The CRA is essentially an organization serving the interests of other authorities through the administration of their legislation, programs, or activities. As such, the CRA’s legislation makes provisions for the partnerships between the Agency and these other authorities.
Section 5 of the Act gives the CRA the authority to implement agreements with, and administer programs for provinces, territories, other federal agencies and departments, and Aboriginal governments. Sections 39 to 41 require the provision of information to such partners and introduce certain elements of accountability to these entities. Sections 61 to 63 permit the CRA to enter into contracts and agreements with provinces or territories, including agreements to administer taxes and other fiscal measures.
Paragraph 5(1)(c) provides for agreements between other federal agencies and departments and the CRA “to carry out an activity or administer a program.” Section 39 requires the CRA to provide information to permit such partners to evaluate and make policy in relation to the programs administered by the CRA under these agreements, and to consult with partners on “matters that could have a significant impact on the program or activity.”
Prior to the transfer of its customs function to the Canada Border Services Agency, the CRA had 105 agreements in place with other federal agencies and departments. The reformed CRA retains responsibility for 63 of those agreements, the largest of which concerns the administration of elements of the Canada Pension Plan and the Employment Insurance Program in conjunction with Human Resources and Skills Development Canada and Social Development Canada. A list of agreements with other government departments and agencies is attached as Annex A.
The CRA has agreements with many departments and agencies, 31 of which have been concluded or significantly updated since 1999: for example, the Office of the Superintendent of Financial Institutions Canada (2001 agreement to harmonize returns provided by pension administrators); Public Works and Government Services Canada (2002 agreement to use the CRA’s Business Number system for registering possible suppliers for federal procurement); the Royal Canadian Mounted Police (2003 agreement for the designation of certain CRA investigators as peace officers); Correctional Service Canada (2001 agreement relating to the tax status of inmates); and Statistics Canada (2003 consolidated agreement that recognizes the breadth of information provided by the CRA for statistical purposes).
It should be noted that while the Department of Finance is the Agency’s major client within the federal government, unlike the above examples, the Agency does not have a formal agreement for the administration of Finance’s legislation. This is because the tax legislation for which the Minister of Finance is responsible, such as the Income Tax Act and the GST legislation, specifically make the Minister of National Revenue responsible for their administration and enforcement.
Paragraph 5(1)(b) permits the CRA to implement agreements with provincial and territorial governments “to carry out an activity or administer a tax or program.” Section 14 provides for each province to nominate a director and for one director to be nominated by the territories. Sections 61 to 63 give the CRA authority to enter into contracts and agreements with provinces on behalf of the Crown, subject to the CRA following both the guidelines established by federal and provincial ministers of finance and the procedures agreed to by the federal Ministers of National Revenue and Finance, when those agreements involve tax and other fiscal measures.
As mentioned earlier, one of the Government’s primary objectives in putting the Agency in place was to develop a closer and more accountable relationship with provinces and territories. The implementation of the above statutory provisions was, therefore, vitally important, and it became a top priority for the Agency.
However, some background is necessary to put the Agency’s accomplishments in this area into context. On the start-up day for the Agency, it already was performing a significant amount of work on behalf of provinces and territories, more than any other federal institution. It administered:
The Agency is clearly vital to both levels of government: it administers 84% of all income taxes in Canada (federal, provincial/territorial – both personal and corporate). For Nova Scotia alone, for example, the Agency is responsible for 80% of its total revenues.
In order to improve and solidify its relationship with the provinces and territories, the Agency endeavoured to negotiate service management framework agreements (SMF) that govern the overall relationship between a province and the Agency. Among other things, they provide for the establishment of a joint senior management committee in which senior provincial and Agency officials meet on a regular basis to discuss current issues and concerns and to provide updates on program initiatives. SMF agreements were signed with all provinces and territories except Quebec and Ontario.
The Agency’s endeavours have resulted in a closer, collaborative working relationship in a number of areas. For example, it has formed partnerships with six provinces to enable joint business registration. This allows businesses to register electronically from one location for programs they most commonly need in different jurisdictions and to obtain a common Business Number (as a common identifier). There are significant advantages for businesses in reduced effort and, therefore, reduced cost in meeting government requirements. The Agency and the Department of Finance are currently working with the province of Ontario to assess the feasibility of administering the Ontario corporate tax, an initiative strongly supported by the Ontario business community since it would reduce the compliance burden and result in a more streamlined and less costly administration of provincial taxes.
