Programs

Tax Services

Approximately 29 million individuals, businesses, trusts, and other organizations are clients of the CRA. The taxes administered, assessed, and collected on behalf of the federal, provincial (except Quebec), and territorial governments and First Nations fund a wide range of programs and services that contribute to the social and economic well-being of all Canadians.

Tax Services are comprised of five key program activities supported by a number of sub-activities ranging from service to enforcement. These program activities are Client Assistance, Assessment of Returns and Payment Processing, Filing and Remittance Compliance, Reporting Compliance, and Appeals.

As a leader in implementing the Government of Canada’s service agenda, we believe that citizen-centred service is a critical strategy for achieving effective tax compliance. At the forefront of the CRA’s interactions with Canadians, our Client Assistance program activity is divided into four parts: client services, rulings and interpretations, registered plans, and charities.

Our client services program ensures that our clients are provided with the tools, assistance, and information they need to voluntarily comply through self-service and agent assistance. Tax Services also issues rulings and interpretations to clarify the application of Canada’s tax laws and registers, audits, and monitors registered plans and charities. Charities administers the national registration program for charities, National Art Service Organizations, and Canadian amateur athletic associations. This program also oversees the implementation of the Charities Registration (Security Information) Act in co-operation with the Department of Public Safety and Emergency Preparedness Canada.

Through the Assessment of Returns and Payment Processing program activity, we assess and process individual and business tax returns using risk assessment, third-party data matching processes, and dependable information validation processes. As well, every known business in Canada is registered through this activity area. Furthermore, we administer the Scientific Research and Experimental Development program, which is a federal tax incentive to encourage Canadian businesses to conduct research and development in Canada.

Our Filing and Remittance Compliance program activity ensures compliance with tax laws for filing, withholding, and remittance requirements, including amounts collected or withheld in trust on behalf of the Government of Canada. Our non-filer/non-registrant function pursues unfiled personal and corporate income tax returns, as well as the registration of businesses which are required to register for GST/HST but have not. Our trust accounts area pursues compliance and enforcement activities related to payroll source deductions and GST/HST accounts. As part of the filing and remittance compliance program activity, we also administer the determination of employment status, pensionable earnings, and the insurability of earnings provisions under the Canada Pension Plan and the Employment Insurance Act.

Our accounts receivable program within our Filing and Remittance Compliance program activity is responsible for the timely collection of overdue accounts for all taxes, levies, duties, and other amounts and assures the effective management of existing tax debt.

Reporting compliance addresses the accuracy and completeness with which taxpayers report their tax liability. Our Reporting Compliance program activity balances our approach to audit and enforcement sub-activities. The major programs include reporting examinations, audits, and investigations aimed at ensuring compliance with income tax and GST laws.

Our audit program focuses on compliance with tax laws through taxpayer assistance and audits, thereby increasing the effectiveness of our compliance programs to deter non-compliance. The investigations program contributes to compliance with tax laws through enforcement activities, including conducting investigations of suspected cases of tax evasion and fraud, pursuing criminal prosecutions, and actively seeking publicity associated with successful prosecutions. Other Reporting Compliance program activity functions include developing compliance strategies through comprehensive research and analysis, identifying and assessing tax compliance risk, and developing tools in support of our reporting compliance efforts.

The Appeals program activity centres on resolving disputes between the CRA and its clients by conducting fair and impartial reviews of decisions and by assisting the Department of Justice during any subsequent appeals to the courts. This program activity is responsible for reviewing clients’ contested decisions in the areas of income tax, GST/HST, excise tax, Canada Pension Plan, and Employment Insurance. Further, Appeals administers the Voluntary Disclosures Program (VDP), which allows clients to correct past errors or omissions in their tax obligations without penalty. The Appeals program activity also leads the CRA’s Fairness Initiative, which includes the application of legislative provisions for cancelling or waiving interest and penalties when clients are unable to comply with tax laws due to circumstances beyond their control.

Strategies and Key Initiatives

We believe that Canadians who have faith in the administration of the tax system will be more inclined to comply with tax laws. Also fundamental to our thinking is that effective compliance begins with service. As we bring our strategic planning to the next level, we will take steps to ensure that service and compliance strategies are fully inter-related to optimize our approach to compliance.

