Public Accounts Committee on Dec. 10th, 2018

[Chandra Arya, Liberal, Nepean, ON]

Thank you, Mr. Chair.

Mr. Hamilton, in budgets 2016 and 2017, the federal government gave CRA an additional $1 billion. The expectations were that additional revenues of $5 billion would be generated over a period of five years.

After I was elected about three years ago, I was once in a discussion with one of the union officials. The numbers I heard were that for every $1 invested in an auditor, $4 to $8 of revenue is generated if the auditor deals with the average Canadian. If the same dollar is invested in an auditor who focuses on, say, offshore tax havens or transfer pricing, the revenue generated will be much more. It may be more than $20 for every dollar invested.

What numbers are we talking about here?

[Bob Hamilton]

I'll let Ted respond in detail to that, but I the number of 5:1—$1 billion for $5 billion, say—that you referenced in public documents is the commitment we make. If the Department of Finance gives us another dollar, we have said that we would be able to generate $5 of additional revenue through the audit.

I just want to make it clear, as per our earlier conversation, that some of that $5 could be reduced if we have appeals or court cases or can't collect, but that is the broad number that we have given and have had publicly put out there.

Now, what you're raising is on different segments of our auditing and how much we would expect from, say, the offshore segment versus large business versus the domestic segment. I'll ask Ted to talk a bit about that.

[Ted Gallivan]

To give you a sense of it, both on the individual side—that is, regular T4 tax filers who just get a letter asking for evidence—and on the multinational side, those are relatively high ROIs, at 20:1. On the individual Canadian side, the investment is relatively low: a stamp, a letter, some follow-up back and forth. On the multinational side, both numbers are high. There are hundreds of millions of dollars coming in, but there are audits that could cost $2 million or $3 million.

Then you get into small and medium-sized enterprises or offshore. Those are closer to 5:1, 6:1 or 7:1. Small and medium-sized enterprises are relatively costly, with relatively low yields.

What we're finding on offshore enterprises, which have only been a focus for five years for us, is that those are very litigious. Those types of taxpayers are resisting our audit efforts. That's why the OAG talked to us about being more disciplined in going to court, because we're going to court during the audit with those taxpayers, and there the ROI is relatively low.

What we have to do is decide how we're going to advance overall compliance. Coverage is a factor for us and ROI is a factor, but there's also the deterrence impact. We very much balance all of those factors in making our resource allocation decisions. We don't blindly put all our money on the regular T4 filer and the multinationals, because that would let the underground economy or the offshore thrive. We try to balance all of them to drive the kind of behaviour that we want from taxpayers.

[Chandra Arya, Liberal, Nepean, ON]

I thought this money was being invested by our government to certain CRA audit groups that were sort of weakened, I believe, before we came to power.

[Ted Gallivan]

It's definitely true that the new funding didn't force us to make those choices. In the past, if we wanted to ramp up on the underground economy, we had to reduce other efforts. When we receive incremental funding from government, it does allow us to expand in multiple areas.

The money we received in budgets 2016 and 2017 allowed us to ramp up on the underground economy—where, for example, we're focused on B.C. real estate and those types of issues—to build our offshore capacity, to look at multinationals and also to look at some of what's called “carousel fraud”, which is refund fraud in the GST space where organized crime is involved.

We grew all four of those areas at the same time, but to go back to your question, the ROIs on those are very different, and if we had wanted to maximize ROI, we would have invested it differently.

[Chandra Arya, Liberal, Nepean, ON]

For the four categories you mentioned, on an average, the ROI of 1:5 is quite low.

[Ted Gallivan]

Again, when we were asked to produce those estimates, one of the concerns we had.... For example, with the multinationals that are within my responsibility, I would like to see declining returns to scale. Today, with the number of audits we do, we have 20:1. If I do more audits, hopefully I will see a deterrent impact and the identified audit issues going down because taxpayers are getting the message and I'm looking at less risky taxpayers.

When we estimated 5:1, we were hoping there would be declining marginal yields, but as you can see here in the chart, exhibit 7.2 shows we are up $4.3 billion in the last year that the OAG looked at, compared to the first year. There's a 60% increase, with only a 5% increase in resources.

What we are finding is that better data and better tools are allowing us to identify more non-compliance more effectively than we could in the past. The additional resources have given us the horsepower, but it's not just auditors; the $1 billion has also given us more data analytics, and we're using things like country-by-country reports from multinationals, CRS data that has offshore bank accounts from taxpayers and electronic funds transfers over $10,000. There is a strategy behind how the OAG is attacking this high-end non-compliance, and it's not all boots on the ground. A lot of it is advanced analytics and how we're using those analytics.

To go back to investments, it's really how we've made use of those investments, and I'd say first that we've expanded in a number of areas at once, and second that roughly $60 million in IT builds and better data is driving those outcomes.

[The Chair, Conservative, Kevin Sorenson]

Thank you very much, Mr. Gallivan.

Thank you, Mr. Arya.

Now we'll move to Mr. Christopherson, please.

[David Christopherson, NDP, Hamilton Centre, ON]

Thank you, Chair.

