Chapter III – Operational Accomplishments of the First Five Years

The previous chapter illustrated that the Agency’s implementation of the CRA legislation has put in place:

• a unique and workable governance structure in which the Board of Management has played a key role in driving HR and administrative change in the organization;
• a sound and transparent accountability structure that better meets the needs both of Parliament and of the provinces and territories on whose behalf the Agency administers tax and benefit programs;
• a modernized HR regime that better serves the needs of the Agency and its employees;
• a modernized comptrollership and administrative regime that is producing greater economies and efficiencies; and
• an organization dedicated to better serving the needs of the federal government, provinces and territories.

Taken together, these changes have produced a profound effect on the organization – the CRA is a vastly different place than it was as Revenue Canada. A major impact has been a real cultural shift within the Agency in terms of employees’ attitudes towards their jobs and the organization. A measure of this can be seen in the results of two employee surveys that have taken place. The first, taken in 1999 before the Agency was created, showed an overall employee satisfaction level of 59.8%, below the public service average of 62.7%. The second, taken in 2002, several years after the Agency had been created and the transformation process started, showed a satisfaction level of 70.3%, 3.2 percentage points higher than the average for the rest of the public service. Another measure of the cultural shift that has occurred can be seen in the fact that, in 2002, some 71% of employees stated they could clearly describe the direction of the organization (mission, vision, and values); in 1999, the comparable figure was only 53%. The achievements that are discussed later in this chapter would not have been possible without the cultural shift that has taken place in the organization.

The emphasis the Agency has placed on developing a professional, dedicated managerial cadre, combined with the Board of Management’s concerns for ensuring efficiency and effectiveness in the Agency’s administrative expenditures, have created an ethos whereby programs and systems are continually re-examined to ensure the best level of service at the lowest possible cost. The increased agility in decision-making fostered by the new human resource and administrative flexibilities has created an environment where innovation is prized; this in turn has been key to enabling the Agency to succeed with its extensive change agenda. Streamlined decision-making on business priorities, project initiation, and project execution by the management team, under the oversight of the Board of Management, has enabled the Agency to respond quickly to citizen demands for faster and more personalized service delivery, while maintaining the integrity and security of information holdings. The changed cultural and managerial environment resulting from Agency status has reduced the lifecycle of change implementation in service delivery, and engendered a work environment that embraces continuous improvement and performance management.

One aspect of this continuous improvement is evidenced in the CRA’s ongoing effort to reallocate resources from areas that are less critical to those of higher priority. Over the past five years, for example, through a process of careful assessment – and by working with stakeholders – the Agency reallocated over a quarter of a billion dollars to provide new services in response to taxpayer needs.

One of the key enablers for the achievements that follow is the Agency’s information technology (IT) program. Indeed, the Agency’s success in defining and delivering on a future-looking IT strategy has been critical in achieving its program, administrative, and management results. The replacement of legacy systems, for example, has required significant new investment, some of which has come from the reallocation efforts noted above. In developing its IT systems, the CRA has been conscious of the need to ensure they have the capacity to serve multiple program areas and clients within the CRA, as well as a variety of external clients – other government departments and agencies, provinces, and territories. In this spirit, it has continued, following the departure of Customs, to support all of the Canada Border Services Agency’s IT infrastructure and systems.

The CRA’s governance regime with the unique oversight role played by the Board of Management, the leading-edge HR, financial, and administrative regimes that developed from the flexibilities in the legislation, and the strong ethos of professional management and innovation that they fostered, served to set the necessary and important groundwork for significant operational achievements in the areas of client service and responsible enforcement, the two key elements in achieving compliance with the legislation that the Agency administers. Some of the most salient achievements in these areas follow.

The CRA’s Approach to Compliance

It has long been recognized that voluntary compliance and self-assessment are the best, most efficient ways to administer Canada’s tax system. The CRA promotes voluntary compliance, which, for the majority of Canadians, is an effective approach. However, a program of actions to identify, correct, and deter non-compliance is also essential.

Compliance with tax laws typically means registering when required to do so, filing returns on time, reporting complete and accurate information, and paying amounts when due. Non-compliance occurs when any of these obligations is not met, for whatever reason.

To foster high levels of compliance and to assist taxpayers in receiving their entitlements and meeting their obligations under the law, the CRA provides service and education. CRA client services include Internet-based information and transactions; telephone and face-to-face communications; plain language forms, guides, and publications; technical interpretations; rulings; and specialized problem resolution services.

