:
At this point in time, I will call the meeting to order.
I want to welcome everyone here. Bienvenue à tous.
Colleagues, this meeting is called pursuant to the Standing Orders to deal with chapter 3, “Income Tax Legislation”, in the 2009 fall report of the Auditor General of Canada.
The committee is very pleased to have with us, of course, from the Office of the Auditor General of Canada, John Rossetti, the Assistant Auditor General. He's accompanied by Vicki Plant, principal. From the Canada Revenue Agency, we have back before us Linda Lizotte-MacPherson, the commissioner. She's accompanied by the assistant commissioner, Brian McCauley. And from the Department of Finance, we have the deputy minister and accounting officer, Mr. Michael Horgan. He's accompanied by Louise Levonian, senior assistant deputy minister in the tax policy branch; and Brian Ernewein, the general director in the tax policy branch. Again, welcome to everyone.
We're going to ask for opening statements now. We will start with the Office of the Auditor General. Mr. Rossetti, the floor is yours.
:
Mr. Chair, thank you for this opportunity to discuss chapter 3 of our 2009 fall report. Joining me at the table is Vicki Plant, the principal responsible for the audit.
In our chapter on income tax legislation, we focused on activities within the Department of Finance and the Canada Revenue Agency that helped to provide or improve legislative clarity to both taxpayers and tax administrators. We looked at how the Department of Finance develops technical amendments for tabling in Parliament.
Technical amendments are changes made to correct anomalies that arose after the original tax measure was passed and to correct consequences that were not intended. These amendments do not introduce new tax policy or change existing tax policy.
[Translation]
In addition, we examined how the Canada Revenue Agency assists the Department of Finance in identifying and developing technical changes that may be needed in legislation, and how the Agency provides taxpayers and its tax auditors with guidance on the application and interpretation of the Income Tax Act. Legislative clarity is important if taxpayers are to easily self-assess and correctly calculate their taxes.
When the intent of the legislation is not clearly conveyed by the words, taxpayers may face higher costs to obtain professional advice, may be more willing to use aggressive tax plans, and may need to re-file a tax return at additional cost.
Uncertainty about how the tax law should be interpreted can also affect the efficiency of tax administration. For example, there are higher costs for the Agency to provide additional guidance and interpretation to taxpayers and tax auditors. There are also increased administrative costs for the Agency to obtain waivers from taxpayers to extend the limitation period for audit reassessments until the uncertainty is resolved.
[English]
We found that the list of outstanding technical amendments to the Income Tax Act has been growing and that no new income tax technical bill has been passed since 2001. In the past, the government said an annual technical bill of routine housekeeping amendments to the act is desirable. This has not happened.
At the time of our audit, there was a backlog of at least 400 technical amendments. Some of these were included in the proposed legislation that was first tabled in 2002 but has not yet been enacted.
Our chapter illustrated two commonly encountered situations where technical amendments tabled in 2002 were needed. One situation was to avoid double taxation on income when a partner leaves a partnership, and the other was to clarify the taxation of income arising from non-competition agreements.
We recommended that the Department of Finance develop and implement a plan to address the backlog of required technical amendments. We also recommended that the department regularly draft technical amendments and release them to the public so that taxpayers and tax practitioners know what changes will be made and can provide input to the department.
[Translation]
Finally, Mr. Chairman, we looked specifically at the guidance the Canada Revenue Agency provides to taxpayers and its auditors when the interpretation and application of the legislation may be unclear. We did not examine the more general guidance provided by the Agency, such as tax guides, pamphlets, phone service and its website. Rather, we concentrated on more specific guidance that is available through advance income tax rulings, tax interpretations, and interpretation bulletins. In this part of our examination, we had two key findings.
First, we found that income tax advance rulings were valued by taxpayers and tax advisors because these provide them with tax certainty that is essential for complex business transactions to proceed. However, these important rulings were not meeting the Agency's own standards for timeliness. We recommended that the Agency develop more concrete plans to meet its own performance targets.
Second, we found that some of the information in the Agency's income tax interpretation bulletins is no longer current and the public is not always made aware of that fact. Our chapter illustrated this concern by referring to an interpretation bulletin that is providing out-of-date information to taxpayers about scholarship income exemptions. We recommended that the Agency improve the advice it provides to corporate and individual taxpayers about specific paragraphs of these interpretation bulletins that are no longer accurate.
