Finance Committee on Dec. 11th, 2018

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

How many is it if isn't zero?

[Ted Gallivan]

The figures that show the direction we've asked our criminal investigation teams to take are readily apparent from our caseload: one third of our cases involve offshore activities. We agree this should be a priority. We've made it a priority. However, you're right: we don't have 50 convictions.

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

You say it's not zero. How many convictions for foreign tax evasion have there been?

[Ted Gallivan]

Once again...

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

Has it been one, two, three?

[Ted Gallivan]

First, we don't clearly define what does or doesn't constitute an offshore activity. So I don't want to play with figures and say it's six, for example, and then have you tell me instead that it's four. Let's agree that a lot of investigations are under way but that there haven't been a lot of convictions to date. That's entirely normal for the stage we're at.

[The Chair, Liberal, Wayne Easter]

We'll have to end it there. We're a little over the time.

We have time for one question from Ms. Ludwig and then we'll have to wrap up.

[Karen Ludwig, Liberal, New Brunswick Southwest, NB]

Thank you, Mr. Chair, and thanks to both of you for being here this morning.

My first question—if I can squeeze in two—is for you, Mr. Hamilton. In your brief, you mentioned education and communication with taxpayers to achieve long-term compliance. Can you explain to us what that platform might look like in terms of how to raise awareness?

[The Chair, Liberal, Wayne Easter]

That was my mistake, Karen. We're going until a quarter after 10, not a quarter to 10, so you have your five minutes.

[Karen Ludwig, Liberal, New Brunswick Southwest, NB]

I'll be splitting my time. Thank you.

[The Chair, Liberal, Wayne Easter]

Go ahead, Mr. Hamilton.

[Bob Hamilton]

Yes. I think this is quite important, so it's useful to understand.

Probably the best example we have of what we're trying to achieve is our liaison officer initiative. For new small businesses, we send out someone just to explain their obligations under the tax system and what they need to do. We will send out an officer to have that conversation with the new business. Our hope in doing that—and we are seeing success—is that we can start from a base of wanting to comply and knowing how to comply and then can build.

Over time, we should have fewer problems if we get off on the right foot, as opposed to a world of saying, “Okay, small business, you go and figure it out and we'll come in later and tell you how you did.” We will still have to audit and verify, but we're putting more emphasis on that beginning part of the conversation. Again, our hope is that it will foster good knowledge, good habits and good compliance in the long run. We're trying to apply that in a whole bunch of areas.

Also, can we have some conversations up front with people to help explain what's going on? It could be on the benefit side, but in this case, the liaison officer initiative is probably our best example. As we look at our processes, where we see that something might be going wrong out there, where people are doing things that aren't appropriate within the law—it could be inadvertent—we are also trying to see if we can have a process of just trying to make sure we talk to them, that there's good understanding and that we understand before we come in with an audit.

That's a general description of the approach we're taking. The liaison officer initiative is probably the best example.

[Karen Ludwig, Liberal, New Brunswick Southwest, NB]

Thank you very much, Mr. Hamilton.

You mentioned going directly to small businesses. Certainly, as small business owners, we're well aware in our house of how busy the week is from Monday all the way through to Sunday. Is there any involvement with the platform in reaching out directly to the boards of trade, the chambers of commerce or the industry associations to prepare them with the information so that they could actually help their members in fielding questions?

[Bob Hamilton]

Certainly, if we look at our outreach and the partners we have, we have a very active dialogue with organizations such as the certified accountants—the CPA—and with chambers of commerce and others. We really need that to be able to communicate our message effectively. We can do an okay job at the agency, but those partners have networks, and if we can get the information to them, they can more efficiently disseminate it among their constituents or their members. That's very much a part of it. The liaison officer initiative is a pilot of something specific that we're trying, but that's against a backdrop of a lot of conversations with businesses.

We also are just finishing our “Serving You Better” consultations, in which we go out and talk to communities and businesses about their ideas on how we can improve the tax administration for them. It was very successful. The last one we ran was in 2016 and led to a number of changes. We're out again looking for that. Again, we're hoping to do more and more of this outreach and hearing what people are telling us about their questions about administering the tax system and their suggestions for us on how to improve.

[Karen Ludwig, Liberal, New Brunswick Southwest, NB]

Thank you.

[The Chair, Liberal, Wayne Easter]

Thank you. We'll go to Mr. Kelly and then back to Mr. Fergus.

Mr. Kelly.

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

Thank you, Mr. Chair.

Mr. Hamilton, I want to return to something that we discussed at the public accounts committee yesterday. I would have liked to have time to get the minister on this. As we know, that didn't happen this morning.

The Auditor General raised serious concerns about how the additional money is being spent by the agency. The Auditor General found that the agency could not track amounts of additional revenues resulting from their new funding. In other words, they couldn't find evidence that the additional funding your agency has received from this government has resulted in higher revenues—that it can't be measured or calculated.

Canadians need to have confidence that their money is being spent properly. The Auditor General raised concerns about this. Why can't we tell if the money you've received has actually made a difference in the amount of tax that you have found and collected?

[Bob Hamilton]

Mr. Chair, again I'll start on a response, but I note that Ted, based on our conversation yesterday, will be able to elaborate.

There are two issues that I want to clarify before turning it over. One is whether we can account for the additional money we got and how we're spending it.

Absolutely we can. It's clear how much we've spent and where we've spent it, whether it's on hiring new auditors, investing in IT or investing in different analytics to give us a better risk-based assessment. That's one part. Yes, we can identify where we're spending the money.

