In broad terms, we will have met our expected outcome if:

• we provide high-quality services that encourage and facilitate participation in the tax system;

• we process returns in a manner which promotes the timely, accurate and efficient assessment of taxes owing, the distribution of refunds as appropriate, and the proper updating of account information;

• we employ an appropriate mix of compliance and enforcement activities to effectively target and address compliance issues; and

• the majority of Canadian individuals and businesses continue to participate in the tax system and meet their obligations.

• $297 billion in gross taxes and excise duties collected, including $37.9 billion on behalf of provinces and territories

• 16.4 million public enquiries handled

• 22.8 million individual, 0.4 million trust, and 1.6 million corporate tax returns assessed; 78,629 charities returns processed

• 1.4 million employers, approximately 2.0 million business remitters for GST/HST (excluding Quebec) and several thousand remitters for excise duties and taxes

• 282,974 audits and 3,093 investigations completed

• Total resource budget of $1.92 billion

• Approximately $1.5 billion in Scientific Research and Experimental Development (SR&ED) tax credits handled

Current-Year Performance: Overall, we continue to collect the vast majority of federal revenues (95%) without any audit or collection activities. We make considerable efforts to provide quality service and outreach initiatives to promote participation in the tax system. Our efforts are supported by a strong legislative foundation, the co-operation of over a million employers who withhold and remit source deductions, and the collaboration of our federal, provincial, and territorial partners. Overall, tax compliance in Canada is reasonably high. Most Canadians over 18 years of age (over 90%) filed and paid their reported income taxes when they were due. Similarly, most taxable Canadian corporations (also over 90%) filed and paid their reported income taxes on time. In the case of GST/HST*, most known Canadian businesses registered as appropriate and filed their returns when they were due (Fig. 1-1 and Fig. 1-2).

Year-to-Year Change: Our most recent available estimates suggest that the high levels of filing and remittance compliance we reported in 2000-2001 were sustained. The percentage of taxable Canadian individuals and corporations that file and pay their reported taxes on time has remained high (over 90%), while registration for the GST/HST* has improved significantly, representing approximately 120,000 new registrants. Nearly 90% of these registrants filed their GST/HST* returns on time (89% in the previous year).

* GST/HST statistics exclude Quebec. Businesses residing within Quebec register with ministère du Revenu du Québec, which administers GST on behalf of the CCRA.

A. Providing Timely, Accessible, Reliable, and Responsive Service to Clients

Current-Year Performance: A fundamental aspect of client service is to inform taxpayers in a timely and effective way about changes in law in a manner that is responsive to their needs. Our telephone, electronic information, and publications provide reliable information services to help taxpayers to be informed and to understand their tax obligations. Over 900 of our tax-related publications (forms and guides) undergo rigorous and highly structured, time-sensitive annual review processes to ensure that all legislative changes are accurately incorporated in an easy to understand format and in time to meet our critical target for bulk mailing in early January. Our 2001 Annual Survey indicates that 69% of the taxpayers (67% last year) agreed that our guides and materials are clear and simple to understand. This is particularly pertinent because of the implementation of Tax on Income (TONI), which has been a massive undertaking for the CCRA over the past two years. Similar to last year, we successfully communicated and completed the full implementation of the TONI legislation for each of remaining seven provinces and territories (except Quebec).

To improve accessibility, our strategy has been to reduce our clients' need to call by providing on-line and automated information services. Last year, the number of tax-related hits on our Web site almost doubled to 32 million, while the number of callers declined by about 4% (Fig. 2-1). Despite the modest decline in caller volume, the telephone remains the most popular way that clients seek our assistance. We met our 90% to 95% accessibility target (Fig. 2-2). Although this means that most callers were able to reach the queue for service, it does not imply that they were successful on their first attempt or that their calls, once in the queue, were answered in a timely manner. We no longer monitor the number of attempts made by callers as a performance measure. We believe that this statistic has become less meaningful with the advent of new technologies, such as automatic re-dial services. Our timeliness in answering calls was somewhat below our internal performance standard of answering 80% of calls within two minutes of entering the queue.