[English]
Mr. Chairman, where the Department of Finance has identified the need for technical amendments to the Income Tax Act, it's important that the amendments be set forth in proposed legislation in a timely fashion. Your committee may wish to ask the deputy minister of finance how the department plans to address the current backlog of required technical amendments and to explain the department's strategy for keeping the Income Tax Act up to date in the future.
[Translation]
Mr. Chairman, that concludes my opening statement and we would be pleased to answer your committee's questions.
:
Thank you, Mr. Chair, for the opportunity to present the Canada Revenue Agency's action plan to address the recommendations contained in chapter 3 of the Auditor General's November 2009 report. The chapter is entitled “Income Tax Legislation”.
[Translation]
As you will be aware, the audit involved both the Department of Finance and the CRA, and I am before you today to discuss the actions of the CRA.
[English]
I may also draw on the expertise of my senior official, Mr. Brian McCauley, assistant commissioner of the legislative policy and regulatory affairs branch, who is with me here.
[Translation]
Both my remarks today and our action plan in both official languages were provided to the Committee in advance. I will therefore keep my remarks brief.
[English]
The CRA agrees with the Auditor General's recommendations for enhancing its tools and processes, not only to better equip taxpayers and tax practitioners to comply with the Income Tax Act, but also to further develop the CRA's ability to administer the act and to analyze and validate related technical issues.
The Auditor General's first recommendation is that the CRA should create an electronic database to assist in validating, analyzing, and prioritizing technical issues that should be referred to the Department of Finance.
Because of its excellent working relationship with the Department of Finance, the CRA communicates regularly with finance officials, bringing to their attention technical issues that warrant referral.
[Translation]
That said, we had considered developing a database and system to improve our management of technical issues.
[English]
The observations and suggestions made during the audit process provided us with the final impetus to move forward with such a system. Consequently, we were able to move quickly, and the new electronic file management system was in place in December 2009. While we will continue to refine the system in the coming months, it is already proving its value.
[Translation]
Of course, systems solutions are not the complete answer to improving our analysis and management of technical issues.
[English]
As an agency, we've identified the review of our legislative recommendation process as one of our key priorities. A working group is in place, consultations within the CRA are complete, and consultations with the Department of Finance will take place later this spring.
[Translation]
I expect the full review to be finalized by the end of this year.
[English]
Secondly, noting the value of the CRA's advance income tax rulings service to tax practitioners and their clients, the Auditor General recommends that the CRA develop more concrete plans to meet its own target times for these rulings.
[Translation]
The CRA is committed to providing timely, accurate and transparent information to taxpayers.
[English]
Every year, the CRA's income tax rulings directorate provides approximately 250 advance income tax rulings, 1,200 technical interpretations to practitioners, and 1,000 technical interpretations to our auditors, and responds to over 15,000 telephone inquiries from tax practitioners, taxpayers, and CRA auditors.
We are confident that our advance income tax rulings service is appreciated, as it gives tax practitioners certainty about a client's proposed business transaction.
In response to the Auditor General's recommendations, the agency is formally evaluating turnaround times and trends with respect to these rulings. We need to ensure that our service standards adequately reflect the time that we require to make a decision, given the increased complexity of the cases and their importance both to the taxpayer involved and to government. We expect that our study will be completed this year.
Finally, the Auditor General reviewed our income tax interpretation bulletins and concluded that the CRA should revise the paragraphs that contain information that is no longer accurate.
Since the introduction of these bulletins in the early 1970s, the agency has significantly expanded both the quantity of technical guidance we provide and the means by which we make it available. Today, we provide more information to more users in a more timely fashion than we could have ever contemplated back in 1970.
Just consider the accessibility and transparency that the thousands of pages of information available on our website now provide to Canadians. None of this information was so readily available and easily accessible in the 1970s. Of course, we also provide up-to-date technical information in a variety of other mediums, including pamphlets, guides, tax return packages, technical opinions, and conference responses.
As we indicate in our response to the Auditor General's recommendations, we want to take the time to consult practitioners and other users as to the value and the utility of income tax interpretation bulletins. Their input will help us determine whether there are more efficient ways in which we could deliver the same quality of information to them.
