Evidence of meeting #43 for Public Accounts in the 41st Parliament, 2nd Session. (The original version is on Parliament’s site, as are the minutes.) The winning word was cra.

A video is available from Parliament.

On the agenda

MPs speaking

Also speaking

Clerk of the Committee  Ms. Angela Crandall
Michael Ferguson  Auditor General of Canada, Office of the Auditor General of Canada
Ted Gallivan  Deputy Assistant Commissioner, Compliance Programs Branch, Canada Revenue Agency
Brian Ernewein  General Director, Tax Policy Branch, Department of Finance
Lisa Anawati  Director General, International and Large Business Directorate, Compliance Programs Branch, Canada Revenue Agency
Alexandra MacLean  Director, Tax Legislation, Tax Policy Branch, Department of Finance

4:15 p.m.

General Director, Tax Policy Branch, Department of Finance

Brian Ernewein

The answer is yes. It has been advanced. In fact, it was enacted into law last fall as part of the budget measures—

4:15 p.m.

A voice

It was Bill C-43.

December 11th, 2014 / 4:15 p.m.

General Director, Tax Policy Branch, Department of Finance

Brian Ernewein

I'm sorry. I'm mixing up my years. It was in 2014. It's in Bill C-43 this year, which has passed in the House of Commons, and is now in the Senate.

4:15 p.m.

Liberal

Yvonne Jones Liberal Labrador, NL

Okay. So this year it will be applied to the 2014 taxation year or 2015....

4:15 p.m.

General Director, Tax Policy Branch, Department of Finance

Brian Ernewein

I'll ask my colleague Alex to confirm, but I believe it's the taxation year commencing after the date of the budget.

4:15 p.m.

Director, Tax Legislation, Tax Policy Branch, Department of Finance

Alexandra MacLean

I think that's right.

4:15 p.m.

Liberal

Yvonne Jones Liberal Labrador, NL

Okay.

4:15 p.m.

NDP

The Chair NDP David Christopherson

Do you want to wait for that answer or do you want to move on?

4:15 p.m.

Liberal

Yvonne Jones Liberal Labrador, NL

No, I'm going to move on.

My other issue is with the conclusion, where you talk about “a need to complete the evaluation of the effectiveness of the Agency's National Risk Assessment Model”. We've already had some discussion on it today in terms of measures you've taken to improve that and the training you've done with your staff. I'm wondering if you could outline for us what some of those key measures have been and how you see this being a major improvement on a go-forward basis in the system.

4:15 p.m.

Deputy Assistant Commissioner, Compliance Programs Branch, Canada Revenue Agency

Ted Gallivan

In terms of training, for the staff that we didn't ask, it was going back and actually documenting that people were taking the training: first, that the training was being offered as it should have been; second, that employees were taking it; and third, based on their actual day-to-day work, whether they absorbed the lessons they needed to absorb.

We've decided that those are the three key questions. We've developed tools to get at those questions. Moving forward in the next fiscal year, we're going to be documenting the answer to all those questions. Based on the answer, we'll be changing our game plan.

In terms of the NRAM and the risk assessment approach, the first step was just to calibrate, in our minds, between high, very high, and extremely high risk and the audit results, and whether they tended to correlate or not. That's going to happen by March 31 this year. Moving forward, we're going to do a more detailed analysis factor by factor to say that this exact subfactor in trying to assess the risk around a corporation is predictive, and that factor isn't. As I mentioned, we have roughly 90 factors or algorithms that we use.

I think this is part of the evolution of the tool. We started with a structured formal questionnaire that people had to answer so that we were systemic across all of our offices. We've now moved to automate that thing. We're now moving to decide whether it works in terms of the direction, and then the final stage for us is determining what are the specific levers and do they work so we can optimize it.

4:20 p.m.

NDP

The Chair NDP David Christopherson

You have a minute and a half.

4:20 p.m.

Liberal

Yvonne Jones Liberal Labrador, NL

No, that's good. Thank you.

4:20 p.m.

NDP

The Chair NDP David Christopherson

You're fine? Very well. Thank you.

Mr. Falk, you have the floor, sir.

4:20 p.m.

Conservative

Ted Falk Conservative Provencher, MB

Thank you, witnesses, for coming here this afternoon.

I have a few questions for you, Mr. Gallivan. In your opening comments, you state that some transactions “comply with the letter of the law” but “violate the spirit and intent of the law”. I'm wondering whether you could expand a bit on that tension.

4:20 p.m.

