FINA Committee Report

Section 89 of the Canada Customs and Revenue Agency Act requires that, five years after the coming into force of that section, Parliament undertake a review of the legislation. The Committee(s) designated to undertake the review is (are) required to report to Parliament within a reasonable period of time after completing its (their) review.

With proclamation of section 89 of the Canada Customs and Revenue Agency Act occurring on 1 November 1999, the five-year period for review of the legislation expired on 1 November 2004. In fulfilment of the statutory review requirement, in May 2005 the House of Commons Standing Committee on Finance commenced “a comprehensive review and assessment of the provisions and operation” of the Canada Customs and Revenue Agency Act but did not complete the review prior to the 23 January 2006 federal election. Hearings continued in the 39th Parliament, with meetings in June and December 2006.

This report summarizes what the Committee heard from a variety of witnesses about the Canada Revenue Agency, and presents our thoughts and recommendations about future priorities that the Agency may wish to consider as it continues to evolve.

In 1996, in announcing the Canada Revenue Agency (then the Canada Customs and Revenue Agency since it pre-dates the transfer of customs responsibilities to the Canada Border Services Agency in December 2003), the federal government identified three objectives for the new organization:

• provide better service to Canadians;
• become a more efficient and effective organization; and
• establish a closer partnership with the provinces/territories.

The Agency was established by Bill C–43, An Act to establish the Canada Customs and Revenue Agency, which contained five major elements:

• mandate and governance;
• accountabilities;
• partnership responsibilities;
• human resource authorities; and
• administrative authorities.

In advance of the Parliamentary review, the Canada Revenue Agency released the report The Canada Revenue Agency: The First Five Years — Setting the Foundation for Tax and Benefit Administration in the 21st Century.

1. Mandate and Governance

   In terms of the Canada Revenue Agency’s mandate and governance,

   • the Minister of National Revenue is responsible for the Canada Revenue Agency’s administration of program legislation, including the Income Tax Act, the Goods and Services Tax legislation and — before the customs function was removed — customs-related legislation;
   • a 15-member Board of Management is responsible for overseeing authorities dealing with human resources, procurement, real estate and administration that formerly belonged to other federal departments (largely central agencies, including the Treasury Board, the Public Service Commission, and Public Works and Government Services Canada); and
   • a Commissioner, who is the Chief Executive Officer, is responsible for the day-to-day management and direction of the Agency, is accountable to the Minister for the administration of the program legislation, and is accountable to the Board of Management for the operation of the administrative and management authorities in the Canada Customs and Revenue Agency Act.

   The provinces/territories play a role through their nomination of Board of Management members. Eleven of the Board’s members are nominated by the provinces/territories while the remaining four members — including the Chair — are nominated by the federal government.

2. Accountabilities

   The Canada Revenue Agency is subject to an accountability system that ensures its actions are reported upon and scrutinized by appropriate authorities. The Auditor General of Canada is the Agency’s auditor, and accountability to Parliament occurs through the Minister of National Revenue.

   In addition to its Report on Plans and Priorities and its Departmental Performance Report, the Agency must submit a Corporate Business Plan and an Annual Report. Moreover, the Public Service Commission reports on selected aspects of the Agency’s staffing system, and the Agency both reports annually to the provinces/territories and keeps them — and the government departments for which it administers programs — aware of significant developments that would affect them.

3. Partnership Responsibilities

   The Canada Revenue Agency has the authority to implement agreements — under certain conditions — with other federal departments and agencies, the provincial/territorial governments and First Nations.

4. Human Resource Authorities

   When the Canada Customs and Revenue Agency was created, it was envisioned that a relatively more process-oriented and rules-based staffing system would be replaced with a system that recruits, selects and promotes employees based on a common set of competencies aligned with the Agency’s business needs. As a separate employer, the Agency assumed responsibility for labour relations, compensation and collective bargaining.

5. Financial and Administrative Authorities

   When the Canada Customs and Revenue Agency was created and the Board of Management was in place, the Board oversaw technology-based re-engineering that led to reduced costs and improved internal services. As well, through innovations introduced with Public Works and Government Services Canada, cost savings occurred in real property.