We thank the Auditor General for her report and its recommendations. We are confident that our action plan will help to ensure that the CRA has well-managed processes in place to identify and develop technical amendments and to provide taxpayers and practitioners with timely and accurate information.
[Translation]
Thank you again, Mr. Chairman, for providing the opportunity to present our action plan to the Committee.
:
Thank you, Mr. Chair. Thank you for the opportunity to present the Department of Finance's plan to address the recommendations contained in chapter 3 of the Auditor General's November 2009 report, entitled “Income Tax Legislation”. This audit involved both the Department of Finance and the Canada Revenue Agency, and I'm before you to discuss the actions of the Department of Finance.
I may also draw on the expertise of my senior officials, Louise Levonian, assistant deputy minister of tax policy, and Brian Ernewein, general director of the tax policy branch, who are here with me today. I will keep my remarks brief, as both the remarks today and the action plan were provided to the committee in advance in both official languages.
With respect to the Auditor General's first recommendation,
[Translation]
Chapter 3 of the Auditor General's Fall 2009 Report examined the processes by which the Department of Finance develops legislative amendments to correct technical issues in the Income Tax Act.
The report considered whether the Department has well managed processes in place to comprehensively record, track, and prioritize legislative issues, and whether it uses these processes to identify areas for potential technical amendments.
The Auditor General found that departmental officials are well-informed about the issues but that the Department relies too heavily on people-dependent processes, and does not make effective use of its available electronic tools.
The Auditor General's first recommendation to the Department of Finance was that the department should use an integrated and consistent process for recording, tracking, and prioritizing all technical issues for possible legislative amendment.
The Department agreed with the Auditor General's recommendation and has taken the following actions in response:
The Department has prepared a consolidated inventory of outstanding comfort letters and outstanding technical changes and has updated its existing electronic database to include all outstanding technical amendments, including all outstanding comfort letters.
The Department has commenced a project to acquire a new electronic database for tracking technical amendments, and has been working to define its database needs and canvas the various software options. The main criteria for choosing a new database will be the ease with which it can be used and updated, and its ability to comprehensively record and track legislative issues.
It is expected that the new database will be chosen and put in place during the 2010-2011 fiscal year. The Department expects that all existing data will be transferred to the new database and that the new database will be consistently used and updated by the appropriate tax policy officers by March 31, 2011.
[English]
Finally, a system of organizing the prioritization of outstanding technical changes is being formalized to ensure that items are dealt with in an appropriate and timely manner. The criteria in determining the priority of a particular change include the amount of revenue, if any, involved; the number of taxpayers affected and the impact on them; and whether issues are created with respect to the administration of the tax system.
The Auditor General's report also notes that while it is not solely within the Department of Finance's control, the list of outstanding technical income tax amendments has been growing. The Auditor General's second recommendation contained two parts. In the first part, the Auditor General recommended that the department should develop and implement a plan to address the current backlog of needed technical amendments.
The department agreed with the Auditor General's recommendation and has taken action in response. First, the department recognizes the importance of providing certainty for taxpayers and has, on a number of occasions, prepared bills with technical amendments. The department will continue to work toward ensuring that necessary technical amendments are put forward for consideration on a timely basis. Second, the department is in the process of preparing legislation for the next technical bill. Measures identified in comfort letters by tax legislation staff and CRA officials are being reviewed and prioritized for release in a forthcoming technical bill.
Finally, further smaller packages of technical amendments are being prepared or planned. The expectation is that by releasing such smaller packages on a regular basis, the process can be much more manageable and efficient.
Moving on to the second part of the Auditor General's second recommendation, the report notes that in the past the department has released packages of proposed technical amendments to the public for comment. As such, the Auditor General recommended that the department develop and release draft technical amendments, including those arising from comfort letters, on a regular basis for comments so that taxpayers and tax practitioners know what changes will be made and can provide input to the department.
As I indicated earlier, further packages of technical amendments are being prepared. In the context of this recommendation, the department did indicate that it would consider whether there would be circumstances where it would be appropriate to bring forward subsequent draft technical amendments when a previous technical bill is still pending before Parliament. The concern in this regard is the need to protect against confusion and complexity that could arise from having multiple bills that amend the same provisions before Parliament at the same time.
In conclusion, we would like to thank the Auditor General for her report and its recommendations. We are confident that our action plan will ensure the department has processes in place to comprehensively record, track, and prioritize all technical issues for possible legislative amendment and that we have put in place a plan to address the list of outstanding technical income tax amendments.