Deputy Assistant Commissioner, Compliance Programs Branch, Canada Revenue Agency

Ted Gallivan

There are some taxpayers who have a financial interest, a legitimate one, in minimizing their tax bill, so they look within the legislation and they have expert advisers to help them, and they adopt a position. That position can be tested with the agency through a rulings process, or they could merely file the return based on that, but they're pushing the envelope.

Some people describe this as the “grace phase”. The agency will look at some of these transactions. The agency position might be that they're offside, so then there's communication back and forth. There's reference to the legislation. This may go through a legislative route. This may go through litigation through the court system.

In some cases—and this goes back to the issue of tax evasion—some of these taxpayers will actually sign a waiver extending the time that the CRA has to finalize its audit. It's very transparent in that sense. The challenge is in deciding where that line is and having an authoritative source establish where the line is. That's why it can take several years. That's why sometimes the Department of Finance will intervene in terms of making the rules of the game clear. To go back to the comments about tax evasion, often these positions are fully disclosed in a very transparent manner.

4:20 p.m.

Conservative

Ted Falk Conservative Provencher, MB

You say that some taxpayers want to minimize their tax. I would submit to you that all taxpayers want to minimize their tax—

4:20 p.m.

Voices

Oh, oh!

4:20 p.m.

Conservative

Ted Falk Conservative Provencher, MB

—even though I myself want to pay more tax, if that makes sense to you.

4:20 p.m.

An hon. member

Just so we're clear.

4:20 p.m.

Conservative

Ted Falk Conservative Provencher, MB

Just so we're clear on that, yes.

Just previous to that paragraph in your presentation, you referred specifically to the government encouraging legitimate tax savings as tax avoidance. What's CRA's role in educating people on legitimate tax savings?

4:20 p.m.

Deputy Assistant Commissioner, Compliance Programs Branch, Canada Revenue Agency

Ted Gallivan

It starts from the rules and working with the Department of Finance. Even at the outset the Department of Finance will often consult the CRA in terms of the rules. We try to provide early input in terms of ensuring that there's clarity.

The agency has put a lot of effort into its electronic service and web services to help taxpayers take advantage of the credits that are available to them. We've gotten into webinars and almost a “taxTube” type of approach with videos. We've developed a community income tax volunteer program to reach out to some of the more vulnerable Canadians and make sure they're aware of the benefits they're entitled to. There's very much a promotion and marketing type of approach.

We also look at the data to see if Canadians are taking advantage of the credits available to them, to make sure they're aware of them. If we needed to reinforce communication messages, we would. At the agency we have a specific directorate focused on the benefit programs, for example, and they would work very hard.

When the tax-free savings account was launched, and in terms of TFSAs, RRSPs, and other programs, the agency cross-promotes within its website and other guides and forums to make sure that Canadians know they're available and they can take advantage of these programs.

4:20 p.m.

Conservative

Ted Falk Conservative Provencher, MB

Good. Thank you.

In his report, the Auditor General noted that the CRA has successfully employed the general anti-avoidance rule from both a deterrence perspective as well as a learning perspective. Could you explain a little bit more how CRA utilizes GAAR, and in what types of circumstances?

4:20 p.m.

Director General, International and Large Business Directorate, Compliance Programs Branch, Canada Revenue Agency

Lisa Anawati

Mr. Chair, the GAAR, or the general anti-avoidance rule, is a provision that we use when we think the spirit or the intent of the legislation has been taken too far. It's a role we take very seriously. We have what we call a GAAR committee, with representatives from the Department of Finance, the Department of Justice, and the CRA. When an auditor identifies a potential scheme where the GAAR would apply, it's referred to this committee and it goes through a thorough vetting process to ensure that the rules are applied very consistently and methodically.

Once a GAAR is applied, basically the tax benefits the taxpayer was trying to achieve by entering into this particular tax planning arrangement are denied. It's not a penalty, but basically the taxpayer is not able to enter into that tax transaction and get benefits.

4:25 p.m.

NDP

The Chair NDP David Christopherson

Thank you. Time has expired.

Moving along, we'll now go to Monsieur Giguère.

4:25 p.m.

NDP

Alain Giguère NDP Marc-Aurèle-Fortin, QC

Thank you, Mr. Chair.

Let us finish the question of penalizing third parties. Basically, those proposing the system are being punished, but I would like to see those who authorize aggressive tax avoidance penalized as well.

In the U.S. and in some European countries, ever since the Enron scandal, board members must solemnly declare in writing that they will not use such practices. A board member who nonetheless authorizes his company to use such practices is harshly sanctioned in terms of his assets. He could even be sentenced to prison.

Why is Canada not taking that approach, which is more and more common in many countries?