FINA Committee Report
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Government Response to the Ninth Report of the Standing Committee on Finance
Parliamentary Review of the Canada Customs and Revenue Agency Act: A Value Proposition or a Failed Experiment?
Detailed Responses to the Recommendations
This response pertains to the Ninth Report of the Standing Committee on Finance, entitled “Parliamentary Review of the Canada Customs and Revenue Agency Act: A Value Proposition or A Failed Experiment?”. It was tabled in the House of Commons on December 13, 2006.
The Committee’s recommendations have encouraged the CRA to identify further improvement strategies, many of which are already underway.
DETAILED RESPONSES TO THE RECOMMENDATIONS
The Committee believes that, on balance, the application of private sector principles to the area of tax collection and administration as well as benefit disbursement has had positive results. However, there is scope for greater efforts to improve service to Canadians. From this perspective, the Committee recommends that:
“the federal government not make any changes, at this time, to the mandate or governance provisions for the Canada Revenue Agency in the Canada Customs and Revenue Agency Act.”
The Government accepts this recommendation. The CRA believes that the present governance arrangements have served the CRA, and through it, the Canadian people, extremely well. The CRA’s unique governance model has allowed it to operate using modern business practices, bringing the strengths of both the public and private sectors together to improve service to Canadians.
The Committee supports the current governance structure for the CRA, which includes responsibilities for the Minister of National Revenue, the Board of Management and the Commissioner. The Committee recognizes that individuals with particular expertise are needed to ensure the Board’s proper functioning, however, the Committee feels that the federal government must ensure that its nominees to the Board of Management reflect the diversity of Canadians. For this reason, the Committee recommends that:
“the federal government, in making its nominations to the Board of Management of the Canada Revenue Agency, ensure that the range of skills needed for the proper functioning of the Board of Management are available. Moreover, the government, in making its nominations, should consider the diversity of Canadians.”
The Government accepts this recommendation. The CRA fully supports open, transparent, and competency-based selection processes for the Agency’s Governor in Council appointments. For example, when there is a vacancy for one of the three federally nominated positions on the Board of Management (including the position of Chair), the Board follows an open and transparent search process that mirrors best practices used in the private sector in Canada and the United States.
The Board of Management approved a Board Competency Profile, which sets out core attributes, competencies, and experience required by all members of the Board, as well as specific skills, knowledge, and diversity collectively required by Directors of the Board. With each vacancy, the Board analyzes and identifies gaps in competencies and diversity of current Directors of the Board. It then develops selection criteria that address those gaps and are used in the search for new Directors. The Board advertises vacancies on the CRA website and in the Canada Gazette, and the services of executive recruitment firms have been used to assist in searches.
Eleven of the fifteen members of the Board of Management are appointed by the Governor in Council based on nominations submitted by the provinces and territories. The provinces and territories are strongly encouraged to follow a search process similar to that used for federal nominations when submitting their list of potential candidates for appointment to the Board (i.e., basing the search on the Board’s selection criteria, advertising the position widely, and conducting an open and transparent search).
As a general principle, the Committee supports the measurements of inputs and outputs, believing that measurement is needed in order to develop targets, assess progress and determine when changes are needed. Moreover, the Committee believes that information must be publicly available in such areas as tax collection and benefit disbursement. Consequently, the Committee recommends that:
“the federal government not make any changes, at this time, to the financial accountability requirements for the Canada Revenue Agency in the Canada Customs and Revenue Agency Act. The Agency should continue to prepare and publish its Report on Plans and Priorities, Departmental Performance Report, Corporate Business Plan and Annual Report, and to provide information on the degree to which its objectives are being attained.”
The Government accepts this recommendation. The CRA firmly believes in improved accountability to Parliament and fully supports the rigorous accountability regime the Canada Revenue Agency Act put in place.
The Corporate Business Plan sets out the CRA’s objectives for a three-year period and the Annual Report describes CRA’s progress in meeting those objectives. The CRA is committed to being fully transparent and strives to provide a report that is balanced and results-focused. The Annual Report provides a comprehensive reporting of results through the use of identified measures.
In addition, the Office of the Auditor General conducts performance audits and, on an annual basis, audits the financial statements produced by the CRA and assesses the fairness and reliability of the information about the CRA’s performance that is included in the Annual Report. Moreover, the Auditor General has observed that the CRA’s Board of Management has brought rigour, discipline and more attention to financial management issues than would be seen in a department generally.
