Finance Committee on Dec. 11th, 2018

[The Chair, Liberal, Wayne Easter]

We shall come to order. I know the minister is very tight on time and has to leave at 8:50 a.m. at the very latest. Pursuant to Standing Order 108(2), the committee will do a study of report 7, “Compliance Activities—Canada Revenue Agency” of the 2018 fall reports of the Auditor General of Canada.

Welcome, Minister. The committee just wanted to see you one more time in 2018.

Welcome to the officials from the Canada Revenue Agency: Mr. Hamilton, commissioner; and Mr. Gallivan, assistant commissioner.

I understand that both the minister and Mr. Hamilton have fairly concise opening statements, and we'll go from there.

The floor is yours.

[Diane Lebouthillier, Liberal, Minister of National Revenue]

Hello, Mr. Chair, ladies and gentlemen.

I would like to thank you for this invitation to provide you with more information on the "Compliance Activities of the Canada Revenue Agency" report, which is part of the 2018 Fall Report of the Auditor General of Canada.

This morning, I am accompanied by Bob Hamilton, Commissioner of the Canada Revenue Agency, and Ted Gallivan, Assistant Commissioner, International, Large Business and Investigations.

First, I would like to thank the Auditor General for his important work. I welcome his recommendations regarding the Canada Revenue Agency's compliance activities.

Since my appointment as Minister of National Revenue, I have always worked toward a fair and equitable tax system that meets the needs of all Canadians.

Unlike the Conservatives, who made cuts without thinking of the consequences, our government has decided to reinvest in the agency and in the service it provides to Canadians.

Today, I want to reiterate that I am firmly committed to making sure that all Canadians are treated fairly and equitably by the agency. They must receive the benefits and credits they are entitled to, and assurance that everyone pays their fair share of income tax.

In light of some recommendations that were made, what the Auditor General is telling us in this report is that we can always do more; that we can always do better.

In October, I announced the appointment of the first chief service and data officer. That appointment confirms our wish to establish a service culture within the agency, a culture that maintains Canadians' trust, a culture that puts people at the centre of our decision-making process.

We therefore accept the recommendations regarding our reporting and our processes. I assure you that we will continue to put every necessary effort into making these improvements.

Regarding reporting, Canadians expect us to be able to better report on our results. To do this, I believe that every organization should have access to reliable data and indicators to make the best decisions.

We already started the work in 2016 by estimating the tax gap, and we will continue our work with the chief data officer.

Regarding processes, I agree that the law has to be applied consistently and fairly in all regions of the country. We work with millions of Canadians and businesses. However, each case is different. Some are more complex, others are simpler. However, in all cases, the compliance programs have only one goal: to make sure that the tax system is fair and equitable for everyone across the country. This is the assurance that we must give Canadians.

In response to the concerns the Auditor General raised, the agency has developed an action plan. A copy has been submitted to your committee. This plan illustrates the measures that will be taken to address the recommendations from the Auditor General, in addition to describing the approach that the agency intends to adopt in revising its internal processes and procedures.

A fair tax system is one that works for all Canadians.

As Minister of National Revenue, I will always be open to putting measures in place that ensure the fairness of our tax system and that make it easier for Canadians to meet their tax obligations.

Thank you very much.

[The Chair, Liberal, Wayne Easter]

Thank you, Minister, and thank you for a copy of the fairly detailed action plan.

Mr. Hamilton.

[Bob Hamilton, Commissioner of Revenue and Chief Executive Officer, Canada Revenue Agency]

Thank you, Mr. Chair. It's a pleasure to be here today to talk about the Auditor General's report 7, which looks at the compliance activities of CRA.

As I mentioned during my appearance yesterday before the Standing Committee on Public Accounts, we operate in a very diverse and complex environment. Our agency’s compliance activities can range from performing audits of large multinational corporations to validating T1 returns of individual Canadians. In each instance, however, the CRA works to promote awareness of and ensure compliance with the laws we administer so as to uphold the public's trust and confidence in the tax system, and we endeavour to do so in a fair way.

This environment becomes even more complex when tax schemes cross borders. In fact, a significant compliance challenge for tax authorities around the world has been addressing the effects of base erosion and profit shifting.

