Notice of meeting

43rd Parliament, 2nd Session

Meeting 11

Thursday, December 3, 2020, 11:00 a.m. to 12:30 p.m.
Room 415, Wellington Building, 197 Sparks Street
Televised

Report 3, Taxation of E-Commerce, of the 2019 Spring Reports of the Auditor General of Canada

Witnesses

Office of the Auditor General

• Karen Hogan, Auditor General of Canada
• Mathieu Lequain, Director
• Philippe Le Goff, Principal

Department of Finance

• Paul Rochon, Deputy Minister
• Andrew Marsland, Senior Assistant Deputy Minister, Tax Policy Branch

Canada Border Services Agency

• John Ossowski, President
• Peter Hill, Vice-President, Commercial and Trade Branch

Canada Revenue Agency

• Bob Hamilton, Commissioner of Revenue and Chief Executive Officer
• Ted Gallivan, Assistant Commissioner, Compliance Programs Branch

Opening Remarks

Speaking notes for Mr. Bob Hamilton, commissioner of the Canada Revenue Agency

Standing Committee on Public Accounts
Report 3—Taxation of E-Commerce of the 2019 Spring Reports of Auditor General of Canada

Ottawa, Ontario
December 3, 2020

Check against delivery.

Good morning.

Thank you madam Chair, for the opportunity to appear before you for the second time to discuss Report 3—Taxation of E-Commerce of the 2019 Spring Reports of the Auditor General of Canada.

I am accompanied again by Ted Gallivan, Assistant Commissioner of the Compliance Programs Branch at the Canada Revenue Agency.

In Report 3—Taxation of E-Commerce, the Auditor General made two recommendations to the CRA and we accepted both of them.

As noted in our updated Action Plan, which has been provided to the Committee, I am pleased to report that the CRA has already fulfilled a number of its commitments – and we are well underway to addressing the remaining deliverables.

Thank you, Madam Chair, I will be happy again to answer any questions the Committee may have.

Supporting Documentation

OAG Spring 2019 Report – Report 3

2019 Spring Reports of the Auditor General of Canada to the Parliament of Canada
Report 3—Taxation of E-Commerce

Overview: Impact on CRA (from AERB)

2019 Spring Reports of the Auditor General of Canada
Report 3 – Taxation of E-Commerce

Impact on the Canada Revenue Agency – expected to be moderate

Audit objective

The objective of this audit was to determine whether, according to their respective roles and responsibilities, the CRA, the Canada Border Services Agency, and the Department of Finance Canada, with regard to e-commerce, ensured that the tax system was neutral, and that the GST/HST tax base was protected.

Audit scope

This audit included the CRA, the Canada Border Services Agency, and the Department of Finance Canada. For the CRA portion of the audit, the OAG examined whether:

• CRA adapted its compliance strategies to enable consistent assessment of GST/HST in accordance with the current legislative framework;
• CRA considered best practices to preserve the GST/HST tax base for e-commerce.

The OAG did not examine the CRA’s GST/HST collections processes.

The audit covered the period between January 1, 2014, and February 15, 2019.

Highlights

• Due to the changing retail landscape in Canada, as people make more purchases online, the increase in e-commerce creates challenges for assessing and collecting GST/HST.
• E-commerce includes: physical products purchased online, digital products and services purchased and delivered online (i.e., video streaming), and supplies purchased online (i.e., accommodation or ride sharing).
• The current legislative obligations for GST/HST in Canada are complex for vendors and consumers. Many factors influence an individual’s or business’ legislative obligations to collect or remit GST/HST to the government.
• The Canadian tax system must keep pace with e-commerce, and adapt to the challenges and opportunities it presents. The Government of Canada must ensure that everyone who should remit sales taxes does so and that the taxes are collected fairly and effectively.
• The federal government could not assess and collect all sales taxes on e-commerce transactions. The OAG estimated losses of $169 million in GST on foreign digital products and services provided in Canada in 2017.
• The OAG found the following:
  • The existing legislation for the sales tax system placed Canadian businesses at an unfair disadvantage in relation to foreign vendors.
  • The CRA did not have the legislative authority to require foreign vendors of physical and digital products to register for, collect, and remit GST/HST.
  • The CRA also lacked the legislative authority to implement compliance practices that have been effective in other jurisdictions, such as simplified registration or use of third-party data to detect non-compliance with tax laws.

Positive observations about the Canada Revenue Agency

• The OAG found the following:
  • The Department of Finance Canada worked with the CRA to analyze options for the administration of GST/HST in Canada. This analysis looked at ways to ensure consistent treatment of domestic and foreign vendors and their obligation to collect GST/HST.
  • CRA identified digital commerce and the sharing economy, which includes accommodation sharing services, as risks in its corporate risk profiles.
  • CRA contributed to the Organisation for Economic Co-operation and Development (OECD) guidelines on sales tax on electronic commerce, however, CRA did not have the legislative authority to implement these practices in Canada at the time of this audit.

Negative observations about the Canada Revenue Agency

• The OAG found the following:
  • CRA undertook few activities to ensure that e-commerce vendors, including accommodation sharing vendors, registered for, collected, and remitted the sales taxes when required.
  • CRA did not follow Québec and British Columbia’s initiatives to reach out to prominent e-commerce platforms to ask them to voluntarily collect and remit GST/HST on behalf of vendors on their platforms.
  • CRA did not use the limited third-party data it had to conduct compliance activities for GST/HST but it intended to do so.
  • CRA had very few compliance activities to determine whether vendors of physical or digital products were foreign or domestic and therefore required to register for GST/HST.
  • Although the CRA identified the sharing economy as a risk in its annual corporate risk profiles, it had no planned compliance activities targeted specifically at the accommodation sharing sector which generated revenues of $2.8 billion in Canada in 2018.