Just to follow up on that last point, ROI is important, but I have to say that for the purpose of this audit, it's the fairness that's the issue. This has reinforced the street-level opinion, as was alluded to, that if you have offshore accounts and you have enough money and enough high-powered accountants, you're going to do okay, as opposed to being a little guy who is easy to push around, and it's easy to garnishee your wages. It just feels like it's easy to push the little guy around, but if you have all the protection in the world that money will buy you, even in Canada that still sings.

I'm glad to hear you saying that there is some change. You know we're going to be back. We're going to check that, but this fairness element has to be reinforced throughout, and we need to dispel this feeling by Canadians that the lower you are on the socio-economic scale, the more outfits like Revenue Canada are going to push you around and ignore your rights. That has to be a concern for you, I hope.

Chair, if you'll allow me, I want to pick up where Mr. Kelly went and just drill down a little further. Mr. Arya touched on it as well. I'm referencing page 16, paragraph 7.82,

Budget 2017 invested an additional $524 million over five years to reduce tax evasion and improve tax compliance. The investment was to fund new initiatives and extend existing programs to ensure an equitable tax system for all Canadians.

However, in the next segment, paragraph 7.83, we read:

However, we determined that the Agency could not track the exact amount of additional revenues resulting from this funding. Instead, the Agency used a proportional...

I've heard your arguments and your submissions, but when it doesn't pass the AG, for us it doesn't work. Therefore, the first thing I want to do is ask Mr. Berthelette to describe the difference between what the agency said in terms of how they are monitoring the return on that investment versus what you think ought to be done and why you believe their argument doesn't hold water.

[The Chair, Conservative, Kevin Sorenson]

Mr. Dompierre, go ahead.

[Martin Dompierre]

Thank you, Mr. Chair.

Basically, in the report, as you pointed out, in paragraph 7.83 we talk about the fact that there is no exact measurement of the additional revenues that are generated by the compliance activity.

The agency used a pro-rated approach to calculate the amount, so we have not seen specifically an exact amount or the dollars that are collected or returned to the agency. Basically, what the agency told us as well was that they found the tracking they had established was too cumbersome and complex.

We felt they should reassess that and then consider other potential measures to come up with a more exact measurement, specifically to show what the return is or what dollars are coming back, as opposed to going specifically with an estimate.

[David Christopherson, NDP, Hamilton Centre, ON]

Is it fair to say that you think a different approach would result in a more accurate reflection?

[Martin Dompierre]

Mr. Chair, we can't state what the approach is, but as I said, we did recommend that they should reassess or assess what types of other measures they could consider. I believe, yes, there is probably another way of doing this, and for the agency to explore.

[David Christopherson, NDP, Hamilton Centre, ON]

That's very good.

Now here's where I want to go, and Mr. Kelly touched on it too.

In the agency's response—and I boxed this—it has, “Agreed”, as always, “While both the Treasury Board of Canada Secretariat and the Department of Finance Canada are satisfied with the Canada Revenue Agency's current reporting methodology...”, etc. I want to take this problem one more step. If I'm reading this correctly, why is it that the Treasury Board and the Department of Finance—but more importantly, the Treasury Board, the people the agency has to be accountable to in ensuring it follows government policy—saying that what you're doing is okay, but you're not?

[Martin Dompierre]

Mr. Chair, as part of this audit, we did not speak to the Treasury Board specifically or to the finance department. The agency gave us some documentation that explained the position of these two organizations specifically. We did not assess or try to understand specifically why Treasury Board, as well as the finance department, agreed with that approach.

[David Christopherson, NDP, Hamilton Centre, ON]

I don't normally do this very often, but could I ask why? It seems to me that's a logical extension of what you're doing. If you find the agency isn't doing something as well as it could to be transparent and accountable and accurate, but they tell you that Treasury Board gave them a sign-off, why didn't you go to Treasury Board to ask how come you're telling them this is okay when we think they can up their game? I'm just curious as to why you didn't take that step.

[Martin Dompierre]

Mr. Chair, these two organizations were not part of the scope of this audit. We would have needed to include them at the beginning of the audit to either consult them or to audit these organizations specifically.

[David Christopherson, NDP, Hamilton Centre, ON]

I see. It was outside the scope, the parameters of what you originally....

[Martin Dompierre]

It was outside the scope, yes.

[David Christopherson, NDP, Hamilton Centre, ON]

Maybe that should have been looked at a little.

I have to say, Chair—I know I'm done—that in our report writing I'm going to be seeking an answer from Treasury Board, or at least urging colleagues to ask Treasury Board why it's saying something's okay. The agency, to some degree, is off the hook when Treasury Board says they like the way they're doing it. Then the Auditor General says to the commission that they don't think that's as good as it can be and that they could up their game here. We're still left with Treasury Board, which is a higher body, saying they're okay with it. It seems to me that Treasury Board has some questions to answer.

I'm assuming I'm out of time.

[The Chair, Conservative, Kevin Sorenson]

Yes, you were—about three minutes ago.

[David Christopherson, NDP, Hamilton Centre, ON]

I thought so. Okay. Thank you, Chair.

[The Chair, Conservative, Kevin Sorenson]

Thank you, Mr. Christopherson.

Mr. Kelly is next, and then Mr. Massé.

[Pat Kelly]

Thank you, Mr. Chair.

[The Chair, Conservative, Kevin Sorenson]

Oh, just a second. Mr. Sarai is on there.