Thank you, Mr. Chair. Thank you for the opportunity to present the Department of Finance's plan to address the recommendations contained in chapter 3 of the Auditor General's November 2009 report, entitled “Income Tax Legislation”. This audit involved both the Department of Finance and the Canada Revenue Agency, and I'm before you to discuss the actions of the Department of Finance.
I may also draw on the expertise of my senior officials, Louise Levonian, assistant deputy minister of tax policy, and Brian Ernewein, general director of the tax policy branch, who are here with me today. I will keep my remarks brief, as both the remarks today and the action plan were provided to the committee in advance in both official languages.
With respect to the Auditor General's first recommendation,
Chapter 3 of the Auditor General's Fall 2009 Report examined the processes by which the Department of Finance develops legislative amendments to correct technical issues in the Income Tax Act.
The report considered whether the Department has well managed processes in place to comprehensively record, track, and prioritize legislative issues, and whether it uses these processes to identify areas for potential technical amendments.
The Auditor General found that departmental officials are well-informed about the issues but that the Department relies too heavily on people-dependent processes, and does not make effective use of its available electronic tools.
The Auditor General's first recommendation to the Department of Finance was that the department should use an integrated and consistent process for recording, tracking, and prioritizing all technical issues for possible legislative amendment.
The Department agreed with the Auditor General's recommendation and has taken the following actions in response:
The Department has prepared a consolidated inventory of outstanding comfort letters and outstanding technical changes and has updated its existing electronic database to include all outstanding technical amendments, including all outstanding comfort letters.
The Department has commenced a project to acquire a new electronic database for tracking technical amendments, and has been working to define its database needs and canvas the various software options. The main criteria for choosing a new database will be the ease with which it can be used and updated, and its ability to comprehensively record and track legislative issues.
It is expected that the new database will be chosen and put in place during the 2010-2011 fiscal year. The Department expects that all existing data will be transferred to the new database and that the new database will be consistently used and updated by the appropriate tax policy officers by March 31, 2011.
Finally, a system of organizing the prioritization of outstanding technical changes is being formalized to ensure that items are dealt with in an appropriate and timely manner. The criteria in determining the priority of a particular change include the amount of revenue, if any, involved; the number of taxpayers affected and the impact on them; and whether issues are created with respect to the administration of the tax system.
The Auditor General's report also notes that while it is not solely within the Department of Finance's control, the list of outstanding technical income tax amendments has been growing. The Auditor General's second recommendation contained two parts. In the first part, the Auditor General recommended that the department should develop and implement a plan to address the current backlog of needed technical amendments.
The department agreed with the Auditor General's recommendation and has taken action in response. First, the department recognizes the importance of providing certainty for taxpayers and has, on a number of occasions, prepared bills with technical amendments. The department will continue to work toward ensuring that necessary technical amendments are put forward for consideration on a timely basis. Second, the department is in the process of preparing legislation for the next technical bill. Measures identified in comfort letters by tax legislation staff and CRA officials are being reviewed and prioritized for release in a forthcoming technical bill.
Finally, further smaller packages of technical amendments are being prepared or planned. The expectation is that by releasing such smaller packages on a regular basis, the process can be much more manageable and efficient.
Moving on to the second part of the Auditor General's second recommendation, the report notes that in the past the department has released packages of proposed technical amendments to the public for comment. As such, the Auditor General recommended that the department develop and release draft technical amendments, including those arising from comfort letters, on a regular basis for comments so that taxpayers and tax practitioners know what changes will be made and can provide input to the department.
As I indicated earlier, further packages of technical amendments are being prepared. In the context of this recommendation, the department did indicate that it would consider whether there would be circumstances where it would be appropriate to bring forward subsequent draft technical amendments when a previous technical bill is still pending before Parliament. The concern in this regard is the need to protect against confusion and complexity that could arise from having multiple bills that amend the same provisions before Parliament at the same time.
In conclusion, we would like to thank the Auditor General for her report and its recommendations. We are confident that our action plan will ensure the department has processes in place to comprehensively record, track, and prioritize all technical issues for possible legislative amendment and that we have put in place a plan to address the list of outstanding technical income tax amendments.
Thank you again, Mr. Chair, for providing the opportunity to present our plan to the committee.