Evidence of meeting #84 for Finance in the 42nd Parliament, 1st Session. (The original version is on Parliament’s site, as are the minutes.) The winning word was businesses.

A video is available from Parliament.

On the agenda

MPs speaking

Also speaking

Roch Huppé  Chief Financial Officer and Assistant Commissioner, Finance and Administration Branch, Canada Revenue Agency
Ted Gallivan  Assistant Commissioner, International, Large Business and Investigations Branch, Canada Revenue Agency

May 3rd, 2017 / 3:40 p.m.

Conservative

The Vice-Chair Conservative Ron Liepert

We'll call the meeting to order.

The Honourable Diane Lebouthillier will start with an opening statement. It is my understanding, Mr. Huppé, that you also have a statement, so just follow and we'll go from there.

Thank you.

3:40 p.m.

Gaspésie—Les-Îles-de-la-Madeleine Québec

Liberal

Diane Lebouthillier LiberalMinister of National Revenue

Thank you, Mr. Chair, for the opportunity to provide input into the standing committee's study of the main estimates.

I am joined by Mr. Roch Huppé, the agency's chief financial officer and assistant commissioner of the finance and administration branch, and Mr. Ted Gallivan, the assistant commissioner of the international, large business and investigations branch.

First off, I would like to highlight that the agency is seeking $4.2 billion through these main estimates—$3.2 billion of which requires approval by Parliament. This number represents a 1.9% increase from last year’s main estimates. The agency will use these funds to successfully continue its important work.

In November, when I last spoke to this committee, I gave an overview of the Canada Revenue Agency’s efforts to combat aggressive tax planning and tax avoidance, as well as how the agency is improving services for Canadians. I would like to take a few minutes, Mr. Chair, to update the committee on these two fronts and the ways they are being addressed by the agency.

As you know, the Canada Revenue Agency is an increasingly client-focused agency that exists to serve Canadians. As it says in my mandate letter, my overarching goal as Minister of National Revenue is to ensure that the agency is fairer and more helpful, and that its services are easier to use. The agency is currently overhauling its service model so that people who interact with it feel like valued clients, not just taxpayers.

The agency is committed to ensuring that Canadians have access to the information they need about taxes and benefits—on its website, through its call centres, or through written correspondence.

Since my last appearance, the agency has responded to the public’s needs by making it easier to get help over the phone. To make sure that Canadians understand the information they're receiving from the agency, we have simplified the language in 75% of the correspondence we send to Canadians, making it easier to read and understand.

The agency is also ramping up its outreach efforts to ensure that taxpayers understand and meet their tax obligations. These efforts improve tax compliance through a “get it right from the start” approach to educate, inform, and support taxpayers by improving service and encouraging voluntary compliance.

As you are well aware, we have just completed the 2017 filing season. Over 22.8 million T1 returns were received from February 20 to April 30. Close to 90% of returns were filed electronically. Roughly 58% of those returns were filed by tax preparers through EFILE, and 32% were filed by individuals through NETFILE.

New services were launched to help individuals and tax preparers submit their returns electronically for the 2017 tax filing season. The Auto-fill my return service automatically fills in parts of tax returns, making filing online easier. This tax season, additional slips and prior year returns are available for Auto-fill. Tax preparers can also amend their clients' returns electronically by using the new ReFILE service.

I'm pleased to tell this committee that our service improvements that benefit all Canadians will not stop there.

The agency is developing a new service for February 2018 that will fully prepare returns for Canadians with simple tax situations, low or fixed income, and whose financial situations are unchanged from year to year.

In addition, in order to meet our commitment to provide the best possible service to Canadians from coast to coast, the agency’s service renewal plans are well under way. With more Canadians than ever filing their taxes online, the resources needed for the agency to deal with paper returns are decreasing. So, we are reviewing and reorganizing workloads in order to work smarter and more efficiently.

That means we are improving our call centres and creating national verification and collections centres. These changes mean the Canada Revenue Agency will be a more efficient organization and provide better service to Canadians.

