Public Accounts Committee on Feb. 14th, 2007

[John Williams, Conservative, Edmonton—St. Albert, AB]

It's mind-boggling, Mr. Chairman, that one department of the government has a serious problem of knowing that social insurance numbers can be used fraudulently to elicit illegal payments from the government. An executor files a final tax return saying this taxpayer is deceased, with the social insurance number—And remember that this is a Revenue Canada file number—that's what social insurance numbers are—and it cannot trigger a removal or a closure on the number.

I think we are back to this logic model again, Madam Auditor General.

We have to look at these logic models, Mr. Chairman. They seem to be a little simplistic and wanting to me, because they are falling short everywhere.

[The Chair, Liberal, Shawn Murphy]

Thank you, Mr. Williams, and thank you, Ms. Fraser.

Before we go to round two, there is one area I want to explore, Ms. Fraser, and that is the whole issue of international taxation, which you allude to in your report. Again, there's more of it as we become a globalized society and there are companies using hedge funds, insurance holding companies, investment holding companies, trusts, you name it. Has there been any comprehensive audit done that you are aware of—and of course, everyone wants residents, individual and corporate, to pay their taxes—as to any amount of slippage that we are losing because of either lax laws or lax enforcement of existing laws?

[Sheila Fraser]

I am not aware of that, Mr. Chair. The agency might have some information like that. I would presume there have probably been studies done by others, but I am not aware of that.

[The Chair, Liberal, Shawn Murphy]

My second question is to that very point, Ms. Fraser. You mention in your report that CRA, to their credit, detected 72 trusts that were being set up in the Bahamas. Was that an incident of tax fraud? What was the situation there that would allow these people to think they could do it? Can you elaborate on that a bit?

[Sheila Fraser]

It is my understanding that this was very aggressive tax planning in order to try to avoid taxation in Canada. Certain assets would have been transferred to a spousal trust in Canada and then moved into a trust in Barbados. The taxpayers would then sell the assets, which I think were shares of private corporations. Under the tax treaty, there would have been no tax paid in Barbados and no tax paid to Canada. The agency identified it under the general avoidance rules, assessed, and won the case in the courts. I think it may actually still be before the courts on those particular reassessments.

[The Chair, Liberal, Shawn Murphy]

Another issue that you have identified, Ms. Fraser, which I think is tremendously important, and I don't really have the answer to it and I am not sure you do, is the whole issue of human resources within this department—the skill set, the international tax audits, tax practitioners—that are required to monitor these types of transactions and prosecute them where necessary. Whether or not the government pay scale is able to retain or attract this type of practitioner is questionable, and certainly it presents all kinds of challenges to the department.

[Sheila Fraser]

Certainly we note in the report that there are particular challenges in the greater Toronto area. I think we all recognize that the greater Toronto area is the area where many of the large corporate taxpayers with international transactions are filing their tax returns. People with international tax expertise are highly sought after, and the agency cannot compete with the private sector. But there are many offices across the country that have people with significant expertise and a lot of experience in the agency. What we are suggesting to the agency is that they need to better align the resources they have across the country with the higher-risk files and use people from other offices to supervise and to handle these reviews.

[The Chair, Liberal, Shawn Murphy]

Thank you very much, Ms. Fraser.

We are going to go to round two, colleagues.

The next person on the list is John McCallum.

Mr. McCallum, welcome to the committee. You're a former Minister of Veterans Affairs, Defence, National Revenue, I believe. We are not investigating any of your sins, I hope.

[John McCallum, Liberal, Markham—Unionville, ON]

I'm glad to see that. I never had responsibility for the Canadian Coast Guard.

It's nice to see you again, Ms. Fraser.

I must say, I also notice the point that complaints of this kind have been occurring since 1983, which is 24 years. One can hardly blame one particular government or party. It seems to me that there must be something systemic. When I read your comments, I'm not sure they go deep enough to explain such a long period. You say they've had a can-do philosophy for 24 years and they don't set priorities. Why not? That's a generation.

My first question to you would be whether you think there are deep-seated cultural problems of some kind or another in terms of labour relations, systemic issues, that we never have enough money, or I don't know exactly what. But is there something that would explain a generation of difficulties in this area?

[Sheila Fraser]

We obviously haven't done the level of work to be able to respond to that adequately. I think, though, that the minister himself indicated that there was a culture that was resistant to change. There is a very strong culture within the coast guard that doesn't take easily to a lot of the organizational changes that are being proposed. Many of the projects are slow to move ahead, perhaps in part because of that. There have also been issues with funding. I think it's obvious from the aging of the fleet and some of the difficulties they have.

On the other hand, we've been raising issues about shore-based support that could perhaps be rationalized, and that has not been done. Crewing of vessels can be changed as well. There are efficiencies that can probably be made, and I would think that may go back, again, to the resistance to change.

[John McCallum, Liberal, Markham—Unionville, ON]

One always wants to be fair, but the only positive comment I saw was the response of Fisheries and Oceans. I'm not sure if that's like the pot guarding the chicken, or something like that, because they have their own problems.

In any event, are we being fair? They do say that the Canadian Coast Guard is proud of its long record of providing quality service. Each and every day the coast guard's search and rescue efforts save lives, and so on. Would it be fair to say that even though there are these organizational accountability management issues, when they're out on the water doing their actual work to save lives and do the things that really count, perhaps they don't do a bad job?

