Finance Committee on Dec. 3rd, 2014

[The Chair, Conservative, James Rajotte]

I call the meeting to order. This is meeting number 63 of the Standing Committee on Finance, with our orders of the day, pursuant to Standing Order 108(2), study of the subject matter of the supplementary estimates (B), 2014-15, vote 1b and vote 5b under the Canada Revenue Agency. This will be for the first hour, colleagues.

I want to welcome our officials from the Canada Revenue Agency to the committee. We have, first of all, Mr. Roch Huppé, chief financial officer and assistant commissioner, finance and administration branch. We have Mr. Rick Stewart, assistant commissioner, legislative policy and regulatory affairs branch; and we have Mr. Ted Gallivan, deputy assistant commissioner, compliance programs branch.

Welcome to all of you.

I understand,

you have a presentation for the committee, Mr. Huppé. Is that correct?

[Roch Huppé, Chief Financial Officer and Assistant Commissioner, Finance and Administration Branch, Canada Revenue Agency]

Yes, Mr. Chair.

[The Chair, Conservative, James Rajotte]

You may begin at any time and then we'll have questions from members after that.

[Roch Huppé]

Thank you, Mr. Chair.

Good afternoon, and thank you for the opportunity to appear before the committee to present and to answer any questions you may have on the Canada Revenue Agency's 2014-15 supplementary estimates (B).

Mr. Chair, as you are aware, the CRA is responsible for the administration of federal and certain provincial and territorial tax programs as well as the delivery of a number of benefit payment programs. Each year the CRA collects hundreds of billions of dollars of tax revenue for the Government of Canada, and distributes timely and accurate benefit payments to millions of Canadians.

Through these supplementary estimates the CRA is seeking an increase of $59.8 million in its voted authorities, of which $13.9 million is related to a transfer from Public Works and Government Services Canada as a result of a reduction to the CRA's accommodation requirements. This transfer is possible due to a number of initiatives undertaken by the CRA to achieve accommodation efficiencies, which resulted in a reduction in rental requirements by over 30,000 square metres of space, representing a total savings of $13.9 million.

At this time, I would like to briefly discuss the items that make up the remaining $45.9-million increase in voted authorities being sought by the CRA through the supplementary estimates.

First, the Canada Revenue Agency is requesting $26.7 million to implement and administer measures funded through budget 2014 aimed at improving the fairness and integrity of the Canadian tax system as well as to strengthen tax compliance.

Second, the Canada Revenue Agency is seeking $12.3 million for the implementation and administration of tax measures affecting individuals and businesses announced in budget 2013, as well as $1.1 million for administration of the harmonized sales tax and harmonized sales tax credit in Prince Edward Island, which came into effect April 1, 2013.

A further $2.6 million is being sought for the implementation and administration of tax measures announced in Budget 2014, related primarily to investments to reduce the administrative burden on charities and strengthen compliance with Goods and Services Tax/Harmonized Sales Tax, or GST/HST, registration.

The incremental funding for tax measures announced in both budget 2013 and budget 2014 will be used to make information technology systems modifications, develop and implement new business processes, develop forms, and update publications and information products related to these measures.

The fourth item requested in these supplementary estimates (B) is an amount of $2.4 million for the implementation of the intergovernmental agreement between Canada and the United States on the enhanced exchange of information. The funding will be used to develop and maintain new information technology systems, develop and implement business processes, and conduct additional verifications.

The final item for which the CRA is seeking incremental funding is $800,000 for the information reporting of tax avoidance transactions to ensure the fairness of the Canadian tax system. Budget 2010 introduced a regime under which these types of transactions would explicitly require reporting to the CRA to ensure the integrity of Canada's self-assessment system.

The legislation in support of this new regime was enacted in June 2013. As a result, taxpayers, promoters and advisors using certain avoidance transactions are now required to complete a new information return, which will help the CRA identify aggressive tax planning in a timely manner.

Also included in the supplementary estimates is a net reduction of $72.7 million related to the CRA's statutory authorities. This reflects a revised forecast of statutory disbursements to the provinces under the 2006 softwood lumber agreement originally included in the 2014-15 main estimates. As you know, the CRA is responsible for collecting and administering the charges levied on exports of softwood lumber products to the United States as well as making disbursements to the provinces of this amount less administration costs.

The CRA's 2014-15 main estimates included an amount of $80 million as the forecasted disbursement to the provinces. This forecast has since been revised by the Department of Finance to zero for 2014-15, resulting in the reduction of $80 million to the statutory authority. The reduction in the forecast is primarily as a result of a recovery and U.S. demand for softwood lumber products.

This reduction is partially offset by an increase of $7.3 million associated with adjustments to the employee benefit plans.

Following the approval of the supplementary estimates, the CRA's 2014-15 voted authorities will display an increase of $59.8 million and the CRA's statutory authorities will see a net reduction of $72.7 million. As a result the CRA's revised 2014-15 authorities will total $4.188 billion.