Still, we always strive to do better, prioritizing Canadians in everything we do. As our prime minister says, we can always do better.

Since my appointment as Minister of National Revenue, I have been committed to ensuring that Canadians get the benefits to which they're entitled. That's why the agency is proactively contacting Canadians who are not receiving the tax credits or benefits they should, to make sure that the government is supporting the most vulnerable and ensuring Canadian families have the support they need.

The agency is also expanding the community volunteer income tax program; now, more Canadians than ever with low and modest incomes will benefit from free tax preparation clinics.

Mr. Huppé will speak to the details of the main estimates, but before I yield the floor to him, I would like to briefly touch on the agency’s accomplishments on the compliance front and our plans for the way forward.

Most Canadians pay their taxes in full and on time. But some do not pay what they owe. This is not right; this must change. By combatting offshore tax evasion and aggressive tax avoidance, as does our government, we are protecting the important public services that Canadians rely on.

Since my last appearance before this committee, the agency has taken concrete and effective steps to crack down on tax cheats. We are currently conducting audits on over 820 taxpayers and criminally investigating over 30 cases of tax evasion specifically linked to offshore tax havens.

Through Budget 2016, the agency increased its information-gathering capabilities and improved the tools at its disposal. The agency now has access to more of the information it needs to fulfill its obligations.

In the last year, the agency has increased the number of auditors reviewing offshore tax schemes, promoters and large multinational corporations. It has started reviewing all taxpayers in certain segments of the population identified as high risk. The agency is using external data and publicly available information to maximize its efforts to identify non-compliance. It has expanded its efforts specifically geared towards intermediaries, making promoters a focus of our criminal investigations, with several under way.

As well, the agency is taking a much harder stance on taxpayers who appear on leaked lists of offshore holdings. For example, with the Panama Papers, the agency has over 122 taxpayer audits under way and is reviewing a treasure trove of data linked to these taxpayers. It has also executed search warrants, and several criminal investigations involving both participants and facilitators are under way.

Audits of the highest-risk taxpayers moving money between Canada and four foreign tax administrations of interest are under way, with more to come. So far, a total of 41,000 transactions have been analyzed, totalling over $12 billion. The Canada Revenue Agency continues to build its capacity to detect and crack down on tax cheats. It is developing a powerful business intelligence infrastructure and risk assessment system to target cases of high-risk Canadian and international tax evasion and abusive tax avoidance.

It is clear, Mr. Chair, that our government is committed to protecting the integrity of the Canadian tax system by combatting offshore tax evasion and aggressive tax avoidance on all levels. As Minister of National Revenue, I am committed to ensuring that the agency has all the tools and resources it needs to fulfill its role and meet Canadians' expectations.

Thank you.

3:50 p.m.

Liberal

The Chair Liberal Wayne Easter

Thank you, Minister.

Mr. Huppé.

3:50 p.m.

Roch Huppé Chief Financial Officer and Assistant Commissioner, Finance and Administration Branch, Canada Revenue Agency

Thank you, Mr. Chair.

Good afternoon, and thank you for the opportunity to appear before the committee to present the Canada Revenue Agency's main estimates for 2017-18 and to answer any questions you may have on the associated funding.

As you are aware, the Canada Revenue Agency is responsible for the administration of federal and certain provincial and territorial tax programs, as well as the delivery of a number of benefit payment programs. Each year, the agency collects hundreds of billions of dollars of tax revenue for the governments of Canada, and distributes timely and accurate benefit payments to millions of Canadians.

As the minister mentioned earlier, in order to fulfill its mandate in 2017-18, the CRA is seeking a total of $4.2 billion through these main estimates. Of this amount, $3.2 billion requires approval by Parliament whereas the balance of just under $1 billion represents statutory forecasts that are governed under separate legislation. The statutory items include children’s special allowance payments, employee benefit plan 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 2017-18 main estimates represent a net increase of $77.2 million when compared with the 2016-17 main estimates authorities. The largest component of this change is an increase of $164.9 million to implement and administer various measures announced through budget 2016. This includes $62.1 million for measures aimed at enhancing the CRA's efforts to crack down on tax evasion and combat tax avoidance.

