I call the meeting to order. This is meeting number 63 of the Standing Committee on Finance, with our orders of the day, pursuant to Standing Order 108(2), study of the subject matter of the supplementary estimates (B), 2014-15, vote 1b and vote 5b under the Canada Revenue Agency. This will be for the first hour, colleagues.
I want to welcome our officials from the Canada Revenue Agency to the committee. We have, first of all, Mr. Roch Huppé, chief financial officer and assistant commissioner, finance and administration branch. We have Mr. Rick Stewart, assistant commissioner, legislative policy and regulatory affairs branch; and we have Mr. Ted Gallivan, deputy assistant commissioner, compliance programs branch.
Welcome to all of you.
you have a presentation for the committee, Mr. Huppé. Is that correct?
Good afternoon, and thank you for the opportunity to appear before the committee to present and to answer any questions you may have on the Canada Revenue Agency's 2014-15 supplementary estimates (B).
Mr. Chair, as you are aware, the CRA is responsible for the administration of federal and certain provincial and territorial tax programs as well as the delivery of a number of benefit payment programs. Each year the CRA collects hundreds of billions of dollars of tax revenue for the Government of Canada, and distributes timely and accurate benefit payments to millions of Canadians.
Through these supplementary estimates the CRA is seeking an increase of $59.8 million in its voted authorities, of which $13.9 million is related to a transfer from Public Works and Government Services Canada as a result of a reduction to the CRA's accommodation requirements. This transfer is possible due to a number of initiatives undertaken by the CRA to achieve accommodation efficiencies, which resulted in a reduction in rental requirements by over 30,000 square metres of space, representing a total savings of $13.9 million.
At this time, I would like to briefly discuss the items that make up the remaining $45.9-million increase in voted authorities being sought by the CRA through the supplementary estimates.
First, the Canada Revenue Agency is requesting $26.7 million to implement and administer measures funded through budget 2014 aimed at improving the fairness and integrity of the Canadian tax system as well as to strengthen tax compliance.
Second, the Canada Revenue Agency is seeking $12.3 million for the implementation and administration of tax measures affecting individuals and businesses announced in budget 2013, as well as $1.1 million for administration of the harmonized sales tax and harmonized sales tax credit in Prince Edward Island, which came into effect April 1, 2013.
A further $2.6 million is being sought for the implementation and administration of tax measures announced in Budget 2014, related primarily to investments to reduce the administrative burden on charities and strengthen compliance with Goods and Services Tax/Harmonized Sales Tax, or GST/HST, registration.
The incremental funding for tax measures announced in both budget 2013 and budget 2014 will be used to make information technology systems modifications, develop and implement new business processes, develop forms, and update publications and information products related to these measures.
The fourth item requested in these supplementary estimates (B) is an amount of $2.4 million for the implementation of the intergovernmental agreement between Canada and the United States on the enhanced exchange of information. The funding will be used to develop and maintain new information technology systems, develop and implement business processes, and conduct additional verifications.
The final item for which the CRA is seeking incremental funding is $800,000 for the information reporting of tax avoidance transactions to ensure the fairness of the Canadian tax system. Budget 2010 introduced a regime under which these types of transactions would explicitly require reporting to the CRA to ensure the integrity of Canada's self-assessment system.
The legislation in support of this new regime was enacted in June 2013. As a result, taxpayers, promoters and advisors using certain avoidance transactions are now required to complete a new information return, which will help the CRA identify aggressive tax planning in a timely manner.
Also included in the supplementary estimates is a net reduction of $72.7 million related to the CRA's statutory authorities. This reflects a revised forecast of statutory disbursements to the provinces under the 2006 softwood lumber agreement originally included in the 2014-15 main estimates. As you know, the CRA is responsible for collecting and administering the charges levied on exports of softwood lumber products to the United States as well as making disbursements to the provinces of this amount less administration costs.
The CRA's 2014-15 main estimates included an amount of $80 million as the forecasted disbursement to the provinces. This forecast has since been revised by the Department of Finance to zero for 2014-15, resulting in the reduction of $80 million to the statutory authority. The reduction in the forecast is primarily as a result of a recovery and U.S. demand for softwood lumber products.
This reduction is partially offset by an increase of $7.3 million associated with adjustments to the employee benefit plans.
Following the approval of the supplementary estimates, the CRA's 2014-15 voted authorities will display an increase of $59.8 million and the CRA's statutory authorities will see a net reduction of $72.7 million. As a result the CRA's revised 2014-15 authorities will total $4.188 billion.