The Agency also delivers a wide range of programs to protect Canada’s tax base and ensure that Canadians pay their required share of taxes. The Agency’s robust set of checks and balances include both preventive and detective controls, notably source deductions, third-party information slip and document matching, risk profiling and scoring, compliance research, examinations, audits, and investigations. The Agency also has an active collections program to obtain payment of taxes owing.

The CRA also relies on Industry Specialists Services, a fundamental component of the Agency’s compliance strategy. Industry specialists provide information and advice at the highest technical level to both internal and external clients on the operation and taxation of 13 major Canadian industry sectors. They are the point of contact in the CRA for industry to address issues of mutual concern and to seek solutions to industry-wide compliance issues. CRA industry specialists meet regularly with industry associations and their tax committees to discuss issues of mutual concern and, by doing so, develop close working relationships that foster trust and, ultimately, enhance compliance.

Making it Easier to Comply

The Agency’s renewal agenda has focused on transforming the way services are delivered:

• ongoing efforts to ensure “value-for-money” by pursuing efficiency and effectiveness measures across all CRA services;
• expanding and improving both the range of service offerings available to Canadians and the variety of channels through which these services are available; and
• striving to ensure that interaction with the CRA is as quick, simple, and effective as possible.

Consultation and communication with stakeholders has been a key element in helping to ensure that Agency services are aimed at areas where they are most needed. In this regard, the Agency has more than 50 advisory and consultative committees at the national, regional, or local levels which focus on the service the CRA provides to individual Canadians and Canadian business. This has enabled the Agency to build an understanding of the particular issues facing groups ranging from seniors and the charitable sector to large business, small business, and the film industry. A list of Agency advisory committees is attached as Annex D.

The Agency also conducts community visits and other outreach programs to provide assistance to taxpayers through increased education and to promote awareness of tax obligations and entitlements. This increased visibility in the community enhances communication and transparency between CRA and its clients, thereby encouraging voluntary compliance, the cornerstone of the tax system in Canada.

Some specific outreach programs are also designed to provide assistance targeted to particular sectors or businesses. For example, during the past five years the CRA has had a close and productive relationship with the Canadian Home Builders’ Association (CHBA). One joint program with the CHBA, which was designed to assist legitimate contractors in educating potential clients about the pitfalls in dealing with underground operators, led to the conclusion that a wide-scale campaign targeted at consumers was needed. The “Get it in Writing!” consumer awareness campaign was officially launched in February of 2003. This two-year program alerted consumers to the risks of dealing with underground operators and the importance of having a written contract.

The CRA has conducted training sessions through non-profit organizations to increase the awareness of non-residents and prospective immigrants about their tax obligations and entitlements. The Agency’s “Newcomer Brochure” was subsequently published to better address the needs of immigrants in complying with the tax system.

The CRA’s E-Service Strategy

The priority the Agency has placed on the provision of electronic services has made it a leader in this area within the public service. It has fully supported the Government On-Line Strategy by committing to develop electronic service delivery that allows clients to choose from a variety of secure, automated, self-service channels. Over the past five years, it has invested over $560 million to ensure that its service delivery infrastructure keeps pace with the needs and service preferences of Canadians. It has made a major effort to serve clients’ needs by simplifying processes and providing faster access to information and services through the Internet. The strategy is working. Visits to CRA Internet pages have risen from 28 million in 1999 to over 222 million in 2004, an increase of almost 700%.

Figure 4: Investments in Electronic Service

Beginning as a Web presence offering in 1999 on our Web site, CRA now offers over 30 Internet based services including NETFILE, Business Registration On-Line, and T4 filing by employers. Electronic filing of individual returns has risen from 31% of all returns filed in 2000 to 47% in 2004. These electronic services make it easier to access information and conduct business with the Agency 21 hours daily, seven days a week.

Figure 5: Percentage of Individual Returns (T1) Filed Electronically

Ensuring that individual taxpayers and businesses are aware of the electronic options at their disposal has been a key part of the Agency’s strategy. Millions of Canadians have seen the CRA’s national television advertising campaigns during the past four filing seasons. Telephone surveys conducted after the campaigns have revealed sharp increases in awareness of CRA Web services, such as the ability to download tax forms from the site.