Through organizations such as the OECD and the joint international task force on shared intelligence and collaboration, we work closely with international partners on better exchange of information and to share information that helps identify tax cheating. It is within this environment that the agency will address the Auditor General's recommendations.

As you are aware, Mr. Chair, the Auditor General’s fall 2018 report assessed the CRA's consistency regarding the application of compliance measures for various types of taxpayers across Canada. The report also considered how the performance indicators for compliance activities were measured, monitored and reported to Parliament. The Auditor General made recommendations in the areas of consistent treatment, timely processing and performance measures.

The CRA has developed an action plan to address the Auditor General’s concerns.

As the Minister mentioned, the CRA has committed to taking action in all areas identified by the Auditor General, while at the same time recognizing the differences in our compliance issues and challenges across the various taxpayers with whom we interact.

Our detailed action plan, a copy of which has been provided to members of this committee and to the Standing Committee on Public Accounts, outlines in greater detail the specific actions being planned and taken. In the interests of time, I will not go through the document point by point but would highlight the CRA's intention to, among other actions, clearly indicate the timelines for audit activities, as well as develop guidelines for seeking court orders to compel sophisticated taxpayers’ co-operation; to establish guidelines for the administration of taxpayer relief provisions; and to develop guidelines to understand the delays attributable to the agency as opposed to those of the taxpayer.

The CRA is putting more emphasis on education and communication with taxpayers to achieve long-term compliance. At the same time, we are determined to identify taxpayers involved in tax evasion and aggressive tax avoidance, both domestically and internationally, and to ensure that those who choose not to comply with the law face the appropriate consequences. These efforts support the CRA in building and maintaining confidence in the fairness and integrity of Canada's self-assessment tax system, increase awareness of the agency’s compliance activities and deter tax avoidance and evasion.

Finally, I would note that in the past two years the CRA is aligning its operations and approaches based on previous recommendations of the Auditor General. In fact, the CRA has made measurable progress in its operations in specific areas, based on feedback provided by the Auditor General in the fall 2016 and fall 2017 reports. I believe the agency has demonstrated that it follows through on commitments following the Auditor General's reports, and the same attention will be paid to the recommendations made in report 7 of this report.

I welcome any questions the committee may have.

Thank you.

[The Chair, Liberal, Wayne Easter]

Thank you very much, Commissioner.

Thanks to both of you. We will go to four six-minute rounds, according to the clock.

Mr. Sorbara.

[Francesco Sorbara, Liberal, Vaughan—Woodbridge, ON]

Thank you, Mr. Chair.

Good morning, Minister, and welcome.

I'd like to ask you a few questions.

You've committed to changing the agency's culture so it treats all taxpayers as important clients. However, the Auditor General has concluded that the agency doesn't treat everyone fairly. Do you consider that finding accurate?

[Diane Lebouthillier, Liberal, Gaspésie—Les-Îles-de-la-Madeleine, QC]

I thank my colleague for his important question and congratulate him for asking it in French.

Since we've been in power, I've observed the legacy the Conservatives left to the agency: it was really in poor shape as a result of their decisions. According to the report published by the Professional Institute of the Public Service of Canada that was forwarded to us last week, the thoughtless cuts suffered by the agency during the Harper era had devastating consequences. The report clearly states:

The single most destructive event occurred as a result of the 2012 budget when, in one fell swoop, $250 million and 1,200 jobs were cut from CRA’s budget. All told, successive austerity initiatives resulted in almost $900 million in projected cuts and the scheduled elimination of almost 3,000 jobs.

As you'll understand, those deep cuts undermined services and investment in technologies.

When we came to power, my mandate letter was very clear: the CRA had to serve its clientele. That was really the thrust of my mandate letter. We therefore invested in clientele services in addition to allocating historic budgets to combating tax evasion. On my watch, we've appointed the first chief service and data officer, who really puts the clientele at the centre of our decision-making process.

We've worked hard for three years to change the agency's culture. The work has begun. There are 40,000 employees at the agency. It's a big ship, and it's changing course. I very much hope that my legacy will be improved services and that the culture change we've made is permanent.

