Public Accounts Committee on Oct. 26th, 2009

[Bonnie Crombie, Liberal, Mississauga—Streetsville, ON]

Why did it take so long to establish this new framework after we realized there was a concern dating back to 1991?

[Linda Lizotte-MacPherson]

Mr. Chair, I want to provide clarification with respect to 1991. That was the time when, prior to that, some concerns had been identified, and as a result Canada Revenue Agency put in place the framework and the policies and practices that we've been using. They have continued to be enhanced on an ongoing basis.

As a result of the report and the recommendations from the Auditor General, in which she indicated that CRA could improve its administrative process to ensure there's no potential for misuse of the advance deposit mechanisms, we have further strengthened the enhanced framework.

[The Chair, Liberal, Shawn Murphy]

I think the Auditor General wants to comment, Ms. Crombie.

[Bonnie Crombie, Liberal, Mississauga—Streetsville, ON]

Certainly.

[Sheila Fraser]

Chair, I'd just like to make one point that we made in paragraph 4.20 in our report. We indicate that this issue arose during the agency's audit of its financial statements. In doing its review, the agency itself concluded that in many cases the deposits exceeded the potential taxes payable. That's important because those amounts are actually reported as payable and not as tax revenues. The agency, in its own analysis, came to the conclusion that those deposits exceeded any potential taxes that would be payable by a very limited number of corporations.

[Bonnie Crombie, Liberal, Mississauga—Streetsville, ON]

Right. Did the Department of Finance, as represented here, have a concern? Do you feel there's need for some sort of regulatory change? Do you feel there are any number of corporations that may be taking advantage of this preferential interest rate?

[Louise Levonian]

I think it goes back to what I indicated before: now that we are aware of the issue, we are reviewing the interest rate. I think, though, that part of the deliberations going forward will be the review of these advance deposits by CRA and the progress in that respect in what the CRA does.

[Bonnie Crombie, Liberal, Mississauga—Streetsville, ON]

Do all jurisdictions pay similar interest rates? I know we had an example in the case study showing that they're considerably lower in other jurisdictions, or that there are none at all.

[Louise Levonian]

In the case study, I think the examples were Alberta and Ontario.

[Bonnie Crombie, Liberal, Mississauga—Streetsville, ON]

Yes, and there was also the U.S.

[Louise Levonian]

Internationally we're in line with Australia and the U.S. and others. The U.K. has a lower interest rate than we do. We're not out of line with some countries, but other countries have a lower rate. Again, I reiterate that the rate setting is a matter of policy that is trying to balance different factors that come to it.

[Bonnie Crombie, Liberal, Mississauga—Streetsville, ON]

Thank you.

[Louise Levonian]

You're welcome.

[The Chair, Liberal, Shawn Murphy]

Mr. Shipley.

[Bev Shipley, Conservative, Lambton—Kent—Middlesex, ON]

Thank you, Mr. Chair, and thank you to the witnesses for coming out.

To Ms. MacPherson, how do you determine what is a reasonable amount? In your presentation you said that you will determine a reasonable amount of deposit.

Then I have a follow-up--from, actually, some of my colleagues--on the refund. There was some issue that they wouldn't accept a refund back, which is a little frustrating to find out from a taxpayer's point of view. You're CRA, and for the general purpose of many taxpayers, it isn't an agency that they've endowed a lot of love to. They've sent out a lot of their money to it.

Now you're saying, well, these large corporations have a large deposit sitting in an account, and you're telling them they don't need it. They're saying, no, they don't want to take it back, they actually want to gain on it.

I suspect when you only have 50 corporations.... They are taking a large whack of money, as you have indicated. That is a large deposit. For them it may be small just because they are huge companies. But for 18 years no one has taken any initiative. No one has taken any initiative, either from Finance or from CRA, to do anything about it until the AG comes along and says it is time to do something.

Now here we are, and $30 million a year is a fair whack. If you go back over 18 or 19 years, that's a lot of money for taxpayers.

I want to know how you are going to determine a reasonable amount, since these are large corporations. Will you be able to enforce a refund? I hope at some point in time.... It doesn't have to be a long one; you can say, “Yes, we're going to be able to send it back to them.”

Then as we move along, I want to.... At least the Minister of Revenue sent it to the finance minister this year, brought it to their attention, so it looks like there's action being taken.

I would like you to tell us today, or to table, when you will be able to supply us with some sort of a schedule of how you're going to bring forward those discussions and a strategy.

Actually, this comes from the AG's report, so I'm not taking responsibility for these good questions.

How will the agency actually strengthen those administrative practices that you continually talk about? You talk about being robust all the time. I actually want to know what you're going to do.

So I'll just leave those at this time.

[Linda Lizotte-MacPherson]

Thank you, Mr. Chair.

The honourable member has asked a number of questions, but let me be clear that through the new administrative policy we'll absolutely be able to enforce a refund and issue a refund. I will defer to my colleague to review some of the details of the CRA's action plan.

I should also note that in terms of determining whether or not there is a risk of a reassessment, we would do that in consultation and have discussions with the corporate taxpayer. A the same time, we also need to balance the risk. If there is a reassessment, we need to balance whether or not that corporation would be able to pay additional moneys if they did not keep a deposit with us. So that is also a consideration.

I will ask my colleague to just highlight a little bit more on the timetable.

[George Arsenijevic]

In terms of the timetable, on May 15 we put in place a more robust process for the new advanced deposits that come in to us. We do the screening and we do ask for additional information. We ask for the tax year and for the reasons behind the advance deposit. That's for new funds coming in; it's already in place.

We are updating the installment guide. It has been completed, but unfortunately it will not be published until February of 2010. It outlines the new processes that we have in place. However, when we do get the deposits coming in to our accounting areas we automatically put that into place. But the public corporate installment guide will be updated showing these policies to the public in February. In November of this year we are starting the annual review, and we'll complete it by the end of this year.

[Bev Shipley, Conservative, Lambton—Kent—Middlesex, ON]

Mr. Chair, to finish what I asked, I think something needs to be written down in terms of strategic direction.

I hear what you've done and what you're planning on doing, but from this committee's perspective I think we would like to know how we're going to get to the end of it. If you could give us the strategic direction with some timelines, I'd appreciate that.

[The Chair, Liberal, Shawn Murphy]

They did file an action plan. Did you realize that, Mr. Shipley?

[Bev Shipley, Conservative, Lambton—Kent—Middlesex, ON]

Yes.

[The Chair, Liberal, Shawn Murphy]

Go ahead, Mr. McCauley.

[Brian McCauley]

To supplement that a bit, the provision for advance deposits is important for many corporations in Canada. It does allow them to prevent the interest and other charges that could be significantly damaging to a corporation, particularly because they're not deductible. We want to ensure that where the provision is being used legitimately that it continues to be available to corporations.

With regard to the challenge function we're putting in place, we want to know we can demonstrate, and that the company can demonstrate, that there's a link between a potential for reassessment and the amounts on deposit. But we have to make sure we don't replace our judgment, if you wish, on the potential of reassessment--that the corporation has an opportunity to display that to us--because there may be a question of liability if we send funds back, there is an eventual reassessment for that year, and the corporation had funds on deposit. We have to be very careful to make sure we don't cost interest that we have to pay if we turn too much back.

While we accept members' comments, we have to be fair to the regime itself.

[Bev Shipley, Conservative, Lambton—Kent—Middlesex, ON]

Is March 31 the date you will have the results of the enhanced administrative framework for evaluation?

[George Arsenijevic]

That's correct.

[Bev Shipley, Conservative, Lambton—Kent—Middlesex, ON]

Thank you.