The Agency has entered into an agreement with the Nova Scotia Workers’ Compensation Board (WCB) that allows employers in the province to pay their WCB premiums using the same payment dates, frequencies, and payment methods they use to make their CRA payroll deductions – another major benefit for business. An agreement with the Nova Scotia Department of Agriculture and Fisheries holds similar benefits for business by providing for mutual co-operation in the auditing of books and records of licensed fish buyers.
The Agency’s involvement in the administration of benefit and other programs for provinces and territories has also expanded since its creation. The Agency has progressed from administering 15 child benefit and credit programs for provinces in 1999 to 17 in 2004, involving over $400 million in payments annually. Partnerships were formed with four provinces to deliver specialized one-time payment programs, such as the BC Energy Rebate, that were customized to meet the needs of each province. These programs involved issuing high volumes of income-tested payments accurately, on time, and on a cost-effective basis. The Agency was able to do this by using the delivery infrastructure developed originally for the federal program. The Agency also implemented new income verification agreements with four provinces to enable electronic data exchange over a secure network to streamline the delivery of 11 provincial benefit programs. This arrangement allowed the CRA’s provincial and territorial partners to better serve over 5.5 million of their citizens, particularly seniors, students, and lower-income families who apply for provincial/territorial income-tested programs. It also reduced the administration costs of the provincial and territorial governments involved.
The new partnership with provinces was also demonstrated in the work the Agency undertook with all provinces to implement the Tax on Income (TONI) initiative that was negotiated by the Department of Finance with the provinces in 1998. Under TONI, provinces are able to set provincial income tax rates independently on taxable income, rather than being limited to a percentage of basic federal tax, as they were previously. This allowed them to set their own tax brackets and tax rates, modify existing non-refundable tax credits, and introduce any number of non-refundable credits.
Provinces were quick to take advantage of the opportunities TONI offered and have introduced a number of measures to tailor their tax systems to their particular needs and circumstances. While this resulted in greater flexibility for provinces, it added significant complexity to the existing tax delivery program. However, the Agency met the challenge through a major system and program re-engineering project that allowed the implementation of TONI at a pace chosen by the provinces. It exemplifies how the Agency was able to leverage its expertise to avoid cost increases and the additional increased complexity that would have resulted had provinces been required to create their own delivery mechanisms.
The creation of the CRA occurred at a time when the Government of Canada was looking at new ways of working with First Nations from a taxation and self-government standpoint. Picking up on recommendations from the Royal Commission on Aboriginal Peoples, the Government began examining how to allow First Nations to take up sales tax and income tax powers in a manner that would easily integrate into the existing tax system and assist Indian Bands and Self-Governing First Nations in accessing new revenue streams. This resulted in several innovative arrangements being put in place where bands enter into an agreement that provide for the collection of sales tax on alcohol, tobacco, and fuel products on reserve; the imposition of income tax on persons who declare residency on settlement lands of participating Self-Governing First Nations; or the imposition of a GST-like tax on reserve or settlement lands. Under these arrangements, the Agency administers the taxes for the aboriginal government and the revenue is effectively returned to the aboriginal government by the Department of Finance.
A number of aboriginal governments have entered into agreements with Canada (represented by the Department of Finance) to implement the new arrangements. At the time this report was prepared, the Agency was administering:
Administering agreements to collect taxes on behalf of First Nations has been a growing part of the CRA’s mandate and will undoubtedly continue to be so in the future. A complete list of agreements with First Nations for the collection of taxes is attached as Annex C.
In recognition of the historic relationship between Indians and their reserves, the Indian Act contains provisions establishing rules for the way some First Nations peoples on reserve, those with an Indian Status under the Indian Act, are to be treated under the tax laws. These rules, however, were laid down in the 19th century and did not anticipate the variety of circumstances facing Status Indians today. It has frequently been argued by Status Indians that it is difficult to determine how the tax laws may or may not apply to their particular circumstances. Additionally, many Aboriginal people hold strongly to a belief that the tax system should not apply to them. These views have resulted in a history of tax disputes with the CRA over the scope of the Indian Act tax provisions.