A key building block in the CRA’s electronic offerings is My Account, which was introduced in 2002. My Account is a secure on-line service that allows Canadians to view specific information related to their income tax returns, Canada Child Tax Benefit, GST/HST credit, and related provincial and territorial benefit programs. It not only gives taxpayers instant access and immediate service, it also helps contain costs because it lowers the demand on CRA agents. The Agency intends to add more services along these lines each year.

It is important to note that despite the increased focus on providing services over the Internet, the Agency has continued to serve taxpayers through the more traditional routes. For example, major improvements were made to the CRA’s telephone services by implementing state-of-the-art call centre technology. Comprehensive automated response systems now permit service on a 24/7 basis with the capability to transfer calls from one call centre to another as taxpayer demand ebbs and flows allowing the Agency to optimize the use of resources, reduce costs, and provide extended hours of service. The networks are also designed with full business resumption capabilities. This has enabled the Agency to deal with such issues as floods and power failures.

These enhancements have meant that, compared to 1999 when the Agency was put in place, Canadians now have more choices, can conduct business faster, meet their obligations, and receive benefits more quickly. Moreover, this has been accomplished in a cost-effective manner: telephone accessibility targets are met and often exceeded at a cost that is $12 million less than five years ago.

Figure 6: CRA Business Conducted Electronically

Delivering Benefits for Canadians

The CRA is playing an increasingly important role in providing income-based benefits to Canadians. Through a number of programs, including the Canada Child Tax Benefit (CCTB), the goods and services tax/harmonized sales tax (GST/HST) credit, and 17 provincial and territorial benefit programs, the Agency issues almost $11.9 billion annually in benefit payments to millions of families and individuals on behalf of the federal, provincial, and territorial governments. The infrastructure for these core programs is also used to deliver non-recurring, one-of-a-kind payments on behalf of the federal government and the provinces and territories, such as the Ontario Taxpayer Dividend and Alberta’s Energy Tax Refund.

Provincial and territorial partners also rely on the Agency to provide the data they need to calculate social assistance. Social assistance agencies in nine provinces and three territories rely on synchronized CRA data feeds to provide families with timely and accurate social assistance. In addition, eight Income Verification Agreements have been negotiated with six provincial ministries. This will give the Agency’s provincial partners client information via the Internet to help them determine eligibility for provincial benefit programs.

Working with Canadian Business

The CRA has endeavoured to assist the competitiveness of the Canadian business community by ensuring that their interactions with the Agency are conducted as efficiently and effectively as possible. The CRA’s efforts in this regard have particularly focused on small and medium-sized enterprises, where it was felt they could have the greatest impact.

As a result of the measures that have been introduced over the past five years, Canadian businesses now have the option of registering, filing, and making payments electronically. A sampling of some of the services offered to businesses are:

• business registration on-line. This is a self-service automated registration system using the Internet that was introduced in October 2000. It is integrated with several other federal departments and provinces, thereby permitting simultaneous registration for a number of programs. During 2003-2004, over 48,700 new businesses obtained their business number, and 108,000 program accounts were registered through the system;
• corporate Internet filing of returns. This was introduced in October 2002 and results in faster processing and refunds, less paper, and lower mailing and courier costs;
• electronic payment of taxes through financial institutions. This year, more than $66 billion in payments will be made through this service, representing 26% of all such payments;
• business call centres. These dedicated centres provide information specifically tailored to the needs of businesses;
• dedicated web portals for business. The CRA website includes a portal for tax professionals and an interactive on-line enquiry service for small and medium enterprises; and
• account managers for large business. This service is in the process of being introduced and will better serve the needs of large business enterprises.

Improving the SR&ED Program

Canadian businesses that conduct research and development across the country have also benefited from changes that have been made to the Scientific Research and Experimental Development (SR&ED) tax credit program over the past five years. In the past, a number of clients expressed concern about the effectiveness of the program in terms of the consistency of its delivery. In working with industry representatives over the past five years, the program has addressed these concerns and, in doing so, has become more strongly geared towards providing a client-focused service.

The SR&ED program has established committees with industry representatives to improve the CRA’s approach to delivering the SR&ED tax credit program. As a result, the SR&ED program is now:

• more focused on clients in its day-to-day operations;
• more responsive to the needs of Canadian businesses;
• better understood by Canadian companies because of improved communications;
• characterized by greater consistency and certainty in its delivery; and
• enhanced through fair and effective methods for reviewing claims.

