I am pleased to accept the committee’s invitation to discuss the Canada Revenue Agency’s actions to address aggressive tax avoidance and offshore tax evasion, and to provide the current status of the Isle of Man file.
I am joined today by Mr. Ted Gallivan, the assistant commissioner of the International, Large Business and Investigations Branch at the CRA.
Let me begin by asserting that the Government of Canada’s position on tax evasion and tax avoidance schemes is unequivocal: all participants must be identified and brought into full compliance with all their tax obligations.
The CRA systematically pursues cases of non-compliance. CRA auditors conduct over 120,000 audits every year that result in more than $11 billion in additional taxes assessed as well as penalties and interest. At least two-thirds of that amount involves international and large business aggressive tax planning, including high-net-worth individuals and multinationals.
The CRA also takes action against tax professionals who offer, assist, or create opportunities for clients to participate in offshore tax evasion and tax avoidance schemes. The CRA is very active in combatting this problem and is already achieving significant results, but we know that we need to do more. Wealthy taxpayers must pay the taxes that they owe. It’s a question of fairness.
As you know, for budget 2016, the Minister of Finance announced a historic investment of $444 million to improve the agency’s ability to detect, audit, and prosecute tax evaders in Canada and abroad.
The CRA will use some of those new funds to hire additional auditors and specialists to conduct investigations. For example, we will increase the number of auditors who focus on those who create tax schemes. We will also hire another 100 senior auditors to pursue investigations on high-risk multinationals. This federal investment will increase the number of examinations focused on high-risk taxpayers from 600 per year to 3,000 per year. That will allow the agency to better target promoters of illegal schemes, increase its audit activities, and improve the quality of investigative work focusing on criminal tax avoiders.
The CRA is also developing business intelligence infrastructure for gathering and analyzing information that will help detect tax evasion and avoidance activities. For example, on May 13, I announced that Canada and 30 of its international treaty partners signed the Multilateral Competent Authority Agreement.
Large multinational enterprises will be required to make their global operations more transparent by providing “country-by-country reports” that contain their income, taxes paid, and economic activities. This will help ensure they pay appropriate taxes in the countries where they do business and where their profits are generated.
It also takes effective international cooperation to address offshore tax evasion. To that end, Canada has one of the world’s largest treaty networks, having entered into 92 tax treaties and 22 tax information exchange agreements. Moreover, we recently ratified the multilateral Convention on Mutual Administrative Assistance in Tax Matters, which further expands this international tax information-sharing network.
Canada is also a member of the Organisation for Economic Co-operation and Development—the OECD—and its Joint International Tax Shelter Information Centre network. The CRA recently participated in a JITSIC network meeting to coordinate measures concerning information related to the Panama affair. The CRA is also accelerating its offshore compliance measures related to the activities of some Canadians.
We are talking about measures taken based on information gathered concerning electronic funds transfers of more than $10,000. We have also received over 17 million records of such transfers into and out of Canada. Using that information, the CRA will target up to four jurisdictions a year, without any warning.
The net is tightening. Those who hide income and assets offshore, or who evade or avoid the taxes they owe, will be identified and will face the consequences.
The first targeted jurisdiction is the Isle of Man. The CRA is in the process of contacting 350 individuals and 400 businesses that have conducted transactions there. Over 60 audits are underway, with more to come.
Mr. Chair, there has been some recent speculation in the media about the CRA’s handling of this investigation, particularly regarding its relationship with KPMG and its treatment of some of its clients.
I cannot speak about a particular taxpayer or case, beyond what is on the public record. I can say that the KPMG offshore tax avoidance scheme was discovered through the efforts of the CRA, and that legal action is underway to obtain the identities of participating KPMG clients who have not yet been exposed or come forward voluntarily.
I can also point out that very specific legislation governs what the CRA may or may not do. Its decisions within that legislation are guided by the facts available to them.
In terms of overall stakeholder relations, the CRA has a responsibility to listen to those affected by its policies and programs. That includes individual taxpayers, businesses, and those who represent them, including KPMG and similar organizations.
In meeting with these stakeholders, CRA employees help them to better understand the requirements of Canada’s tax system and improve compliance. They do not discuss specific taxpayer files.
The agency avoids circumstances that could lead to real or perceived conflict of interest or preferential treatment. At the same time, it works hard to ensure that its operations are open and transparent to the public it serves.