The second part, which I think is what you're raising, is what good it is doing: how much extra money it's bringing in and what the incremental impact of having spent that additional dollar is, wherever we have spent it, upon the revenue we brought in.

Again, we have a methodology that I think does a good job. We have committed to looking at whether we could improve that methodology, but I'll let Ted explain a little bit about how we calculate that incremental benefit.

[Ted Gallivan]

The OAG, going back to exhibit 7.2, confirms that we were more than $3 billion ahead of plan.

In other words, the expectation was that we would be at $8.2 billion, and we're $3.4 billion or $3.6 billion better than that. The concern is thus not whether we are meeting or exceeding expectations, because we're exceeding them. It's to what extent you attribute that situation to additional resources.

Here the issue is that some of those resources went to IT: $60 million for IT builds. Some is additional data. We're getting country by country reports, and we have about 5% more boots on the ground. The issue, then, between the agency's current approach and what the OAG is saying—what we need to find, going forward—is whether we take 5% of our resources and put a different T-shirt on them and say, “You're the incremental resources, and everything you do goes into the incremental bucket, and the other 95% goes over here,” or just say that if we have 5% more, then 5% of the results are attributed to that 5%.

We did the T-shirt model for two years and found that we were spending a lot of time, which could be used pursuing tax issues, on counting and deciding who's wearing what T-shirt. We therefore went to the ratio approach. The OAG has raised concerns with it. We've agreed to take a look at it.

Again, going back to our response, our methodology has been vetted with TBS and the Department of Finance, so the key stakeholders—internally, at least—were comfortable with it. We understand, however, that transparency is important, so in our action plan we will look for a better way to make it clear to all Canadians that yes, we are exceeding those expectations.

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

We have heard that more compliance reviews and more audits have taken place, but we've heard, through both media accounts and activity that I think all MPs have experienced in their constituency offices, about parents who have struggled to comply with benefit reviews. We know the debacle over type 1 diabetics. We've heard many comments.... In fact, we even heard one yesterday at public accounts—a horrific story coming from parents of autistic children. These aren't the types of activities that I think most Canadians have in mind when they are demanding that all people pay the amount of tax that is owing, and exactly that amount, not more and not less.

Can you comment on what you are doing now to address some of these concerns, particularly about the benefit reviews of single parents, because this is ongoing?

I'll let you address that, please.

[Ted Gallivan]

Definitely we need to do better. I'll just start with some context, though.

The branch I lead, international large business, is about $8 billion of the annual lead, from about 5,000 audits. It's a very small focus. Regular Canadians, the T4 filers we talk about, account for about $2 billion of this audit yield.

Almost four times as much, then, is coming from the proverbial one per cent, and $2 billion is coming from 26 or 27 million Canadians. Already in our audit yield, then, you can see that disproportionately the funds are coming from sophisticated taxpayers.

When we deal with regular taxpayers, though, we are focused on better education. When we find a taxpayer making a discrepancy or an error, as we talked about with northern residents, we're trying to ask ourselves how we can clarify the guide, how we can work with software developers to give people a prompt to see that they don't make that mistake.

We talked about the liaison officer initiative. We talked about outreach. We talked about stakeholders, and instead of just talking to professional accountants, talking to bookkeeping associations, I think very much that in that high-volume, low-dollar space, the agency is trying to find ways to help people get it right from the start.

[The Chair, Liberal, Wayne Easter]

Did you have a supplementary there, Pat? Okay, you didn't.

Mr. Fergus.

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

Thank you, Mr. Chair.

Thank you for being with us, Commissioner.

In his report, the Auditor General evaluated the effectiveness of the voluntary disclosures program but didn't complete his analysis because the rules were changed along the way.

Would you please give us some details on the rules that were changed?

[Bob Hamilton]

It's true that we changed the rules of the voluntary disclosures program. Generally speaking, the purpose of the changes was to solve certain problems associated with the program. The program is still one of the tools we use, but we felt it was necessary to tighten up the rules slightly and make some improvements.

The Auditor General did mention that the program rules had changed. I'm going to let Mr. Gallivan explain those changes to you.

[Ted Gallivan]

Consistent with some of their remarks we've had today, we think that, for regular taxpayers who make a mistake—or there could be a spouse who passes away, and the other spouse wasn't aware of what was taking place financially—we wanted to keep that open. Those regular Canadians continue to avail themselves of a voluntary disclosure program.

For sophisticated taxpayers, taxpayers who pay money for accountants or lawyers to structure their affairs to really minimize their tax bill, we thought probably not. That's probably not who we need to be giving strong financial incentives or discounts to come in. We're increasingly confident of finding them on our own.

Because we have much better line of sight into aggressive tax planning, cash flows internationally from Canada and other countries—we now have line of sight into worldwide banking information—we were confident enough to severely restrict the voluntary disclosure programs for sophisticated taxpayers. We've not fully closed it yet, because the proof is in the pudding in terms of the outcomes as to whether we're able to take those leads into audits and successful criminal convictions, as we talked about before. I think we're sending a message, too, that you can't engage in sophisticated tax planning, and then, when you worry the CRA is close, come in and get a sweetheart deal. That's part of the tightening of the program.

A final point is that we're being a little more mindful about obtaining the name of the practitioner, the accountant or the lawyer who set up the tax planning initially, because it is our intention to go find every single other participant. We have a legal tool called an unnamed persons requirement. We go to court and we find out the names of other participants in tax plans and schemes. That's something we plan to do as well.