[Francesco Sorbara, Liberal, Vaughan—Woodbridge, ON]

Madam Minister, we are at nearly the end of the calendar year, which for taxpayers is the end of their fiscal year. What message would you like to send the taxpayers now that they will be filing their income taxes in a few months? I think we have done a number of things to simplify the system, to make it more efficient. Filers can file online. We've obviously reduced taxes for nine million Canadians. Perhaps you can comment on the resources that we put in place to allow filers to file by telephone, in some instances, and to simplify the system for all Canadians.

[Diane Lebouthillier, Liberal, Gaspésie—Les-Îles-de-la-Madeleine, QC]

I thank my colleague for his question.

I'm determined to improve the agency's services to meet the needs of all Canadians. The purpose of everything the agency has put in place in the past three years is to make the client our central concern.

We've introduced a new service, File My Return, an automated telephone service accessible to more than 950,000 taxpayers who have straightforward tax situations. We've clarified and simplified the use of our My Account service and also launched the CRA BizApp application.

We've reinstated the Disability Advisory Committee.

We've launched two series of Serving You Better consultations with small and medium-sized enterprises to determine with them how the agency can further simplify the way it works with them.

We've improved the objection process.

In February 2019, we'll be opening service centres for northern communities in the territorial capitals. What people in the north are experiencing is important to us. Their situation is very different from that of people in the south

We've completed installation of the new call centre platform, and it will be functional very soon. Business information requests directed to call centres migrated in November, and the service line for benefit information requests migrated on December 3.

We've also appointed the chief service and data officer, who will ensure the clientele is treated equally in the Canada Revenue Agency's various areas of activity.

We have simplified the agency's letters and forms. Last year we mailed tax packages to Canadians who chose to file their returns on paper, and we will do the same thing this year.

As I mentioned, the agency is still working to put the client at the centre of its actions.

[The Chair, Liberal, Wayne Easter]

Thank you, Minister.

We'll turn to Mr. Kelly for six minutes.

[Pat Kelly, Conservative, Calgary Rocky Ridge, AB]

Thank you, Mr. Chair.

This report we are studying is quite extraordinary. It is just a horrific read, in that it describes how the agency has failed to apply the Income Tax Act fairly to all Canadians. The fairness of the system is critical in a self-reporting system. Canadians need to know that their agency is applying the law fairly.

Minister, I'd like to bring your attention to page 6 of the report. It is going to be particularly troubling to Canadians to learn that the agency would automatically disallow the expense as an eligible income tax deduction when the agency requests a document and a taxpayer fails to provide it in 90 days.

That's if you're an individual, not, for example, somebody with an offshore transaction. The report goes on to say that the agency, if the taxpayer has offshore transactions, would allow “months or even years” to comply. In some cases, the agency, having not obtained the information at all, would just close the file without assessing any taxes.

How is that applying the law fairly to Canadians and having and achieving a client-focused agency?

[Diane Lebouthillier, Liberal, Gaspésie—Les-Îles-de-la-Madeleine, QC]

I thank my colleague for his question.

First of all, I would like to remind my colleague that the horrific situation at the Canada Revenue Agency occurred during the 10 years of the Harper government's mandate. As I mentioned in my presentation, the report clearly states: "The single most destructive event occurred as a result of the 2012 budget when, in one fell swoop, $250 million and 1,200 jobs were cut [by the Conservatives] from CRA’s budget."

Having said that, I'm determined that Canadians will be treated fairly and equitably and that everyone will pay their fair share.

I'd also like to say that tax files are all different: some are simpler, others more complex. The complexity and extent of information influence the agency's approach. People who can't meet a deadline set by the agency can contact it and explain their situation.

I would ask the commissioner to add to that information.

[The Chair, Liberal, Wayne Easter]

I wonder, Minister, if we could go to the commissioner a little later. We know you're short on time. I'll let Mr. Kelly go to his second question.

[Pat Kelly, Conservative, Calgary Rocky Ridge, AB]

That's okay. We have more time later.