[Sheila Fraser]

I think that's probably fair to say, except the point we're trying to make is that their operations are being affected. We know, for example, that surveys of fish stocks have had to be cancelled because they simply didn't have the ships available to do them. There are parts of their operational responsibilities that they are having difficulty carrying out.

[John McCallum, Liberal, Markham—Unionville, ON]

I thought there might be a defence analogy. It seems they've been told forever to combine their five regions into one. And it reminded me of the military, I think in the 1960s, being told to combine their navy, air force, and army effectively into one. Admirals will go down with their ships before they'll don a united services uniform. Is there a certain analogy there that would provide huge resistance over many years to such movements towards integration?

[Sheila Fraser]

To be fair, up until two years ago they were organized regionally. In Fisheries and Oceans Canada, the vessels and the people were actually allocated to regions, and the regional directors were responsible for them. You had the Commissioner of the Coast Guard, who did the policy issues. There was a long organizational history of being divided regionally rather than being a national organization, which I think has contributed, obviously, to some of the difficulties we see today.

[John McCallum, Liberal, Markham—Unionville, ON]

I have one more question, Mr. Chair. It has to do with the way forward and what one does to actually bring this problem that's lasted a generation to some solution.

I see your recommendations that the coast guard should establish priorities for improvements, set clear achievable goals, and so on. But I imagine they've been told things like that for 20-something years. Usually these things don't get done. My question is whether you think it'll be different this time. Has the government committed itself to this? Will there be some way a year from now for us to measure whether they have indeed done what they have said they will do?

[Sheila Fraser]

Certainly the indications we received from senior officials of the coast guard and the commissioner and minister is that they recognize these issues; they agree with the conclusions we have in the report. The commissioner has indicated to us that he is going to be tabling a business plan within the next month or so and will be clearly setting out priorities.

Obviously, as any auditor would, we want to see the results before we conclude on that, but I would be hopeful that if the committee decides to have a hearing on this audit, he will then articulate what his priorities are and which actions he is going to take and over what timeline.

We certainly see there is funding coming now for replacement of some of the ships, so that should help to alleviate some of the problems.

[John McCallum, Liberal, Markham—Unionville, ON]

Thank you very much.

[The Chair, Liberal, Shawn Murphy]

Thank you, Mr. McCallum.

Mr. Fitzpatrick for five minutes, please.

[Brian Fitzpatrick, Conservative, Prince Albert, SK]

Madam Fraser, I would like to pass our kudos to you. In our system of government, I don't know what we'd be doing without your office to protect the interests of the public and the taxpayer and to root out some of these practices that go on in government and to get them on the right track. So we've got a lot to be thankful for with the good work you're doing.

I should have you come over to the justice building some day and take a look at the white building that's across the street. I fear what's going to happen this spring when the tradespeople get going at their next-stage developments of that building, but it's quite an interesting operation to keep track of. I think tradespeople from where I'm from would like to get their hands on some of the work that goes on there; it seems to be a never-ending process.

On the issue of social insurance numbers upon death, I know there are a lot of issues surrounding this thing in regard to the importance of privacy, but I have been trying to get my mind around the issue. When somebody dies, what is the great privacy issue at that time? I don't really think they're going to be able to take their SIN number with them and use it in the world after. I can think of about 100 possible uses for social insurance numbers after somebody is dead, and about 99 of them are bad.

Why doesn't the government really have some good mechanisms in place to make sure that information is straightened out when people pass away? There are funeral homes; there are death certificates; there are all sorts of things that go on. It would seem to me that we should have something in place that almost automatically will register that information when it happens.

[Sheila Fraser]

Mr. Chair, that is what they're trying to do in creating these links with the vital statistics in the provinces and territories, so that as soon as there is a notification of a death they would be advised and they could—

[Brian Fitzpatrick, Conservative, Prince Albert, SK]

They'd be filing when they register the death certificate. Would they be putting the SIN number on the death certificate or with the information?

[Sheila Fraser]

I'm not sure exactly how it would work.

[Brian Fitzpatrick, Conservative, Prince Albert, SK]

Would that be too complicated?

[Sheila Fraser]

The department could obviously tell you how they do that with the one province with whom they are doing it.

[Brian Fitzpatrick, Conservative, Prince Albert, SK]

Okay.

I wanted to pursue another area, because it is quite important. I think Mr. Murphy raised it and I certainly wanted to follow through on it.

There have been a lot of mergers and acquisitions in Canada by big global players—a long list of them, and maybe a bunch more on the horizon. I saw on the news there is talk about Alcan being taken over by a big Australian conglomerate, and there are some analysts on Bay Street who are alleging or alluding in regard to the CVRD takeover of Inco—probably our biggest mining company in Canada—that CVRD did a whole bunch of creative and aggressive internal restructuring of debt and so on and may have ended up creating an effective tax shield of eight or nine or ten years on the income from the Inco operations. If that is in fact the case, I'm not exactly sure it's in the interests of anybody in Canada to have that sort of thing happening in our country. I would be a lot happier if I knew that the Canada Revenue Agency had a good handle on this sort of thing and that this wasn't happening.

Do you think when they are before our committee this is an area we could pursue with them?