Finance Committee on June 11th, 2019

[The Chair, Liberal, Wayne Easter]

Let's call the meeting to order. We're a little late.

Pursuant to Standing Order 108(2), we are studying the main estimates for 2019-20: votes 1, 5, 10, 15, 20, 25, 30, 35 and 40 under the Canada Revenue Agency. With us from the Canada Revenue Agency we have Mr. Bob Hamilton, commissioner; Janique Caron, chief financial officer and assistant commissioner; Mr. Gallivan, assistant commissioner, international, large business and investigations branch; and Mr. Hewlett, director general, legislative policy directorate.

Welcome to all. We'll go through the opening statement and then go to questions. We have about an hour, I gather.

Welcome.

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

Thank you, Mr. Chair.

Good morning.

Thank you for the opportunity to present the Canada Revenue Agency's 2019-20 main estimates to the committee, and to answer any questions you may have on the associated funding.

My understanding is that you have a copy of my full remarks. In the interest of time, I will just hit some of the highlights as I go through.

As you are aware, the CRA is responsible for the administration of federal and certain provincial and territorial programs, as well as the delivery of a number of benefit payment programs. Last year the agency collected approximately $526 billion of tax revenue on behalf of federal, provincial and territorial governments, and distributed over $33 billion of benefit payments to millions of Canadians. The CRA also offers help and information to those who need it, and is working hard to reach Canadians who might not be receiving the tax credits or benefits to which they are entitled.

In order to fulfill its mandate in 2019-20, the CRA is seeking a total of $4.5 billion through these main estimates. Of this amount, $3.5 billion requires approval by Parliament, whereas the remaining $1 billion represents the forecast statutory authorities that are already approved under separate legislation. The statutory items include the children's special allowance payments, employee benefit costs and, pursuant to section 60 of the CRA Act, the spending of revenues received for activities administered on behalf of the provinces and other government departments.

These 2019-20 main estimates represent a net increase of $297.7 million when compared with 2018-19 main estimates. Of this change, $236.8 million is associated with previous funding announcements, with the balance of $60.9 million related to proposed budget 2019 measures. The largest component of this change is an increase of $110 million for measures to crack down and combat tax evasion and tax avoidance, at $61 million; enhance tax collections, at $22 million; and improve client services, at $27 million. This represents the amount of incremental funding received in 2019-20 as a result of measures announced in budgets 2016, 2017 and 2018.

To give you a sense of the kind of programs supported by this funding, allow me to touch on some specific initiatives.

Increased reporting requirements for trusts, which will seek information on beneficial ownership, will help authorities to effectively counter aggressive tax avoidance, tax evasion, money laundering and other criminal activities.

We are addressing commitments to service excellence in three key areas. The first is improving telephone services, including reducing wait times for callers and improving the accuracy of responses provided by call centre agents. The second is enhancing the community volunteer income tax program, where community organizations host tax preparation clinics and arrange for volunteers to prepare, free of charge, income tax and benefit returns for individuals with modest or low income. The third is strengthening digital services by updating and modernizing the agency's information technology infrastructure to deliver a more user-friendly experience, allowing Canadians to easily find the tax and benefit information they need.

Other items contributing to the year-over-year change include adjustments for collective bargaining increases of $64.8 million and the implementation of the federal fuel charge of $56.4 million.

The CRA's 2019-20 main estimates also reflect about $60 million in proposed incremental resources for the announcements made by the Minister of Finance in the March 2019 budget. The largest component, at nearly half, is a proposed increase of $29.3 million to improve general tax compliance. These funds will be used to hire auditors, build technical expertise and improve the agency's compliance IT infrastructure.

A further $9.5 million is proposed to take action to enhance tax compliance specifically in the real estate sector. The proposed funding will be used to create four new dedicated residential and commercial real estate audit teams in high-risk regions, notably in British Columbia and Ontario, to ensure that tax provisions regarding real estate are being followed.

Other examples of items relating to budget 2019 include about $9 million proposed to stabilize Phoenix-related activities by the CRA in our role as administrator of the tax system;

$8.5 million proposed to support the agency's ongoing service improvement efforts;

and $3.5 million proposed to improve access to the Canada workers benefit throughout the year.

In closing, the resources being requested through these estimates will allow the CRA to continue to deliver on its mandate to Canadians by making it easier for the vast majority of taxpayers who want to pay their taxes, and more difficult for the small minority who do not, and by ensuring that Canadians have ready access to the information they need about taxes or benefits.

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

[The Chair, Liberal, Wayne Easter]

Thank you very much, Commissioner.

We'll go to five-minute rounds with a little bit of flexibility in there.

Mr. Sorbara, you're first.

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

Thank you, Chair.

Welcome, everyone. It's great to have you here. It is such an important topic for Canadians from coast to coast to coast to ensure that all Canadian and high-net-worth individuals and organizations are paying their fair share in taxes. That can only happen when the CRA has the tools and resources available to do so and ensure compliance.

One thing I do wish to ask about is the auditing of real estate transactions in the provinces of British Columbia and Ontario specifically. Looking at the estimates, how important is the increased funding for those CRA tax teams to ensure that with real estate transactions, individuals are paying their share of appropriate taxes?

[Bob Hamilton]

I'd lead off with part of an answer, and then I'll turn it over to my colleague Ted Gallivan, who is in charge of our compliance efforts.

