Evidence of meeting #35 for Public Accounts in the 40th Parliament, 2nd Session. (The original version is on Parliament’s site, as are the minutes.) The winning word was corporations.
A recording is available from Parliament.
4:15 p.m.
Liberal
The Chair Liberal Shawn Murphy
Thank you.
I'm going to go to Mr. Paillé for three minutes, Mr. Weston for three minutes, and Mr. Christopherson for three minutes.
Monsieur Paillé, trois minutes.
4:15 p.m.
Bloc
Pascal-Pierre Paillé Bloc Louis-Hébert, QC
Thank you.
What I find disappointing in this whole thing is the carelessness. There are several issues here. Not only have you known about this for 18 years, but you were also slow to take action.
I think businesses would pay more attention if there were tighter controls or regulations, especially if they had to pay penalties or interest. Do you not think that this approach takes the responsibility off businesses?
4:20 p.m.
Commissioner, Canada Revenue Agency
Mr. Chair, we have no evidence that suggests corporations were placing amounts on deposit for any reason other than anticipation of a future reassessment.
With that said, though, we have enhanced the framework. We are training our staff on the new procedures and guidelines, and we are strengthening our annual review process so there is an additional challenge function to make sure there is a valid reason for those funds being on deposit and we have an opportunity to have a discussion. As I said, if we determine after those discussions that the funds do no appear to be on deposit for a valid reason, then we would refund those amounts or make adjustments to the amount on deposit.
As well, we've updated our corporate instalment guide to include more details on what information is required, including, for example, the applicable tax year. If the corporation does not provide us with a tax year for new deposits, we will not accept those deposits. On existing deposits, we would enter into a discussion to take a look at that particular year. So our review process is being strengthened.
We also need to make sure we're respectful of the Income Tax Act as well as the legitimate interests of Canadian businesses.
4:20 p.m.
Bloc
Pascal-Pierre Paillé Bloc Louis-Hébert, QC
Pardon me, but I am short on time. So I will move on to another question.
The rate is adjusted every quarter. Is that pursuant to the act? Why not every day or why not based on the market?
4:20 p.m.
Assistant Deputy Minister, Tax Policy Branch, Department of Finance
I don't know how to say it in French. It is
the 90-day T-bill rate. It's whatever the market sets as the 90-day T-bill rate.
4:20 p.m.
Liberal
4:20 p.m.
Conservative
John Weston Conservative West Vancouver—Sunshine Coast—Sea to Sky Country, BC
Thank you, Mr. Chair.
Thank you, guests.
You've given me three minutes, so I have to talk really fast.
4:20 p.m.
Voices
Oh, oh!
4:20 p.m.
Conservative
John Weston Conservative West Vancouver—Sunshine Coast—Sea to Sky Country, BC
Thank you, Mr. Chair.
And I want to share my time.
Madam Lizotte-MacPherson, you asked how they could pay additional money if they do not make a deposit. Maybe there are other mechanisms, like an escrow account or something, that could be explored. Since you're so new, I'm going to congratulate you on your appointment and switch to Madam Fraser.
Since we often look in this committee at other jurisdictions, have we examined what other jurisdictions may do?
If you could answer in less than a minute, then my colleague can ask his question.
4:20 p.m.
Auditor General of Canada, Office of the Auditor General of Canada
I would just refer you to the report. In schedule 4.1, we note what Alberta, Ontario, and the United States do, as examples of practice elsewhere.
4:20 p.m.
Conservative
John Weston Conservative West Vancouver—Sunshine Coast—Sea to Sky Country, BC
All right. And that's something, I assume, the agency will be examining, if not the department?
4:20 p.m.
Auditor General of Canada, Office of the Auditor General of Canada
The agency is aware of this report, and we validated all the facts in this report with them before it was released.
4:20 p.m.
Conservative
4:20 p.m.
Conservative
Terence Young Conservative Oakville, ON
Thank you.