Thank you again, Mr. Chair, for providing the opportunity to present our plan to the committee.
:
Thank you, Mr. Chairman. Welcome to the Committee.
I would like to put a question to you. The last time that a bill was tabled, it was studied by the Standing Committee on Finance, in 2007. Certain measures targeted, among other things, tax deferral and tax avoidance using foreign investment entities and non-resident trusts.
The bill moved through all stages in the House of Commons, but after its referral to the Senate, it died on the Order Paper. Statements had been made. The fact that these measures were postponed from one budget to the next despite the fact that announcements had been made had a deterrent effect on corporations. Is that still the case?
When a witness from the Department of Finance came before the Committee to discuss this matter, it was stated that this was a source of 90 billion dollars in potential income that the government was missing out on. What is the situation today?
I am trying to determine the impact of non-passage of the bill. It could be quite considerable.
:
Thank you for the question.
I'd like to speak to two points. One is just very briefly the history of the technical bill that included these provisions. The bill was actually introduced in the Parliament that included the year 2006—I've forgotten which number that is—as Bill C-33, and did receive third reading by the House of Commons, but then Parliament prorogued. In the next Parliament it was reintroduced as Bill C-10, that is, both the technical amendments package as well as the foreign investment entity and non-resident trust provisions. That bill proceeded to committee stage in the Senate, but did not pass before the House prorogued for the subsequent election.
The provisions relating to foreign investment entities and non-resident trusts were the subject of commentary by a panel struck by the government. It was an international panel chaired by Mr. Peter Godsoe. Their suggestion was that the proposals be reviewed to ensure they strike the right balance between revenue protection and fairness. Indeed, the government did do that.
In the March 4 budget there was a revised proposal issued by the government, which proposed to take the existing rules relating to foreign investment entities instead of the foreign investment entity rules put forward in Bill C-33 and tighten them somewhat, but essentially cleave more closely to the current rules.
In relation to non-resident trusts, the budget proposes to go forward with those proposals but with a number of material changes, to try to make sure they're targeted as best as possible. There is a specific proposal in the budget, which is to be the subject of consultation.
:
Very well. My next question relates to another matter.
In a report produced by PricewaterhouseCoopers Canada and entitled “Canada's Tax Regime: Complexity and Competitiveness in Difficult Times“, mention is made of the number of days required, on average, by a corporation to produce an income tax return. It is the case that it is 1,696 days, which places Canada behind several other countries in the world.
Have you ever thought of the impact on individuals and corporations of the fact that you have not implemented the Act and that coordination between the Canada Revenue Agency and the Department of Finance is insufficient?
I saw the action plan and, as my colleague stated earlier, you are going to set up a lovely database. You have identified the information, but in what way is the plan that you are proposing this year going to deliver results? Do you have a bill ready to be tabled in the House?
:
Thank you very much, Chair.
If I can, I'd rather make an issue of this now. I'd just ask that we review in our steering committee your immediate ruling about banking the two minutes. That's new; we've never seen it before. I don't want to interrupt this proceeding, but I would like to review that ruling by you, Chair. We'll take that up later.
Thank you all very much for attending today. We start off a new session with less than a huge bang, but it's interesting nonetheless. I know I didn't vote for this subject to come up. I was trying to figure out who did. I think it must have been the government. There are other things that I thought were of greater interest.
However, I'm curious, of course, about how we got into this situation. The Auditor General's report on page 2 states that:
Although the government has said that an annual technical bill of routine housekeeping amendments to the Act is desirable, this has not happened. As a result, the Department of Finance Canada has a backlog of at least 400 technical amendments that have not been enacted, including 250 “comfort letters” dating back to 1998, recommending changes that have not been legislated.
I'm curious. When things are running as they should, what would the process be for this annual review? I just heard a little bit of it, this gathering of things. Ultimately what I'm looking for is, obviously, to know where the breakdown happened. Where did the system not work the way it should?
You mention, sir, that there is a gathering of the issues by front line supervisors, and then it goes to the next step; it needs to go to the next step before it has any reality to it. So why wasn't this happening? Where did things break down?
:
I'm not certain I take your point that there was a breakdown. I certainly recognize that it's been a long while since there's been a package of technical amendments implemented, but it's important to review the history of this.