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A. Providing Timely, Accessible, Reliable and Responsive Service to Clients

A. Providing Timely, Accessible, Reliable and Responsive Service to Clients (Continued)

To evaluate our overall service performance, we use surveys, service standards, and internal performance standards. The estimated percentage of clients who agree that the CCRA is doing a good or very good job in the area of income taxation increased significantly from 71% to 74% between our 2000 and 2001 Annual Survey, which meets our success criterion for responsiveness to client needs.

Currently, our 27 service standards for tax services focus on timeliness and do not include all key delivery modes, such as telephone enquiry service. Although we did not meet a number of these service standards, we met or mostly met many of our most important ones, including T1 processing and GST/HST processing (Fig. 2-3 and Schedule B " Overall Performance Against Service Standards " )

Year-to-Year Change: Estimates based on our Annual Survey indicate that the majority of taxpayers (69%) continue to find our guides and materials clear and simple to understand. We again successfully communicated and implemented major legislative changes within required timeframes. On balance we made modest progress, improving our performance against five of our service standards. However, our performance declined against four standards (Fig. 2-4). With respect to telephone enquiries, we substantially improved caller accessibility during peak season. The 4% decline in caller volume may be due in part to the expiration of certain one-time government initiatives in place during 2000-2001, or it may also indicate that our alternative electronic information services are beginning to reduce our clients' need to call. We will monitor trends over the next several years to better understand how these alternative services affect caller volumes. As well, our quality assurance program for evaluating the reliability of our telephone service indicates that agent accuracy is similar to last year.

B. Ensuring Fairness

Current-Year Performance: The CCRA strives to collect the correct amount of tax–neither too much nor too little. As part of this effort, we refunded nearly $58 million to some 216,000 individual filers who understated the amount of taxes prepaid through employers' withholding of source deductions. In support of fairness, we also cancelled or waived an estimated $245 million in interest and penalties for extenuating circumstances such as financial hardship, as permissible under the law. We met our service standard for processing requests for these cancellations and waivers. We initiated a review of our fairness registry, which tracks requests and decisions relating to cancellations of interest and penalty assessments, but have yet to institute a systematic fairness monitoring program across the CCRA to provide greater assurance of consistency of treatment. Our current efforts to ensure the consistent treatment of taxpayers include providing our officers with tools and guidelines, supported by Fairness Committees at most tax services offices. Guided by the Appeals Program, we are considering options for a co-ordinated, agency-wide monitoring process and a more complete fairness registry. We also provided 307 rulings and 2,735 interpretations (written and by phone) for income tax and another 3,724 for GST/HST to clients, to provide them with greater certainty about the application of the tax laws. However, we did not meet our service standard for timeliness of processing applications under our rulings program.

Year-to-Year Change: Cancellations and waivers of interest and penalties increased by approximately 32% (from an estimated $185 million to an estimated $245 million–Fig. 2-5). The number of income tax rulings and interpretations remained virtually the same. Our timeliness in processing applications for advance rulings has declined since 2000-2001, largely as a result of the increased complexity of cases and the need to train newly hired personnel.

A. Providing Timely, Accessible, Reliable and Responsive Service to Clients (Continued)

B. Ensuring Fairness

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Current-Year Performance: We met or mostly met our service standards for processing timeliness in all but two major tax return categories (T2 corporation and T3 trust returns—Figs. 3-3 and 3-4), while maintaining a high degree of accuracy. In the case of individual T1 returns, our performance exceeded our standards. We processed 13.9 million paper returns in an average of less than four weeks and 8.9 million electronic returns in an average of less than two weeks. Our annual survey indicates that 85% of taxpayers were either somewhat or very satisfied with the time it took to receive their notice of assessment or refund.