The CRA remains committed to continuous improvement in its performance reporting, and over time is working towards further streamlining its reporting.
The Committee believes in the benefits associated with economies of scale, and feels that greater economies could be experienced should the CRA continue to sign tax agreements with the provincial/territorial governments and First Nations. It is from this perspective that:
“the Canada Revenue Agency pursue additional tax agreements with the provincial/territorial government and First Nations.”
The Government accepts this recommendation. Since its establishment, the CRA has been working with the Department of Finance and with provincial governments to explore new opportunities where the CRA could become the administrator for additional tax programs to the benefit of Canadians, and in particular the business community.
Tax agreements with provincial, territorial and Aboriginal governments are negotiated by the Department of Finance on behalf of the Government of Canada. As was the case with the recent agreement with the Province of Ontario with respect to Ontario Corporate Income Tax, the CRA will work side by side with the Department of Finance in any such negotiations to ensure that both tax policy and administrative concerns are addressed.
This leads to savings for both taxpayers and benefit recipients (in terms of costs and time dealing with different tax administrations) as well as the governments that are devolving those responsibilities to the CRA.
The CRA is willing and able to enter into new agreements to deliver tax and benefits programs on behalf of provincial, territorial and First Nations governments. The CRA has both the infrastructure and the expertise to do so in a cost-effective manner.
The Committee fails to comprehend why, given the CRA’s status as a separate employer, the Treasury Board is involved — to the extent that it appears to be — in negotiations between the CRA and the unions representing its employees. For this reason, the Committee recommends that:
“the Treasury Board play no role in negotiations between the Canada Revenue Agency and the bargaining agents representing the Agency’s unionized employees.”
The Government accepts this recommendation. Under the Canada Revenue Agency Act, Parliament assigned to the CRA the sole responsibility to enter into collective agreements with the bargaining agent for a bargaining unit composed of CRA’s employees. The CRA has accepted this responsibility and has negotiated agreements with the bargaining agent accordingly. Treasury Board approval for the positions negotiated by the CRA is not required, nor is it sought, though the CRA continues to maintain good relations with TBS. CRA officials obtain their negotiating mandate from the CRA’s Board of Management. The CRA also, however, recognizes that:
Parliament, under the CRA Act, directed the CRA to consult with the Treasury Board on its human resource plan, including the total increases in employee salaries or benefits before entering into collective bargaining; the CRA complies with this direction.
The CRA is working hard at a constructive and respectful relationship with the unions representing CRA employees, and intends to further strengthen the existing spirit of co-operation across the country through a variety of union-management initiatives.
In 2001, a bargaining unit structure was confirmed by the Public Service Staff Relations Board (PSSRB) certifying both the Public Service Alliance of Canada (PSAC) and the Professional Institute of the Public Service of Canada (PIPSC) as the two bargaining units representing all CRA employees.
Ensuring a high level of tax compliance and the integrity of our tax base sends the signal that taxpayers who fail to abide by tax legislation will face consequences for their non-compliance. The Committee recognizes that the CRA faces limited resources and competing priorities. The CRA must enhance its risk assessment efforts and must devote more resources to identifying the composition of, and reasons for the growth in, the tax debt. For these reasons the Committee recommends that:
“the Canada Revenue Agency, in order to ensure a high level of tax compliance and the integrity of the tax base, allocate adequate resources to tax compliance. The Agency should allocate resources to the most efficient collection methods and to those taxpayers who pose a higher-risk for non-compliance.”
The Government accepts this recommendation. The CRA agrees with the Committee that to ensure a high level of tax compliance and to protect the integrity of the tax base, adequate resources be allocated to both the service and tax compliance dimensions. The CRA’s approach to compliance begins with the premise that most individuals and businesses, given the opportunity, information, and tools, will voluntarily comply with the law. High rates of voluntary compliance reduce the costs of administration and lower the burden and intrusiveness of compliance actions.
The CRA relies on risk assessment systems to target its compliance resources. Concurrently, the CRA maintains an audit presence across all industry sectors and types of taxpayers. This deters non-compliance by increasing the credibility and visibility of our compliance programs.
Over the past five years the CRA has used risk-based strategies to confirm and address compliance priorities. These four priorities include aggressive tax planning; underground economic activity; GST/HST non-compliance, non-filer / non-registrants; and collections.