Congratulations to Madam Fraser and her team for identifying the problem, and congratulations for what looks to be a viable plan to solve the problem.
I have a question for Mr. Ernewein regarding the $30 million interest paid to those companies on that money. Does any of that come back in corporate tax? And if so, how much?
4:25 p.m.
Assistant Commissioner, Legislative Policy and Regulatory Affairs Branch, Canada Revenue Agency
Well, it's included in income, so it depends on the income of that particular corporation.
4:25 p.m.
Conservative
Terence Young Conservative Oakville, ON
I'm not trying to justify it; I'm just saying that for some reason this has gone under four different governments since 1991 and about seven different Parliaments, and I'm trying to understand why it wasn't changed before.
For the people from Finance, are there any other risk-benefit advantages to holding $4 billion of these companies' money? For example, if one of them goes bankrupt, are you at the front of the line anyway? Do you have an advantage holding their money if they go under?
4:25 p.m.
Assistant Deputy Minister, Tax Policy Branch, Department of Finance
Absolutely. As part of the answer to the first question, I was trying to say that paying those advance deposits actually protects the taxpayer from interest charges that are non-deductible. So there are valid reasons why companies would put that money on deposit to protect themselves. And rightfully so, because the interest they pay on those is non-deductible. It also reduces the risk for the government to collect those revenues. When they're on deposit, we have access to them.
4:25 p.m.
Conservative
4:25 p.m.
Assistant Deputy Minister, Tax Policy Branch, Department of Finance
Do you mean how much do we end up collecting?
4:25 p.m.
Conservative
4:25 p.m.
Assistant Commissioner, Legislative Policy and Regulatory Affairs Branch, Canada Revenue Agency
As the commissioner mentioned, we charge about $2.1 billion a year in terms of interest charges to corporations, and we reassessed about $4.6 billion, I think it was, in the last full year. So that puts that $30 million in a bit of context. You're dealing with the largest corporations in Canada. They want to ensure they stay on the right side of corporate compliance and they put those funds on deposit with us to ensure that they are covered. But as Madam Lizotte-MacPherson said, with the new challenge function, there'll be no gap between the risk they're portraying and our understanding and being able to demonstrate that risk is there.
4:25 p.m.
Liberal
The Chair Liberal Shawn Murphy
Thank you very much.
Mr. Christopherson, for the final three minutes.
4:25 p.m.
NDP
David Christopherson NDP Hamilton Centre, ON
Thanks, Chair.
It's interesting. When I listen to this, I keep coming to the conclusion that somehow we have this “bass ackwards”. Rather than the situation we have now, would it not be that the government would say to taxpayers, whatever the entity, “There's a good chance that you're going to be reviewed; you've got a bad track record of paying your debts in the past”, or “We've had problems with you”, or “Things don't look good, we want some money on deposit”, and the corporations should be crying to the politicians that they're not getting enough money when they're forced to put this money in here. Yet we have this situation where it's voluntary; they seem to be quite anxious to leave the money. And we know why.
Ms. Levonian, as the DM, doesn't it seem wrong to you that we're doing it this way, rather than only keeping money on tap? I mean, why should we be doing that unless you have a concern that they won't pay it, in which case the pull ought to be from the government, pulling the money in, with them saying, “Hey, you're taking my money, but you're not giving me enough”?
Why does it work the way it does? What's the thinking behind it?
4:25 p.m.
General Director, Tax Policy Branch, Department of Finance
Perhaps sight is being lost of the basic point. First of all, this is taxpayers' money and these are the same rules we're talking about in this context that apply to each and every one of us. When we have an overpayment and are entitled to a tax refund from Revenue Canada, the rate of interest paid on that refund is the same for individuals and corporations.
The question here is whether corporations in particular are overpaying to provide for potential reassessments, and treating CRA as an investment bank. It seems that CRA and the AG's own report have had the right policy since the outset. There is only to be an acceptance and holding of such deposits when reassessments are likely. The verification of that is the point that seems to be at issue, and the commissioner has spoken to that.