In the corporate returns area, we experienced unanticipated problems with the introduction of our new corporate processing system. As a result, we faced a considerable challenge this year in addressing a substantial backlog of unassessed T2 returns from 2000-2001. We successfully met this challenge, dramatically reducing our inventory from 342,061 returns at the beginning of the year to an acceptable level of 55,616 returns by year-end (Fig. 3-2). With much of our resources devoted to clearing the backlog, we were unable to meet our revised standard for T2 processing this year (Fig. 3-3). However, we have laid the foundation for timelier processing. Indeed, processing times had already improved sharply by year-end although we still could not meet our service standard. After a full year of experience, and considering the complexity of the workload, we have reassessed the service standard for the new system, which was set before its implementation. This revised standard is to process 75% of returns in 50 days and to process 90% in 90 days.

An important part of our processing strategy is to increase participation in electronic filing by individual taxpayers, and to expand electronic filing options for our other tax lines. Not only does electronic filing eliminate many of the costs and errors associated with the processing of paper returns, it also dramatically improves the speed with which returns can be processed. While we recognize that the take-up rates for our electronic services are dependent on the quality of our offerings and people's attitudes toward Internet transactions, we are building the capability to process 75% of T1 tax returns electronically in the next few years.

Year-to-Year Chan ge: We exceeded last year's performance by processing 99.8% of all T1 returns that were filed on time by mid-June. Our timeliness in processing GST/HST returns also improved from 2000-2001 and is now close to our service standard (Fig. 3-4). Our timeliness for processing T3 trust returns declined to 46%, compared to 62% last year (Fig. 3-4). We are making several system enhancements to the T3 trust returns processing system to streamline the process, which will improve processing times in subsequent years. Electronic filing continued to increase in popularity this year, with 39% of all 2001 T1 returns being filed electronically, compared to our revised figure of 35.6% for the year before (Fig. 3-1).

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Current-Year Performance: The primary role of our accounts receivable program is to ensure that taxes that have been assessed and collectables are actually paid in a timely manner. The collection of outstanding accounts receivable is an important and integral part of the CCRA's compliance continuum. Our objective is to prevent further escalation in receivables and to maintain our receivables in line with gross revenues. The CCRA has obtained additional resources from Parliament and is implementing various strategies to address increases in the annual intake and aging of accounts receivable.

At the end of March 2002 the level of accounts receivable was about $16 billion compared to $13.9 billion the year before (Fig. 4-2). We succeeded, through additional resources and enhanced program delivery, in limiting the rate of growth of accounts receivable to a level that would otherwise have been higher. Our key accomplishments in 2001-2002 included significantly exceeding our cash collection commitment to the Government of Canada of $7.8 billion by $1.0 billion (Fig. 4-1), and achieving improvements in the aging of our accounts receivables handled by tax services offices (TSOs), which represents about 75% of overall receivables and comprise those accounts that are more difficult to collect. In particular, the percentage of the value of accounts receivable less than a year old in the TSOs increased by 2%, with a corresponding decrease in the percentage of the value of accounts receivable over five years old (Fig. 4-4).

Our most significant challenge resides in reducing the gap between our production (resolving accounts through cash collections, write-offs of accounts that we could not collect, or other adjustments) and the steady increase in intake of new debt every year. While our annual performance with respect to cash collected continues to improve, we were not able to keep pace with intake and the ratio of outstanding receivables to gross revenues continues to deteriorate—growing from 4.7% the previous year to 5.3% this year. The Agency does not use this ratio as a performance target, but it is nevertheless a meaningful trend indicator of global performance of the accounts receivable program. We have also launched a major initiative aimed at improving and modernizing our program delivery systems, approaches, and mechanisms, such as nationalizing the collections workload, to improve performance and cope with ever-increasing workloads.

The CCRA uses a variety of performance indicators other than the above ratio for managing its receivables program. These include aging, cash collected, production to intake, write-offs, cost to resolve $1,000, and production per full-time equivalent. The federal government's transition to reporting revenues on an accrual basis rather than a cash basis will result in adjustments to reflect the realizable value of our receivables. It will also affect the calculation of the ratio of outstanding receivables to gross revenues.