OAG recommendations and Agency response

The audit report contains three recommendations. The following two recommendations are addressed to the CRA:

1. Recommendation. Within its legislative authority, the Canada Revenue Agency should expand its compliance activities and leverage available third-party data to enhance its ability to detect and deter non-compliance for GST/HST in e-commerce, including accommodation sharing.
   
   Canada Revenue Agency’s response
   Agreed. Based on the current legislation, the CRA’s compliance actions to date have been fully satisfactory. The CRA has already identified the e-commerce sector as a risk, and its efforts to address non-compliance in this sector, as supported by educating taxpayers of their GST/HST obligations and conducting test audits, is commensurate with the level of risk of non-compliance and the tax dollars at risk. These efforts allow the CRA to ensure that focus remains on files with the highest risk of non-compliance, while promoting a fair tax system for all Canadians. The OAG estimated losses of $169M in GST on foreign digital products and services provided in Canada in 2017. This represents a small fraction of the over $4.9B in the GST/HST Gap Estimate (source GST/HST tax gap by CRA). Since the CRA expects the scale of e-commerce to continue to grow, the CRA will develop a dedicated compliance strategy to better detect and address non-compliance for GST/HST in e-commerce, and will continue to expand its compliance actions including better leveraging third party data. The strategy will further support and complement existing compliance efforts undertaken by the CRA to address the non-compliance within the sector.
2. Recommendation. The Canada Revenue Agency should implement mechanisms to track, monitor, and report the number of compliance activities it conducts to manage the risk of non-compliance e-commerce.
   
   Canada Revenue Agency’s response
   Agreed. The Canada Revenue will analyze its tracking and monitoring methodology with respect to the compliance activities it conducts to manage the risk of non-compliance in e-commerce. As similar recommendations were made in the recent OAG compliance audit, initiatives being implemented as part of the Agency’s response to those recommendations will align with this current OAG recommendation.

Original Action Plan

Canada Revenue Agency detailed action plan

Updated Action Plan (Sent to PACP on Dec 1, 2020)

Canada Revenue Agency detailed action plan to the recommendations of the Taxation of E-Commerce Report of the Spring 2019 Report of the Auditor General of Canada

Issue Notes

How does the Fall Economic Statement affect CRA?

Key messages:

• As a result of the Fall Economic Statement announced by the government, the Agency will closely look at its operations including its assessment and compliance activities to facilitate onboarding of, and minimized burden on, impacted businesses.
• We noted that the Fall Economic Statement refers to public consultations. The Agency would be pleased to work with the Department of Finance on these consultations to incorporate stakeholder feedback in administration of relevant legislation to eliminate any unnecessary burden on impacted businesses.
• We will continue to consult with international tax administrations and provincial partners to draw on their experiences, lessons learned and best practices in administering similar legislative requirements.

What do Fall Economic Statement e-commerce measures mean for CRA?

Key messages:

• Currently, foreign suppliers that are not located in Canada and that provide digital products and services to Canadian consumers are generally not required to register and collect GST/HST.
• In the Fall Economic Statement, the government is proposing that the GST/HST apply to all goods and services consumed in Canada, regardless of how they are supplied, or who supplies them.
• Should the government proceed with this legislation, the GST/HST would apply to:
  • foreign-based vendors selling digital products or services to consumers in Canada;
  • foreign-based vendors or digital platforms facilitating sales to Canadians of goods that are located in Canadian fulfillment warehouses; and
  • all platform-based short-term rental accommodation supplied in Canada.

  
  In all three cases, affected businesses would be required to register for, collect and remit the GST/HST on their taxable sales.

Does CRA agree with the OAG recommendations?

Key messages:

• The CRA agrees with the recommendations from the OAG.

Recommendation 1

• With respect to recommendation 1, the CRA has already identified e-commerce as a corporate risk.
• The CRA’s efforts to address non-compliance in this area, including educating taxpayers of their GST/HST obligations and conducting test audits, is in line with the level of non-compliance and the tax dollars at risk.
• This approach ensures that focus remains on files with the highest risk of non-compliance, while promoting a fair tax system for all Canadians.
• We anticipate that the scale of e-commerce will continue to grow. To reinforce our existing compliance efforts, the CRA has developed a dedicated compliance strategy to better detect and address non-compliance in the platform economy, which includes e-commerce, for income tax and GST/HST.
• This strategy will help the CRA gain insight between the e-commerce risks and other general audit risks, as well as to refine its compliance approach to address the needs of participants in the platform economy.

Recommendation 2

• With respect to recommendation 2, the CRA has already started to produce more strategic performance indicators, such as the tax gap estimates launched in 2016.
• As similar recommendations were made in the recent OAG compliance audit (Report 7—Compliance Activities in 2018), initiatives being implemented as part of the Agency’s response to those recommendations will align with this current OAG recommendation.
• More recently, the CRA has completed an analysis of its tracking and monitoring methodology with respect to the compliance activities it conducts to manage the risk of non-compliance in e-commerce.
• New tracking and monitoring mechanisms and procedures determined as a result of this analysis are being implemented. The mechanisms will be used to analyze results from platform economy audits.
• Results will also be leveraged to determine whether additional changes CRA business systems are required.
• The CRA will continue to build on this work with additional estimates to better report on our successes to Canadians.

Does CRA agree with the OAG findings?

