Public Accounts Committee on March 23rd, 2010

[Louise Levonian]

I think what you're trying to get at is there are situations that occur on a regular basis where people try to avoid paying tax. In those circumstances, the Department of Finance or the Canada Revenue Agency become aware of that, not through the technical process, but through other processes we have to identify the things that will result in revenue loss for the government.

When we find those things, we normally take action as quickly as possible. A number of examples are on the tax-free savings account. Some people figured out ways to put more money into tax-free savings accounts than should have been put in there. As soon as we identified the issue, we put out a press release saying that we had identified the issues and were going to propose legislation to Parliament to prevent these things from taking place. We normally have effected those things on the day of the announcement, on the day of the press release. We then hope Parliament will agree to pass the legislation effective on that date.

Sometimes things are so egregious that it becomes retroactive. We sometimes say it's so bad that we have to stop it retroactively. We're trying to maintain a balance. When taxpayers don't have the information to know what the law would have been two years ago, how can they comply with those laws? We try to balance fairness to the taxpayer and protection of the revenue base. In some cases, it's effective on the date of the announcement. When it's really egregious, we sometimes go back in time as well.

[The Chair, Liberal, Shawn Murphy]

Thank you, Madam Faille.

Mr. Kramp, for five minutes.

[Daryl Kramp, Conservative, Prince Edward—Hastings, ON]

Thank you, Chair.

I have a couple of questions.

For CRA, in response to recommendation 3.60, we were discussing the need to issue advance rulings, given the increased complexity of the cases. If you're having difficulty in meeting the service standards for advance rulings, you want to then evaluate the standards more. Why wouldn't you instead evaluate why you're not able to meet the standards, first of all, rather than improving the standards?

[Linda Lizotte-MacPherson]

Perhaps we should have been clearer. That is in fact part of the assessment that we'll be doing to really understand the cause and effect, if you will. What we've been seeing over the last number of years is that as a result of globalization, an increase in cross-border transactions, and financial restructuring, for example, we're receiving an increasingly large number of complex, high-dollar transactions that are really one of.... Those are the ones we want to take a closer look at to understand what's going on. In many cases we have to consult the Department of Finance and the Department of Justice in those cases.

We will be doing some consultations over the coming months to fully understand the situation and look at whether there are ways for us to improve the efficiencies of the process, but as well to really understand what the business needs are. We often find that as we're well into the process perhaps the organization will come forward with new information, or they may even decide to change the nature of their transaction. That's what we started some consultations on.

Perhaps I could get Mr. McCauley to add a little bit more on the plan.

[Brian McCauley]

Very briefly, we do plan on doing exactly as you did mention. We're going to look at how well are we managing the files and whether or not we can do a better job at that. At the same time, as you suggested in an earlier question, we are going to talk with practitioners and with individuals who are.... We're talking about 200 to 225 requests a year here. It's a very low-volume, high-intensity kind of a process. So we're going to talk a little bit with them about their expectations and whether or not we need to go, for example, to a couple of standards, one where we've got maybe more straightforward rulings, one where they're more complex. That's the exact kind of discussion we plan on having so we have a standard that actually not only meets the needs of business but protects the integrity of the tax system. That's part of the discussion we'd like to have and in fact are having over the next couple of months.

[Daryl Kramp, Conservative, Prince Edward—Hastings, ON]

Thank you.

I'm going to go back to the first question I asked today, but I'm going to try to approach it from a different manner. I'm not about to affix blame per se on either a department or an agency. I'm really concerned, though, that since back in 2000-01 and perhaps before we have not been able to be successful in adopting technical changes to bills. That's eight, nine, ten, twelve years. I say rather than affix blame, then, maybe I could ask the Auditor General what have been some of the impediments we have faced either as a department or in the parliamentary process that have not allowed us to proceed effectively with the implementation.

[John Rossetti]

We didn't look at the parliamentary process per se because that's not something we have a mandate to audit. All I can say is that we tried to look at all of the processes that originate in the public service and that would lead to a document that's presented to you for your oversight and analysis.

What we've tried to do is make sure that all the processes leading up to the production of a technical bill are sound. If they are sound, you would have additional confidence that the bill being presented to you has gone through an appropriate due process. That's what we tried to do with this audit. We tried to look all of the processes leading up to the production of a proposed piece of legislation.

[Daryl Kramp, Conservative, Prince Edward—Hastings, ON]

Thank you.

Someone told me once that there are more words in our tax legislation than there are words in the Bible. I think that tells me we have quite a complex myriad of rules and regulations that we all need to follow.

Going then to the Department of Finance, I'd like to know if you have any current plans to bring forth technical amendments. Do you plan on bundling them, or are you planning on bringing one, two, three, four, or five forward at a time or groups of ten or twenty? Are we waiting for a huge package to try push this through again? Can you give us an idea of what your plans are at this particular time so we as parliamentarians could be vigilant?

[Brian Ernewein]

It will of course be up to the Minister of Finance and the government as to what legislation they intend to release. What we are working to do is to prepare for the government's consideration smaller packages of technical amendments that can go forward and have us get caught up. The first one should be ready for the government's review within the next couple of months.

[The Chair, Liberal, Shawn Murphy]

Thank you, Mr. Kramp.

Mr. Christopherson, you have five minutes.

[David Christopherson, NDP, Hamilton Centre, ON]

Thank you, Chair.

Just to follow up on Mr. Kramp's question, how long, then, would it take to be fully caught up under the proposed process?

[Brian Ernewein]

I don't know the answer precisely, but we would hope, as a department, to be caught up this year or next.