In closing, the resources sought through these estimates will allow the CRA to continue to provide quality services to Canadians by ensuring taxpayers meet their obligations, Canada's revenue base is protected, and eligible families and individuals receive timely and correct benefit payments.
Mr. Chair, at this time my colleagues and I would be pleased to respond to any questions you may have.
Mr. Huppé, thank you for meeting with the committee.
I am going to do a bit of follow-up, since a number of the measures stem from previously passed budget bills.
Vote 1b under the Financial Transactions and Reports Analysis Centre, or FINTRAC, represents a funding adjustment to Canada's anti-money laundering and anti-terrorist financing regime. The measure came from Budget 2014.
Is the funding being sought for specific initiatives or the overall improvement of FINTRAC's analysis system? And if it is for specific initiatives, could you give us some details on them?
You are referring to the $11.3 million. Okay.
Vote 1b covers a number of measures.
There are a couple of measures in there. There are some relating to previous budget announcements in 2013 and some that are relating more to the recent budget 2014.
You referred to the combatting of international tax evasion and aggressive tax avoidance. We are seeking $3 million for fiscal year 2014-15. That's in relation to close to $15 million that was provided to us over five years for the requirement now of reporting the international electronic fund transfers, so the underground economy and tax evasion. So we have $15 million as it relates to that perspective.
There are also other initiatives obviously in relation to that $13 million. There is funding that we receive in relation to scientific research and experimental development to do more outreach for the first-time claimants and also to expand our coverage to ensure compliance, so we're working on non-compliance around that field.
We also received significant funding to increase the resources for what we call our non-audit compliance programs. We ensure that we put more resources to review employer remittance concerning payroll deductions, GST and HST delinquent filers. So we got $16 million for that perspective. We also got funding to invest in what we call our non-filer program. To attack the underground economy and certain industries like construction we received $6.6 million and that funding is dedicated to that.
We received funding to address the over-contribution for RRSP contributions. We have funding of $1.7 million for this fiscal year in relation to our T-1 processing to ensure we put the focus on certain employment expenses that are deducted.
So in a nutshell those are some of the—
I think I have time for one more question.
Under votes 1b and 5b, the Canada Revenue Agency is seeking funding for the implementation of the intergovernmental agreement between Canada and the U.S. in relation to the Foreign Account Tax Compliance Act, or FATCA.
When the committee was studying the legislation setting out the agreement's implementation, Bill , experts expressed concerns about the intergovernmental agreement. One of their concerns was the fact that the definition of a "financial institution" was being changed and replaced by 13 types of entities—14 with the most recent amendment contained in Bill . That definition is not compatible with the intergovernmental agreement and needs to be changed.
The definition has given rise to major problems, such as the exclusion of most Canadian private trusts despite their inclusion in the intergovernmental agreement, as well as the lack of clarity around investment entities. These are some of the criticisms we heard from witnesses when the bills were under study. Some experts even said that adopting FATCA could undermine the implementation of the intergovernmental agreement.
I'd like to ask you two quick questions on the subject. First of all, have there been any discussions to incorporate changes that would clarify things, allowing for clear implementation of the legislation and regulations?
Thank you, Mr. Chairman.
Welcome to our witnesses. There are a number of areas that I'm sure all my colleagues will have questions on, but there are a couple of areas that I'd like to just drill a little deeper into with your expertise and your help if you could.
For instance, I'd like to clear the air on something that has been brought up by the opposition on a regular basis. In a recent message to all CRA employees, the commissioner, and the deputy commissioner, said:
To be clear, the process for identifying which charities will be audited for any reason is handled by the Charities Directorate alone and, like all of our audit activities, is not subject to political direction.
Because we've heard two sides and two points of view on this we'll ask the expert. Is that quote accurate and can you confirm if the process for identifying which charities will be audited for any reason is subject to any political direction, or is it handled exclusively by CRA's charities directorate?
Now, it is my turn to welcome you, gentlemen. I'm very glad you are here to answer our questions. Let's start out general.
I know that the CRA's tax system is self-assessment-based. In the media, we often hear about how difficult it is for people to understand letters from your agency. What's more, I believe some cuts were made in relation to client services.
What is the CRA doing to support the self-assessment system and encourage taxpayers to file their income tax returns so they can comply with the Income Tax Act as easily as possible?
I may be able to add something to that.
We have measured or taken stock of the number of formal complaints concerning political activities of charities that we have received since 2008-09. They range between 20 and 159 complaints of some sort. I do not have information that breaks down the nature of those complaints, just the fact that we received complaints.