Key messages:

• The OAG’s findings regarding the emerging presence and revenues within e-commerce align well with the CRA’s identification of the area as a risk and further underlines the importance of its efforts to promote voluntary compliance and address and deter non-compliance within this area.
• The CRA’s efforts to address non-compliance in this area are in line with the level of non-compliance and tax dollars at risk.
• The first step in our compliance strategy is promoting voluntary compliance, which allows us to focus our audit efforts on those who are intentionally non-compliant.
• The CRA has taken a number of steps to educate taxpayers on their GST/HST obligations. For example, we have:
  • collaborated with an accommodation sharing platform on an education campaign for the 2016, 2017, 2018 and 2019 tax years to remind their members of their tax obligations from both an income tax and GST/HST perspective. During this period, there was a marked increase in web traffic to the CRA webpage.
  • sent educational letters to new GST/HST registrants operating taxi or ride-sharing businesses in the spring of 2018.
  • created a webpage to provide basic tax and GST/HST information for those operating in common platform economy spaces.
• In addition, the CRA also undertook digital currency audits to better understand the risks in this area. This was another recently identified risk the CRA sought to address as early as 2015. The results from these audits have helped to develop our overall risk assessment tools to ensure that our compliance efforts reflect the level of risk.
• Another important point is that CRA’s compliance actions within e-commerce are not tracked separately because registrants do not self-identify as e-commerce vendors.
  • Audits are assigned based on the risk of non-compliance within the population of GST/HST registrants, many of these businesses may have both an e-commerce and a physical presence.
• Through Budget 2019, the Government has provided the CRA with investments in additional means of data gathering, data analysis, and risk assessment.
  • The CRA is targeting unreported income from the digital economy, including through cryptocurrency and financial technology transactions.
  • The CRA is working on compliance actions focused on high material fiscal impacts (high volume and commercial users), within the existing legislative fiscal framework.

Why aren’t compliance actions tracked separately?

Key messages:

• The CRA is unable to say with accuracy how many businesses fall under this area because registrants are not required to self-identify as e-commerce registrants.
• E-commerce transactions can be part of a regular audit as businesses may have a physical presence, as well as an e-commerce presence.
• The CRA has considered e-commerce transactions as a compliance risk since 2015 and they have been integrated within our risk assessment methodologies.
• Files are selected for various compliance actions based on the level of risk of non-compliance and the tax dollars at risk.
• Businesses who are identified as having a potential high risk of non-compliance are selected for audit.
• The CRA has developed mechanisms and procedures for tracking and monitoring audits of registrants engage in platform economy transactions. These mechanisms will be used to analyze and evaluate the results of these audits.
• The Agency is also exploring various alternatives for identifying taxpayers who are engaged in e-commerce transactions including the development of a self identification tax schedule.

Does CRA have the tools to address non-compliance in e-commerce?

Key messages:

• The CRA is responsible for the administration and enforcement of the GST/HST under the Excise Tax Act, and strives to ensure its compliance activities are effective in an ever-changing landscape.
• Since the Office of the Auditor General report on the Taxation of E-commerce, the CRA has completed its review of past compliance results informed by internal studies, engagement with internal and external stakeholders, as well as review what other tax jurisdictions have done to address tax challenges in this sector. As part of that review, compliance risks emerging from the platform economy and e-commerce were identified.
• In addition, the CRA is currently finalizing a dedicated compliance strategy to better detect and address non-compliance in the platform economy, which includes e-commerce, for income tax and GST/HST (status: approval process).
• This strategy will help the CRA gain insight between the e-commerce risks and other general audit risks, as well as to refine its compliance approach to address the needs of participants in the platform economy.
• Currently, foreign suppliers that are not located in Canada and that provide digital products and services to Canadian customers are generally not required to register and collect GST/HST.
• Should the government proceed with legislation, as mentioned in its recent Fall Economic Statement, foreign suppliers will be required to register for, collect and remit the GST/HST on digital products and services.

Saskatchewan & Quebec are applying provincial sales tax to foreign digital companies - why can’t CRA?

Key messages:

• The CRA is responsible for the administration and enforcement of the GST/HST under the Excise Tax Act, and strives to ensure its compliance activities are effective in an ever-changing landscape.
• Under the current legislative rules, foreign companies that do not have a physical presence in Canada and that supply digital products and services to Canadian customers are generally not required to register for, as well as collect and remit the GST/HST because those supplies are considered to be made outside Canada.
• Should the government proceed with legislation, as mentioned in its recent Fall Economic Statement, foreign suppliers will be required to register for, collect and remit the GST/HST on digital products and services.

What are Canadians’ obligations related to digital purchases?

Key messages:

• For GST/HST purposes, foreign companies that do not have a physical presence in Canada and that supply digital products and services to Canadian customers are generally not required under current legislative rules to register for, as well as collect and remit GST/HST because those supplies are considered to be made outside Canada.
• In these circumstances, Canadian customers are generally required under current legislation to self-assess and remit the GST/HST on these supplies. Payments must be made when the amount is greater than $2. The tax is to be self-assessed using Form GST/HST 59.
• Should the government proceed with legislation, as mentioned in its recent Fall Economic Statement, foreign suppliers will be required to collect and remit the GST/HST on digital products and services on behalf of Canadian consumers.

How many people self-assess & remit taxes for Netflix annually?

Key messages:

• Taxpayers who self-assess and pay their taxes via Form GST/HST 59 are not required to specify the nature of the goods or services.
• As a result, CRA does not track statistics on a given good or service.

What is the CRA doing on compliance in the accommodation sharing sector?