1. Mandate and Governance

   1. What the Witnesses Said

      In her appearance before the Committee, the Minister of National Revenue described the Canada Revenue Agency (CRA) as “one of the most successful business transformations within the federal system.” In her view, the Agency has “a one-of-a-kind mandate. … (T)he Agency has independence and freedom from political interference. It has unparalleled powers that enable it to operate more like a business, bringing the strengths of both the public and private sectors together to improve service to Canadians.” Moreover, she said that “an external Board of Management … ensures a more strategic, business-like approach to running the Agency. … Its members bring both private-sector skills and practices and a provincial perspective that strengthens the Agency’s administration overall.”

      The Commissioner of the Canada Revenue Agency told the Committee that “(f)ive years ago, Parliament launched a major experiment in public sector governance. New legislation created an agency with unique characteristics designed to merge the best of what public and private sector governance had to offer. … [It] brings into the public sector the wisdom and the business acumen of a corporate board and marries it to political direction … . What can now be observed … is that the (A)gency has matured into a national organization that is able to serve all taxpayers by improving revenue collection and by eliminating unnecessary overlap between jurisdictions. It is also clear that five years is a very short time to assess major changes in governance. … There is still work to be done in many areas. The transformation ordered by Parliament … is very far-reaching and very complex.”

      The Chair of the CRA’s Board of Management informed the Committee that a key motivation behind the Agency’s governance model was the desire “to reduce overlap and duplication between the federal and provincial governments in the administration of programs.” In her view, the role of the Board is “challenging the Agency to improve how it looks at its objectives, processes, and performance and to re-think its results from the clients’ perspective.” Moreover, she said that its role is “to foster sound management and service delivery. [The Board does] this through the governance of the Agency’s mission, vision, values, and management principles, as well as its planning, reporting and accountability structures. [The Board] also approve[s] administrative policies governing the Agency’s corporate resources … .”

      Regarding the degree to which the Board of Management reflects the Canadian population, the Commissioner of the CRA told the Committee that “(t)here is an attempt to do [so], and there are areas of expertise that the (C)hair [of the Board] is certainly pursuing … but [the federal government does not] control the composition of the (B)oard.”

      The Chair of the Board of Management also spoke about the Board’s diversity, and informed the Committee that “(t)he quality of the Board’s guidance is enhanced by the diversity of its members because the Board can examine issues from multiple perspectives. The majority of Board members come from the private sector … . Fourteen members are independent and are not employed by any client-government. The Commissioner — [the Agency’s] Chief Executive Officer — is the only member of the CRA management on the Board. … He provides … regular updates on Agency concerns and initiatives, as well as on government-wide issues that may affect Agency operations and decision-making.” The Board also plays a role with respect to the Agency’s Corporate Business Plan and Annual Report, and has four committees that assist it in meeting its responsibilities: audit, resources, human resources and governance.

      Other witnesses also supported the agency model adopted in Bill C–43. According to the Canadian Federation of Independent Business (CFIB), the agency model “is moving in the right direction. … The [Canada Customs and Revenue Agency Act] still stands, as far as [the CFIB is] concerned. [The CFIB was] involved with the drafting of the (A)ct, and … think[s] it’s still appropriate.” In assessing the extent to which the agency model is appropriate, however, the CFIB said that “five years may be too short a time period.”

      The Union of Taxation Employees of the Public Service Alliance of Canada told the Committee that its “relationship under the CRA structure is mostly good, and certainly better than when [the Agency was] a department of the government.”

      Moreover, the Public Service Alliance of Canada (PSAC) indicated that “a fundamental restructuring of the CRA would not fit well with [the] PSAC — [its] component — the Union of Taxation Employees — or the thousands of members [it is] privileged to represent who work for the CRA. … [W]hile change may be a good thing, constant change undermines the morale and the effectiveness of public institutions.” In the view of the PSAC, the restructuring process “is still incomplete, in terms of some significant human resource issues … .” The PSAC urged the federal government “to take a step back and allow some of the restructured departments and agencies, including the CRA, a period of stability, a period of time to complete some of the processes, including classification, that are both necessary and desirable.”