What I would say is that we receive information from a variety of sources all the time in support of our compliance activity. We receive information internally,
from departments through their programs and activities.
We also receive information through our own monitoring of media reports and web postings—that sort of thing—and self-declarations by charities on their annual information returns.
As part of our general activity, setting aside whether it's a political activity allegation, we look at all of this information. That's not to say that we then proceed and pursue discrete actions in all of those cases. It's incumbent upon us, I think, as responsible regulators to at least look at information that is brought to our attention to determine whether or not there is an issue. The existence of a complaint does not necessarily imply that there will be some kind of follow-up CRA action.
Thank you very much, Mr. Chair.
Thank you to our witnesses for being here.
I want to follow up with a few questions with respect to the intergovernmental agreement and FATCA.
I think, Mr. Huppé, you talked about $2.4 million to implement the intergovernmental agreement with the U.S.
Then, Mr. Stewart, you talked about $15 million allocated over the next few years to enable the implementation of FATCA.
Just how do the $2.4 million and the $15 million work in the estimates?
Also, I'd like to ask you, as we start getting into more and more intergovernmental agreements and tax exchange agreements, what the impact on the agency is, as we sign more of these. Presumably there would have to be dollars spent to meet the objectives of these intergovernmental agreements.
Do we have a history of what it generally takes, from the standpoint of the CRA, to meet those objectives and of what investments are made in IT systems to meet the objectives of those agreements?
Now, here is an issue that came up last week in the House. We've learned of yet another massive privacy breach, and by way of preamble I want to put this question in context.
Apparently, in 2011 it was revealed that CRA employees had snooped on personal files, accessing more than 37,000 emails and 800 documents. Four years ago a CRA employee lost a laptop with 2,700 Canadians' tax information. Last year the Privacy Commissioner flagged as a serious problem the weak security measures at CRA. The Heartbleed virus was last week's privacy breach.
What do you consider to be the root cause of these serious problems?
I think I'd start with specialized teams, which actually got ahead of our recently released strategy. It was implemented in 2012-13.
These are 20 sites where we have specialized teams with specialized experts who are more on the investigative side of our workforce. They did 8,000 audits last fiscal year and 83% of the time they found a reassessment and they raised $718 million in new revenue.
We're also working with outreach. We've implemented something called the liaison officer initiative to be visible and proactively assist businesses. We've also started to focus on the supply side, as I mentioned in a prior response. We are partnering with other organizations with something like the “Get it in Writing!” campaign, for example, that we have with the Canadian Home Builders' Association, that warns Canadians about the perils of participating in the underground economy. We're trying to inform consumers that if you hire a contractor to build a deck it's not just that you're saving a bit of money, but as somebody who engages in the underground economy may not respect standards, perhaps you are putting the lives of your children at risk. We're trying to paint that picture for Canadian consumers.
It's a prevalent problem.
The Government of Quebec went forward with a receipting regime, which basically asked businesses to install extra equipment. There was government expense and a lot of red tape. We chose a different path, which is a more significant sanction if it's detected.
We led off with communication and we've been seeking to educate and communicate to the business community that we have these new sanctions that are available. Moving forward from September 1 in new audits, we will be imposing these increased sanctions. So the agency's strategy, rather than penalizing or putting a burden on all business, we're just going to put an extra penalty or sanction on those businesses that are found to have these devices in their businesses.
There are a few different objectives there. The first is, again, to collaborate with parties outside the CRA to help them push people in the same direction. I think of cross-communication as an example.
The second is to better understand the behaviours and motivations of people participating in the underground economy so that we can leverage those. In other words, we don't want to continuously increase the number of auditors and audit more and more businesses. Rather, we want to seek to influence people's behaviour, and by understanding the motivations and drivers we can better do that.
Third, in contemplating new measures we want to be careful that we don't impose an undue burden on businesses, particularly small businesses. We think that by talking to experts we can be better informed.
Finally I would just add, nudge theory has gained a lot of prominence in the U.K., and in Canada now. We're starting to build specialized units around nudge, so we have academics participating in the committee, kind of giving us the latest science around modifying people's behaviours.
Thank you, Mr. Van Kesteren.
I want to thank our three officials for being here for this session. I appreciate that.
I think you found there were a lot of questions from members but it was a very informative session, so we appreciate your time very much.
Colleagues, we will suspend for a few minutes, and then we'll go in camera for our prebudget report.
[Proceedings continue in camera]