The program has taken action to ensure that companies are aware of the program and can access it as easily as possible. In this regard, the program introduced the “Refunds for Small Business R&D” brochure in November 2002. This brochure addresses the needs of small business in plain language. The Web site has been extensively improved to increase accessibility to information on the program, thus enhancing client awareness and knowledge of the program. The SR&ED claim form has been simplified, thereby reducing the paperwork and cost of preparing claims for clients.

The CRA has continued to ensure it administers the program with fiscal integrity, by helping companies to correctly self-assess their own SR&ED claims, while reviewing these claims in a timely manner. The Preclaim Project Review (PCPR) and Account Executive Services were introduced as tools for the CRA to educate SR&ED clients. Clients benefit from the PCPR Service by receiving an upfront review and a preliminary opinion on the eligibility of projects for SR&ED incentives. This advisory service helps clients self-assess their claims and more fully understand the program. The Account Executive Service provides clients with a designated contact person from the SR&ED program who will provide one-stop access to SR&ED information, and will help make sure that clients get the benefits to which they are entitled under the program. This service is useful for clients, as they can more fully understand the review process and the requirements for technical eligibility and substantiation. This in turn leads to improved compliance.

To ensure that the program is best serving Canadian businesses, client surveys are now conducted every three years. Results from the 2002 benchmark survey showed that the SR&ED program has been instrumental in the success of Canadian businesses. The next survey is planned for 2005 and will serve as a valuable measure of whether recent enhancements to the program have been successful.

Working with Charities

Over the past five years, the charities program has made significant strides in improving service across its operations to charities, prospective charities, and donors, and in assisting and improving compliance in the charitable sector. The timeliness of service had been a vexing problem for the sector. As a result, several operations areas were re-engineered to ensure effective and efficient service delivery. Risk management principles were applied to the charity application approval process resulting in significantly reduced processing time. A new two-tier phone system was successfully piloted and implemented. Organizations with simple questions now receive more immediate answers, while those with more complex queries are answered by more experienced staff with minimum delay. The annual information return filed by registered charities was reduced from 13 to 4 pages, a measure greeted with enthusiasm by the sector since it significantly reduced their time and cost of compliance.

Another issue addressed by the Agency was the general difficulty the charitable sector had in accessing information it needed for compliance. In response, a customized Web portal for charities was created to provide one-window access to the CRA’s information for and about charities. The Web site provides a list of registered charities and recently revoked charities, offering another means for donors to verify a charity’s status. The Web site also offers on-line display of the public portion of the annual information return filed by registered charities, beginning with the 2002 fiscal year. In addition to all forms, guides, and publications, the Web site also provides access to more than 100 policy documents. All these measures provide increased transparency of the decision-making process.

Working with the sector and the Department of Finance, the Agency spearheaded a series of improvements that were announced in the federal Budget 2004. Taken together, these measures amount to substantial improvements in the regulatory framework affecting charities. The enhanced framework will provide new intermediate sanctions for charities that do not comply with the rules, a new appeals process, further improvements to monitoring activities, and will provide for still greater transparency. These are tied with an increased emphasis on building public awareness and sector outreach, and building collaborative partnerships with provinces and territories (that have jurisdiction to regulate charities) to form a regulatory framework and administration that will be innovative and effective, and will build public trust in the sector and confidence in the CRA as a regulator.

The advances made in this area were the result of a broad consultation exercise. In addition, and to provide an ongoing feedback mechanism, the CRA has launched a Charities Advisory Committee as a vehicle for communication and consultation. The Committee is formed of volunteer representatives from the sector and will help map out and develop the CRA’s thinking on complex issues and on new and emerging areas of concern.

Risk-based Enforcement

Maintaining high levels of taxpayer compliance is a constant challenge since many factors influence compliance. There are also many reasons for non-compliance that, in turn, require tailored programs.

Obtaining a tax return is the first and most important step in the compliance process. The tax return is the basis for establishing each filer’s tax liability and their entitlement to the federal benefit programs. CRA supports filing compliance through a broad assortment ranging from assisting taxpayers, facilitating their filing through electronic services, and conducting responsible enforcement actions when they fail to file their tax returns. The non-filer program is aimed at identifying high-risk cases based on danger of loss and assessment potential. The main strategy is to conduct a data match using third party information and conducting enforcement actions as appropriate, including prosecution. In 2003-2004, the Non-filer program detected over 750,000 taxpayers who had failed to file resulting in over $2 billion of tax recoveries.