The incremental funding will be used to hire additional auditors and specialists, develop robust business intelligence infrastructure, increase verification activities, and improve the quality of investigative work that targets criminal tax evaders. This includes $50.9 million for measures aimed at enhancing tax collections by increasing the resources available to tackle the inventory of debt; and $43 million for measures to further improve the agency's capacity to deliver client-focused services for Canadians and Canadian businesses. These include improving telephone accessibility, delivering correspondence and other communications that are clear and easy to read, increasing outreach efforts, and improving the CRA's capacity to resolve taxpayer objections in a timely manner. Funding includes $8.9 million for various tax measures including country-by-country reporting, efforts to protect the charitable sector from the risk of terrorist financing, the new small business quarterly remitter initiative, and consultations on the rules governing political activities for charities.

Other increases to the agency's budget include the following: a $51-million adjustment in forecasted payments under the Children’s Special Allowances Act due to an increase in the per-child benefit amount under the new Canada child benefit program, implemented in July 2016; $36.3 million for collective bargaining increases associated with employees represented by the Public Service Alliance of Canada, or PSAC, bargaining unit; $30 million related to the administration of the goods and services tax, recognizing the deferral of a savings proposal originally identified as part of the Budget 2012 spending review—this represents the ongoing amount of the adjustment included in the CRA's 2016-17 supplementary estimates (B); and $9.9 million—a net increase—in resources for the implementation and administration of enhanced compliance measures, as announced in Budget 2014 and Budget 2015.

These increases are partially offset by a $128-million reduction in projected statutory disbursements to the provinces under the Softwood Lumber Products Export Charge Act, 2006, as a result of the expiration of the agreement in October 2015; $42 million less in statutory contributions to employee benefit plans and in the forecast of cost-recovery revenues, pursuant to section 60 of the CRA Act, for initiatives administered on behalf of the provinces and other government departments; a $24.4-million adjustment related to accommodation and real property services provided by Public Services and Procurement Canada; and finally, a $20.5-million adjustment associated with changes in the funding profile for various measures announced in previous federal budgets. This includes a $9.5-million reduction in professional services, advertising, and travel, announced in budget 2016.

The CRA's 2017-18 main estimates do not yet reflect incremental resources for announcements made by the Minister of Finance in the March 2017 budget. The funding required for the implementation and administration of these measures is currently being evaluated by the CRA and will be presented to Treasury Board ministers through formal submissions in the coming months. Any incremental funding required for the 2017-18 fiscal year as a result of the Treasury Board submissions will be sought through the supplementary estimates process.

In closing, the resources being requested through these estimates will allow the Canada Revenue Agency 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, as well as ensuring that Canadians have ready access to the information they need about taxes or benefits.

Mr. Chair, at this time we will be pleased to respond to any questions you may have.

Thank you.

3:55 p.m.

Liberal

The Chair Liberal Wayne Easter

Thank you both.

My apologies for being late. Robert and I had a wonderful view of room 415 in the Wellington Building, with nobody in it.

Turning to questions, for the first round we'll go to five minutes. I think that will give everybody a chance.

Mr. Sorbara.

3:55 p.m.

Liberal

Francesco Sorbara Liberal Vaughan—Woodbridge, ON

Thank you, Mr. Chair.

Welcome, Madam Minister. It is a pleasure to see you here again this afternoon.

I have a couple of quick questions.

Our government has done a lot of work and has invested a lot of resources into ensuring that all Canadians pay their fair share of taxes and that tax avoidance schemes are investigated and the appropriate resources are provided to CRA and so forth. Could you comment on the success to date and the investments we have made in that regard?

3:55 p.m.

Liberal

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

I thank my colleague for his question.

