? In any huge organization, you have to be constantly vigilant, but the accusation that there's some type of rampant corruption is not fair to you and it's not fair to a group that's out there working on behalf of Canadians every day.

[Roch Huppé]

To re-emphasize, the investigation was conducted and clearly showed at the time it happened that system controls were not operating in the way they operate today, the best practices we have today to flag certain payments. I'm not going to go into details, obviously, on the taxpayer situation. It was not flagged.

Also, clearly, as we revealed in our investigation and as we published, there was a situation where.... There is a process flow, obviously, before a cheque is released from our system. There are different checks and balances as part of that, and there was, in the later portion of these checks, poor performance on the part of an employee. That employee has now retired, but clearly there was a performance issue around that employee and the process to release that particular payment.

As I said, there was no.... Through their lawyer, the family contacted the CRA to advise that they had received the cheque by mistake.

[Gerald Keddy, Conservative, South Shore—St. Margaret's, NS]

Thank you.

[The Chair, Conservative, James Rajotte]

Thank you, Mr. Keddy.

We'll go to Mr. Brison please.

[Scott Brison, Liberal, Kings—Hants, NS]

Thank you for joining us.

In early May 2013, I asked the PBO to prepare an analysis of the closing tax loopholes measures between 2010 and 2013. The PBO couldn't complete this task because CRA would not provide him with the necessary data. The PBO is actually entitled to that data under the Parliament of Canada Act. That act also includes a confidentiality clause, section 79.4, that prevents the PBO from disclosing any financial or economic data that he receives while performing his mandate.

Why then is CRA maintaining it must anonymize this data before providing it to the PBO when in fact the PBO under the Parliament of Canada Act is obligated to protect the confidentiality of that data?

[Brian McCauley]

I don't think any of us are experts, but I'll certainly try.

It's my understanding that that provision doesn't necessarily provide the security for protection of taxpayer information that's required under the Income Tax Act and that it is insufficient, but that's my understanding. I think what's probably better is to clarify that and get an answer back to the committee. I know the request came in and it was looked at very carefully, but I think, as members can appreciate, in regard to the confidentiality of personal information, we're very cautious about anything that could allow individuals or corporations to be identified. That's, as you referenced, the notion that it has to be made generic. We'll go back and confirm that for sure.

[Scott Brison, Liberal, Kings—Hants, NS]

Please do get back to me on that.

Does the CRA see value in estimating Canada's tax gap? Why aren't we following the lead of 14 other OECD countries, including the U.S. and the U.K., in publishing an estimate of Canada's tax gap?

[Brian McCauley]

To date, the general approach certainly of ourselves and Finance is that there hasn't been value in estimating the tax gap. We have looked very closely at what other countries are doing. “Tax gap” is thrown around a lot in terms of what it actually means and how it's used. We have been looking at what is happening in the U.K. and the U.S. and others and looking at whether or not....

We already do some of the things. For example, in Richard's area, they take a sector of the economy and they look at what the level of risk is and what is the value in terms of audit interventions. It's getting close to a version of some estimation of materiality. There's some work under way, but at this point in time certainly there's been nothing sufficient that would change our view that that's largely an academic exercise. We certainly at this point don't see a direct contribution between resources being used to do that versus actually carrying out audit work and other real activities.

That being said, we're always looking to see if there could be value in the future.

[Scott Brison, Liberal, Kings—Hants, NS]

It's hard to manage what you don't measure, and it's helpful to have good data when making public policy decisions.

A lot of Canadians, especially from Atlantic Canada, work in other regions or in different provinces sometimes for weeks on end, but keep their families and file taxes in their home province. I'd like to get a better understanding of how many Atlantic Canadians travel west to work but continue to pay taxes in Atlantic Canada. We've looked at Statistics Canada interprovincial workforce data. Their most recent data appears to be around 2009, but there's been a lot of development in, for instance, the resource sector since 2009.

Does the CRA track how many Canadians work in a different province from where they live and file their taxes?

[Brian McCauley]

I don't know that we track this. I do know that we have obviously the issue of residency and that has a difference, as you well know, in terms of the actual tax rate you're paying, and so on. I don't know the degree to which our stats shop, which shares a lot of information with Statistics Canada, would have anything beyond that, but that is something we can go back and confirm. I don't know that we necessarily keep track of, for example, the number of T4s you might have that are from an employer in another province yet you're filing in a province that's different.

[Scott Brison, Liberal, Kings—Hants, NS]

It would be informative in terms of even labour market mobility and having a better understanding of the nature of work in Canada if we had that data.

[Brian McCauley]

We can go back, certainly, to see what information we may already share with ESDC and others, and come back with what it is that we do currently share.

[Scott Brison, Liberal, Kings—Hants, NS]

We'd be interested in aggregate level data on how much these workers pay in provincial taxes in each province. It would be helpful for us to know what percentage of an economy in a place like Nova Scotia may be derived from income earned in other provinces. I think that would be helpful to us.

[Scott Brison, Liberal, Kings—Hants, NS]

Keeping personal tax information confidential is a principle of the tax system. That's the reason so many Canadians are reluctant to share their personal tax information. Bill C-31 will allow CRA to use its own discretion to give confidential tax information to police.

Who at CRA will make the final determination in each case on whether information should be shared under this provision?

[Richard Montroy]

That would be my branch, the compliance programs branch, because we also have the criminal investigations people who work there. We would make sure that in cases where we stumble across information that we would be sharing with the RCMP, it would be vetted through head office. We're talking about cases of child pornography and the like.