Our key priorities for the planning period continue to be:

• Tax integrity
• Service to Canadians

Tax Integrity

Building on our most recent assessment of our compliance regime, we have undertaken an analysis of the risks facing tax administration in Canada and established a multi-year strategy to strengthening compliance. Our program strategies to address the key compliance risks identified—aggressive tax planning, the underground economy, GST/HST fraud, and non-filers/non-registrants and collections—will be supplemented by resource reallocations and making recommendations to the Department of Finance and Treasury Board to assist in developing new legislation and identify new resources.

In addressing Aggressive Tax Planning, our Reporting Compliance program activity strategy is to identify and understand abusive transactions as early as possible, to use this understanding to identify others with similar schemes, to audit all such transactions as quickly as possible, and to publicly state our position on those transactions to prevent further abuses. We will:

• use a variety of techniques to identify aggressive tax plans by enhancing analytical and research capacity;
• increase our ability to deal with aggressive tax plans once they have been identified, through improved operational training and tools for auditors, and by elevating the profile of CRA actions on aggressive tax planning; and
• improve the legislative and administrative environment by recommending legislative changes, working with international partners, and by educating the public about inappropriate arrangements.

Sound risk identification and analysis is key to addressing the Underground Economy. Identifying and addressing sectors with significant areas of non-compliance earlier, rather than reacting to known problems on a case-by-case basis, continues to be an objective.

The Reporting Compliance area’s approach for dealing with the underground economy is based on a number of elements. These include:

• an increased co-ordination of our compliance activities and fuller engagement of all stakeholders;
• the realignment of our enforcement activities to ensure that unacceptable taxpayer behaviour is addressed accordingly;
• the development of communication products that underscore the risks and consequences of detection; and
• the expansion of the use of third-party reporting and third-party information.

We will also expand our research capacity and increase our investment in compliance research. This will be done to establish a stronger knowledge and intelligence-gathering capacity to better understand the root causes of the underground economy and to evaluate the effectiveness of the instruments used to combat it.

The Goods and Services Tax/Harmonized Sales Tax (GST/HST) carries a high risk of fraud since millions of transactions take place daily. Consequently, the GST/HST compliance strategy focuses on preventing improper refunds and creating a legislative and administrative environment to reduce systemic opportunities for fraud. This strategy will be achieved by identifying high-risk clients before and at the time of refund claims, improving risk assessment for registration and pre-payment audit processes, and recommending appropriate legislative changes.

Through our Filing and Remittance Compliance program activity, we identified a number of key risks relating to Non-Filers/Non-Registrants and Collections including employer compliance issues, inventories of non-filers and past performance in the collection of accounts receivable.

In addition to pursuing ongoing activities such as conducting examinations to ensure the validity and accuracy of deductions and remitting and reporting source deductions and GST/HST by employers and registrants, we will:

• review and streamline our processes to strengthen our capability to detect and correct areas of non-compliance related to the delinquent filing of income tax and information returns;
• pursue improved integration of our activities at the client level to ensure we follow up on all types of non-compliance; and
• begin planning for the implementation of a national inventory pool for non-filers/non-registrants.

Although the gross amount of cash the CRA collects continues to increase year-over-year, the continued growth in our intake of new debt remains a challenge. Our plan for stemming the growth in receivables includes:

• enhancing our Collection Call Centre to allow clients to enter debt payment arrangements through interactive voice recognition;
• pursuing T1 instalment campaign efforts to address outstanding client instalment accounts to prevent the creation of new debt;
• expanding on the Integrated Revenue Collections project to advance risk profiling and scoring as well as to integrate more business processes; and
• continuing our work on data warehousing for effective account management.

Attention will also be given to reducing the level of older accounts by implementing a combination of initiatives. We will:

• simplify internal procedures to enable collections officers to conclude an increased number of cases;
• expand the use of the allowance for doubtful accounts (AFDA) to include debt management; and
• pursue regular account reviews of the gross book value, to help reduce the total value of accounts receivable inventory.

Sound risk management is essential to achieve tax integrity. Over the planning period and as part of our Reporting Compliance program activity, we will fully implement the Compliance Measurement Framework (CMF) to better understand compliance behaviour. As well, full reporting on the Core Audit Program results will take place in 2005-2006. Results of the program will be compared to existing risk assessment models to validate or refine them.

Ensuring the Voluntary Disclosure Program (VDP) is fully integrated with CRA compliance activities continues to be a priority. As part of the Appeals Vision – a multi-faceted and multi-year initiative – and to address recommendations made by the Auditor General, an action plan will be implemented in 2005-2006 to improve the reporting of Voluntary Disclosures Program activities, improve program management, and enhance the link between the VDP and risk management activities.