Over the past five years, the Agency has made a concerted effort to work with First Nations peoples to provide more clarity and assistance to them. With the help of the Assembly of First Nations, the Agency created a Web site in 2003 devoted to First Nations tax issues. It explains the unique tax provisions applying to Status Indians, when applicable, enables them to correctly calculate their taxes, and also instructs them how to apply for benefits. In addition to the Web site, the Agency has undertaken an active outreach program with Indian bands which covers everything from tax clinics on reserve, to on-reserve community volunteer tax program sessions, to working with band administrators on tax refund applications, to town hall meetings that explain how to apply for the Canada Child Tax Benefit and GST credit. The Agency also recently established a First Nations Advisory Committee to create a forum for ongoing discussion of the special taxation issues facing Status Indians.
The particular efforts the Agency has undertaken on behalf of First Nations are perhaps best typified by a project involving Aboriginals and the Canada Pension Plan. The CRA became aware that some First Nations people were having CPP deducted from their salary, but that the amount was inadvertently not being reported to HRDC by their employers and, as a result, they were not receiving full credit for pensionable earnings. Through the efforts of the Agency, over 22,000 Status Indians were given credit for their payments to CPP.
There is no question that the Agency’s relationships with its key partners – provinces and territories, other federal ministries and agencies, and First Nations – improved during the first five years of the Agency’s existence. The provisions in the legislation relating to these partners stimulated the Agency to undertake special programs and put in place measures to meet their particular needs and requirements.
In the case of provinces and territories in particular, the work the Agency has undertaken, combined with the increased accountability to them described earlier, have resulted in a stronger working relationship. The provinces and territories themselves acknowledge the advancements that have been made in this regard. In 2004, the Agency engaged the Public Policy Forum to undertake a study of the state of the Agency’s relationship with the provinces. While the provinces suggest that there are areas of the relationship that require further attention, they readily acknowledge that the relationship is on a different and better footing than it was before the Agency was created.
As part of the process in preparing this report, the Public Policy Forum (PPF) was engaged to evaluate the state of the relationship between the CRA and provincial and territorial governments, the achievements made in the relationship since the transition to agency status, and the opportunities for further improvements.
The PPF conducted interviews with thirteen provincial and territorial governments and, in addition, solicited the views of knowledgeable, independent experts (academics, tax professionals, former politicians, and government officials).
The provincial and territorial governments gave the Agency an “over-all positive rating”. They emphasized the importance, depth, and strength of their relationship with the CRA, noting a significant and continuous progress since the CRA was created that has resulted in an overall healthy environment. The CRA’s staff and the Agency were generally viewed as “more service oriented, accessible, professional” than prior to creation of the Agency.
The provincial and territorial governments consider the CRA’s Annual Reports to their governments as an important innovation, useful for briefing Ministers and informing the public. The personal contact and interest of the Commissioner’s visits are appreciated and seen as setting the tone for day-to-day interaction. Provincial officials did make the point that these Annual Reports could be better linked to the business planning process in the provinces and territories.
The tax experts consulted by the Public Policy Forum generally echoed the views of the provincial and territorial governments. They too view the CRA in mostly favourable terms, considering the Agency “an important new national institution and a considerable success, worthy of celebration”. They urged, however, the provinces and the Agency to continue to work together to reduce the cost to business of complying with tax laws.
The Agency’s relationship with provinces, in their opinion, is improved with a better structure for problem solving and for accountability. The PPF report concludes: “The status given to provinces within the CRA…has led to a significant improvement in the relationship between the CRA and the provinces”.
In the opinion of the tax specialists, the major positive change at the CRA has been psychological and not structural. They see a new attitude at the CRA with the Agency “now more focused on provinces and taxpayer needs and more confident”. The CRA is perceived as treating the provinces “more respectfully, openly, and professionally”. The tax professionals share the provinces’ opinion of the CRA’s staff as now more professional, focused, and better motivated than prior to establishment of the Agency, but also see staff as more aggressive in revenue assessment.
Both the provinces and the tax experts observed that, despite the headway that had been made, there were still challenges to be faced in the relationship. Amongst these was the need for the CRA to better anticipate the political and program needs of provincial governments and to place as much weight on their interests and needs as it does for the federal government. They also looked to further improvements and alignment of shared management instruments such as Annual Reports and performance measurement. They believed there needed to be better communication and advance notice of major systems problems or changes if they have an impact on their revenue streams.
While the Agency has not formally evaluated its relationship with federal departments and agencies or with First Nations, informal feedback it has received would suggest that these partners believe the relationship has been valuable to them as well. The wide range of agreements the Agency has signed with these partners stands as a testament to this effect.