Finance Committee on May 12th, 2015

[Pierre Dionne Labelle, NDP, Rivière-du-Nord, QC]

I would have liked to discuss the HSBC case. There have been some disclosures in that regard.

[The Chair, Conservative, James Rajotte]

Sorry, but you will have to do that during another question period.

[Pierre Dionne Labelle, NDP, Rivière-du-Nord, QC]

Okay.

[The Chair, Conservative, James Rajotte]

Thank you, Mr. Dionne Labelle.

Mr. Keddy, go ahead, please.

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

Welcome to our officials here this morning.

I have a couple of questions.

The first thing that I want to drill down into a bit deeper would be the file on charities and how they are governed, both within the bureaucracy of CRA and by the minister.

We have somewhere in the neighbourhood of 86,000 charities in Canada and just a bit north of $14 billion worth of charitable activity in the country. Recently, in a message to all CRA employees, the commissioner and 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 our audit activities, is not subject to political direction.

It is one thing for the minister to say that in the House or for me to say it in the House, but I think it's another thing when we hear it from officials. I do believe that Canadians are concerned that this is an arm's-length process. It needs to be an arm's-length process. I would like for you folks to describe how that process works within the department and the absolute lack of any political direction.

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

Thank you for the question.

As we have indicated in previous testimony, it is indeed the case that our charities registration and regulation are conducted solely by officials in the department, without direction from the minister or the minister's office.

Charities play an important role in society and as you mentioned, there is a significant volume of business that they do, and there are significant tax benefits that come that are provided in support of the charitable sector. With those advantages and benefits comes the responsibility to comply with charities rules, charities law. That is the role that we play in trying to do our best to do two things effectively.

First, we make sure that the sector can clearly understand what those rules are and why those rules are important. We work very comprehensively with the sector on an education-first approach to make sure that we are providing the kind of information that charitable organizations need to understand the law and to be able to comply with the law. We place a lot of effort on that, and we view that as being very important, because the best kind of compliance is voluntary compliance. We also have a responsibility, I think, to take action where we feel that perhaps not all of the rules are being fully followed. We monitor that sector on an ongoing basis. We assess organizations at the point where they seek registration to determine whether or not they are able to be registered as a registered charity.

Second, after registration, we have an annual monitoring process where we review the information returns that all charities have to provide on an annual basis. We use that to identify potential issues. We monitor media coverage. We act on referrals that come from within our own organization as we are doing regular tax administration, but also from external parties, if any of those come forward.

Our annual audit program is actually relatively small compared to the number of charities that are out there. In any given year we conduct audits only on roughly 1% of all charities, so that's 700, 800, or 900 per year. Of all those, only a very small number, 1% to 2% at the end of the day, do we actually have to impose some kind of sanction action on, or in the extreme, revocation.

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

Thank you very much for that.

I want to talk about the growth in online filing—and a bit of it relates to Mr. Labelle's question on that whole non-audit compliance within CRA—and the ease, quite frankly, now for citizens and taxpayers out there to file online, immediately register for their return, and actually get that return quite often within days.

Do we have an estimate of the percentage of growth in online filing, and has that actually helped as part of the compliance? Have you seen a reduction?

[Roch Huppé]

Thank you for the question.

Yes, we've seen a constant growth over the last five to seven years of our tally within the online filing. If you go back around five to seven years, we would be around 55% to 60% of folks who would be filing electronically. Last year we finished the year with 80% of folks filing online. This year, the year that we're concluding, we should be approximately around the 82% mark. Obviously, it is providing better services to Canadians. You're absolutely right. When they file online, it allows us to process the returns quickly. Obviously, if there is any reimbursement, it is done in a more efficient manner than if filed on paper.

[The Chair, Conservative, James Rajotte]

Thank you, Mr. Keddy.

Mr. Dubourg, go ahead for six minutes.

[Emmanuel Dubourg, Liberal, Bourassa, QC]

Thank you, Mr. Chair.

I want to say hello to the colleagues and witnesses here today. I have a number of very specific questions for the witnesses.

First of all, could you tell me what resources you can use to carry out your work in relation to international tax evasion?

[Ted Gallivan]

Thank you for the question.

We have more than 6,000 auditors. One unit is dedicated to the international tax non-compliance of large companies. Another unit focuses on individuals with funds abroad. In fact, 1,400 of our auditors are assigned to those tasks.

As mentioned in the budget, a $58-million increase is intended for large companies and international companies, and $25 million is set aside to target individuals with offshore funds. The investment level is also satisfied through our information and resources.

We talked about disclosure. We also have data from third parties. Since January 1, we have copies of all overseas transactions of over $10,000. It is not just a matter of resources. We must also have the right information and apply risk management for proper targeting.

As you have seen in our annual reports, our revenues continue to increase. There are also reports from the Office of the Auditor General. Finally, we focused on aggressive tax planning. You will see that we have developed a solid management system.

[Emmanuel Dubourg, Liberal, Bourassa, QC]

Are you playing an important role in the OECD studies on BEPS?

[Ted Gallivan]

The Government of Canada, together with the Department of Finance, plays a leadership role in terms of politics. The agency itself oversees certain committees. We work closely with our partners through more then 100 international arrangements on data transfers. We are also working on the next generation of data transfers among jurisdictions—that is called the automatic exchange of information. We are putting things in place so that the transfer of data on taxpayers can be done almost instantly on a global scale.