Cracking down on tax evasion and aggressive tax avoidance is indeed a priority for our government. Last year, the Department of Finance allocated extraordinary resources to the Canada Revenue Agency for that purpose, in the amount of $444 million. This meant that we were able to hire auditors throughout the year and acquire the tools necessary to combat tax evasion and aggressive tax avoidance. We are also busy getting rid of tax loopholes that result in tax advantages for some at the expense of others.

I will let Mr. Gallivan provide you with some more technical details.

3:55 p.m.

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

In the international and aggressive tax planning space, multinationals, our revenue generation target for the last fiscal year that ended March 31 was $380 million. We're over $500 million, $512 million. From an ROI perspective, we're there. But I think the deeper question is, are they the right cases?

In terms of what we call the “third-party penalty”, a penalty levied on accountants and lawyers who are involved in that kind of very aggressive tax planning, we're at $44 million.

Our promoters centre, which is one of the investments we received in budget 2016, is a dedicated unit that focuses on promoters of tax schemes. We have 149 wholesalers or retailers in that space. I would say that from an ROI perspective, but probably more importantly from a deterrent perspective, we're on track.

4 p.m.

Liberal

Francesco Sorbara Liberal Vaughan—Woodbridge, ON

We know in Canada that we want the economy to grow. I think the word in French is croissance, to grow our economy, and small businesses are a very important factor in that.

Minister, could comment on how CRA has shifted its role into being more customer-service oriented with our small businesses that exist from coast to coast to coast?

4 p.m.

Liberal

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

I thank my colleague for his question.

I have to tell you that I am particularly sensitive to the whole issue of small and medium-sized businesses, given that I was raised by parents who owned a small business. I come from a rural area where there are a lot of small businesses.

Our government has committed to supporting small businesses. In my view, they create jobs and wealth, and they diversify our economy.

At the Canada Revenue Agency, we have established a service to support small businesses as they are starting up. Last year, we held consultations with small businesses across the country. We wanted to determine how the agency could continue to improve its services and to help small businesses not only as they start up, but also as they continue their activities.

Mr. Gallivan will be able to provide you with additional information on that.

4 p.m.

Assistant Commissioner, International, Large Business and Investigations Branch, Canada Revenue Agency

Ted Gallivan

Just to follow through with specific examples of what the minister was saying, we have a liaison officer initiative, through which we take auditors who used to go to small and medium-sized businesses to do audits, and now they go to give advice and warn them about potential errors.

We have clarified our outputs. We put all of our outputs through a plain-language review and so in the coming weeks, as you receive your notice of assessment, hopefully you'll see an improvement in clarity.

We also adjusted the remittance frequency. One of the burdens on businesses is how often they have to pay us, and you'll see in the main estimates today that one of the measures being funded is system changes to allow businesses to pay less frequently.

4 p.m.

Liberal

The Chair Liberal Wayne Easter

Thank you.

Mr. Richards.

4 p.m.

Conservative

Blake Richards Conservative Banff—Airdrie, AB

Minister, thank you for being here today.

I'd like to take the opportunity to follow up on some questions I asked you previously, over several months now, regarding the active versus passive income tax rules and how those rules are affecting small businesses like campgrounds.

It's quite unfortunate that your Liberal government is continuing to unfairly target small businesses. Your government, and specifically your department, is using those rules to target small businesses like campgrounds by arbitrarily assigning them as having passive income when the amount of work that's involved with a business like a campground is anything but passive. Your department has, in fact, handed out huge new tax bills that will force some of these businesses to close their doors.

I wonder if you can explain to me why you believe that some businesses are too small to be small businesses and why you continue to try to tax them out of business.

4 p.m.

Liberal

The Chair Liberal Wayne Easter

Madam Minister.

4 p.m.

Liberal

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

Mr. Chair, I thank my colleague for his question and for his interest in small businesses.

As I was saying earlier, small businesses are a priority for me, given that I come from an area where there are a lot of them.