The CRA works to identify areas from these four priorities where the risk of non-compliance and the potential loss of revenue to the Crown are highest, and to understand the contributing factors. The CRA examines socio-economic trends and emerging business practices to identify indicators of possible non-compliance. Sophisticated risk-assessment systems have also been developed that examine the tax characteristics of Canadian taxpayers in order to identify and estimate possible non-compliance.
The CRA is continually working to improve the effectiveness of its risk-assessment systems. The risk-assessment processes enable us to target compliance and collection activities towards areas of highest risk and to shift resources to these key areas. The positive results achieved through these systems help determine where resources can best be applied to provide the government with the highest returns. By doing this, the CRA also reduces the cost to compliant taxpayers.
The CRA assists voluntary compliance through effective communication to inform and support all taxpayers in meeting their obligations and receiving their entitlements. The CRA works to minimize the compliance burden for individuals and businesses by streamlining processes and providing high-quality service and support (e.g., telephone assistance, Internet-based information, plain language forms, guides and publications, technical interpretations, rulings, and problem resolution services).
The Committee is concerned about the existence of the underground economy, and the extent to which its existence undermines our tax base and encourages taxpayers to avoid the payment of taxes. From this perspective, the Committee recommends that:
“the Canada Revenue Agency, in its Annual Report, comment on the extent to which it believes its efforts directed toward elimination of the underground economy are successful. In doing so, the Agency should provide objective evidence that forms the basis for its belief.”
The Government accepts this recommendation. The CRA shares the Committee’s view of the importance of protecting Canada’s tax base. While recognizing that elimination of the underground economy will always provide challenges, the CRA agrees to further enhance reporting in the Annual Report to better report on the results of our actions to address the underground economy.
The CRA believes that identifying and addressing non-compliance in all its forms, including the underground economy, is essential. This belief is reflected in our expected results statement: “non-compliance is identified and addressed”. While the CRA currently reports on its activities and results in addressing non-compliance, future annual reports will include additional information specifically related to the underground economy.
The Committee feels that there is scope for improved service to Canadians and one aspect of good service to Canadians is access to an appeal process that is timely, independent and binding, except in cases where the rules of natural justice have been violated. In this regard, the Committee recommends that:
“the Minister of National Revenue consider the appointment of an ombudsman as one means by which Canadians might be better served by the Canada Revenue Agency. Moreover, prior to implementing any changes to the appeal process, the Minister should refer the proposed process to the House of Commons Standing Committee on Finance in order that the Committee can provide its views on the proposed process.”
The Government accepts this recommendation. The CRA agrees with the Committee that good service cannot be legislated, and that good service begins with a corporate culture that values and rewards the service that is provided by employees.
The CRA is continually looking at ways to improve its service offerings and ability to respond to taxpayer’s needs. As such, the CRA will investigate any and all ways to improve taxpayer’s experiences when seeking service from the CRA, as well as options to improve recourse options for taxpayers who feel that their service experience was not in line with the CRA’s commitments.
The Minister of National Revenue would be pleased to share information about these CRA initiatives with the Standing Committee on Finance as they become available.
The Committee believes that the CRA should meet with key stakeholder groups in order to identify the best means by which Canadians might access CRA staff and by which they might be well-served by CRA. Consequently, the Committee recommends that:
“the Canada Revenue Agency ensure that Canadians are able to consult with Agency staff in a manner that is appropriate to their needs, in full recognition that the Agency should provide high-quality service to Canadians as a key priority. Components of high-quality service include ethical interaction with taxpayers, consistency in the information provided to them, and timely provision of service. The service provided to Canadians by the Agency should be measured by a third-party agency on an ongoing basis, in both a quantitative and a qualitative manner, and this information should be included in the Agency’s Annual Report.”
The Government accepts this recommendation of ensuring high-quality service to Canadians that is characterized, at a minimum, by ethical interaction, consistency of information and timeliness. The CRA recognizes that a key priority is the provision of high-quality service to Canadians.
Much has been done over the past ten years to understand and respond to taxpayer needs and expectations. Specifically, the CRA has implemented award winning service approaches, for which it has been internationally recognized as a tax administrator at the forefront of service delivery. Whether it be as a result of its SMARTLINK program, which integrates the web and the telephone for improved client assistance, its re-engineered, networked call centers which responds to over 22 million client enquires each year, or its strong partnerships with public and voluntary sector organizations, the CRA has made significant strides to improve service delivery to Canadians.