We have said or acknowledged that it would be desirable to have a package of technical amendments issued annually. I think that was said at a time before the comfort letters themselves were functionally being published. For the past several years they have been published by the commercial tax services within a month of two of their issuance by us. So communication of the contents of the comfort letters is less of an issue than it was at that time.
That doesn't take away from the point that it would be desirable to issue this draft legislation and proposed amendments as regularly as possible. Our practice until now has been to do it only after the previous income tax technical amendments package has been implemented. The issue in this case is that the last income tax technical amendments package was published by the department or issued by the in late 2002. It was issued in revised form in 2004 and again in 2005, and then introduced by this government in 2006 and reintroduced in 2007, but it wasn't passed. So that technical amendments package has not yet passed.
What I believe the Auditor General has identified as a concern is that, because of the languishing of the bill, the rest of the technical amendments packages or technical amendments that we have outstanding have not been processed. I think, and we have acknowledged, that this calls for some review of our practice of only issuing another package after the prior one has been implemented. For that reason, we're proposing to issue others before this one goes forward.
:
Does anybody want to defend “not broken”?
I think you're on your own, sir, with that one.
Does it mean that the problem is, then, that because things didn't move, politically everything else backed up? You talked about bills being introduced and you said that then there was prorogation and they stopped. Does that mean, I'm asking, that the political process interfered, if you will, in what would normally happen, because your next steps are tied to that political process? And is that a problem?
Then I'm going to throw something out here, because I'm running out of time soon. When you run into a situation where your rules are not being followed, one of two things happens: you either have to get things in compliance with the rules as quickly as you can or change the rules to reflect the reality of the way things are. But you can't leave things out of sync.
There are two questions; that was the first one.
The second one would be, should the guidelines change? Should we say: don't try to do this every year, but do it in every other...period of time—some other identifiable timeframe—so that it's not broken? Or do we need to stay with the one year and get everything that's not working to comply with that one year?
Those are the two questions, for anyone.
Please.
:
Thank you, Chair, and thank you to our guests for coming in today.
I want to narrow-cast this a bit more. We have a problem. If the customer or clientele or the Canadian public are faced with uncertainty, which they obviously are when we don't have clarity in rules or translation of such, they can not be efficient, we can not be efficient, and the nation can not be efficient. If you're not efficient, you're not competitive. You're not competitive to blow on the economy.
I really need an answer here. We have three areas of responsibility. We have the political arm. This has been outstanding since 2001, and various political parties' governments have been responsible somehow, some way, proportionately—I don't know—right through to the current status. On the other hand, you have the departmental and the finance responsibility. Then on the other hand you have the administrative end, or CRA.
Whose fault is it that we are sitting with legislation that is not passed, that is not helping the Canadian public and/or the business community adapt to the realities and have these implementations completed?
It is not acceptable that we went from 2001 to the current day and all we're getting is that “we're going to get around to it” and “we've made some dramatic improvements over this last couple of years”. Well, good; I'm pleased to see that. But we still don't have a process whereby this is passing the legal and/or the political hurdle.
So where do we affix the blame? Is this the politicians' fault? Is it the departments' fault? Is it CRA's fault? Or is it all of the above? I need a direct answer from all of you.
Mr. Rossetti, please.
:
Thank you for the question.
We have and certainly respect and value very much professionals and practitioners, who are really part of the tax system, and probably even a larger part of the tax system than we are. We have a quite intense and regular interaction with a number of associations and groups.
That's why, I think, almost every one of our recommendations included a round of consultations and discussions with them. We see them very much on the administration side as almost partners, really, in the delivery of the system. It's a lot of their knowledge and their expertise that allow us to administer the tax system the way we do.
We would certainly see from both the standards and the bulletins and even in terms of how we administer proposed legislation that there's a regular and ongoing.... I chair sessions with the Bar Association, the Tax Executives Institute, the CGA, and all of these groups on a regular basis. We would intend to continue to do that.
:
One point arising from that is this whole issue of cost, and I'd like some comment on it.
Tax law in Canada, as we all know, is very complicated, and thousands of individuals out there make their livings as tax lawyers and tax accountants. They're very knowledgeable and very smart. Of course, they're paid to help Canadians, Canadian companies, and foreign companies arrange their affairs so that they attract the least amount of tax, which is the principle of Canadian tax law within certain conditions.