In a show of commitment to openness and transparency, and in following the rules that govern its actions, the CRA commissioned an independent review of its investigation of the KPMG-Isle of Man case. The review concluded that the CRA's compliance actions were in accordance with its established policies and procedures and that no inappropriate interaction took place between KPMG and agency officials involved in the case.
I remain confident that taxpayer fairness is paramount at the CRA, as it is for all Canadian taxpayers and the public in general. The substantial investment of close to half a million dollars, announced in the last budget, will help the CRA ensure that the Canadian tax system works to its full potential, and contributes to an economy that is fair and that benefits all of us.
Thank you for your attention.
Thank you for your question.
I do, indeed, consider client service a priority. The fact that the chose a social worker as Minister of National Revenue was no mere happenstance. Since we're speaking to the issue of services to the public, I should mention that, for me, people who face greater challenges, and might not have their tax returns prepared by accounting firms, are important.
In the historic budgets we announced, we stressed the importance of improving telephone service as well. Many regions of Canada still don't have cellphone service or computer access.
And we want the public to be able to receive accessible, easy-to-understand documents by mail. This is particularly important given that 51% of Canada's population is functionally illiterate. This means that, when those people receive documents, they're unable to understand the contents.
With respect to volunteers, we need to see an increase in number, and they should be given much more support. The challenge is to help people who don't have the means to pay someone to fill out their tax returns. We're working on that.
Thank you, Madam Minister, for coming today.
I think the issue goes to tax fairness. Tax avoidance and tax evasion are still under the umbrella of tax fairness, ensuring that all Canadians, corporate and personal, pay their fair share. It's also equally important on the concept that CRA treats each taxpayer fairly and provides equal levels of service.
I'll get to that question in my second round because Madam Minister is here and talking about tax avoidance and tax evasion.
We're currently party to 22 tax information exchange agreements. The and the minister have said that tax evasion is an international problem and we really need to work with jurisdictions that have low tax or zero tax in order to solve this problem. It's not just what the CRA does, but also what we do at an international level.
Madam Minister, can you talk to us a little about the benefits and the risks of Canada signing these tax information exchange agreements? We also have to give information about Canadian taxpayers when other jurisdictions ask for it.
Thank you very much, Mr. Chair. Thank you both for being here today.
I want to follow up actually on some questions that my colleague here pointed out in regard to the previous government's record. I'm not sure if you've had the opportunity to read this, but in fact, to provide a little context, I was recently at the Council of Europe where the Panama papers were deemed to be an urgent debate. Senator Downe from Canada spoke on this matter. He spent many years on this. In fact, a lot of the information that I come here with has been provided by the years of work on this file from Senator Downe. I just want to make that clear.
Specifically on April 2, 2012, there was a Hill Times report from then-revenue minister Gail Shea asserting that the Conservative government had assessed $174 million in international offshore money being owed, which was far more than the Liberals had ever found.... Sorry, it was $4 billion in taxes that was owed on money hidden offshore. However, Senator Downe pointed out that assessing money owed is very different from collecting money owed.
What is the CRA's plan, under your leadership now, to actually assess but then collect versus just putting out press releases asserting that they know how much money is out there but haven't actually collected on it? What is your plan to ensure Canadians that the money hid offshore is actually collected?
We requested documents from KPMG. We received them, and they were tabled. We will study the documents tabled by the Canada Revenue Agency as well. The purpose of the request that was made was to determine which employees were involved in the scheme.
Now that we have a few names, it would make sense for our committee to start by hearing from these people, so we can understand more about how the scheme was set up. That's the underlying objective of the ongoing study.
I recommend at least three meetings to hear witnesses from KPMG and the CRA. All these names are from the list or have emerged from various media reports and investigations. They include Denis Lacroix, Michael Hamersley, Barrie Philip, Jeff Sadrian, and Paul Hickey, all of whom are from KPMG. Mr. Hamersley was with KPMG in the United States, but he confirms that the scheme was similar to the one used in the U.S. at the time.