Certainly, it is very important to us to have the resources required to be able to audit effectively high-risk areas. We in the CRA are putting a lot of effort into trying to make sure we have a good risk-based program that identifies the risks that are involved and that targets our resources most effectively to the areas that most need it. In the real estate sector, clearly we saw risks of activity that needed to be looked at. We certainly will be using the additional money we have to provide for additional auditors, and additional tools for those auditors, to be able to uncover areas where there may not be the compliance we want, and then to take actions on that.

I'll maybe let Ted elaborate a little bit on some of that.

[Ted Gallivan, Assistant Commissioner, International, Large Business and Investigations Branch, Canada Revenue Agency]

Just quickly, we recently updated statistics showing that at an operational or tactical level, we have increasing results, with more billings; we're into house flips; we're confirming residency status; and we're looking down the contracting pyramid at suppliers to make sure they're registered and paying the taxes that are due.

At a more strategic level, I think the additional funding will let us push deeper into developers—kind of the larger fish in that sector—to make sure they're getting adequate coverage and also to have a strategic shift in behaviour. In some ways, these increasing audit yields would indicate that people's behaviours haven't changed yet. By increasing the level of attention and focus, we would hope to actually see changes in behaviour.

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

Okay.

My next question is in regard to estimates. We've done the base erosion and profit shifting, and that's one element of tax compliance globally with multilateral instruments.

We've also invested a billion dollars or more into the CRA, but we also understand that the complexity of tax audits, both domestically and internationally, is increasing. Does CRA, at this juncture, have the resources and tools to undertake those necessary tax audits, and to not go after the mom-and-pop store, but rather where you need to yield results and where tax evasion or tax avoidance could occur and you would see significant injury?

[Bob Hamilton]

Mr. Chair, I would say a couple of things about that comment and question.

The first is that it's absolutely true that the complexity of what we have to deal with is growing. There's complexity in the Income Tax Act, but there's complexity in the business structures that are out there too. That could be both domestically and certainly as you get into multinationals operating in an international sphere. We have to make sure that we have the people and the tools to enable us to deal with that complexity.

I think that at the moment we do. One could always do more with more, but if I look at ourselves and compare us to other jurisdictions around the world, I think we have a good level of resources to try to uncover what's happening in those complex structures.

It is true that when we have to audit or review one of these complex multinational structures, they are complicated, and they do take time. We have to make sure that we exercise due diligence. We focus our resources on the places where the greatest risk is, and I think we're doing a good job of that.

The only other thing I would mention, because you've talked about it, is that there's a really important international component to this, and that is making sure that we're co-operating with other tax jurisdictions in this battle. That can come through things like information exchanges and making sure that where we have a multinational, we are exchanging information on activities in different jurisdictions to enable us to get a better picture of what's going on. We look to try to co-operate with other jurisdictions.

Sometimes there can be tension there, because one jurisdiction's tax revenue is not able to be realized by another jurisdiction, but we're seeing more activity at that international level through the OECD and other structures, where we are focusing our administrative activities on getting the right information, having the proper discussions with jurisdictions and multinational firms and, as Ted mentioned, not only uncovering tax revenue in cases we're looking at, but sending a signal to firms and businesses out there that we are actively investigating this area. Hopefully, it will be a deterrent to using these kinds of offshore structures in the future.

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

Thank you.

[The Chair, Liberal, Wayne Easter]

Mr. Poilievre.

[Pierre Poilievre, Conservative, Carleton, ON]

I'm quoting from the Toronto Star of November 5, 2017:

Liberal fundraisers held family millions in offshore trusts, leaked documents reveal.

A massive new leak of offshore financial records contains more than 5,000 documents that reveal how two generations of Liberal fundraisers amassed $60 million...in a tax haven beyond the reach of tax collectors.

Internal email correspondence and financial records in the Kolber trusts appear to show evidence of bogus records to hide payments, false invoicing and six-figure gifts to avoid paying tax, raising red flags for experts consulted by the Star and CBC/Radio-Canada.

From the article, I now quote Denis Meunier, a former director general of compliance at CRA: “This definitely merits an audit by the Canada Revenue Agency.”

Has there been any such audit, yes or no?

[The Chair, Liberal, Wayne Easter]

Mr. Hamilton.

[Bob Hamilton]

Mr. Chair, thank you for the question.

I can't answer specifically whether or not there has been an audit of a particular taxpayer, but what I can say in response to that is an example where we try to use every source of information we have to uncover the risks—

[Pierre Poilievre, Conservative, Carleton, ON]

Right.

[Bob Hamilton]

—and uncover the areas that we have to look at. That can come through our own internal databases or from some of the information sharing that I've talked about.

[Pierre Poilievre, Conservative, Carleton, ON]

Why can't you say whether there has been an audit of this particular case?

[Bob Hamilton]

[Technical difficulty—Editor]

[Pierre Poilievre, Conservative, Carleton, ON]

Why not?

[Bob Hamilton]

I typically do not comment on audits of particular taxpayers.

[Pierre Poilievre, Conservative, Carleton, ON]

Why is that?

[Bob Hamilton]

We are—

[Pierre Poilievre, Conservative, Carleton, ON]

The question is why.

[The Chair, Liberal, Wayne Easter]

Mr. Poilievre, allow the witness, please, to answer the question before you interrupt him three times.

[Pierre Poilievre, Conservative, Carleton, ON]

Right, so the question is why.

[Bob Hamilton]

First off, we, as officials, are bound by section 241 of the Income Tax Act to not discuss taxpayer-specific information, and we abide by that. In a particular case, sometimes there are things in the public domain, but we certainly have to respect the information that we have on taxpayers and not disclose that unless it has been authorized by the taxpayer.

I don't know if Ted wants to add anything to that.