I practised law for 25 years. I wasn't involved in these transactions, but I've seen them, and some of these people are, from my experience, very aggressive. If there's any uncertainty or lack of clarity in the law or the regulations, they will certainly take advantage of it. A lot of them won't be caught; there won't be an audit, or there'll be some kind of settlement, and there's always that give and take. The more uncertainty and the more lack of clarity there is, the greater the business for these individuals.
It's my suspicion that because we're not introducing technical amendments and because we have this state of uncertainty--I know the comfort letters are good, but that's not the law--it would be costing Canadian taxpayers millions and millions, if not billions and billions, of dollars in lost tax revenue. Does anyone have any comment on that?
I know that nobody has an exact figure, but I've seen these transactions, and they involve foreign companies and foreign trusts and companies domiciled in the Cayman Islands. It's a very complicated area, and if they can use uncertainty to argue their case, the big loser at the end of the day is the taxpayer. Do you have any comment as to the cost incurred by taxpayers?
:
The direct answer is no. I don't think we have a cost, but I think I can offer some observations to help inform the discussion.
First of all, in relation to the technical bill itself, technical bills generally are generally made up of comfort letters that are relieving changes by definition. Taxpayers identify an issue in the legislation that restricts their ability to do a transaction in one way versus another. There is a commercial reason for doing it in the way they wish, which the tax law impedes; in looking at that, we determine that there's not a difference between the two and recommend a relieving change in that area. There's not a revenue cost associated with that, or an abuse associated with it.
Having said that, we have used--and Bill is an example of this--technical amendment packages to include press releases that have been put out to try to deal with certain concerns or revenue issues. Bill itself includes provisions dealing with charitable contributions, donation schemes that were encountered a few years ago. There are also provisions dealing with restrictive covenants, an issue discussed in the Auditor General's report. While we believe that the announcement of those changes has been effective in constraining those transactions, it's obviously important that the legislation ultimately be enacted in order to give effect to those changes.
I can't point to a revenue cost associated with non-enactment; nonetheless, your essential point remains valid. Enactment, of course, is required, and it would be desirable for it to be done as efficiently as possible.
:
Thank you very much, Mr. Chairman.
As Mr. Kramp stated, we are talking about the ability for the taxpayer, be it an individual or a corporation, to have access to all of the information allowing him or her to prepare his or her tax return and thus to comply with the law. However, according to your report, this many not always be the case.
Mr. Rossetti, you state in your report that at least 400 technical amendments “sont restés en suspens“. In English, it is more precise.
[English]
You said, in English, that they have “not yet been enacted”.
[Translation]
I would firstly like to understand the seriousness of the problem. We are talking here of 400 amendments. Is that very serious? What does that represent?
:
Thank you very much for that clarification.
I would now like to address the Department and the Agency. A few colleagues and myself have been wondering why it is that we find ourselves in this situation. Our impression is that you got busy when the Auditor General kicked you in the right place. You then set about to put in place a computer system, you provided the follow-up, etc. We are wondering why you did not do this earlier.
The paragraph that surprised me the most in this report is paragraph 3.33. It reads as follows: “Department officials have also told us that undertaking the work to develop and draft technical amendments to remedy identified technical legislative deficiencies is not the Tax Legislation Division's only priority.“ We know full well that the Department of Finance has other priorities. If the Department of Finance's only priority was to ensure that taxpayers know how to fill out their tax returns, that would take the cake! This remains a priority and we are wondering why you felt obligated to tell the Auditor General that you have other priorities. I am guessing that there is within the Department and the Agency a culture such that being as accommodating as possible vis-à-vis the public is not a priority and that had the Auditor General said nothing, you would have done nothing and things would have kept piling up. If we are looking at where to lay blame, I would say that there is an obvious cultural problem, that goes way beyond numbers, that lies just beneath the surface throughout this report.
I would like to know what you are going to do in order to never again be telling the Auditor General that you have other priorities. The point here is to serve the Canadian public with all of the required clarity, and the idea of being in agreement with tax law is a most fundamental issue.
:
Let me try to answer that.
During these interviews that take place between the Auditor General and ourselves, we talk about many things. What the auditor decided to put in the report is, at the end of the day, the auditor's call. I think sometimes these things are taken out of context, and it's really important to understand that we just look at all of the things. We have many priorities and we work on all of them diligently.