After those meetings, given the complex nature of the subject, we need to take some time to meet with subject matter experts. We recommend André Lareau, who was part of the initial CBC/Radio-Canada investigation. He's a professor at Université Laval and has travelled to the Isle of Man. We also recommend Alain Deneault, who has written two books in two years on the whole mechanics of the tax evasion and offshoring phenomenon. Arthur Cockfield and Dennis Howlett, who have studied the question in detail too, can also help us shed light on what we've heard so far, so we feel they should be heard from, as well.
We propose at least three meetings to ensure we can do our work properly, plus a supplementary meeting to prepare a report to be tabled in the House of Commons.
The first proposed amendment does not pose any particular problem, as far as I'm concerned.
“Negotiated settlement”, rather than “amnesty agreement”, I'm fine with that.
The only constraint we're talking about is a minimum of three meetings. That's it.
The rest is the list of people who were identified, and we did the work of reviewing the documents that we received from KPMG. Those names are either in the documents as having already participated or are in the reports that we had from CBC/Radio Canada. It's not limited to those names. If there are other names that members of the committee want to add following the study of the documents, I have no problem with that. The motion has opened that.
The names of the four independent experts should be there as well because those people have worked on this issue closely, and it's not limited to those experts. I don't see why we should be constraining or making it a lot more vague, knowing that it's not limited to these people, but these people should be there if we want to do an exhaustive study of the scheme that was used.
Do we need a motion? If it's agreed, we don't need a motion. Are we agreeing to send this issue to the steering committee?
Some hon. members: Agreed.
The Chair: Then it shall be done. Thank you, all.
Would the other witnesses come forward?
The order of business is pursuant to Standing Order 81(4), main estimates 2016-17, votes 1 and 5 under the Canada Revenue Agency, referred to the committee on Tuesday, February 23, 2016.
We have before the committee, the Minister of National Revenue, as well as officials, Mr. Huppé, chief financial officer and assistant commissioner; Mr. Gallivan, assistant commissioner; and Mr. Trueman, assistant commissioner, legislative policy and regulatory affairs branch.
I thank you for the opportunity to participate in the committee's study of the main estimates 2016-17.
I am joined by several Canada Revenue Agency officials: Mr. Geoff Trueman, the assistant commissioner of the legislative policy and regulatory affairs branch; Mr. Ted Gallivan, the assistant commissioner of international, large business and investigations branch; and Mr. Roch Huppé, the assistant commissioner of the finance and administration branch. Mr. Huppé will speak briefly about the main estimates and answer your questions, but I would like to say a few words by way of introduction.
I spoke earlier today to your committee about some of the proposed measures in Budget 2016 that will help the CRA combat tax evasion and tax avoidance. A secure tax base is the foundation for a healthy economy, a sustainable social infrastructure, and a strong democracy. I would like to add that the Government of Canada proposes two additional areas of investment that will also support the work of the CRA and my priorities as Minister of National Revenue. Those priorities are in my mandate letter.
Budget 2016 proposes to invest $351 million in the CRA's ability to collect outstanding tax debt, and $186 million to improve service to Canadians through better telephone access, easy-to-understand correspondence, and increased outreach for vulnerable and low-income Canadians. That is a total investment exceeding $1 billion over the next five years, a testament to the importance of the work the CRA does.
As you are aware, Mr. Chair, Canada's tax system is based on voluntary self-assessment and compliance. Within this system, the CRA plays a special role. It administers tax laws for the Government of Canada and for most Canadian provinces and territories, and it administers various social and economic benefit and incentive programs that are delivered through the tax system. The taxes collected by the CRA are critical to families, businesses, and communities. When Canadians meet their tax obligations, they are helping to fund health care, post-secondary education, social programs, infrastructure, and many other programs. This is why it is crucial that everyone pays their fair share of taxes, so that all Canadians can benefit.
In 2014-15, the CRA processed $469 billion in revenues and engaged with 31 million individual and corporate taxpayers. More than 92% of taxpayers file their taxes and pay the amount they owe on time. The CRA also delivers important benefits to many eligible Canadians. Last year, the CRA delivered $22 billion in benefit payments to 12 million recipients.
With new funding of $186 million, the CRA will be able to reach out to Canadians who may be entitled to benefits but not be receiving them. By offering services that are proactive, more helpful, and easier to use, the CRA will ensure that people who interact with the agency feel like valued clients, not just taxpayers.
We are confident that our proposed investment in the CRA's ability to protect the revenue base while improving service to Canadians will yield significant returns. It will also help ensure that our tax system operates as fairly and effectively as possible.