In closing, the resources sought through these estimates will allow the CRA to continue to provide quality services to Canadians by ensuring taxpayers meet their obligations, Canada's revenue base is protected, and eligible families and individuals receive timely and correct benefit payments.

Mr. Chair, at this time my colleagues and I would be pleased to respond to any questions you may have.

Thank you.

[The Chair, Conservative, James Rajotte]

Thank you very much for your presentation.

Colleagues, we'll start members' questions. I think we can do seven-minute rounds for the first four MPs and then we'll go to five-minute rounds after that.

Mr. Caron, you have the floor for seven minutes.

[Guy Caron, NDP, Rimouski-Neigette—Témiscouata—Les Basques, QC]

Thank you, Mr. Chair.

Mr. Huppé, thank you for meeting with the committee.

I am going to do a bit of follow-up, since a number of the measures stem from previously passed budget bills.

Vote 1b under the Financial Transactions and Reports Analysis Centre, or FINTRAC, represents a funding adjustment to Canada's anti-money laundering and anti-terrorist financing regime. The measure came from Budget 2014.

Is the funding being sought for specific initiatives or the overall improvement of FINTRAC's analysis system? And if it is for specific initiatives, could you give us some details on them?

[Roch Huppé]

Are you talking about Budget 2014?

[Guy Caron, NDP, Rimouski-Neigette—Témiscouata—Les Basques, QC]

Actually, I was talking about vote 1b in supplementary estimates (B).

[Roch Huppé]

You are referring to the $11.3 million. Okay.

Vote 1b covers a number of measures.

There are a couple of measures in there. There are some relating to previous budget announcements in 2013 and some that are relating more to the recent budget 2014.

You referred to the combatting of international tax evasion and aggressive tax avoidance. We are seeking $3 million for fiscal year 2014-15. That's in relation to close to $15 million that was provided to us over five years for the requirement now of reporting the international electronic fund transfers, so the underground economy and tax evasion. So we have $15 million as it relates to that perspective.

There are also other initiatives obviously in relation to that $13 million. There is funding that we receive in relation to scientific research and experimental development to do more outreach for the first-time claimants and also to expand our coverage to ensure compliance, so we're working on non-compliance around that field.

We also received significant funding to increase the resources for what we call our non-audit compliance programs. We ensure that we put more resources to review employer remittance concerning payroll deductions, GST and HST delinquent filers. So we got $16 million for that perspective. We also got funding to invest in what we call our non-filer program. To attack the underground economy and certain industries like construction we received $6.6 million and that funding is dedicated to that.

We received funding to address the over-contribution for RRSP contributions. We have funding of $1.7 million for this fiscal year in relation to our T-1 processing to ensure we put the focus on certain employment expenses that are deducted.

So in a nutshell those are some of the—

[Guy Caron, NDP, Rimouski-Neigette—Témiscouata—Les Basques, QC]

Specifically, I was asking about the additional funding being sought under vote 1b. So there aren't any specific initiatives. It is money you need to round out the funding already allocated to various activities. Is that correct?

[Roch Huppé]

Precisely.

My comment had to do with how the amount you see under vote 1b is broken down. It covers a number of sub-activities. We received funding to take further measures in areas where we are already active, but we also need to expand our efforts in verification and other activities.

[Guy Caron, NDP, Rimouski-Neigette—Témiscouata—Les Basques, QC]

Fine.

I think I have time for one more question.

Under votes 1b and 5b, the Canada Revenue Agency is seeking funding for the implementation of the intergovernmental agreement between Canada and the U.S. in relation to the Foreign Account Tax Compliance Act, or FATCA.

When the committee was studying the legislation setting out the agreement's implementation, Bill C-31, experts expressed concerns about the intergovernmental agreement. One of their concerns was the fact that the definition of a "financial institution" was being changed and replaced by 13 types of entities—14 with the most recent amendment contained in Bill C-43. That definition is not compatible with the intergovernmental agreement and needs to be changed.

The definition has given rise to major problems, such as the exclusion of most Canadian private trusts despite their inclusion in the intergovernmental agreement, as well as the lack of clarity around investment entities. These are some of the criticisms we heard from witnesses when the bills were under study. Some experts even said that adopting FATCA could undermine the implementation of the intergovernmental agreement.

I'd like to ask you two quick questions on the subject. First of all, have there been any discussions to incorporate changes that would clarify things, allowing for clear implementation of the legislation and regulations?

[Rick Stewart, Assistant Commissioner, Legislative Policy and Regulatory Affairs Branch, Canada Revenue Agency]

Mr. Chair, if I may, I think the question that is being asked is more directly a question for our Department of Finance. It's a policy question issue.

