Finance Committee on Dec. 11th, 2018

[Bob Hamilton]

A piece of backdrop to add to that is, when we look at the voluntary disclosure program, we do need to think of it in the context of everything else that we're doing globally. Ted and I are involved in some work at the OECD that is really increasing the amount of information that we're sharing with other tax jurisdictions. As we get better and better at that as a group of countries, and we get more information, the need for the kind of information that comes through the voluntary disclosure program can be reduced, because they come, and we already have the information because we've been sharing it.

It's a work in progress still. There is more improvement, but as we look at that program, we do need to think about it in the context of the improvements we're making within information sharing globally.

[Greg Fergus, Liberal, Hull—Aylmer, QC]

Has the agency encouraged professional associations, auditors in particular, to develop codes of conduct to promote certain practices rather than test the limits? Aggressive tax planning comes to mind here. I'd like to know whether those professional associations have codes of conduct or want to establish them in order to provide their clients with good advice.

[Ted Gallivan]

The association that represents professional accountants in Canada has a code of ethics. That document has just been updated. The code is included in the basic training given to accountants. It's a focal point in continuing training.

We also have the option of imposing administrative penalties on third parties. Last year, we levied fines totalling $48 million on professionals who had been involved in aggressive or negligent tax planning.

As for efforts that have been made, the accountants association offers this training, but we also have a method designed to encourage appropriate behaviour via penalties assessed on third parties.

[Greg Fergus, Liberal, Hull—Aylmer, QC]

Thank you.

[The Chair, Liberal, Wayne Easter]

Thank you, all.

We will go to Mr. Richards for five minutes, Mr. Dusseault for three minutes, and then end with Mr. Sorbara.

Before I do that, though, do you hear at the top of the organization about lost documentation? I don't know about your offices and the rest of the MPs' offices, but we hear too often that documents are sent in, not always tax documents but sometimes a marriage certificate or something else, and when they call CRA they don't have it. They send another one in. I've seen it three times.

Do those kinds of statistics reach your office?

[Bob Hamilton]

Yes, I do hear those complaints. People have access to me and can give me their complaints as much as anybody.

On that particular issue, it's always disturbing to me to find out that something might have gone wrong within the agency in dealing with the taxpayer. We do try to correct those as quickly as we can. In the cases that have come to my attention, it may not be a case of a lost document, but it goes back to an issue I raised earlier, which is working in silos. In the area of lost documents, I might send a document into the CRA, somebody gets it, and then, in having a conversation with another part of the CRA, they don't have access to that document.

That's one of the things we're looking at. As I described, it's part of a more integrated approach, thinking about it from the taxpayers' perspective. Can we make sure that conversation is with one agency as opposed to different parts of the agency?

I will say that some things that have been put in place are over valid concerns about making sure that people have access to only the information they need to have access to, but I do think we might have gone too far in drawing those lines between people. We can free them up a little bit, still protect privacy, confidentiality and integrity, but have an ability for somebody to really have access to all the information that I've sent in, in my example, and fix my problem. That, again, I think goes to looking at it from the taxpayers' perspective rather than ours.

Yes, I do have those questions. We do try to track them down as best we can, figure out what went wrong and fix it, but some of the cases that have been referred to me are that silo issue.

[The Chair, Liberal, Wayne Easter]

Thank you very much for that explanation, Commissioner.

Mr. Richards.

[Blake Richards]

Thank you.

Let's return to this issue of the Canada Revenue Agency essentially telling some small businesses that they are too small to be a small business. Of course, this is the issue we discussed earlier. When I've asked about this issue in the past, to the revenue minister who is no longer here, I've been told nothing's changed. It's all the same as it has always been.

We all know that's not true. In fact, an interpretation bulletin was put out. That bulletin has since caused the reassessment going back a number of years, in some cases, of a number of small private campgrounds. It has, unfortunately, put some of these small, private campgrounds right out of business because of the expense of going back through several years of taxation and, of course, the legal expenses that go with trying to fight the revenue agency. This is obviously quite concerning.

Because of this review being cancelled, because of this interpretation bulletin being put out, and the fact that we have seen, in fact, the Canada Revenue Agency go after some of these small private campgrounds, can you give us any sense of how many small businesses have been or will be affected by this interpretation change and the cancellation of this review? How many businesses will be ineligible for the small business tax deduction as a result?