However, I do not entirely agree with what he has just said. We have not changed the tax rules on deductions that apply to small and medium-sized businesses. The same provisions continue to apply.

4 p.m.

Conservative

Blake Richards Conservative Banff—Airdrie, AB

I think she should probably try to explain that to some of the campgrounds that are currently taking her department and the Canada Revenue Agency to court over some of the reassessments they have received on their tax bills. I'll list about three of them. I'm not going to name the businesses specifically, but I know of one in the GTA area that was audited for the 2012 through the 2014 tax years and has been sent a tax bill for approximately $250,000 in taxes. I have a whole list of services that it provides and it is certainly not a passive business.

I have another one in the Kitchener area that was audited for 2013 and 2014 and received about a $40,000 bill. Again, I have a whole list of services that generate anything but passive income. I have another one in the Kawartha Lakes area that was reassessed for 2012, 2013, and 2014 and presented with a tax bill of about $75,000.

One of these businesses at least has been put out of business as a result of the actions of your department, so I wonder if you could maybe try again to explain to us how you're not affecting any of these businesses, how nothing has been changed. The agency has, in fact, changed its interpretation of these rules. They have, in fact, targeted some of these businesses and they are putting them out of business, Minister.

I have asked you this over a series of months. You should be well aware of the problem. You should have gone back and checked this out. You clearly haven't done that. I would hope you're going to take this seriously and stop just repeating a talking point to the effect that you think small businesses are important and that somehow they need to pay their fair share.

I hope this doesn't go back to the comments the Prime Minister made during the election campaign that small businesses are just a way for rich people to avoid paying taxes. This is a serious matter. These businesses are being put out of business, and you need to take a look at this and be serious about it and realize that you need to be doing something to prevent it.

When we were in government, we recognized there was an issue here. We put in place a review of this in our last budget in 2015. Your government cancelled it in your first budget in 2016, and then Revenue Canada started to go after these businesses, these campgrounds. I've given you a few examples. There are others.

After 12 of the 13 submissions we received under that review indicated that these rules were unfair and needed to be changed, I wonder if you can tell me why you feel this is not an issue.

Can you please tell me when you'll stop this war on small businesses? Can you tell me if you're just going to keep repeating these talking points or if you're actually going to get serious and address this?

4:05 p.m.

Liberal

The Chair Liberal Wayne Easter

The minister will need some time to respond.

Minister, the floor is yours.

4:05 p.m.

Liberal

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

Thank you, Mr. Chair.

I repeat that our government is committed to supporting small and medium-sized businesses. I must also tell my colleague once more that we have not changed any tax rules. The same provisions continue to apply.

I would also like to tell the committee that, in 2014, our colleagues here—

4:05 p.m.

Conservative

Blake Richards Conservative Banff—Airdrie, AB

Minister, I'm going to have to interrupt because my time is very short. I'm sorry, Chair, but I will have to interrupt.

4:05 p.m.

Liberal

The Chair Liberal Wayne Easter

Let the minister finish. We'll give you time—

4:05 p.m.

Conservative

Blake Richards Conservative Banff—Airdrie, AB

Mr. Chair, you'll give me time?

4:05 p.m.

Liberal

The Chair Liberal Wayne Easter

Yes, I will. We'll give you time.

Minister, go ahead. I don't know if Mr. Gallivan wants to add anything or not, but go ahead. The floor is yours.

4:05 p.m.

Liberal

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

So, as I was saying, in 2014-2015, the party in power, my colleague's party, held consultations about the rules and decided to change none. The rules continued to apply and we are still applying them now.

Mr. Gallivan will be able to give you more details about the rules that apply to campgrounds.

4:05 p.m.

Conservative

Blake Richards Conservative Banff—Airdrie, AB

Just before Mr. Gallivan, I think it will be helpful—

4:05 p.m.

Liberal

The Chair Liberal Wayne Easter

Mr. Gallivan might want to add to what the minister said. Then we will give you time.