Evidence of meeting #55 for Finance in the 43rd Parliament, 2nd Session. (The original version is on Parliament’s site, as are the minutes.) The winning word was cra.
A video is available from Parliament.
4:30 p.m.
Liberal
The Chair Liberal Wayne Easter
Thank you, Gabriel. That clears that up, Ms. Smith. It's article XXX on the written answer.
We'll go to Mr. Falk for five minutes, followed by Mr. McLeod.
4:30 p.m.
Conservative
Ted Falk Conservative Provencher, MB
Thank you, Mr. Chair, and thank you to the panellists. We appreciate the input so far, and the information.
The Prime Minister's 2019 mandate letter to the Minister of National Revenue instructed the minister to “seek new ways to counter tax avoidance and evasion by wealthy individuals”, “enhance our existing tax avoidance and evasion whistle-blower programs” and “look for more opportunities to invest resources that help crack down on tax evaders”.
My questions are these: Have you identified these opportunities? What are they? How have you responded, and what are the early results?
4:30 p.m.
Assistant Commissioner, Compliance Programs Branch, Canada Revenue Agency
I think it falls to me again to lead off.
I'll talk about one initiative, which is the related party initiative. That's our focus on Canadians whose net worth is $50 million or more. We have increased the number of resources in that area, and we've also increased our ability to do analytics on offshore transfers, meaning these $10,000 back-and-forths, and mine that data. It's also to bring into our BI systems what I call a common reporting system. Again, that's worldwide banking information.
By having a dedicated team that has a standing watch on everybody whose net worth is $50 million or more, we go through transfers in and out of Canada related to those individuals, and we also look at banking information. We trace through their corporations, their sales tax accounts and their payroll accounts to kind of understand who they are. That is an example of progress.
We're just starting to reassess those taxpayers, to go back to the $12 billion-plus. They've just been billed, so it will takes years for those cases to work themselves through the courts, but I think we've had early success.
4:30 p.m.
Conservative
Ted Falk Conservative Provencher, MB
Thank you.
I have another question. For the 2016 tax year, Canadian taxpayers were asked for the very first time if they had sold their principal residence. Why was that question on the tax form?
4:30 p.m.
Director General, Tax Legislation Division, Tax Policy Branch, Department of Finance
Thank you for the question.
The question provided more information to the Canada Revenue Agency on a very significant tax exemption, maybe one of the most significant tax exemptions for many Canadians, which is that they don't have to pay capital gains tax on the sale of their principal residence. That sale is something that had not been reported, so it was difficult for the Canada Revenue Agency to gather data on the compliance with the rules. It was also for analysis on policy to see that the policy was achieving its intended objective.
At the same time, there was some aggressive tax planning uncovered that was, for example, intended to provide access to the capital gains exemption for non-residents, which was unintended. That, along with the reporting change, was addressed in, I believe, 2016.
It helps provide information. It helps ensure that our voluntary compliance system is working correctly and that the appropriate tax benefits are going to the people who are selling their principal residences.
4:35 p.m.
Conservative
Ted Falk Conservative Provencher, MB
Did the direction to do that come from the minister's office and was it pre-empting the study of taxing capital gains on individuals' personal residences?
4:35 p.m.
Director General, Tax Legislation Division, Tax Policy Branch, Department of Finance
I don't recall where the request for that came from or what the genesis of it was.
4:35 p.m.
Conservative
Ted Falk Conservative Provencher, MB
There was a second part to that question. Was it also the intent to partially determine the feasibility and the profitability of taxing an individual's capital gain on his personal residence?
4:35 p.m.
Director General, Tax Legislation Division, Tax Policy Branch, Department of Finance
As I said, my understanding of the policy was to help provide necessary information to the government to ensure compliance, and also to be able to look at the policy to make sure that the rules were working as intended.
4:35 p.m.
Liberal
The Chair Liberal Wayne Easter
Well, Ted, you're not quite out of time, but that's okay. You have time for one quick question.
4:35 p.m.
Conservative
Ted Falk Conservative Provencher, MB
Okay.
Often comparisons are made between aggressive approaches that the CRA takes to obtain taxes owed from average Canadians, looking for low-hanging fruit, and there's little action taken against these offshore tax accounts.
Sorry, Chair, it's not a quick question.
Senator Percy Downe appeared recently. I'm going to quote him. He said:
Canadians are wondering why we have a two-tiered justice system for tax evasion. Try to cheat on your domestic taxes and the CRA will likely find you, charge you, convict you and force your repayment. Check their website and you'll see their results. Hide your money overseas and you likely will never be charged or convicted. Again, check their website and you'll see the results.
Why is it that way?
4:35 p.m.
Assistant Commissioner, Compliance Programs Branch, Canada Revenue Agency
In a short period of time, it's difficult to review the premise of the question, but in my area of responsibility, the audit branch at CRA, we focus disproportionately on large dollars and high-net-worth individuals. In our results, 60% of the dollars are coming from multinational enterprises.