[Emmanuel Dubourg, Liberal, Bourassa, QC]

We are talking about data sharing and, as you probably know, investigative journalists have found out that Canadians were investing money abroad or were not complying with the Income Tax Act. The agency has obtained a list of those Canadians. However, what I find the most surprising is that the agency refused to consider those actions illegal. In fact, even though the disclosures were not voluntary, the agency considered them as such. As a result, people who committed income tax fraud were not penalized or prosecuted.

The disclosures were not voluntary. Those people did not go the agency to confess that they hid money outside the country and to clarify the situation. You had the information, but you decided not to impose any penalties.

[Ted Gallivan]

If I understand what you are saying, your question is about the way we have handled the the lists we received in 2010. I can tell you that we have aggressively pursued the individuals on those lists. More than 200 audits have been carried out, helping us recover $21 million.

We also have a voluntary disclosure program for taxpayers. There are some rules when it comes to timing. We do not accept a voluntary disclosure if we have already begun an audit. I can confirm that, in the case of disclosures related to HSBC clients, they were accepted only if we had not begun an audit—

[The Chair, Conservative, James Rajotte]

You have one minute left.

[Ted Gallivan]

—when the disclosure was received. That is one of the applicable rules.

[Emmanuel Dubourg, Liberal, Bourassa, QC]

Mr. Gallivan, this was also in the media, and everyone knew about it. We know about the HSBC situation. We see how the institution is being pursued in Europe, and you did not impose any penalties on those taxpayers.

[Ted Gallivan]

I just confirmed that, in the 21 cases where an audit was carried out, the applicable penalties were certainly imposed. In the other voluntary disclosure cases, the due taxes and interests were paid. Only a penalty amount was not imposed, in compliance with the program rules and as provided for in the legislation.

[Emmanuel Dubourg, Liberal, Bourassa, QC]

Thank you.

[The Chair, Conservative, James Rajotte]

Thank you, Mr. Dubourg.

We'll go to Mr. Cannan, please, for six minutes.

[Ron Cannan, Conservative, Kelowna—Lake Country, BC]

Thanks to our witnesses.

Small business is the economic engine that drives the local economy in many of our ridings across Canada. As a former small business operator, I'm wondering, regarding regulations and the red tape reduction efforts, whether you could share a little bit about what the CRA has accomplished over the last few years since the red tape reduction panel was implemented.

[Rick Stewart]

Thank you for the question.

As I think the committee is aware, in the last few years, CRA has undertaken a significant number of initiatives aimed to reduce the burden of compliance for small businesses in the country. For example, we made a number of changes to the small business account to enable and facilitate online business-related correspondence to allow businesses to submit specific tax questions in writing online and to be able to receive in return an online response, a response they can kind of count on, as it were.

We've expanded the electronic filing services for businesses for filing their returns, electronic authorizations, and updated electronic banking flexibilities. We've put in place new web tools and expanded our online information. We've introduced an agent ID for all call centre agents for telephone service, I think to facilitate a little bit of improved accountability, as it were.

Importantly, we've done a couple of things in terms of remittances that ease the filing burden. We have reduced remittance thresholds which has resulted in a significant reduction in the number of remittance filings that small businesses needed to do, estimated to be somewhere between 800,000 down to about 500,000 remittances as a result of that change.

As you may have noticed in the most recent budget, we will be moving forward to implement a new quarterly remitters' initiative for new small businesses below a kind of small threshold of remittances. Normally, new businesses would need to remit on a monthly basis as a start-up, until they established a track record to enable them to move to quarterly filings. The budget announced we would be moving to allow those new businesses to elect to file on a quarterly basis, and we would obviously then monitor them to make sure they remained compliant. That's estimated by us to affect a population of around 80,000 new small business start-ups.

I think overall it's quite a large range of measures that hopefully have gone a long way to reducing some of the red tape burden for small businesses. Certainly in the consultations we did over the last number of months, over last fall, we received a lot of feedback about the progress that had been made, but equally importantly about the further progress we needed to make, the things we needed to continue to focus on, because we're not done by any stretch of the imagination.

There's a lot more that can be done to improve services and reduce the burden of compliance with the tax code, and our commitment is to seriously take that feedback on board and come forward in the coming months with a concrete action plan for the further things we'll be doing.

[Ron Cannan, Conservative, Kelowna—Lake Country, BC]

That's positive news, and I'm glad to hear there's more to be done. I know that the Canadian Federation of Independent Business awarded Minister Kerry-Lynne Findlay, our Minister of National Revenue, and your department the Golden Scissors Award in recognition of your initiatives to date. We continue to look forward to more productive reviews there.

Changing topics for a minute, I was completing my daughter's tax return. She's living in Taiwan and teaching English. She had to do the double taxation there. I just wanted to know about the tax treaties and tax information exchange agreements, how these tax treaties help prevent tax evasion and where we're going with regard to some of the positive initiatives of the TIEAs and the tax treaties.

[Ted Gallivan]

We're up to more than 100 agreements, tax exchange agreements and others. They kind of help us at two levels.

At the first level, among practitioners just the existence of the agreement has a deterrent effect. It would discourage those who want to hide money offshore, although obviously that's not the case with your daughter. It would discourage them from doing so.

At the second level, when we are engage in audit work and have a suspicion that funds are offshore, those information exchange agreements provide us with the evidence required to support an audit assessment that will stand up in court and through the appeals process. They are invaluable.

In response to an earlier question, though, I mentioned that those are a kind of first-generation exchange of information. We are moving to something that's often called automatic exchange of information, something the G-20 and G-8 are pushing, which is more global. This is not on request but a proactive distribution of information, where we would have insight across jurisdictions in terms of people's tax affairs.