Key messages:

• The CRA realizes that new kinds of economic activity such as the sharing economy are becoming a bigger part of the economy.
• As some participants in the sharing economy may not follow the traditional small business practices, it is important to ensure that they are aware of and complying with their tax obligations, for example, registering for, collecting and remitting GST/HST, and declaring all of their income.
• If taxpayers earn more than $30,000 in gross revenue in a year from taxable products and services including short-term rentals, they are required to register for a GST/HST account and start collecting and remitting GST/HST to the CRA.
• The CRA is co-operating with industries, the provinces, and the territories to identify and address areas where the tax system and tax compliance might be affected.
• In an effort to promote voluntary compliance, the CRA has been collaborating with the accommodation sharing industry on an education campaign to remind their hosts of their tax obligations (income tax and GST/HST).
• This education campaign promotes the information already available on the CRA website.
• Should the government proceed with legislation, as mentioned in its recent Fall Economic Statement, the CRA will collaborate with the Department of Finance to facilitate the transition to the new legislative requirements impacting the short-term accommodation sharing sector.

Why doesn’t CRA have more resources dedicated to determining what businesses “should” register for GST collection and remittance?

Key messages:

• The CRA is committed to developing dedicated strategies to better detect and address non-compliance in e-commerce through compliance actions.
• Educating taxpayers of their responsibilities in emerging business models where they may not be aware of their tax obligations encourages compliance, which is consistent with the CRA’s compliance strategy.
• The CRA has taken appropriate first steps, within the existing legislation and in line with the level of tax dollars at risk, to address the risks of non-compliance in the e-commerce sector. The dedicated compliance strategy being developed will advise the Agency on allocation of resources to address the risk of non-compliance associated with the sector.
• The CRA will continue to monitor this sector and adjust its efforts as required.
• There is no current federal legislation requiring non-resident platforms to collect and remit sales tax to the CRA.
• Should the government proceed with legislation, as mentioned in its recent Fall Economic Statement, foreign suppliers will be required to collect and remit the GST/HST on digital products and services on behalf of Canadian consumers.

Why isn’t’ CRA leveraging third-party data for compliance activities?

Key messages:

• The scale of e-commerce is continuously growing. To reinforce its compliance efforts, the CRA uses third party data to identify taxpayers suspected of non-compliance and more specifically select files for audits.
• The CRA’s compliance initiatives rely on various legislative tools to address non-compliance. This includes the use of “Unnamed Person Requirements” (UPRs).
• The Agency has issued UPRs over the last few years and continues to use them to identify non-compliant taxpayers engaged in e-commerce transactions as part of its strategy to address non-compliance in e-commerce transactions.

What is the purpose of “test audits”?

Key messages:

• The first steps in the CRA’s compliance strategy is to promote voluntary compliance.
• This allows the CRA to focus its audit efforts on those who are intentionally non-compliant.
• Test audits are usually completed in a subject area that is new to the CRA.
• The purpose of these test audits is to advance agency knowledge and improve risk algorithms in a new subject area.

Is reducing the GST/HST tax gap part of CRA’s performance metrics?

Key messages:

• The tax gap is not formally part of the CRA’s performance metrics because the absolute value of the tax gap is influenced by factors outside the control of tax administration.
• The trend of the tax gap can be considered as one of many indicators of performance at a strategic level because the trend can be influenced by the tax administrator, in addition to other players.
• As there is currently only one measure of the GST/HST tax gap, a trend is not possible and so a GST/HST tax gap performance metric is not available at this time.
• While the CRA GST audit program greatly contributes to the effort to address the GST/HST tax gap, there are other areas of the CRA and indeed even other government departments and agencies that also impact the tax gap number.
• Sole accountability for the GST/HST tax gap does not therefore reside within a single federal organization.

How do the CRA’s efforts to address compliance in this area compare internationally?

Key messages:

• The CRA participates in an OECD Platform Economy Working Group:
  • The Working Group has distributed scoping questionnaires to determine how each tax administration is addressing this issue.
  • The results of the questionnaires and conference calls have reinforced the fact that tax administrations are experiencing the same challenges when it comes to the Platform Economy.
• Similar to other tax administrators, the CRA’s approach to promoting compliance has largely been focused on a mix of education, outreach, and nudge techniques to help registrants better understand their tax obligations and encourage them to correct any inaccuracies on their past returns and in their future filings.
• The CRA has made the platform economy (which includes the sharing economy) a focus in its Underground Economy Strategy 2018-2021, and has identified it as part of its Corporate Risk Profile.

What is the status of the detailed action plan on each of the two OAG recommendations?

Key messages:

Recommendation 1 update

• The CRA has completed its review of past compliance results which included an internal studies, engagement with field auditors and managers to gain insight into regional local risk areas and review of what other tax jurisdictions have done to address tax challenges in this sector. As part of that review, identified compliance risks emerging from the platform economy and e-commerce were identified.
• The CRA is also finalizing a dedicated compliance strategy to better detect and address non-compliance in the platform economy, which includes e-commerce, for income tax and GST/HST (status: approval process).
• This strategy will help the CRA gain insight between the e-commerce risks and other general audit risks, as well as to refine its compliance approach to address the needs of participants in the platform economy.
• The CRA will also expand its compliance actions by better leveraging third party data to identify and address non-compliance.

Recommendation 2 update

• The CRA has completed an analysis of its tracking and monitoring methodology with respect to the compliance activities it conducts to manage the risk of non-compliance in e-commerce.
• New tracking and monitoring mechanisms being created as a result of this analysis will ensure the CRA can report on the compliance risks identified within the e-commerce.
• Not withstanding that currently, Agency IT resources are restricted to Covid-19 emergency relief measures, results will also be leveraged to determine whether additional changes CRA business systems are required.
• The CRA is therefore on track to meet both of its commitments in response to the Office of the Auditor General.