There are also a number of compliance challenges associated with the obligation of employers to deduct payroll taxes from their employees, to remit these amounts periodically to the government, and to report those earnings on information slips. A series of instruments are used to promote compliance ranging from education, rulings, legislative instruments, computer assisted enforcement reviews, audits, and prosecutions. The total fiscal impact resulting from the CRA’s payroll compliance activities is $1.4 billion in tax recoveries.

The Agency works to identify areas where the risk of non-compliance and the potential loss of revenue to the Crown are highest and to understand the factors that contribute to them. It examines socio-economic trends as well as emerging business practices to identify indicators of possible non-compliance. It has also developed sophisticated risk-assessment systems that examine the tax characteristics of Canadian taxpayers in order to identify and estimate possible non-compliance. The Agency is continually working to improve the effectiveness of its risk-assessment systems. Its risk-assessment processes enable it to target compliance activities towards areas of highest risk and to shift resources to these key areas. By doing this, the Agency also reduces the cost to compliant taxpayers.

Over the past five years the Agency has used risk-based strategies to address compliance priorities such as GST/HST, large corporations, electronic commerce, international tax, and aggressive tax planning. The Agency has been innovative in adapting its programs, technology, and approaches to operational challenges.

To improve GST/HST compliance, the Agency implemented the GST/HST Enhanced Registration Review program to validate client information and assist in quickly identifying potentially high-risk registrants. The program started as a pilot project in the St. John’s Tax Centre in December 2000 and was implemented nationally in 2003-2004. High Risk Analysis (HRA) Teams were also established to conduct further in-depth risk assessment on the information provided by registrants. These teams use data interrogation software applications to highlight GST accounts that exhibit characteristics indicative of fraud. In the three fiscal years ending in 2003, the HRA teams detected 1,289 GST accounts with fraudulent refund claims, preventing more than $9 million from being paid out.

During the 2003-2004 fiscal year, the CRA and the Ministère du revenu du Québec (MRQ), which administers the GST for the federal government in Quebec, processed 8.9 million GST/HST returns. A system of checks and balances has been put in place to minimize errors and identify high-risk files for further review. As a result of the work of the CRA and MRQ, non-compliance with GST/HST filing and remitting requirements has fallen over the past five years.

The Delinquent Filer Program seeks to ensure that GST/HST Registrants who have outstanding returns and remittances meet their obligations. This activity includes system-generated letters, direct telephone contact by agents at the National Collections Call Centre, and progressive enforcement actions like reviews or examinations that sometimes lead to prosecution. The fiscal impact resulting from this program amounted to over $1 billion.

Figure 7 illustrates how both GST/HST and employer non-compliance rates have fallen over the past five years.

Figure 7: Employer & GST/HST Non-Compliance Rates

The Agency reviews all tax returns from corporations identified as part of its Large File Program (gross revenue in excess of $250 million), as these corporations face highly complex corporate transactions and deal with very technical tax legislation. Due to this complexity and the significant revenue involved, audits are conducted on all files, where material tax-at-risk exists, over a two-year audit cycle.

The Agency developed the Internet Business Audit Project (IBAP) in response to the rapid evolution of information technologies and the advent of e-commerce as a new business reality. The Internet has brought about significant changes in the market place and introduced compliance issues that were neither possible nor contemplated in traditional paper-based commerce. The objectives of the project are to evaluate the compliance of businesses carrying out their activities over the Internet; identify e-commerce audit issues; gain knowledge of the business environment and practices used relative to e-commerce; develop e-commerce information, training, and tools; and acquire a more comprehensive understanding of the added risks of non-compliance that are posed by conducting business over the Internet.

The CRA has devoted special attention to ensuring that Canadians receive their fair share of taxes from international business transactions. A comprehensive CRA response to the issue of “treaty shopping” has been developed in conjunction with the Department of Justice and is currently being implemented. Treaty shopping involves the establishment of notional residency in a jurisdiction having favourable income tax treaty provisions with Canada. The residency is usually temporary and established solely to gain access to the treaty provisions. The CRA is reviewing approximately 170 files involved in treaty shopping to ensure compliance with Canadian tax laws.