My experience in 30 years at the CRA is that we do tend to focus on risk, which is dollars, and focus more intently on higher dollars.
4:35 p.m.
Liberal
The Chair Liberal Wayne Easter
Thank you both.
I'll just give you the lineup to finish the rounds of questions: Mr. McLeod, Ms. Jansen, Mr. Sorbara and Mr. Fast.
Mr. McLeod, you have five minutes.
4:35 p.m.
Liberal
Michael McLeod Liberal Northwest Territories, NT
Thank you, Mr. Chair; and thank you to the presenters today.
I thank the CRA for its increased efforts to combat tax avoidance, but I've heard from many constituents over the years of their frustrations about being audited, year after year, by the CRA in regard to the northern residents deductions. These are not aggressive tax planners; they're people who have lived in the north for decades, some for their entire lives, and they are just trying to claim the benefits they're eligible for.
I know there are some measures in budget 2021 to improve the travel component, which will help many northerners who were previously unable to claim it, but can you tell me what the CRA has been doing to fix the issue of targeting some of my constituents with excessive audits?
4:35 p.m.
Assistant Commissioner, Compliance Programs Branch, Canada Revenue Agency
What I would say is “empathy”. We started something called “People First” at the CRA, a whole agency focus to try to shift our culture. In the audit compliance functions, they're having a dialogue around using discretion. Discretion will always be subject to oversight and when Canadians hear that the CRA is using discretion, I think many people think that's going to make things worse, that they're going to be more aggressive. However, it has involved talking to our employees about reacting to the facts in front of them and giving taxpayers a bit more of the benefit of the doubt. More recently it has taken hold with this idea of empathy and really talking to our employees about what empathy is, what empathy isn't and how to demonstrate greater empathy.
COVID has helped. In COVID, the CRA was really involved in trying to help the Canadian economy, trying to help regular Canadians and issue benefits. For our frontline staff, and me and others, it has made us more appreciative of what regular Canadians can go through and to be a little more consultative and collaborative.
I do agree that we need a culture change. Our commissioner has launched it under something called “People First”, and for people in enforcement and regulatory jobs, we're really trying to have a dialogue about empathy and being more empathetic.
4:40 p.m.
Liberal
Michael McLeod Liberal Northwest Territories, NT
I hope that works, because I certainly get the calls, but it seems to be that the northern residents tax deductions trigger something in the system that automatically requires an audit.
We've heard a lot about international treaties and about how CRA is already collecting additional tax revenue. Could you comment on how the international treaties could be improved to assist the government in fighting tax evasion?
4:40 p.m.
Assistant Commissioner, Compliance Programs Branch, Canada Revenue Agency
I might start. It's very awkward, because the Department of Finance holds the pen, but we are sometimes sitting on the front line of how the treaties play out. I would observe, one, because we've been more active internationally, the collections component and the number of treaties that maybe have a collections component are more of a priority than they used to be. I would also say that Luxembourg comes up very frequently, and I think both the commissioner and I have been comfortable saying that treaties are generally good and effective and they're there for lots of reasons and that our colleagues at Finance work very hard and consider lots of factors, but I would certainly say that as we look at the multinationals we deal with, the Luxembourg treaty in particular seems to have a very, very wide degree of use.
4:40 p.m.
Liberal
Michael McLeod Liberal Northwest Territories, NT
Okay. It seems that there are a small number of high-net-worth individuals engaging in complex transactions intended to avoid the collection of tax debt. Budget 2021 proposed introducing an amendment to the Income Tax Act to address this sort of planning. Can you give us some comments on whether or not you think this is a positive direction for the government to take?
4:40 p.m.
Liberal
4:40 p.m.
Director General, Tax Legislation Division, Tax Policy Branch, Department of Finance
Thank you for the question.
I'm happy to provide some general comments on the proposed amendment on the collection of tax debts. There's an existing section in the Income Tax Act—section 160—that is intended to prevent somebody who owes taxes from moving their assets to a non-arm's-length person to avoid having to pay the tax debts they owe. Tax planning that seeks to frustrate that rule and prevent its application has arisen, with the ultimate objective being that people or corporations that owe taxes typically could move their assets through a series of transactions very carefully ordered and staged so that the assets were moved ultimately to another entity so that when it came time to pay the taxes, the corporation or the legal entity with the tax liability had nothing left to pay and the Canada Revenue Agency was frustrated in its attempts to collect the taxes. This sort of tax planning is highly aggressive, to say the least, owing taxes and then moving your assets away so that the Crown can't collect.
The budget 2021 proposal would attempt to help fix the wording of section 160 so that it can't be avoided and so that it achieves its initial policy intent in order to prevent this type of planning and to ensure that everybody pays the taxes that they owe. It improves upon an existing mechanism in the Income Tax Act to help improve fairness.