PACP Committee Information

PACP Member Profiles

Chairperson

Kelly Block (CPC)

Vice-Chairs

Lloyd Longfield (Lib.)

Key Issues raised in the House of Commons:

• Nil for the CRA.

Written Questions:

• Nil for the CRA.

Correspondence:

• Compliance Individual.
• Appeals Individual.

Maxime Blanchette-Joncas (BQ)

Key Issues raised in the House of Commons:

• Nil for the CRA.

Written Questions:

Q-184² — October 23, 2020 — Mr. Blanchette-Joncas (Rimouski- Neigette—Témiscouata—Les Basques) — With regard to the erosion of multiple government services in the Quebec administrative region of the Lower St. Lawrence over the past 25 years: (a) how many and which departments and agencies, in full detail, have reduced or increased their staffing in the abovementioned region; (b) what is the exact number of public service jobs involved; (c) what specific impact studies were completed as part of the decision-making process that led to these staffing reductions; (d) what performance assessments and analyses were conducted as part of this process in each of these departments and agencies; (e) exactly how much in overall payroll did the transferred or abolished jobs amount to; (f) what were the full costs incurred by the government to relocate public servants and their families; and (g) what socio-economic analyses did the government conduct before the various decisions to abolish or relocate these jobs, including the list of the various findings of the public consultations on these issues?

Reply being prepared by FAB and HRB.

Correspondence:

• Nil for the CRA.

Members

Luc Berthold (CPC)

Kody Blois (Lib.)

Key Issues raised in the House of Commons:

• Taxation.
• Corporate income tax.

Written Questions:

• Nil for the CRA.

Correspondence:

• Nil for the CRA.

Greg Fergus (Lib) (Parliamentary Secretary)

Key Issues raised in the House of Commons:

• Income tax
• Tax relief

Written Questions:

• Nil for the CRA.

Correspondence:

• Nil for the CRA.

Matthew Green (NDP) (National Revenue Critic)

Key Issues:

• Income tax

Written Questions:

• Nil for the CRA

Correspondence:

• Nil for the CRA

Philip Lawrence (CPC) (National Revenue Critic)

Key Issues:

• Canada Revenue Agency
• Audits on Small Business owners.
• Canada Emergency Wage Subsidy

Written Questions:

Q-32² — September 23, 2020 — Mr. Lawrence (Northumberland-Peterborough South) — With regard to the Canada Revenue Agency’s approach to workspace-in-the-home expense deductions in relation to the COVID-19 pandemic’s stay-at-home guidelines: are individuals who had to use areas of their homes not normally used for work, such as dining or living rooms, as a temporary office during the pandemic entitled to the deductions, and, if so, how should individuals calculate which portions of their mortgage, rent, or other expenses are deductible?

Signed reply sent to PCO on November 3, 2020

Correspondence:

• N/A

Francesco Sorbara (Lib.) (Parliamentary Secretary)

Len Webber (CPC)

Key Issues:

• C-210 – An Act to amend the Canada Revenue Agency Act (organ and tissue donors).
• Income Tax Returns

Written Questions:

• Nil for the CRA

Correspondence:

• N/A

Jean Yip (Lib.)

Key Issues:

• Nil for the CRA

Written Questions:

• Nil for the CRA

Correspondence:

• Tax Free Savings Account.
• Interest penalties Individual.

Associate Member

Luc Desilets (BQ) (National Revenue Critic)

Key Issues:

• Canada Emergency Wage Subsidy.

Written Questions:

• Nil for the CRA

Correspondence:

• N/A

Relevant Committee Meeting Recap

House of Commons Standing Committee on Public Accounts (PACP)

Tuesday, November 17, 2020
11 a.m. – 1:10 p.m.

Topic of Meeting / Sujet de la réunion : Report 3, Taxation of E-Commerce, of the 2019 Spring Reports of the Auditor General of Canada

Summary / Sommaire:

• The representatives from the CRA and other governmental organizations, along with the Office of the Auditor General, were requested to appear before PACP to discuss Report 3, Taxation of E-Commerce, of the 2019 Spring Reports of the Auditor General of Canada.
• As each witness was permitted short opening remarks, the CRA (Bob Hamilton) briefly noted the CRA accepted both OAG recommendations in Report 3 and has developed a detailed action plan to implement them. The CRA then outlined achievements to date such as developing a comprehensive compliance strategy for the e-commerce sector (which includes identification of different categories in platform economy, with tailored compliance interventions for each). Other items noted by the CRA were a review of actions undertaken by other tax jurisdictions in the area, the use of third party data to identify and address non-compliance in the sector, and better utilizing more strategic performance indicators.
• In her opening stating, the AG noted that e-commerce is expanding rapidly as more people are making purchases online which creates challenges for assessing and collecting the GST/HST and that it is important for the Canadian sales tax system to keep pace with these changes so that governments can fund vital public [inaudible].
• The AG said the Government must ensure that everyone who should remit sales taxes does so and that the taxes are collected fairly and effectively, which was the focus of Report 3. Report 3 concluded that the sales tax system did not keep pace with a rapidly evolving digital marketplace – the OAG estimated that Canada had foregone $169 million in sales tax revenue on digital products in 2017 and approximately $247 million in 2019 (an increase of almost 50%).
• The AG stated that for digital products and services the Canadian sales tax system has placed Canadian businesses at an unfair disadvantage in relation to foreign vendors – explaining that the Department of Finance Canada's analysis of the sales tax system for e-commerce has shown that there is a risk that the current system could discourage foreign businesses from settling in Canada and encourage Canadian businesses to move their operations to other country.
• The AG added that the CRA and CBSA have not done enough work to make sure that all taxes are collected and remitted with respect to e-commerce, pointing out that the CRA does not have the legislative authority to require foreign vendors of physical and digital products sold in Canada to register for collect and remit the GST/HST and also lacked the authority to implement compliance practices that have been effective in other jurisdictions, such as simplified registration.
• The AG also found that the CRA had undertaken limited compliance activities to determine if vendors had registered for the GST/HST.
• The AG also looked at how the Canada Border Services Agency managed the collection of taxes on low-value shipments imported through courier companies, finding that the CBSA could not validate the sales tax it is received on these shipments as its systems and processes were outdated. The AG requested that PACP ask both CRA and CBSA what progress they have made since the AG audit and its recommendations.