[David Christopherson, NDP, Hamilton Centre, ON]

You will be fully caught up. At the same time, you'll be beginning the new processes so that this doesn't happen again. So is it kind of dual-track?

[Brian Ernewein]

Yes. To be clear, the new processes for improving the filing will, we believe, be an improvement. But it's not that the current system, at least in terms of our collating information, failed to achieve its desired purpose. Right now we have, in the old technical bill, about 100 comfort letters, plus or minus, in what was Bill C-10. We have another 100 or so comfort letters, which represent 200 or 300 pages of material, in a binder, sitting back in the office. Actually, there are several copies. They are kept track of. We can move to an electronic recording of them, but the information is there. The other information, the other 200, let's say, technical amendments, are those, as I said before, that have been identified by officials within the department. They need to be vetted, and they need to go through the approval process. But that information is there.

We can improve that. We can improve searchability and accessibility through the use of an electronic database. But as someone centrally involved with this, I would say that in terms of amassing the information, I think we largely have that now.

[David Christopherson, NDP, Hamilton Centre, ON]

Thank you.

Mr. Horgan, you touched on something earlier, and that's where I was going. Part of the problem seems to be this policy of not starting a new review until the last legislation is done. When the legislation piles up, the review doesn't get going. One way to break that logjam is to say that you won't necessarily wait. I just want to affirm that you're looking at that. I leave it with you. I assume that if that doesn't work, you'll find some other way. You won't just throw your arms in the air and have us back here in five years to hear that you tried, but it didn't work, sorry.

[Michael Horgan]

No, I have to agree with you. No one likes this situation of having these measures outstanding for 10 or 12 years. It's important for taxpayer certainty to have these issues resolved. We're looking at some of the suggestions that came from the Auditor General's office. There were practices, as I say, such as waiting until one technical bill was passed before introducing further things. I think there are different ways of approaching this thing that we're going to have to take a look at.

This is important. It is important for taxpayers, and it's important for those of us who are concerned about the taxpayer, writ large, and the tax system. So we have to find ways to deal with this problem.

[David Christopherson, NDP, Hamilton Centre, ON]

Yes, thanks.

Mr. Rossetti, it's my sense that with respect to what we've heard brought forward as problematic, the resolutions being offered, if they work the way we're hearing, should get us into a good place. Is that your sense? Is there anything outstanding that has not been resolved that you think we should be putting a finer point on? Or do you think we've gotten to most of the issues and that the responses we've gotten are adequate?

[John Rossetti]

I think the responses are good, Mr. Chairman. But as I said in my opening remarks, there are always two pieces to this. The first is to develop a plan, and the second is to implement it. As auditors, we tend to like to wait for the second part to see the implementation.

[David Christopherson, NDP, Hamilton Centre, ON]

Yes, understood. I assume, as with most things, that you have some method of going back and some notion of when you're going back to check to see whether these things are being done.

[John Rossetti]

Yes, that's correct.

[David Christopherson, NDP, Hamilton Centre, ON]

Very good.

I have one last question. It was mentioned that when you do a news release, sometimes you'll say right in it that the effective date is the date of the news release. You commented on that. And you're going to say that you hope Parliament follows through and agrees to legislate this.

Do I assume, then, that before that news release goes out, the minister has signed off on that change? Is that where you get your political momentum, if you will, to say that you think it will be okay? Otherwise, you would be, I'm assuming, all over the place. The minister would be signing off and you would know that the minister's planning to make some kind of cabinet submission that would reflect the changes that are in there. Or is your word to be taken at face value, and you really don't know what the political outcome is going to be at all? That would shock me.

[Louise Levonian]

No, the department recommends to the Minister of Finance. The Minister of Finance is the one who would put out the press release.

[David Christopherson, NDP, Hamilton Centre, ON]

I see. It's the actual minister who does it.

Okay, thanks, Chair; and thank you all.

[The Chair, Liberal, Shawn Murphy]

Thank you, Mr. Christopherson.

Mr. Young, you have five minutes.

[Terence Young, Conservative, Oakville, ON]

Thank you.

My question is certainly for the Department of Finance, but I'll let you decide who answers.

I'm looking at the Auditor General's first recommendation. You got the report on November 2, 2009. So in four months you developed an action plan. Then we go to the response to that first recommendation, and it says, “The Department has prepared a consolidated inventory of...outstanding technical changes”.

That was March, and you had a list of technical changes. Then it says you were updating the existing electronic database. So you put them into a database; somebody typed them in. So that was four months. Then we go to the second action you've taken in response, and you've commenced a project to acquire a new electronic database.

I have to tell you, most departments that come in here and haven't done things, that have left things undone, always start talking about trying to purchase software. They say, “We're going to get the best software program.” Software programs are the biggest excuse for not having things done. Sometimes they come to us and it takes them two years to buy a software program. I assume there must be a hundred or more software programs in the various ministries, owned by the Government of Canada, so why don't you just either take one off the shelf or take one we've already paid for and developed and adapt it? Why would it take so long?

So, first of all, did you consult with other ministries in trying to find a software program to meet your needs?

And then your commitment is that, a year later, you will have people trained and working, using this on a day-to-day basis. How many people do you have to train, and how can it take a year to train people to use it?

You have the list and you're going to put it on a database. You could probably buy Excel and use it for the list. It might not be as fancy as you'd like, but you could probably do it if you had to get it done. Why does it take a year to get everybody trained and up to speed so that it's going to take until March 2011 to get this done?