      In commenting on the three objectives given to the CRA at the time of its creation in Bill C–43, the Certified General Accountants Association of Canada (CGA) noted its belief that “the (A)gency has achieved some success in each of these [objectives], though [the CGA] also see[s] some room for improvement.”

   2. What the Committee Believes

      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. This endorsement, however, must be considered while bearing in mind that there are areas in which further refinement of the CRA’s mandate and governance model may be needed at some future point.

      In the view of the Committee, it is fitting that the Minister of National Revenue continues to be responsible for the Agency’s administration of program legislation, including the Income Tax Act and the Goods and Services Tax legislation. Moreover, we believe that the federal-nominated Commissioner of the CRA plays an appropriate role in the Agency’s governance model and that the Board of Management has been instrumental in bringing private sector discipline and perspectives to an important area of the federal public service.

      In commenting on the testimony presented by some witnesses, the Committee feels compelled to point out what we view as a slight, but puzzling, inconsistency: some witnesses argued that the CRA had matured, while also suggesting that five years was a very short time within which to assess major changes in governance. In our opinion, these two statements — when made by the same witness — seem to be somewhat inconsistent.

      The Committee also agrees that the result has been, at least to some extent, improved tax collection and the elimination of unnecessary overlap between jurisdictions. We feel, however, that — as noted below — there remain a number of ways in which the CRA is failing to meet, to the extent possible, its objective of providing better service to Canadians. While improved service to some Canadians is occurring, there is scope for greater efforts in this regard, and later in the report we make recommendations designed to lead to improved service. From this perspective, the Committee recommends that:

      Recommendation 1

      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 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. While we are not suggesting that problems currently exist with the composition of the Board, we believe that ongoing efforts must be directed to ensuring that the Board’s members reflect the diversity of our population, since taxes are paid by a wide variety of Canadians and Canadian businesses. While we recognize that 11 of the nominations to the Board are made by the provinces/territories and that individuals with particular expertise are needed to ensure the Board’s proper functioning, we feel that the federal government must ensure that its nominees to the Board reflect the diversity of Canadians. For this reason, the Committee recommends that:

      Recommendation 2

      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.

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2. Financial Accountabilities

   1. What the Witnesses Said

      According to the Commissioner of the CRA, “everything is measured in the (A)gency, whether it’s the amount of collection [the Agency does], the effort, the number of hours per dollar collected, or the amount of time it takes to open an envelope — everything is measured on a constant basis. … Four times a year, for three days at a time, [the Board of Management] essentially deal[s] with senior management in terms of productivity and in terms of measurement of performance. It is a real accountability relationship, akin to what one might find in the private sector with boards of directors. … Over a period of years, it has generated a different kind of attitude in the [A]gency, one that’s oriented towards measurement, performance, service levels, and standards.”

      In commenting that she is “very impressed by the accountability framework that has been put in place,” the Auditor General of Canada told the Committee that — with respect to the CRA — her office conducts performance audits, annually audits the two financial statements produced by the Agency, assesses the fairness and reliability of the information about the Agency’s performance that is included in the Annual Report, and audits a statement showing the income and capital taxes assessed and paid to the provinces/territories subject to federal-provincial/territorial tax collection agreements. As well, from time to time, the Agency is included in other federal government-wide performance audits that are conducted.

      The Auditor General shared her view that “(f)rom a financial audit perspective, … the nature, quantity, and relevance of financial information being provided by the (A)gency has improved since its departmental days. An important contributing factor … has been the legislative reporting requirements set out in … the (A)gency’s enabling legislation. [The Office of the Auditor General has] observed incremental year-over-year improvements.”