I would now like to turn you over to Roch Huppé, who will walk you through the CRA's main estimates.
Mr. Chair, good afternoon, and thank you for the opportunity to appear before the committee to present the Canada Revenue Agency's main estimates for 2016-17 and to answer any questions that you may have on the associated funding.
As you are aware, the Canada Revenue Agency 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 governments of Canada, and distributes timely and accurate benefit payments to millions of Canadians.
To fulfill its mandate in 2016-17, the CRA is seeking the approval of a total of $4.1 billion through these main estimates. Of this amount, $3.1 billion requires approval by Parliament, whereas the remaining $1 billion represents statutory forecasts that are already approved under separate legislation. The statutory items include children's special allowance payments, disbursements to the provinces under the Softwood Lumber Agreement, employee benefit plan costs, and the use of revenues received through the conduct of CRA operations pursuant to section 60 of the CRA Act for administered activities on behalf of the provinces and other government departments.
These 2016-17 main estimates represent a net increase of $280.9 million or 7.4% when compared with the 2015-16 main estimates authorities. The largest component of this change is an increase of $128 million in the projected statutory disbursements to the provinces under the Softwood Lumber Products Export Charge Act, 2006.
Other increases to the agency's budget include a $55.8-million adjustment associated with the enhancements to our compliance efforts aimed at improving the fairness and integrity of the tax system. These initiatives include additional T1 reviews, the corporate assessing review program, the non-filer program, employer and GST/HST delinquent filers, large business audits, underground economy specialist teams, and finally, enhanced offshore non-compliance measures.
There is an increase of $52 million of the forecasted payments under the Children's Special Allowances Act due to modifications announced in the 2015 federal budget, which saw the existing universal child care benefit increase from $100 to $160 per month for children under six years and a new $60 monthly benefit for children six and over, but less than 18 years old; and an increase in the monthly payment for each child eligible for the Canada child tax benefit, the national child benefit supplement, and the child disability benefit.
There is also an increase of $41.4 million related to accommodation and real property services provided by Public Services and Procurement Canada.
There is an increase of $25.7 million to implement and administer various new tax and benefit measures funded through budget 2015. These measures include the family tax cut, the children's fitness tax credit, the enhanced universal child care benefit, streamlining withholding requirements for non-resident employers, and automatic exchange of information.
Finally, we have the transfer of $19.6 million from Public Services and Procurement Canada as a result of a reduction in the CRA's accommodation requirements. The 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 of over 42,000 square metres of space, representing a total savings of $19.6 million.
There was also a $9.3-million statutory adjustment in the contributions to employee benefit plans.
These increases are offset by a $29.5-million adjustment associated with the sunset of funding for various measures announced in previous federal budgets; a $15.5 million adjustment for transfers to other government departments, and finally, an adjustment of $5.9 million in the forecast of cost-recovery revenues pursuant to section 60 of the Canada Revenue Agency Act for initiatives administered on behalf of the Canada Border Services Agency and the Province of Ontario.
The CRA's 2016-17 main estimates do not yet reflect the tax measures announced by the in the March 2016 budget. Incremental funding requirements for the implementation and administration of announced tax measures are currently being evaluated by the CRA and will be presented to Treasury Board ministers through formal submissions in the coming months. Any incremental funding required for the 2016-17 fiscal year as a result of the Treasury Board submissions will be sought through the supplementary estimates process.
In closing, the resources sought through these 2016-17 main estimates will allow the CRA to continue to deliver on its mandate to Canadians by ensuring that taxpayers meet their obligations, that Canada's revenue base is protected, and that eligible families and individuals receive timely and correct benefit payments.
Mr. Chair, at this time, my colleagues and I would be pleased to answer any questions from committee members.
Thank you again for appearing on the main estimates.
Minister, in your comments in regard to the $1-billion investment over five years to better customer service, you mentioned things such as the phone system, which is for sure something we raised here, and communication for our residents.
I'm curious about whether you will be looking at setting up a process—or has it already been done, perhaps?—to survey clients to find out how these systems can be improved. For example, in the case of a phone system issue, perhaps you could not limit hours to 8:30 a.m. until 4:00 p.m., or something along those lines, and maybe have more flexible times so that people don't have to call about their taxes from work, because it could perhaps be embarrassing or not appropriate.