Minister, it's extraordinarily disappointing to hear in your fourth year as minister that you have no better answer to this report than to blame the past. It's not about how many people are employed at the agency, Minister. It's about treating taxpayers fairly and applying the law fairly to all Canadians.

In the report the Auditor General also describes how when the agency makes mistakes and the agency itself fails to supply information on a timely basis or gives out incorrect information, that there is no consistency in how the agency deals with penalties. Penalizing a taxpayer when the agency has made a mistake is extraordinarily unfair to a Canadian taxpayer and the inconsistency around relief from penalties when the agency is at fault I'm sure many Canadians would be very upset to hear when reading this report. It would be familiar to many Canadians who have had this experience.

Can you tell the committee now what you are doing today to ensure that when the agency makes a mistake it's not penalizing taxpayers?

[Diane Lebouthillier, Liberal, Gaspésie—Les-Îles-de-la-Madeleine, QC]

I thank my colleague for his very important question.

I'd like to remind him that the Conservative government made cuts without any vision for the future of the agency and without any consideration for clients, who must be treated properly.

[Pat Kelly, Conservative, Calgary Rocky Ridge, AB]

That wasn't the question.

[Diane Lebouthillier, Liberal, Gaspésie—Les-Îles-de-la-Madeleine, QC]

The cuts had significant impact.

[Pat Kelly, Conservative, Calgary Rocky Ridge, AB]

You've been the minister for three years.

[Diane Lebouthillier, Liberal, Gaspésie—Les-Îles-de-la-Madeleine, QC]

The call centres had inadequate equipment. Service business hours and employee training had been cut. I don't need any lectures from the Conservatives.

The work we've done at the Canada Revenue Agency in the past three years has helped us respond more effectively to the recommendations of the Auditor General of Canada.

[Pat Kelly, Conservative, Calgary Rocky Ridge, AB]

Minister, Canadians expect you to take responsibility for your department.

[Diane Lebouthillier, Liberal, Gaspésie—Les-Îles-de-la-Madeleine, QC]

We also modernized our call centres in response to the Auditor General's report last year. The call centres for business information requests migrated in November, and everything is working very well. Online information request services also migrated on December 3. From those new facilities, we'll be able to provide training to employees, which will enable them to respond more effectively to clientele requests.

[The Chair, Liberal, Wayne Easter]

We're over time.

Mr. Dusseault.

[Pierre-Luc Dusseault, NDP, Sherbrooke, QC]

Thank you, Mr. Chair.

Thank you for your time, Minister, although it's only 30 minutes. I'm a bit disappointed by this limited period of time, which is less than what the other ministers give committees when they appear.

That being said, the Auditor General's report was extremely clear: we have a two-tiered tax system, one tier for the richest Canadians and another for everyone else. Compared to all other taxpayers, the rich, such as multinationals and those with offshore accounts, get special privileges, additional relief measures and much longer deadlines.

Would that be, for example, because influential people like Mr. Bronfman and Mr. Kolber inhabit the upper echelons of Mr. Trudeau's government? Does your government maintain this kind of two-tiered system for these kinds of rich taxpayers who are named in the Paradise Papers?

[Diane Lebouthillier, Liberal, Gaspésie—Les-Îles-de-la-Madeleine, QC]

I thank my colleague for his important question.

As I said, I've been determined since the start of my mandate to ensure that Canadians are treated fairly and equitably and that everyone pays their fair share. I'd also remind you that all tax files are different, some are simpler, others more complex. The complexity and scope of information requests influence the agency's approach. People who can't meet a deadline set by the agency may communicate with it and explain their situation. Those explanations are taken into account.

[Pierre-Luc Dusseault, NDP, Sherbrooke, QC]

My question was whether you were influenced by rich Canadian taxpayers like Mr. Bronfman or Mr. Kolber.

For your information, we now know that Mr. Kolber himself contributed to your re-election campaign. Mr. Kolber, who is named in the Paradise Papers, made a generous donation to the Gaspésie—Les Îles-de-la-Madeleine federal Liberal association. Do you think the fact that rich taxpayers like Mr. Kolber, who is named in the Paradise Papers, make political donations to your election fund sends a positive signal to average taxpayers?