But I'd like to answer the first part of your question, and I really do think that drawing your attention to page 10 of the Auditor General's report, exhibit 3.2, brings us to your question as to how we got to where we were.
I think that describes how we got where we are today. What we, the Department of Finance, are trying to do in that context is to find ways to work in the current environment and to take into consideration, without causing too much complexity to taxpayers out there, whether we could put forward draft bills for comment that don't amend the same sections of the act, that won't cause confusion. If we put smaller bills out, would that make it easier for those bills to move forward? Those are the things we're considering in the current environment, but how we got where we got is clearly shown by exhibit 3.2 on page 10.
:
CRA, as you know, is very heavily dependent on technology. Over the last number of years we've implemented a number of tools for businesses and citizens. For example, they can file their taxes electronically. We continue to see an increasing number of returns filed electronically each year. This year, we've also introduced mechanisms through which corporations and individuals can make payments.
An integral part of our services strategy is to continue to improve the services, both the applications themselves and the information that is made available for taxpayers' information, for example, on any changes. We continue to update our websites as well, and those are refreshed. For example, as soon as the budget was issued, our website was updated. So it's very much an integral part of our services strategy.
We continue to get feedback. We have online surveys. We're also using some of the newer mechanisms, the social media. We use tools like webcasts and what we call “webinars” whereby we can have 1,000 people across the country participating online and having interactions with our tax practitioners. So we continue to expand the electronic services we offer, and we generally get extremely good feedback from our clients on them.
In the case of the technical amendments in question here, we have also recently updated that electronic database so the legislative policy directorate will have an enhanced tool to ensure we're able to prioritize, do some reporting and provide some reports to our colleagues at finance, which will help with the implementation of the recommendations that the Auditor General made.
I have one last question. It was mentioned that when you do a news release, sometimes you'll say right in it that the effective date is the date of the news release. You commented on that. And you're going to say that you hope Parliament follows through and agrees to legislate this.
Do I assume, then, that before that news release goes out, the minister has signed off on that change? Is that where you get your political momentum, if you will, to say that you think it will be okay? Otherwise, you would be, I'm assuming, all over the place. The minister would be signing off and you would know that the minister's planning to make some kind of cabinet submission that would reflect the changes that are in there. Or is your word to be taken at face value, and you really don't know what the political outcome is going to be at all? That would shock me.
My question is certainly for the Department of Finance, but I'll let you decide who answers.
I'm looking at the Auditor General's first recommendation. You got the report on November 2, 2009. So in four months you developed an action plan. Then we go to the response to that first recommendation, and it says, “The Department has prepared a consolidated inventory of...outstanding technical changes”.
That was March, and you had a list of technical changes. Then it says you were updating the existing electronic database. So you put them into a database; somebody typed them in. So that was four months. Then we go to the second action you've taken in response, and you've commenced a project to acquire a new electronic database.
I have to tell you, most departments that come in here and haven't done things, that have left things undone, always start talking about trying to purchase software. They say, “We're going to get the best software program.” Software programs are the biggest excuse for not having things done. Sometimes they come to us and it takes them two years to buy a software program. I assume there must be a hundred or more software programs in the various ministries, owned by the Government of Canada, so why don't you just either take one off the shelf or take one we've already paid for and developed and adapt it? Why would it take so long?
So, first of all, did you consult with other ministries in trying to find a software program to meet your needs?
And then your commitment is that, a year later, you will have people trained and working, using this on a day-to-day basis. How many people do you have to train, and how can it take a year to train people to use it?
You have the list and you're going to put it on a database. You could probably buy Excel and use it for the list. It might not be as fancy as you'd like, but you could probably do it if you had to get it done. Why does it take a year to get everybody trained and up to speed so that it's going to take until March 2011 to get this done?
If I might, I would break the types of amendments or issues into two parts. Our comfort letters are our undertakings to recommend to our minister technical changes to the income tax legislation. Those letters are directed at specific taxpayers. They are almost always transaction-specific, so the concern or the issue will be limited to them. They will file perhaps on the basis of that comfort letter. CRA will judge whether or not it believes a waiver needs to be filed to keep the taxation year open if the undertaking to recommend an amendment has not yet been implemented. So that question can be relevant in the context of old Bill C-10, for which there are comfort letters going back some time. Taxpayers will have received these comfort letters. With Revenue Canada they will have to work through how to keep the year open if necessary to deal with the comfort letter itself.