[Bob Hamilton]

I don't have those numbers with me in terms of the number of businesses. I can certainly undertake to find them and send them to the committee afterwards.

[Blake Richards]

You're making decisions and putting out interpretation bulletins without having any sense as to the impact of those decisions and those interpretation bulletins: how many taxpayers this will affect, how many small businesses are going to be told that they're too small to be a small business. You have no idea what the response to that is.

Certainly, we will be glad to take the information, and I would ask that you please do get that to our clerk. However, I find it incredibly troubling that you do not have any idea of what the impact of a decision like that would be. I believe some of these campgrounds are currently challenging the Canada Revenue Agency in court. If they're not successful in challenging that—and I certainly hope they will be successful because it's despicable to me that this is the kind of thing we're doing here—how many other models of business will the Canada Revenue Agency go after?

Obviously, what we're talking about here are small private campgrounds, and they're basically being affected for the most part because they're seasonal in nature. There are a lot of other businesses, similar types of businesses to campgrounds, that are also seasonal in nature. Will you be going after them, too, if this is successful? What other types of business models do you see as potentially being impacted here?

[Bob Hamilton]

Mr. Chair, just to correct the record, I'm not saying that the people who did the review didn't understand the number. I'm just saying that I didn't happen to bring those numbers here with me to this meeting. I'm happy to go back and research it.

[Blake Richards]

I appreciate that. If you could get that to the clerk....

[Bob Hamilton]

Frankly, I don't find it surprising that I don't carry all of that information around in my head. I wasn't expecting to comment on it today. I'm happy to go back and look at that.

I think that, just on this issue, the important thing for us at the agency is to make sure that we're administering the law as it is intended to be. That's what we will always try to do and look for. In this case, I would be happy to look and make sure that this is what we're doing.

Also, just back to our earlier discussion, we are trying to make sure that we have good communication with the people involved so that it's clear what's happening. Even if somebody doesn't like the way that the law unfolds, we do have an obligation, I think, to explain what we're doing and why.

I will try to find the information that you've requested and get back to you.

[Blake Richards]

Thank you.

[The Chair, Liberal, Wayne Easter]

Mr. Dusseault, you have three minutes.

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

Thank you, Mr. Chair.

Pardon me, but I have to point out the Conservatives' hypocrisy on this issue. I would note that the audit covered the period from April 1^st, 2013 to March 31, 2018. They're very angry about the report's findings, but they governed for three of the six years in the audit period. I'm somewhat surprised to see the Conservatives' reaction to the report.

I'm going to go back to the substantive issues and ask a question concerning paragraph 7.39, which is probably the one that startled me the most. It concerns relief offered to taxpayers. Paragraph 7.38 states that individuals like you and I who complete a T4 are offered little or no relief. In fact, they aren't treated in the same way as small and medium-sized enterprises, the international sector, large businesses or taxpayers who conduct offshore transactions, who are offered relief, as stated in paragraph 7.39: "In those cases, the Agency required its auditors to consider offering relief without taxpayer requests." I emphasize the word "required". That's the paragraph that startled me most, Mr. Chair.

So the agency proactively offers relief to taxpayers who might be in default, or at least who are being audited by the agency, when they haven't even requested it. A taxpayer might want to defend himself and reject that relief, saying that he's done everything correctly and doesn't need his notice of assessment amended.

How can you explain why the agency offers relief without taxpayers even requesting it? Would that be related to the KPMG case, by any chance? Did the agency do the same thing in the KPMG case? Some of the people listening to us will remember that case. Taxpayers were caught in a dubious tax arrangement, and the agency sent them a letter stating that, if they acknowledged the facts, it would grant them relief and, after fees were paid, close the case.

Is it still common practice for the Canada Revenue Agency to grant relief to persons who don't even request it?

[Ted Gallivan]

I'm going to raise two points in response to your question.

First of all, at the time of the OAG's audit, we hadn't considered the possibility of offering relief to ordinary taxpayers selected by computer for audit where the agency was responsible for processing delays. In our experience, there are few processing delays at the agency, and few taxpayers request relief in those circumstances. That's why we hadn't paid any attention to the issue. However, as we stated in the action plan, we made a commitment to do so, and we're going to determine whether we can provide the same level of service. The fact remains that, to date, we haven't seen why that might be necessary.