      The Auditor General also commented that the fairness and reliability of the Agency’s performance information have “contributed to advances by [the] CRA in developing its performance management and reporting framework. Corporate business plans now have clearer expected results, and the (A)gency’s performance information has steadily improved over the years in terms of providing more concrete, clear, and measurable results that are better linked to the (A)gency’s business strategies. … The legislative requirements for audited financial statements and for an assessment of the fairness and reliability of the performance information … have improved the quality of performance information available for decision-makers and the public at large.” She also noted, however, that while “much progress has been made, some improvements are still needed, for example, in reporting how the (A)gency’s administrative functions are contributing to the achievement of corporate objectives.”

      In the view of the Auditor General, the Board of Management “has instilled a heightened sense of accountability in the (A)gency. The (B)oard has also created several committees to deal with specialized aspects of its responsibilities, including an audit committee. … (T)he enhanced oversight provided by the (B)oard of (M)anagement has contributed to strengthened business planning, a more rigorous performance measurement framework, and improved accountability to the Minister and the provinces. … The new (B)oard of (M)anagement … [has] certainly brought a rigour and discipline, and … even more attention to financial management issues than [would be seen] in a department generally.”

   2. What the Committee Believes

      As a general principle, the Committee supports the measurement of inputs and outputs, believing that measurement is needed in order to develop targets, assess progress, and determine when changes are needed. Moreover, we believe that information must be publicly available in such areas as tax collection and benefit disbursement. Canadians, who are required to pay taxes and who receive benefits from the CRA, have a right to access information about the efficiency with which tax collection and benefit disbursement occur, the degree to which taxpayers are complying with tax legislation, and the plans that the Agency has for its future, among other topics. Consequently, the Committee recommends that:

      Recommendation 3

      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.

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3. Partnership Responsibilities

   1. What the Witnesses Said

      According to the Commissioner of the CRA, the Agency administers tax agreements, signed between the federal and provincial/territorial governments and financed by the federal government. The provinces/territories that are parties to such agreements and that no longer collect taxes experience savings, and the federal government may benefit from penalties and interest charges associated with the collection of provincial/territorial taxes. The CRA also collects taxes on behalf of First Nations. As well, the Agency has the capacity to enter into agreements on a cost-recovery basis.

      The Committee was told, by the Commissioner of the CRA, that the Agency administers 190 programs for 126 clients. He also told us, however, that he “foresee[s] some change in scope over the next five years — the development of a larger client base. … [The Agency] can grow the business in areas that [it is] already in; [it] can solicit new business.”

      In commenting on federal financing of the cost of provincial/territorial tax collection, an official of the CRA told the Committee that “there has been a longstanding view … that the public policy benefit of a single tax administration is so beneficial to individuals, businesses, and the central governments of a country that it’s worth the [cost] of administration to do that.” The Commissioner of the CRA also noted that “(o)n the benefit [side], there is a huge saving for the taxpayers [when tax consolidation occurs]. There is also an efficiency saving. … [The Agency is] good at collection and benefits administration in large volume or for the benefit of government clients. That’s [the Agency’s] core business … [and the Agency] really need[s] to keep [its] eyes on the ball.”

      The Auditor General informed the Committee that “there have … been positive developments in the tax collection agreements with the provinces. These agreements were recently revamped and now include stronger accountability provisions — in particular, a requirement for [the Office of the Auditor General] to provide reports to the provinces on the proper design and effective operation of controls that have an impact on determining provincial revenues.”

      According to the CGA, “(t)here is an intent, both stated and implied, that [the] CRA sees itself as becoming the sole tax-collecting authority for all forms of tax … . [The CGA] would suggest that [the] government limit the ability to do that … . When we have inconsistent decision-making now and not a complete[ly] level playing field with respect to the taxpayer and everything else, the thought of having an auditor come in to try to assess … property tax, … sales tax, … GST, … income tax, and whatever other tax there may be down the road … (t)hat person cannot have expertise in all those areas.”

   2. What the Committee Believes

      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. We are aware of the recent agreement reached between the federal government and the province of Ontario regarding tax collection, and recall the comments made to us by the Minister of Finance on 23 November 2006 regarding tax harmonization. It is from this perspective that the Committee recommends that:

      Recommendation 4

      the Canada Revenue Agency pursue additional tax agreements with the provincial/territorial governments and First Nations.