We will continue our work on Charities Regulatory Reform activities to increase our focus on deceptive fundraising by examining options to fast-track the deregistration process for predatory fundraisers as well as implement an early revocation process. We will also work with various levels of government on developing joint initiatives to increase public awareness of deceptive fundraising.

Service to Canadians

Ensuring Responsive Client Assistance is key to promoting voluntary compliance. The CRA must, however, strike an effective balance between affordable operations and client expectations. For example, in-person service is a very costly service option the CRA offers to its clients; to reduce our costs, we will encourage clients to use alternative service options that are just as effective, but less expensive.

Over the planning period, we will further the implementation of our strategy through our Client Assistance program activity of increasing client self-service, including client uptake of electronic services. A key example of self-service is My Business Account, which will allow greater access to CRA services through 24/7 client-directed access and real-time interaction with CRA systems.

For those areas where self-service is not the channel of a client’s choice, our strategy is to move toward a model of assisted self-service, with our agents pro-actively engaged in educating clients and promoting CRA self-serve offerings. This will allow our agents to be more available for complex enquiries through appointments or our SmartLink initiative, which will enable clients to move seamlessly from our Web site to the telephone.

Canadians continue to express their expectation for citizen-centred and efficient service delivery, which the CRA must balance with business volumes that continue to grow each year. Building on our strong foundation for electronic service delivery, we aim to increase the number of returns filed electronically in all revenue streams. As part of our plan, we will reduce the target for counter-service wait time from 100% to 90% for our service standard. We expect that this new approach to service will help increase client interest in self-serving or having recourse to our assisted self-serve option.

Integral to the enhancement of client self-service is our aim to build on our electronic services infrastructure to add new transactional services including: the “Change my return” option to My Account; Third Party Privilege Management to address the needs of third parties; and enhancements to “My Business Account” to enable businesses to file an objection electonically.

Enhancing CRA systems will continue to take place over 2005-2006. We will introduce two-dimensional bar code technology to eliminate manual data entry activities for processing computer-generated returns filed on paper. Additional improvements will be made to the Post-Dated Cheque and the GST/HST Accounting systems.

In 2005-2006, we will continue our review of the Scientific Research and Experimental Development (SR&ED) program’s administrative processes and compare these with those of other countries to identify potential improvements. We will also enhance our communication initiatives to make the SR&ED program known more broadly and ensure accessibility for small businesses.

Implementation of our Appeals Vision will see us strengthen and align the Appeals mandate with our strategic roles and responsibilities, and improve our capacity to manage and evaluate the outcomes of our redress process. As a result, we will provide a more effective service that will be more fiscally responsible and efficient. We will also undertake a review of our CPP/EI redress process to improve timeliness in resolving files and to further enhance service delivery. As part of the Appeals Vision, we will move beyond the risk management of individual files and integrate risk management into the overall framework of the CRA and, in partnership with other government departments, will renew and re-emphasize it at the grassroots level to ensure that all risks are identified as early as possible.

Establishing quality partnerships with other federal government departments, provinces, and territories, which enable improved client service and overall administrative costs, is a key CRA objective. Over the planning period, we will aim to further increase the quality of our partnerships and continue to explore opportunities to offer integrated services in support of the Government of Canada service vision.

We are working toward an agreement with the Government of Ontario to design and implement a single corporate income tax. This would mean that close to 45% of Canada’s corporations, which are registered in Ontario, would be required to file only one tax return for provincial and federal income tax. In addition to simplifying the filing process, businesses would only be subject to a single audit for both federal and provincial taxes. This will help reduce the compliance burden and increase the competitiveness of Ontario businesses.

In pursuing our goal for clear accountabilities between the federal and the provincial/territorial governments, we will respond to the anticipated enhanced service and accountability requirements of the Tax Collection Agreements currently under negotiation with CRA involvement. Renewing our Service Management Framework Agreement with provinces and territories, therefore, will be a priority in 2005-2006.

We will strive to maintain this momentum through increased consultation and the development of innovative new service delivery mechanisms. A number of new First Nations GST and First Nations Personal Income Tax administration agreements are presently under negotiation. The First Nations file will also be impacted by the Minister of Finance’s December 6, 2004, tabling of legislative changes to the First Nations Goods and Services Act to enable the creation of a First Nations Quebec Sales Tax. Finally, a First Nations Advisory Committee was recently created for identifying First Nations’ needs and expectations as they relate to tax and benefit programs administered by the CRA, and for proposing ways to address them.

Exhibit 4: Expected Results for Tax Services

Date modified:

2005-03-24