I know as we were looking at implementing and putting together the IGA, the intent was to find a way for Canadian financial institutions to be able to respond to and respect the obligations that the FATCA is imposing on financial institutions globally and to do it in a way that would provide them with, if you will, the protections of the existing tax treaties for information exchange that we have with the United States.

I think what I can tell you is that a lot of work went into trying to work with American counterparts through the Department of Finance to determine the parameters of that agreement and finding a way that kind of balanced the need for reporting with the impact on Canadian financial institutions.

[Guy Caron, NDP, Rimouski-Neigette—Témiscouata—Les Basques, QC]

Thank you very much.

I realize you weren't able to answer that question, but perhaps you can answer this one.

When the committee was studying the matter, the department wasn't able to provide us with the costs of the agreement, for either the agency or the financial institutions. Do you now have that information, from the moment when the funding for implementation is released?

[Rick Stewart]

The costs that we are working with for our ability to implement the obligations that we have to administer this agreement is funding of, I believe, $15.7 million or $15.8 million, which has been allocated to the CRA to implement this over these next few years.

Those costs are principally intended to support the costs of implementing a new electronic form for mandatory filing for financial institutions to be able to file their obligations to us, a database in which we would be able to receive and store that information, and the tools to give us the ability to select files from that database for subsequent transmission electronically to the Internal Revenue Service in order to comply with those obligations.

[The Chair, Conservative, James Rajotte]

Mr. Gallivan, did you want to add something very briefly to this, please?

[Ted Gallivan, Deputy Assistant Commissioner, Compliance Programs Branch, Canada Revenue Agency]

I will answer the question pertaining to the votes.

The funding being sought today establishes a system. Regardless of which institutions are included, no additional costs will be incurred. We are building a system that can be adapted regardless of which institutions satisfy the definition under the bill.

[The Chair, Conservative, James Rajotte]

Thank you.

Thank you, Mr. Caron.

Mr. Keddy, please, you have seven minutes.

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

Thank you, Mr. Chairman.

Welcome to our witnesses. There are a number of areas that I'm sure all my colleagues will have questions on, but there are a couple of areas that I'd like to just drill a little deeper into with your expertise and your help if you could.

For instance, I'd like to clear the air on something that has been brought up by the opposition on a regular basis. In a recent message to all CRA employees, the commissioner, and the deputy commissioner, said:

To be clear, the process for identifying which charities will be audited for any reason is handled by the Charities Directorate alone and, like all of our audit activities, is not subject to political direction.

Because we've heard two sides and two points of view on this we'll ask the expert. Is that quote accurate and can you confirm if the process for identifying which charities will be audited for any reason is subject to any political direction, or is it handled exclusively by CRA's charities directorate?

[Rick Stewart]

Thank you for the question, Mr. Chair.

I can confirm definitively that the commissioner's statement is accurate and true. The management of the regulatory responsibilities that the CRA has for charities registration, monitoring, and compliance rests solely with CRA departmental officials. The minister and the minister's office are not involved in any way in the determination of any charities that are selected for audit activity or review.

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

You know, question period is a great opportunity to blatantly spread misinformation. One of the other points that you hear all the time, being brought up by a number of members, is that somehow no centre or centre-right charities or more right-wing charities are being audited whatsoever.

So for the benefit of everyone maybe you can explain how anyone would know that. CRA audits are private and confidential. They're not given to the public in any way, shape, or form. So there's no way to know who's being audited unless the group being audited actually cares to divulge that information. Is that correct?

[Ted Gallivan]

That is correct, Mr. Chair. I guess what I would say is that there is no way. I'm in no position to either confirm or deny that any taxpayer or any charity may or may not be under audit. Indeed, that is information that must be protected for taxpayer confidentiality. The fact that certain organizations are allegedly under audit by the CRA is only public knowledge because those entities have chosen to declare that they are being subject to some kind of activity with the CRA. But I can't comment further and I can neither confirm nor deny that any organization is....

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

Well, I think your clarity is much appreciated on this side of the table at least.

The other question that we need a little more clarity on is about CRA auditors. Are there more auditors on staff at CRA today than there were in 2005 and are those auditors being effective? We consistently hear from the opposition that we have fewer auditors, that we have fewer auditors in the offshore and in the domestic marketplace. What's the answer?

[Ted Gallivan]

If I may, from 2006, which is the figure we've been focusing on, we had 5,200 auditors and today we have 6,042 auditors. So the number of auditors has actually gone up, not down. Now we have implemented efficiency measures. Most recently, we had 186 managerial employees that were affected. That doesn't mean they lost their jobs. It means they received a letter saying they would be reassigned new responsibilities, so from our perspective we were trying to reassign them from semi-managerial responsibilities to audit responsibilities, actually increasing the number of auditors we had. As a result, there was a bit of a span of control issue. But anyway, the bottom line is that we have made changes to become more efficient and more effective but absolutely there's no reduction in the number of auditors.

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

Then actually there's an increase in the number of auditors.