Mr. Chair, thank you for this opportunity to discuss chapter 3 of our 2009 fall report. Joining me at the table is Vicki Plant, the principal responsible for the audit.
In our chapter on income tax legislation, we focused on activities within the Department of Finance and the Canada Revenue Agency that helped to provide or improve legislative clarity to both taxpayers and tax administrators. We looked at how the Department of Finance develops technical amendments for tabling in Parliament.
Technical amendments are changes made to correct anomalies that arose after the original tax measure was passed and to correct consequences that were not intended. These amendments do not introduce new tax policy or change existing tax policy.
In addition, we examined how the Canada Revenue Agency assists the Department of Finance in identifying and developing technical changes that may be needed in legislation, and how the Agency provides taxpayers and its tax auditors with guidance on the application and interpretation of the Income Tax Act. Legislative clarity is important if taxpayers are to easily self-assess and correctly calculate their taxes.
When the intent of the legislation is not clearly conveyed by the words, taxpayers may face higher costs to obtain professional advice, may be more willing to use aggressive tax plans, and may need to re-file a tax return at additional cost.
Uncertainty about how the tax law should be interpreted can also affect the efficiency of tax administration. For example, there are higher costs for the Agency to provide additional guidance and interpretation to taxpayers and tax auditors. There are also increased administrative costs for the Agency to obtain waivers from taxpayers to extend the limitation period for audit reassessments until the uncertainty is resolved.
We found that the list of outstanding technical amendments to the Income Tax Act has been growing and that no new income tax technical bill has been passed since 2001. In the past, the government said an annual technical bill of routine housekeeping amendments to the act is desirable. This has not happened.
At the time of our audit, there was a backlog of at least 400 technical amendments. Some of these were included in the proposed legislation that was first tabled in 2002 but has not yet been enacted.
Our chapter illustrated two commonly encountered situations where technical amendments tabled in 2002 were needed. One situation was to avoid double taxation on income when a partner leaves a partnership, and the other was to clarify the taxation of income arising from non-competition agreements.
We recommended that the Department of Finance develop and implement a plan to address the backlog of required technical amendments. We also recommended that the department regularly draft technical amendments and release them to the public so that taxpayers and tax practitioners know what changes will be made and can provide input to the department.
Finally, Mr. Chairman, we looked specifically at the guidance the Canada Revenue Agency provides to taxpayers and its auditors when the interpretation and application of the legislation may be unclear. We did not examine the more general guidance provided by the Agency, such as tax guides, pamphlets, phone service and its website. Rather, we concentrated on more specific guidance that is available through advance income tax rulings, tax interpretations, and interpretation bulletins. In this part of our examination, we had two key findings.
First, we found that income tax advance rulings were valued by taxpayers and tax advisors because these provide them with tax certainty that is essential for complex business transactions to proceed. However, these important rulings were not meeting the Agency's own standards for timeliness. We recommended that the Agency develop more concrete plans to meet its own performance targets.
Second, we found that some of the information in the Agency's income tax interpretation bulletins is no longer current and the public is not always made aware of that fact. Our chapter illustrated this concern by referring to an interpretation bulletin that is providing out-of-date information to taxpayers about scholarship income exemptions. We recommended that the Agency improve the advice it provides to corporate and individual taxpayers about specific paragraphs of these interpretation bulletins that are no longer accurate.
Mr. Chairman, where the Department of Finance has identified the need for technical amendments to the Income Tax Act, it's important that the amendments be set forth in proposed legislation in a timely fashion. Your committee may wish to ask the deputy minister of finance how the department plans to address the current backlog of required technical amendments and to explain the department's strategy for keeping the Income Tax Act up to date in the future.
Mr. Chairman, that concludes my opening statement and we would be pleased to answer your committee's questions.