PACP Committee Report
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GOVERNMENT
RESPONSE TO THE
SEVENTH REPORT
OF THE
STANDING
COMMITTEE ON PUBLIC ACCOUNTS
CHAPTER
4, August 2010 The Government Response to the Seventh Report of the Standing Committee on Public Accounts – “Chapter 4, ‘Interest on Advance Deposits from Corporate Taxpayers – Canada Revenue Agency,’ of the Spring 2009 Report of the Auditor General of Canada” (Report). OBSERVATION This Response pertains to the Seventh Report of the Standing Committee on Public Accounts – “Chapter 4, ‘Interest on Advance Deposits from Corporate Taxpayers – Canada Revenue Agency,’ of the Spring 2009 Report of the Auditor General of Canada.” RECOMMENDATION 1 The Standing Committee on Public Accounts (Committee) would like to monitor progress and recommends: “That the Canada Revenue Agency provide the Public Accounts Committee with information at the end of each fiscal year from 2009‑2010 to 2010-2011 on the amount held on deposit from corporations at the end of the fiscal year and the amount of interest paid on those deposits during the fiscal year.” RESPONSE The Canada Revenue Agency (CRA) agrees to provide the Committee with information at the end of fiscal years 2009-2010 and 2010-2011 on the total amount of advance deposits from corporations held on account as well as the amount of interest paid on those deposits during the fiscal year. In 2009-2010, approximately $2.5 billion in advance deposits was held on account for corporations by the CRA. This amount was validated under the CRA’s enhanced administrative framework for managing these deposits. This amount is considered reasonable as it reflects the risk of reassessment based on audit plans or as an appeal has been filed. The approximate $2.5 billion in advance deposits for 2009-2010 is lower than amounts reported for prior years due to the dialogue between corporate taxpayers and CRA employees during the validation process that allowed for a greater understanding of the taxpayer’s tax position and the potential for a reassessment. In 2009-2010, approximately $148 million in interest was paid. This amount reflects interest paid as a result of the implementation of the enhanced administrative framework. With the deposits now validated, the enhanced administrative framework in place and the proposed interest rate reduction from Budget 2010, interest costs associated with advance deposits are expected to be lower in future years. The Budget 2010 proposal will come into effect following Royal Assent of Bill C-9. Details on the amounts held on deposit and the interest paid for 2010-2011 will be provided in 2011. RECOMMENDATION 2 The Committee noted the proposed change in the interest rate payable to corporations should remove any potential incentive for corporations to leave excess advance deposits with the CRA. However, they would like to monitor progress and recommended: “That the Canada Revenue Agency provide the Public Accounts Committee with its policy framework and proposed regulations for managing advance deposits.” RESPONSE The enhanced administrative framework, outlined below, together with the Budget 2010 proposal to reduce the interest rate paid on refunds to corporations has removed any potential incentive for corporations to keep excess advance deposits with the CRA. The enhanced administrative framework requires that a specific tax year is provided for all advance deposits. Where an advance deposit is made in respect of an anticipated reassessment for multiple tax years, a breakdown of the individual tax years and corresponding amounts must be provided by the taxpayer. The identification of a tax year will allow the CRA to validate that there is a risk of reassessment and that the amount being held on account is reasonable. The CRA will annually review each account to confirm the specific advance deposit(s) being held and any reassessments that are in progress. Once the account has been reviewed, the taxpayer will be contacted to validate the advance deposit amount(s). The taxpayer will be provided with the following options or a combination thereof:
Should a taxpayer refuse to provide the information or ignore repeated requests for information, the CRA will be unable to validate that the advance deposit is required. In this situation, one of the following actions will be taken:
When advance deposits are referred to audit for validation, the auditor’s recommendation will form the basis of the decision as to whether or not an advance deposit is validated. The recommendation could be that an account is currently under audit and that amount becomes a validated deposit. Alternatively, it may be determined that the account is not under audit and may not be audited in the future. In these situations, the audit history will be examined to determine the risk associated with not retaining the advance deposit. If the advance deposit is not validated, it is refunded to the taxpayer. Where information is lacking, a decision will be based on historical audit data. A conservative approach in favour of the taxpayer will be taken and the funds will remain on account if it is unclear whether the advance deposit should be returned or not. Should a situation ever arise where a taxpayer believes a mistake was made in the handling of the advance deposit, the taxpayer may request that the interest on a reassessment pertaining to a returned advance deposit be cancelled under the Taxpayer Relief Provisions of the Income Tax Act. The CRA is confident that the enhanced administrative framework and the proposed lowering of the interest rate will reduce the amount of interest paid on advance deposits. |