Public Accounts Committee on March 23rd, 2010

[Brian McCauley, Assistant Commissioner, Legislative Policy and Regulatory Affairs Branch, Canada Revenue Agency]

Thank you for the question.

We have and certainly respect and value very much professionals and practitioners, who are really part of the tax system, and probably even a larger part of the tax system than we are. We have a quite intense and regular interaction with a number of associations and groups.

That's why, I think, almost every one of our recommendations included a round of consultations and discussions with them. We see them very much on the administration side as almost partners, really, in the delivery of the system. It's a lot of their knowledge and their expertise that allow us to administer the tax system the way we do.

We would certainly see from both the standards and the bulletins and even in terms of how we administer proposed legislation that there's a regular and ongoing.... I chair sessions with the Bar Association, the Tax Executives Institute, the CGA, and all of these groups on a regular basis. We would intend to continue to do that.

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

Thank you. That's reassuring.

Perhaps I'll ask a question to our representative from the Auditor General's office.

You put forward a number of recommendations regarding the CRA. I'm wondering if you could you expand a bit on a couple of your key ones. I'd also like to know if you're satisfied with the response you have had from the CRA to date.

[John Rossetti]

I'm not sure what you meant by expanding on the recommendations. Maybe I'll just answer the second part.

I would say that the responses as printed in the chapter were good, but possibly not as positive as I was hoping. However, in reading the opening remarks from the commissioner and in looking at their action plan, I think they've really addressed the key aspects of our recommendations, and I'm optimistic that they will be implemented as we had actually recommended.

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

Thank you.

[The Chair, Liberal, Shawn Murphy]

One point arising from that is this whole issue of cost, and I'd like some comment on it.

Tax law in Canada, as we all know, is very complicated, and thousands of individuals out there make their livings as tax lawyers and tax accountants. They're very knowledgeable and very smart. Of course, they're paid to help Canadians, Canadian companies, and foreign companies arrange their affairs so that they attract the least amount of tax, which is the principle of Canadian tax law within certain conditions.

I practised law for 25 years. I wasn't involved in these transactions, but I've seen them, and some of these people are, from my experience, very aggressive. If there's any uncertainty or lack of clarity in the law or the regulations, they will certainly take advantage of it. A lot of them won't be caught; there won't be an audit, or there'll be some kind of settlement, and there's always that give and take. The more uncertainty and the more lack of clarity there is, the greater the business for these individuals.

It's my suspicion that because we're not introducing technical amendments and because we have this state of uncertainty--I know the comfort letters are good, but that's not the law--it would be costing Canadian taxpayers millions and millions, if not billions and billions, of dollars in lost tax revenue. Does anyone have any comment on that?

I know that nobody has an exact figure, but I've seen these transactions, and they involve foreign companies and foreign trusts and companies domiciled in the Cayman Islands. It's a very complicated area, and if they can use uncertainty to argue their case, the big loser at the end of the day is the taxpayer. Do you have any comment as to the cost incurred by taxpayers?

[Brian Ernewein]

The direct answer is no. I don't think we have a cost, but I think I can offer some observations to help inform the discussion.

First of all, in relation to the technical bill itself, technical bills generally are generally made up of comfort letters that are relieving changes by definition. Taxpayers identify an issue in the legislation that restricts their ability to do a transaction in one way versus another. There is a commercial reason for doing it in the way they wish, which the tax law impedes; in looking at that, we determine that there's not a difference between the two and recommend a relieving change in that area. There's not a revenue cost associated with that, or an abuse associated with it.

Having said that, we have used--and Bill C-10 is an example of this--technical amendment packages to include press releases that have been put out to try to deal with certain concerns or revenue issues. Bill C-10 itself includes provisions dealing with charitable contributions, donation schemes that were encountered a few years ago. There are also provisions dealing with restrictive covenants, an issue discussed in the Auditor General's report. While we believe that the announcement of those changes has been effective in constraining those transactions, it's obviously important that the legislation ultimately be enacted in order to give effect to those changes.

I can't point to a revenue cost associated with non-enactment; nonetheless, your essential point remains valid. Enactment, of course, is required, and it would be desirable for it to be done as efficiently as possible.

[The Chair, Liberal, Shawn Murphy]

Are there any other comments?

We will go to round two. Go ahead, Monsieur Dion, for seven minutes.