Question and Answer Portion:

• Philip Lawrence (CPC, National Revenue Critic) claimed the burden of taxes on digital purchases will be ‘from the pockets of Canadians’ instead of the ‘digital giants’ and then quoted a statement from the Prime Minister in 2018 (“the reality is that taxpayers will be the ones who will pay these taxes and we on this side of the house (that's the Liberals) promise not to raise taxes for taxpayers who are already paying enough for their digital subscriptions and internet”), asking if the AG or CRA agreed with the Prime Minister’s statement.
  • CRA replied that getting large suppliers to register in Canada to collect and remit the tax is not in the legislative framework now, but in its absence it is working to educate Canadians about their obligations. In the area of sales of taxes, in terms if passed on to consumer or absorbed by the by the provider, it is a bit of a theoretical question right now given Canada does not have such a regime and market conditions will ultimately determine. It was declared that from the CRA perspective the interest is looking at the current legislative system to ensure enforcing in a way that's fair and paying adequate and monitoring / tracking, noting that CRA has been making progress in meeting the OAG recommendations in this respect.
• Francesco Sorbara (LIB, PS to Minister of National Revenue) asked if the OAG was on track to complete its upcoming audits due to COVID’s operational impacts.
  • The AG stated her office was continuing to see some pressure on timelines due to reduced capacity of those government organizations under audit and the ability to access information remotely. The AG said they were on target for early 2021 to start tabling COVID-related audits and then table those that had been postponed (to have been tabled in November 2020) in March of 2021.
• Francesco Sorbara (LIB) wanted to know how the CRA is developing a dedicated compliance strategy to better to detect and address of non-compliance.
  • CRA observed it has conducted numerous ‘tax gap’ studies and has an established methodology – with its GST tax gap estimate currently at $250 billion. It was then noted that CRA uses risk based assessment of where to focus its energies and that the CRA is working to ensure its risk assessments are up-to-date and reflect today's world. It was further stated that the CRA was looking internationally at what other jurisdictions to understand how this area is growing and what best compliance strategies are being employed. Finally, the CRA explained it was better monitoring and tracking its activities in this area.
• Francesco Sorbara (LIB) highlighted that the CRA, when compared to other tax authorities (like the IRS), had limited authority to collect data from third-parties like banks or payment processors, and asked if the CRA would need legislative changes to collect that data.
  • The CRA briefly said the legislative framework limits what CRA can collect, but the unidentified person requirement allows the CRA to obtain (through the courts) third-party information and is one way the CRA can get information on activities that are happening in the sector.
• Matthew Green (NDP, National Revenue Critic) remarked that it seem pretty clear the tax system was not keeping pace with a rapidly evolving digital marketplace – leading to both revenue losses for government and placing Canadian businesses at a unfair advantage (even potentially leaving Canada), he then asked if the CRA had discussed this lack of legislative tools with the Minister.
  • Finance took the question and explained its role in providing advice to the Minister as opposed to making decisions.
• Matthew Green then asked why there had been no action since the current government took office in 2015 and what PACP could do to advance the issue.
  • Finance again explained its role in providing advice and explained it was a entirely legitimate area for a committee to examine should it choose.
• Len Webber (CPC) inquired what specifically the CRA had done to educate Canadians about their obligations when it comes to e-commerce.
  • CRA pointed to the tools it has used like its website, social media, nudge letters.
• Len Webber (CPC) stated that the majority of Canadian likely do not understand or realize what their obligations are in this respect, and that CRA should be doing a better job in communicating to them.
• Len Webber (CPC) wondered how CRA’s attempts in obtaining third-party information from companies like eBay have fared and if the CRA has also asked other companies such as Facebook or Kijiji for data as well.
  • CRA explained the unidentified person requirement has been a useful tool to understand what's happening in the sector and that there has been generally good collaboration, but there has been some litigation driven by privacy and respecting the rights of the consumers – not merely attempts to obstruct the CRA.
• Matthew Green (NDP) wondered why the CRA had audited only four property management companies when its own corporate risk profile listed the accommodation sharing sector as a risk.
  • CRA declared that this was an example of a place ‘where we are learning as we go’ due to the explosive growth and trying to better understand how taxes is being collected in this sector (and if Canadians know their obligations).
• Matthew Green commented that CRA was not tracking and using its information to guide its work.
  • The CRA replied that the OAG pointed out that CRA was doing a job of tracking and monitoring – and that the CRA was doing a better job to try to disentangle those audits and tracking specific cases in this evolving area.
• Luc Berthold (CPC) wanted to know what legislation exempts some sales from GST/HST (as relates to e-commerce)
  • CRA explained that certain services and products are exempt from taxes, but did not have exact legislative references.
• Luc Berthold (CPC), claiming it appears the CRA has done a poor job of communicating the reporting requirement for Canadians, then asked if the CRA had ever imposed sanctions on those who have not filled out a report related to a foreign e-commerce purchase.
  • CRA explained it did not have such information on hand and would return to the Committee with a written response. CRA also tried to explain it was concerned with the level of risk, but Mr. Berthold explained he was looking for specific information.
• Kody Blois (LIB) noted there was a registeration requirement for those selling digital products into Canada but not for those physically shipping products, he asked if this was something the CRA was looking at.
  • The CRA explained that foreign-based businesses selling into Canada do not have to register and if there was such a requirement it would make a significant dent in in tax leakage, and the added that the CRA had been spending funds to setup the infrastructure that would allow us to ingest such data that either under voluntary regime or legislative regime that would assist in enforcing compliance.
• Philip Lawrence (CPC, National Revenue Critic) asked the CRA to provide PACP with ‘how Canadians are paying to the CRA on interest and penalties on daily basis during a pandemic’; the CRA undertook to provide the committee with that information in follow-up.
• Philip Lawrence (CPC) then asked how many Canadians are currently in arrears with the CRA.
  • The CRA undertook to provide the information to the Committee, noting that this is a number that changes over time.
• Philip Lawrence (CPC) was troubled by the idea of the CRA being given access to further information by third-party sources given CRA’s recent cyber incident (“breach”), the MP claiming it has been proven CRA cannot keep this data safe.
  • The CRA explained that it takes very seriously its privacy obligations and work very had they don't violate privacy laws – when the CRA obtains third-party data it does through the courts (which puts boundaries around such requests) and uses the appropriate safeguards.
• Maxime Blanchette-Joncas (BQ) wondered why some provinces (like Quebec) have the legislative authority related to online platforms, but the CRA does not.
  • The CRA explained it was important to note different types of transactions and that CRA does not have the legislative capacity to a deal with a company that is outside of Canada in terms of tax, but in other cases when a person in the accommodation sharing platform the legislation is quite different for that type of transaction.
• Maxime Blanchette-Joncas (BQ) commented strongly that the CRA is very quick to collect taxpayers’ money and wondered why it does not systematically advise people that there is a voluntary tax declaration that will have to be paid.
  • The CRA explained it was a question of risk as they are transactions that involve a great deal of uncertainty and they are the capacity of the CRA is not unlimited, as such the CRA has to target what they think might be the most likely for significant non-compliance.