Because the Canadian tax system is based on a voluntary compliance and self-assessment model, the CRA recognizes the importance of providing high-quality service offerings that meet taxpayers’ needs. Accordingly, the CRA will continue to offer services across multiple channels including in-person, mail, telephone and the Internet, while pursuing its enterprise mandate and goals. As each channel responds to the needs of Canadians in different ways, the CRA will work to optimize the combination of services and channels so as to make the taxpayer experience increasingly seamless across a broad range of services and channels, regardless of taxpayer location.
To facilitate the interaction with taxpayers and ensure that they are provided with the highest quality service possible, the CRA provides its employees with technical and non-technical training as well as tools and job aids which will allow them to respond as quickly and accurately as possible to taxpayer needs. For example, service agent training has been modernized using the latest technology and agents have access to real-time multi-media tools and a portal that provides general and client specific information. This combination of training and tools increases consistency and accuracy in replying to public enquiries.
Moreover, the CRA is developing options for an enhanced mechanism to deal with concerns and complaints regarding service. In cases where a taxpayer feels service commitments have not been fully met, they will have a mechanism for recourse beyond our existing and successful problem resolution program.
The CRA is committed to measuring and reporting on its performance. The CRA has implemented a set of service standards and regularly measures and reports publicly against these standards in the CRA’s Annual Report to Parliament. The Office of the Auditor General verifies the content of the Annual Report to ensure the accuracy of the information reported.
In addition to this statutory report to Parliament, the CRA engages a third party to conduct an Annual Corporate Survey that collects the opinions of Canadians and affords them the opportunity to assess the performance of the CRA in a number of areas including efficient operations, fair treatment of taxpayers, ease of compliance, and service to Canadians. As an active member of the Organization for Economic Co-operation and Development, the CRA continuously benchmarks its service delivery approaches against the best practices of other tax administrations around the world.
With effective service measurement strategies already in place, the CRA has no immediate plans to further increase third-party assessments, but will engage additional third parties on a project basis as the need arises.
The Committee feels that the CRA is able to provide better service to Canadians when it has a clear understanding of Canadian views and priorities regarding tax collection and benefit disbursement. An important means for attaining this goal are advisory committees. From this perspective, the Committee recommends that:
“the Canada Revenue Agency provide the House of Commons Standing Committee on Finance with a comprehensive explanation of why its Advisory Committees are no longer seen as valuable.”
The CRA identified more effective ways of consulting, communicating and obtaining input from its many stakeholders and as a result intends to implement a more results-based, issue-specific and cost-efficient approach to committee consultation.
For example, the CRA has recently undertaken more focused, issue-specific and time-limited activities such as an Action Task Force on Small Business, established for a six-month period to provide advice to the CRA on how to reduce the compliance burden on small business.
The Committee believes that small and medium-sized businesses are the engines of growth in Canada. Consequently, the Committee believes that their productivity and prosperity must be nurtured and supported, rather than undermined. Due to the fact that the time taken to complete CRA audits has increased and that this time represents reduced productivity for businesses, the Committee recommends that:
“the Canada Revenue Agency undertake its audits in a manner that minimizes disruption to the normal functioning of the business that is the subject of the audit. Moreover, the frequency and duration of the audit should reflect the business’ risk or history of non-compliance.”
The Government accepts this recommendation. Most taxpayers voluntarily comply with Canada’s tax system, however, verification and enforcement activities are a necessary function of Canada’s self assessment tax system in order to identify and address non compliance, thereby protecting the tax base. The Canadian public and CRA have a mutual interest in making sure that audits are conducted efficiently and in a timely fashion.
Files are identified for possible audit using our national risk assessment model, which analyzes various criteria and identifies high-risk files and areas of non compliance requiring CRA attention. This minimizes the impact on compliant taxpayers.
Reducing the Impact of an Audit
CRA auditors provide small and medium sized businesses with a pamphlet entitled “What You Should Know About Audits” at the beginning of an audit, to explain the audit process. As well, the CRA periodically conducts a survey of businesses that have been audited to obtain their views on the audit process. The last survey was conducted in 2005 relating to audits completed between July 1, 2004 and December 31, 2004. Overall, 72% of respondents rated their satisfaction with the way the audit was performed as either “Excellent” or “Good”.