The Agency also addresses the risk to tax revenues associated with transfer pricing arrangements by focusing on industry specific issues, offshore transactions, and corporate restructuring that move taxable profits out of Canada. The Agency co-operates with its treaty partners and taxpayers to secure certainty of treatment in transfer pricing and promotes compliance through the use of Advance Pricing Arrangements that are geared primarily to avoid potential double taxation between Canadian taxpayers and their foreign-based related parties that are eligible for benefits under Canada’s network of 81 tax treaties.

To enhance the Agency’s capacity to manage compliance programs more effectively and deliver its core business in a more integrated and efficient manner, the Agency has undertaken several business transformation initiatives. These initiatives involve the development and implementation of an integrated suite of IT solutions that will leverage the data assets of the CRA and deliver tools that will equip the Agency’s knowledge workers to deliver on program priorities. The key initiatives driving this business transformation are:

• Integrated Revenue Collections Program (IRC) covering the collections, non-filer, and non-payment workflows;
• Business Intelligence and Decision Support (BIDS) Agency Data Warehouse which is establishing the data foundation to support compliance risk profiling and outcome analysis;
• Business Integration Systems Support Infrastructure (BISSI), which will provide a secure, single window access to a comprehensive suite of systems to support risk assessment, program delivery, and integrated information management; and
• Agency Case Management, which will provide a common web-based case management solution to all users, to assign and track workload activities.

Collecting Revenue More Efficiently

Ensuring that everyone pays what he or she owes is important to the reality and the perception of fairness in the tax system. It is also, of course, a major element of the government’s revenue stream.

Not only has the Agency resolved more accounts from its collections stream over the past five years (from $8.4 billion in 2000 to $10.8 billion in 2004), it has done so more efficiently. The production per FTE has increased from $2.6 million for the fiscal year ending March 2000 to $2.7 million for the fiscal year ending March 2004.

Enhancing business performance in collections began with the implementation of the National Collections Call Centre in 1997. By investing in state-of-the-art technology, the Agency was able to shift high volume, low complexity workloads to the Call Centre from local offices. This allowed Agency personnel to focus more effectively on the complex, high risk accounts in the local offices.

On a timely basis, the Collections Call Centre is able to contact and make mutually satisfactory payment arrangements with clients. This approach early in the debt cycle has reduced the number of accounts that will require further enforcement action.

Figure 8: National Collections Call Centre Resolved Accounts*

* Statistics previous to 2001-2002 are not available.

The number of calls actioned by the Call Centre has increased 34% from 1.62 million in the fiscal year ending March 2000 to 2.17 million in the fiscal year ending March 2004.

Figure 9: Number of Calls Actioned

The introduction of a national collections call centre to accelerate the resolution of high volume/low complexity accounts has been replicated in other tax administrations such as Japan and the U.K.

The Agency has nonetheless experienced sustained growth in accounts receivable for all tax revenues it administers. As a result of workload growth and the attention given to newer accounts receivable, the receivables over five years of age also increased slightly. The Agency has accordingly invested additional resources in 2004-2005 to resolve older accounts receivable.

To prevent further escalation in accounts receivable and to effectively manage the existing debt load, the Accounts Receivable Program has implemented a comprehensive debt management strategy. A key initiative of this strategy is the enhanced use of technology that will enable the Agency to identify and action high value, high risk accounts on a timely basis.

Fiscal Impact

For the Government of Canada and the provincial and territorial governments, a more effective compliance regime means that revenue flows to the Crown are stronger. It is recognized that the growth in tax revenue is subject to a large number of parameters including the overall performance of the economy, tax policy changes, and the effectiveness of the tax administration processes and practices. It is extremely difficult to try to isolate the tax revenue impact associated with the individual factors. Overall, the total revenue of $274 billion in fiscal year 1999-2000 has risen to $313 billion.

Over the five years since Agency implementation, the average fiscal impact per full-time employee engaged in audit, verification, and matching activities has increased by 6%, when compared to the five-year period prior to Agency. The average files completed per employee have also increased by 6% across compliance related programs.

Figure 10: Revenue Growth

Periodically, the Agency receives budget adjustments to maintain an acceptable level of compliance activity. Significant new resources were provided starting in 2001-2002. The Agency has been able to not only meet but to exceed the performance expectations that were established at that time with respect to fiscal impact.