Committee Business:

• Maxime Blanchette-Joncas (BQ) moved a motion asking for one additional meeting on Report 3 before the House rises in December 2020 and that the departments and agencies involved submit revised Action Plans. The motion passed by a vote of 6 in favour, 4 against. The Chair indicated that she would work with the Clerk to identify a date and present it to PACP at the next meeting (on Thursday November 19, 2020).

Follow-ups:

• Three follow-ups for CRA, with additional information to be provided in writing:
  1. Luc Berthold (CPC) asked if the CRA had ever imposed sanctions on those who have not filled out a report related to a foreign e-commerce purchase; CRA explained it did not have such information on hand and would return to the Committee with a written response.
  2. Philip Lawrence (CPC) asked the CRA to provide PACP with ‘how Canadians are paying to the CRA on interest and penalties on daily basis during a pandemic’; the CRA pledged to get back to the Committee with that information.
  3. Philip Lawrence (CPC) then asked how many Canadians are currently in arrears with the CRA; the CRA again pledged to get back to the Committee – adding that this is a number that changes over time.

Follow-Up Information for PACP (Sent to PACP on Dec 1, 2020)

Canada Revenue Agency (CRA)

Follow-up to the appearance before the Standing Committee on Public Accounts (PACP)

November 17, 2020

Report 3, Taxation of E-Commerce, of the 2019 Spring Reports of the Auditor General of Canada

What follows is the Canada Revenue Agency’s (CRA) follow up responses to questions posed by members of the Standing Committee on Public Accounts (PACP) during the November 17, 2020 meeting on ‘Report 3, Taxation of E-Commerce, of the 2019 Spring Reports of the Auditor General of Canada.’

For ease of reference, the relevant excerpts of the Evidence have been included to provide additional context.

Question 1

During the meeting, officials were asked if the CRA had ever imposed sanctions on Canadians who have not filled out a report related to a foreign e-commerce purchase; CRA explained it did not have such information on hand and would return to the Committee with a written response.

Mr. Luc Berthold:
Thank you, Mr. Hamilton. I'll try to be a bit clearer. Earlier you said you try to provide information to people who have to complete tax declarations on their own when they buy goods from outside the country. Personally, as a consumer, I have never received any information from the CRA. I've seen no communication effort in that regard. So I don't feel the CRA has made a great deal of effort to increase Canadians' awareness of the situation. Have you previously imposed penalties on Canadians for failing to complete that kind of mandatory tax declaration?

Mr. Bob Hamilton (Commissioner of Revenue and Chief Executive Officer, Canada Revenue Agency):
It's true our efforts aren't perfect. Many Canadians need information. We use the means of communication I've described, which are letters, websites and social media. We're constantly improving the process in order to inform Canadians.

Mr. Luc Berthold:
Mr. Hamilton, have any penalties previously been imposed on Canadians who have failed to complete their declarations? Goods that Canadians buy and that aren't taxed represent $247 million. Has the Canada Revenue Agency made any effort to recover the tax amounts owed?

Mr. Bob Hamilton:
It's important to draw a distinction between the $247 million estimate and an actual transaction. If an actual transaction occurs, penalties can be assessed. The figure stated in the Auditor General's report is an estimate.

Mr. Luc Berthold:
Mr. Hamilton, I want to go back to my question and state it clearly. Have you ever imposed a penalty on a Canadian who had failed to complete this kind of declaration after purchasing a microwave oven on Amazon?

Mr. Bob Hamilton:
It's possible, but I don't have the figures in front of me. I can't verify whether that's the case, but Mr. Gallivan may have a better answer for you. Mr. Gallivan, do you have anything to add?