The rest of the technical amendments, in some sense, don't exist as a matter of public awareness. They are issues, as Louise Levonian said, that we identify, that revenue identifies, that the taxpayer may identify. We have not communicated with anybody an intention to make a change, but we have put it on a list as something to consider. It may be the view that one of the officers or one of the chiefs in the legislation division believes that a change has been made. That will be debated when it comes time to assemble the next technical bill. So with regard to uncertainty or open years or anything like that, I don't believe that really applies in the context of that group of cases, because they're possible changes that we have yet to decide whether to proceed with.
Occasionally, on some of these amendments there will be political overtones. I think we all recognize that. But the majority of them, or hopefully the largest majority of them, will be simply housekeeping per se.
Is there some indication that you could provide to this committee of a plan to clean up some of these--or year one, year two, year three, year four, year five--just so that we have some benchmarks and some indication of a level that we could expect you to solve this outstanding issue?
Mr. Horgan, is there any business plan to clean some of these up?
Some of the highest areas of concern I have at my constituency office are issues that relate to Revenue Canada. If it's a collection item I think that's understandable, but a lot of times it's an issue of interpretation or a position of guidance. As such, I really do believe that we have to have some certainty going forward. So I would urge you to try to have as clear a playing field as possible. If we are giving advice, I want to be assured that it's just not something that is here today and gone tomorrow.
I'll deal with a specific item just for a second, if I may, Chair.
As an example, I have a company--no name--that was dinged $750,000. They were dinged this assessment simply because they were told by EDC and by Revenue Canada how to report their taxable income. They did report, but there were modifications and changes that had still not passed. Then an assessment came through and dinged them.
Now, they've appealed it, we went through the whole process and justice was served--no problem at all. But $750,000 was tied up for two to three years simply due to a lack of clear definition and a lack of clear direction as to how we would proceed. And, once again, they were highly technical issues.
These do have an impact out in the general public and into our constituencies, so I would urge you to be as expeditious as possible to clean up any of these grey areas so it is much more black and white.
Thank you.
:
Well, I have a couple of points.
First of all, your assumption, Mr. Chairman, is very much the same as our own was; that is to say, there'd be a high behavioural response to the court case finding that a certain return was tax-free. A lot of people would seek to transform their returns into exactly that, and that was the reason for the proposed change.
Second, what I said a moment ago about the time limits is right. Generally it's three years for individuals and four years for large corporations, but CRA has the ability to seek a waiver from a taxpayer to keep the tax return open, and it is possible that they might seek to do that in certain cases.
However, I think the most important point in this case is that with the announcement of the change, we think the behavioural response to the court case probably would have stopped. When it was announced by the Minister of Finance in 2003 that these payments, these rejigged non-competition payments, were no longer going to be tax-free, we think that the mass of people would have stopped setting them up, because there would have been no point. If they had persisted, notwithstanding the fact that they'd be taxable again--and perhaps taxable at a higher rate than capital gains, in some cases--and if the thing had become statute-barred, your point would have been exactly right, but if they changed their behaviour back to the old form as a result of the announcement, we wouldn't have that issue.
Finally, your essential point about the need for Parliament ultimately to enact these so that they do have effect remains absolutely valid.
:
Actually, that's our question, not the finance department's.
Starting in about 2000, after discussions with industry and practitioners, we put in place a cost-recovery process for advance income tax rulings. Those rulings, as you say quite correctly—around 200 to 225 a year—are binding on the agency. When we provide a ruling, on the assumption that all of the facts are correct and there's full disclosure, of course they are binding on the agency, which is why we take such care with them.
Ordinarily, the 99.9% of taxpayers who request information get that information through a non-cost process: through letters, pamphlets, bulletins, and brochures. That's how the vast majority of guidance is given and questions are answered. This process was set up specifically, as you can well imagine, for what I would call the really high-end, complex need for certainty—mostly, frankly, business types of transactions, at their request. I think there were even some observations in the Auditor General's report about the value of the rulings process, mostly to business.
So that happens on that side. And yes, when we provide something in writing on the assumption that the facts are correct, it is binding on the agency and the government, and we respect it. That is the case here.