The CRA Redress System

A central part of the Agency’s approach to compliance is the redress system. The CRA administers one of the Government of Canada’s largest dispute resolution services. It provides clients with a fair and impartial dispute resolution process that respects their fundamental right to redress in their dealings with CRA-administered legislation and programs. The Agency reviews contested decisions relating to income tax, GST/HST, excise tax, the Canada Pension Plan (CPP), and Employment Insurance (EI). In 2003-2004, the Agency received about 59,000 income tax and GST/HST objections of which approximately 95% were resolved administratively. As well, the Agency received over 5,400 Canada Pension Plan and Employment Insurance appeals of which approximately 66% were resolved administratively.

The Appeals Program also co-ordinates the Agency’s Fairness Initiative and administers the Voluntary Disclosures Program that allows clients to correct past errors or omissions in their tax obligations without penalty. In 2003-2004, there were over 68,000 client requests and 1.6 million automatic waivers under the fairness provisions, and 6,344 voluntary disclosures that resulted in approximately $459 million in tax recovery.

The Agency believes that its Appeals Program offers an effective and efficient redress process to its clients. In fact, in the November 2004 Report of the Auditor General of Canada to the House of Commons, the Auditor General commented that the Agency’s Appeals Program resolved objections to income tax and GST assessments in a way that is fair and impartial and that appeals of CPP and EI rulings and assessments are resolved impartially. The Auditor General also supported the goals of the Voluntary Disclosures Program and acknowledged the good response from taxpayers and registrants. The Auditor General went on to make specific recommendations on improving and enhancing the effective and efficient administration and delivery of various aspects of the Appeals Program. The Agency has taken action to implement these recommendations.

Developing and Maintaining International Partnerships

Globalization has brought with it risks associated with practices that undermine the fairness and integrity of individual tax systems. A stable tax base is critical to the fulfilment of government contributions to a country’s economic and social infrastructure. In particular, tax practices that undermine fair competition and public confidence in tax systems, the increased speed with which abusive tax planning arrangements are being developed and applied worldwide, and the growing concern about significant revenue loss are all priorities for research, dialogue, consultation, benchmarking, and sharing of best practices among international tax organizations. The impact of such considerations is not limited to national revenue concerns but also affects the climate of competitiveness and the fair trade practices necessary to give certainty in international commerce.

To the extent that unfair international tax practices and aggressive tax schemes that seek to divert investment purely for tax evasion reasons exist, the international trade and investment climate is hurt. In recent years, abusive tax shelters have proliferated and been structured and marketed across international borders. These transactions are often complex and more difficult to detect and unravel without the sharing of information and knowledge between national revenue authorities.

The Agency is committed to improving its knowledge and understanding of important and growing international compliance issues such as tax havens and harmful tax practices. The Agency has cultivated relationships with treaty partners and international associations and directly contributed to international work to combat common problems and improve its understanding of non-compliance at the international level. Early identification of new and emerging issues allows the Agency to proactively anticipate the resources and actions needed to protect the Canadian tax base.

The Agency has worked diligently to build key partnerships with other countries through various organizations and associations. The Canada Revenue Agency plays a significant leadership role in various international fora, including the Organisation for Economic Cooperation and Development (OECD), where Canada chairs the Committee on Fiscal Affairs; the Pacific Association of Tax Administrators (PATA); the Inter-American Center of Tax Administrations (CIAT), where Canada is the chair of the CIAT Steering Committee on the Promotion of Ethics; the Commonwealth Association of Tax Administrators (CATA); and in the “francophonie” through the “Centre de rencontres et d’Études des dirigeants des administrations fiscales” (CRÉDAF). The Agency is also specifically working on a close bilateral basis with the United States.

While many of the Agency’s international partnerships predate agency status, collaboration on international initiatives increased markedly with the inception of the Agency. Existing partnerships have been strengthened, and the Agency has entered into new ones. Examples of the latter include the Seven Country Tax Haven Working Group which exchanges information and approaches to dealing with compliance challenges associated with tax havens; the Joint International Tax Shelter Information Centre which focuses on identifying and curbing abusive tax avoidance transactions on a national and global basis; and the Committee of International Organizations for Tax Administration (CIOTA) which promotes both increased dialogue between various regional tax administrations and greater coherence in the work programs of participating tax organizations on international tax issues. Canada acts on the secretariat of CIOTA.

From the perspective of Canada’s international priorities for trade development and international development assistance, the Agency is active in a number of countries, providing assistance in the development of income tax and consumption tax systems. International co-operation in the area of tax administration is an important element in setting a fair and open framework for the development of international commerce.