[Stéphane Dion, Liberal, Saint-Laurent—Cartierville, QC]

Thank you very much, Mr. Chairman.

As Mr. Kramp stated, we are talking about the ability for the taxpayer, be it an individual or a corporation, to have access to all of the information allowing him or her to prepare his or her tax return and thus to comply with the law. However, according to your report, this many not always be the case.

Mr. Rossetti, you state in your report that at least 400 technical amendments “sont restés en suspens“. In English, it is more precise.

You said, in English, that they have “not yet been enacted”.

I would firstly like to understand the seriousness of the problem. We are talking here of 400 amendments. Is that very serious? What does that represent?

[John Rossetti]

Mr. Chairman, I'm going to ask Ms. Plant to respond to that.

[Vicki Plant, Principal, Office of the Auditor General of Canada]

We made 400 amendments. Some of them are minor, but others are rather important and could require changes to several sections of the Income Tax Act. It is therefore a combination of small changes and changes the consequences of which are quite major for taxpayers.

[Stéphane Dion, Liberal, Saint-Laurent—Cartierville, QC]

It is therefore a serious problem.

[Vicki Plant]

It is, indeed.

[Stéphane Dion, Liberal, Saint-Laurent—Cartierville, QC]

Furthermore, you also state that the government deemed it advisable that a bill be passed every year, updating the changes in order that the information be well understood by the public, but you make no such recommendation.

Is it because you consider that this falls outside your mandate?

[Vicki Plant]

Indeed, the government made such a promise. As you say, our mandate is not to make recommendations to the government. We rather make them to the Agency or to the Department, but not to the government, in general.

[Stéphane Dion, Liberal, Saint-Laurent—Cartierville, QC]

You are however able to suggest to the deputy minister that he or she recommend to the minister that there be a bill every year.

[Vicki Plant]

Indeed, we could tell them that it would be a good idea to recommend that a bill be presented.

[Stéphane Dion, Liberal, Saint-Laurent—Cartierville, QC]

I would therefore suggest that the committee look into this.

Based on what you are telling us, the Agency and the Department have accepted your recommendations. These recommendations and the action plan will provide us with the necessary electronic tools, the required follow-up and a systematic examination of the consequences of the technical amendments. If we have all of this but no yearly bill, will much of our problem be nevertheless resolved or not?

[Vicki Plant]

These steps will bring about good results, but as long as the amendments have not been enacted, the problem will not be resolved.

[Stéphane Dion, Liberal, Saint-Laurent—Cartierville, QC]

Do you mean to say that things will remain the same as long as no bill is passed?

[Vicki Plant]

Exactly.

[Stéphane Dion, Liberal, Saint-Laurent—Cartierville, QC]

Work will thus have been done internally, but it will not necessarily be available to the public.

[Vicki Plant]

If the bill is not passed, there will be no results.

[Stéphane Dion, Liberal, Saint-Laurent—Cartierville, QC]

They will have done their work but, in the end, the objective of serving the public will not have been reached.

[Vicki Plant]

Indeed.

[Stéphane Dion, Liberal, Saint-Laurent—Cartierville, QC]

Thank you very much for that clarification.

I would now like to address the Department and the Agency. A few colleagues and myself have been wondering why it is that we find ourselves in this situation. Our impression is that you got busy when the Auditor General kicked you in the right place. You then set about to put in place a computer system, you provided the follow-up, etc. We are wondering why you did not do this earlier.

The paragraph that surprised me the most in this report is paragraph 3.33. It reads as follows: “Department officials have also told us that undertaking the work to develop and draft technical amendments to remedy identified technical legislative deficiencies is not the Tax Legislation Division's only priority.“ We know full well that the Department of Finance has other priorities. If the Department of Finance's only priority was to ensure that taxpayers know how to fill out their tax returns, that would take the cake! This remains a priority and we are wondering why you felt obligated to tell the Auditor General that you have other priorities. I am guessing that there is within the Department and the Agency a culture such that being as accommodating as possible vis-à-vis the public is not a priority and that had the Auditor General said nothing, you would have done nothing and things would have kept piling up. If we are looking at where to lay blame, I would say that there is an obvious cultural problem, that goes way beyond numbers, that lies just beneath the surface throughout this report.

I would like to know what you are going to do in order to never again be telling the Auditor General that you have other priorities. The point here is to serve the Canadian public with all of the required clarity, and the idea of being in agreement with tax law is a most fundamental issue.