Are you looking at these types of client service enhancements and not just at hiring more staff to be available under the status quo?
I am somewhat surprised to hear the minister referring to this $444 million almost every day, when the money has not yet been approved by Treasury Board.
That said, I am mainly interested in the 2016-17 report on plans and priorities, which, to my mind, offers a lot more perspective when it comes to spending by the Canada Revenue Agency.
When I look at a graph in that report, I see that the Canada Revenue Agency's budget has declined. The 2015-16 public accounts that will be released shortly provide for $3.3 billion. For 2018-19, according to the report on plans and priorities, $3.32 billion is budgeted over three years.
, what is the explanation for your reference to an investment, when the report on plans and priorities, for the 2018-19 outlook, shows a decline in the Canada Revenue Agency's budget? The report even shows a staffing decline of 2,318 full-time equivalents.
Can you explain the reason for that decline, which is shown in the 2016-17 report on plans and priorities?
However, why is that amount not reflected in the report on plans and priorities? For example, if an investment of approximately $444 million is announced, and another amount for client service, why is that not reflected in the report?
Take another example. For the compliance program as it relates to tax returns, which is still an extremely important program, it is the same thing when it comes to the projected spending for 2015-16.
We also see a reduction of $54 million between the 2014-15 and 2015-16 public accounts, the equivalent of a reduction of 382 people in terms of full-time staff.
How do you reach this conclusion in your report on plans and priorities? Does your projected spending extend to 2018-19? Investments are being announced, and in the reports, it shows a decline between now and 2018-19. Why do you not take into account the announcements that are being made?
Once again, thank you to all for joining us today.
I mentioned in the first round, as well, that for me the issue has always been about tax fairness and ensuring that Canadians, across the board, pay their fair share, whether corporate or personal. It doesn't matter where you come from. Everybody works really hard in this country.
We get an opportunity when we're back in our constituencies to meet with a lot of Canadians, such as blue collar workers working in factories, small businesses, taxi drivers, and truck drivers. Those are the types of people who come into our offices with problems with the CRA. Those are the people we want to help because they don't have the resources to hire a KPMG or a Deloitte who will pick up the phone, call the CRA, and get a response.
I know we've increased your budget, and I know the previous government really reduced your budget, and that had an impact. We all know about that.
I just want to know if we're really going to make a point of ensuring that the systems in the CRA are smoother for people to be able to pick up the phone, call a CRA officer, and come to a resolution on their tax issue. I think that's an extremely important part of your mandate, Minister.
I just want to say for the record, Mr. Chair, that I heard a question from the honourable colleague on the other side, either Guy Caron or Pierre-Luc Dusseault.
When we talk about improving access, I refer you to budget 2016 on page 206. We have a whole paragraph. We have a page describing what we're going to do, exactly, to improve services at the agency.
We're proposing to invest $185.8 million over five years, and $14.6 million ongoing in the CRA. I won't take the time to read exhaustively what's in the budget, but obviously there's a whole page about what we're going to do, very specifically, to answer the question.
There is also a much more interesting question, for the people watching and listening to us. You are quite familiar with it, Minister.
In Budget 2016, one of the key measures concerning the Canada Revenue Agency is to have proactive activities to inform Canadian taxpayers and help them get the tax credits they are entitled to. We have heard a lot of testimony, or questions and comments, from our colleagues, on this point, and rightly so. I think this approach is diametrically opposed to what we may have seen in the past.
Could you tell us a little more about that, Minister? For the people following us at home, I think the fact that you and your representatives are going to help those people know what tax credits they are entitled to is one of the key measures in the budget.
Okay, thank you, Madam Minister.
We're going to have to cut it there, or we will not get to vote on the estimates. That would not be a good thing.
Thank you very much, Minister, and witnesses. It's not too often we have a minister for two hours with two written presentations. That's pretty good.
Thank you all.
Turning to the votes on estimates then.
||Vote 1—Operating expenditures, contributions and recoverable expenditures..........$3,032,118,914
||Vote 5—Capital expenditures and recoverable expenditures..........$37,066,000
(Votes 1 and 5 agreed to on division)
The Chair: Shall I report the main estimates 2016-17 to the House?
Some hon. members: Agreed.
The Chair: Did you have a motion?