Mr. Ted Gallivan (Assistant Commissioner, Compliance Programs Branch, Canada Revenue Agency):
Madam Chair, for the committee's information, I would say that our focus is really the risk level. When we talk about rentals, we're talking about those people who have 20 houses or so and 15 apartments...

Mr. Luc Berthold:
Getting back to my question, Mr. Gallivan. It's a very specific question directly related to the performance audit. I want to know what measures the Canada Revenue Agency has taken. The estimate is now $247 million. Going back to microwave ovens, Canadians probably buy hundreds of thousands of them every year in transactions that are not taxed. Has the agency ever taken punitive measures against Canadians who haven't completed this voluntary tax declaration, yes or no?

The Chair:
I'm sorry, Mr. Berthold, but your time is up. Thank you very much. Perhaps we could ask the Canada Revenue Agency to provide us with an answer in writing, unless the question can be asked again later on in this meeting.

CRA response

The Canada Border Services Agency is responsible for collection of GST/HST and relevant duties for nearly all imported tangible goods.

The Canada Revenue Agency (CRA) has not actively enforced the requirement for purchasers to self assess GST on the importation of digital services: the low dollar of each amount owing is such that the opportunity cost of forgoing other compliance actions would not be an efficient use of our resources. It is important to note that under the current legislation, non-resident platforms are not required to collect and remit data and sales tax to the CRA. Of course, this would be the most efficient way to obtain information without burdening consumers.

We have no record of ever sanctioning a consumer of digital services for failing to self assess the related sales tax.

We are focused on developing systems and norms that would allow the CRA in the future to receive the tax from sellers either with or without legislation. The CRA designs its compliance activities in alignment with the level of non-compliance and tax dollars at risk. Within the confines of the legislation, our compliance actions in this sector are designed for situations where level of non-compliance (risk and dollars) is greatest such as commercial operators, as opposed to individual consumers. This practice is in line with the recommendation of the Organisation for Economic Co-operation and Development.

Question 2

During the meeting, officials were asked how much on a daily basis Canadians were currently paying on taxes and penalties to the CRA during the COVID-19 pandemic; the CRA pledged to get back to the Committee with that information.

Mr. Philip Lawrence:
Once again, in perhaps an unprecedented move, I'm going to build on my NDP colleague's earlier questioning. With respect to the digital giants, because of the lack of legislation and lack of movement in the last five years, we understand that at least a portion of those funds that should be ours as Canadian taxpayers to protect our tax base are not being gathered. My question is related to that. As opposed to the digital giants, which are not currently paying any interest on penalties on monies that really should be the Canadian government's, how much on a daily basis are Canadians currently paying, during a pandemic, on taxes and penalties every day to the CRA?

Mr. Bob Hamilton (Commissioner of Revenue and Chief Executive Officer, Canada Revenue Agency):
I'll have to get back to you with a specific number on interest and penalties during the pandemic. I certainly don't have that at my disposal. As we talk about these issues, one of the things that we try to keep in mind here—and as we discuss it internationally—is differentiating between the types of transactions. We've talked about goods coming in, digital services and digital giants, so I think it's important to parse these and understand the components. I'll do my best to find the numbers that were referenced.

CRA response

The CRA does not track payments of taxes and penalties on a daily basis.

Please note that due to the COVID-19 pandemic, the CRA extended the payment due date for 2019 individual tax returns and 2019 or 2020 corporation, or trust returns, as well as for instalment payments, to September 30, 2020.

The CRA also recognizes that many Canadians have been impacted financially by the pandemic and collection activities on new debts have been suspended until further notice.

In addition, flexible payment arrangements remain available for Canadians needing more time to pay their taxes, child and family benefit overpayments, Canada Student Loans, or other government program overpayments in full. Moreover, the CRA may grant relief from penalty and interest in specific circumstances.

For general information on CRA’s interest and penalties framework, please visit https://www.canada.ca/en/revenue-agency/services/tax/individuals/topics/about-your-tax-return/interest-penalties.html.

Question 3

During the meeting, officials were asked how many Canadians are currently in arrears with the CRA; the CRA committed to providing the information in writing.

Mr. Philip Lawrence:
There is one other question that you may not have an answer to, but it would be appreciated if you could get back to us. How many Canadians are currently in arrears with the CRA? Is it possible for you to get back to us?

Mr. Bob Hamilton (Commissioner of Revenue and Chief Executive Officer, Canada Revenue Agency):
Let me see what I can do. I certainly don't have that number at my disposal. That will be a number that changes over time, obviously. Going through a pandemic or certain other circumstances can change that. Let me see what best number I can give you to get an order of magnitude.

CRA response

Please find below a chart outlining the point in time number of Canadians with personal income tax amounts outstanding at the end of October for the last five years. The majority of these accounts are resolved within one year.

Question 4

During the meeting, the Members agreed to a motion that requested departments and agencies involved in Report 3 submit revised Action Plans to the Committee.

The Clerk:
Okay, then we'll try the motion one more time: That the committee hold one further meeting on the study on Report 3, Taxation of E-Commerce, of the 2019 Spring Reports of the Auditor General of Canada, and that the departments involved be invited to provide updated action plans to fall 2020, and that the meeting be held before Christmas.
…

The Clerk:
… I will proceed to the taking of a recorded division.

(Motion agreed to: yeas, 6; nays 4)

CRA response

Please see attached document: Canada Revenue Agency Detailed Action Plan to the recommendations of Report 3 (Taxation of E-commerce) of the Spring 2019 Reports of the Auditor General of Canada - Update, December 2020.