As for audits, the agency accepts responsibility for delays it may have caused. I'm talking here about all audits in which an auditor is assigned to a case. An auditor may have left the agency, thus causing a delay of several months before the case is assigned to someone else. In complex cases, we may seek a legal opinion and may have to accept court delays of six or seven months. If we're seeking $1 million in interest from a taxpayer, and a portion of that amount is attributable to delays incurred by the agency, the taxpayer brings the matter to our attention. It's true that, instead of waiting for the request to be made, we ask our auditors to determine whether any delays have been caused by the agency and, where applicable, to grant the taxpayer relief in respect of a portion of the interest to compensate for the delays for which the government or the agency is responsible.

[The Chair, Liberal, Wayne Easter]

Thank you, all.

We have about three minutes, Mr. Sorbara, and then we'll have to adjourn.

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

Thank you, Mr. Chair.

Welcome again, gentlemen.

First of all, thank you to the team for putting together the CRA detailed action plan in response to the fall 2018 report from the Auditor General. On report recommendation 7.58, following up on the voluntary disclosures program, could you provide some colour as to where you would like this program to go? It has always been my view that when we encourage people to come forward, it's a good thing. It saves resources and it saves time. We want individuals to continue to do that because it increases our compliance rate.

[Bob Hamilton]

I'll start, but Ted may want to augment what I say about the voluntary disclosures program.

We spoke about this earlier, and the point I made is that as we look at this program, we're going to try to do two things. First, as we've committed in the action plan, we're going to look back to see what has happened in those cases where there have been voluntary disclosures. Do people remain in compliance? We have committed to look back to review how the program has been operating and what has happened. Second, looking forward, we also have a commitment to see if it is generating the kinds of results that we want going forward with greater co-operation and information sharing, in particular in light of what we're seeing internationally.

That's why I raised that point earlier. If we look at it going ahead, the voluntary disclosure program is a piece of the compliance puzzle. It occupied a certain place before and we want to see how it's going and what the results have been, but it may also be occupying a different place in the future as other things evolve and we get access to better information.

The first part is what's underlying the Auditor General's report. How can we do a better job of looking back to see what we have learned from the program? What has it done? Are people having the same behaviours and reactions as we thought?

Ted, I don't know if there's anything you want to add.

[Ted Gallivan]

I'd also come back to this question of discretion. The act provides the minister to exercise discretion, and she delegates it to officials. I think in the past, we were processing these requests without exercising that discretion and looking to put the taxpayer at the centre of it to ask, is this taxpayer in line with the principles of the VDP, or is this taxpayer trying to take a shortcut to get a discount on their tax bill? We're going to be applying that judgment more so going forward.

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

I have a quick follow-up, Chair.

The way I view the time limits for audit workloads is that corporate structures are becoming more complex. There's the issue of transfer pricing, and then there's the issue of whether we're getting the proper resources to get the audit done in the time involved. Much like in accounting where you have a set of principles, rather than sometimes hard regulatory standards, I would like to see some flexibility in the time periods for audits to get it done right. I'm not saying for years and years, but providing the flexibility to CRA to ensure they have their resources, but also the flexibility in undertaking an exhaustive audit that they can sign off on and be confident in.

[Bob Hamilton]

I have just a very quick response to make.

I think you're right that as we look at responding to all of these recommendations, we have to strike a balance, in a sense, in a number of cases. We do need to leave room for discretion in order to make sure we get to the right result. At the same time, I think we did take something away from the Auditor General's report, that maybe there are some principles, some guidelines, some parameters that we can set around time limits that can be helpful to our people. Hopefully, we won't go so far as to make them overly restrictive so that we can't get to the right result because of the imposed timelines. It is really trying to strike that balance, which is what we'll be doing as we take this issue further.

[The Chair, Liberal, Wayne Easter]

Thank you.

I would remind the commissioner and vice-commissioner that the committee did table in the House yesterday its pre-budget consultations in advance of the 2019 budget. There are 99 recommendations in there, and a number of them apply to CRA. In fact, I will be writing to the minister on the ones that do apply. That report is available for your consideration.

With that, this will be the last committee meeting for this calendar year. It being Christmas, I want to thank all of the committee members, the people who work the booths, the analysts, the clerks, the mike switchers, and everyone else who assisted the committee during this year. Thank you, and Merry Christmas and a happy new year to all.

With that, the meeting is adjourned.