To address the issue of “burden of compliance” in terms of audit activity, a number of initiatives have been initiated or expanded recently:
- Integrated Enforcement Teams are being piloted in seven offices. The purpose of the initiative is to provide a horizontal approach to compliance by including representatives from Audit, Non-Filers, Trust Accounts and Debt Services on the team. Emphasis is directed toward taxpayers who may be non-compliant and/or are part of the Underground Economy;
- The CRA introduced the Combined Audit Program in 1996 to reduce the compliance burden on taxpayers by having one auditor determine a taxpayer’s compliance for both income tax and GST/HST with a single audit visit. The program was found to be successful and April 2006, the program was expanded to include all businesses with gross revenue of $4 million or less;
- A Memorandum of Agreement was signed on October 6, 2006, to allow the CRA to administer the audits of corporations on behalf of the province of Ontario. This will lessen the burden for corporations in this province since a CRA auditor will conduct both the federal and provincial portions of the audit. CRA has similar agreements in place with most other provinces;
- The time necessary to complete an audit is commensurate with the number/complexity of issues and the availability and quality of a taxpayer’s books and records. Where there are a limited number of issues, a restricted audit is conducted, resulting in less time spent at the taxpayer’s premises;
- To minimize disruption and reduce the need for employers to produce archived records, employment related examinations are generally restricted to more current periods. Many examinations are targeted to the subset of employers and GST registrants who withhold source deductions and/or collect GST/HST but fail to remit these trust funds; and
- To identify and reduce the burden of compliance on small businesses, the CRA created an Action Task Force on Small Business Issues, in 2006. The mandate of the task force is to:
- Identify areas where the administrative framework or policies could be adjusted to ease the burden on small business; and
- Determine whether CRA can make paperwork burden reduction part of a systemic process.
Recommendations rising from the work of the task force will be provided to the Minister for her consideration in the spring of 2007.
As the personal income tax administrator for nine provinces and three territories, the corporate tax administrator for seven provinces and three territories as well as the sales tax administrator for three provinces, the CRA has already succeeded in reducing the burden on taxpayers that would have been associated with dealing with numerous organizations.
The CRA will continue to pursue different means to reduce the compliance burden on taxpayers, whether it is through the streamlining of internal processes, the consolidation of our audit procedures, developing service offerings for our various service channels or through the signing of formal domestic and international tax agreements.
The Committee believes that the work undertaken by the Office of the Auditor General of Canada, and the recommendations made by the Auditor General, are well-considered and are designed to ensure that Canadians are well-served and receive value for the taxpayer dollars that are spent. For this reason, the Committee recommends that:
“the Canada Revenue Agency fully implement any recommendations made by the Auditor General of Canada with respect to its administration, operations and procedures. These recommendations should be implemented on a timely basis.”
The Government accepts this recommendation. The work undertaken by the Office of the Auditor General (OAG) ensures that Canadians are well served and receive value for tax dollars spent.
The CRA willingly collaborates with the OAG to ensure that service delivery and tax collection systems are as efficient and cost-effective as can be.
The CRA strives to implement the OAG’s recommendations on a timely basis, while delivering programs and implementing government priorities using available resources.
As legislators, it is not enough for the Committee members to pass laws: they must also review these laws, on an ongoing basis, in order to ensure that they are having the intended effect. Consequently, the Committee recommends that:
“the federal government amend section 89 of the Canada Customs and Revenue Act to require Parliamentary review of the Act every five years.”
The Government agrees that the comprehensive review and assessment of the provisions and operation of the Canada Revenue Agency Act has been extremely useful and appreciates the oversight provided by the Standing Committee on Finance.
The CRA has passed the initial five-year transition period from department to agency status and now has effective measures in place to ensure ongoing transparency and accountability to Parliament, and through Parliament, to Canadians. The CRA reports annually to Parliament through its Annual Report under the Canada Revenue Agency Act and its Departmental Performance Report under the Financial Administration Act. The Auditor General annually assesses the fairness and reliability of the information about CRA performance included in the Annual Report. Parliamentary Committees hold hearings to review emerging issues and events as necessary. These measures should ensure that Parliament is able to exercise proper and effective oversight over CRA operations and determine whether the legislation continues to have its intended effect.