Year-to-Year Change: While our production has increased substantially year-over-year (Fig. 4-3), it still has not kept pace with the rising intake. The cost to resolve $1,000 decreased from $18 to $17 as a result of increased productivity among collections agents. Overall recoveries increased as a percentage of gross revenue from 2.7% to 3.3%. At the same time, about $1.0 billion in bad debts were written off as in the prior year. On balance, we believe that we exceeded our performance over the previous year due largely to our strong performance in cash collections.

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Current-Year Performance: Measuring non-compliance risks and understanding their underlying causes is an extremely challenging but important task for revenue agencies worldwide. To advance our understanding of compliance risks, we have initiated a new framework for measuring compliance. The framework, which is based on establishing a comprehensive basket of compliance indicators (Fig. 5-1), will provide a structured approach to assessing compliance risks. Our experience suggests that non-compliance is most prevalent in our business tax lines. Our national risk assessment system provides broad estimates of the percentage of client accounts with a substantive risk of non-compliance within these lines (Fig. 5-2). The results from our random validation programs for individual income tax returns indicate a relatively high overall rate of compliance (92.8%) on the key deduction and credit items subject to review. Our T1 matching program also indicates that compliance is high with respect to income and deduction items (e.g., wages and salaries) that are subject to third-party information reporting. Although our current risk assessment systems do not cover all reporting compliance issues, our qualitative assessment based on our experience and guided by available evidence and estimates is that non-compliance generally remains at relatively low levels.

Year-to-Year Change: We anticipate that the initial framework we have developed for measuring compliance in a more systematic and comprehensive way will make a substantive contribution to our understanding of compliance and our capacity to assess compliance risks. We have developed a proposed action plan for the implementation of our new framework beginning in 2002-2003. Nonetheless, the estimated percentages of business accounts with a substantive risk of non-compliance have changed very little relative to our benchmark figures for 2000-2001 (Fig. 5-2). The overall rate of non-compliance on individual income tax items covered under the random sampling portion of our T1 validation program has also remained stable in recent years.

Current-Year Performance: The CCRA aims to target the largest share of its review and enforcement activities on areas of high risk (Fig. 6-2), a strategy designed to make the tax system more equitable, recover more revenue, and impose a smaller burden on compliant taxpayers. Within individual types of review and enforcement activities designed to address key compliance issues, we believe that our targeting efforts are largely effective. Our analysis of the CCRA's information matching, validation, and audit programs indicates that these programs are generally effective at targeting higher-risk returns for verification and enforcement. For example, the individual income tax returns targeted for verification of selected deduction and credit items under our Processing Review Program show a much higher average assessment and rate of adjustment than those selected at random (Fig. 6-1). Our audit programs are supported by sound computerized risk assessment systems. We still need to improve our capacity to effectively allocate resources across the spectrum of our review and enforcement activities according to risk. To improve compliance resource allocation efforts, we are continuing to enhance systems, such as the Compliance Measurement, Profiling, and Assessment System (COMPASS) which allows us to analyze many compliance risks by industry sector, geographic area, and other statistical and demographic breakdowns.

Year-to-Year Change: Through renewed efforts in securing corporate returns and improved targeting of non-filers and non-registrants, we have substantially increased (16.5%) the combined number of new GST/HST registrations and income tax filers—from 555,739 in 2000-2001 to 647,170 in 2001-2002 (Fig. 6-3). Our targeting under our validation programs has remained effective (Fig. 6-1).

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Current-Year Performance: We work closely with the departments of Finance and Justice to ensure that proper legislative authority exists to realize the Government's objectives for fairness in the tax system and the promotion of voluntary compliance. This work involves the ongoing assessment of the effectiveness of our legislative framework to ensure that it remains responsive to new and emerging issues that affect compliance. In our judgement, we met this expectation through participation in several new legislative initiatives that led to making and implementing recommendations for legislative change (Fig. 7-1).

Year-to-Year Change: In 2001-2002, we participated in the drafting of tobacco tax measures, the air travellers' security charge, and budget measures with respect to apprentice vehicle mechanics' tools, adult basic education tuition assistance, the education tax credit, the transfer of assets of managed woodlots, charitable donations of publicly traded securities, GST/HST credit responsiveness, qualified limited partnerships, temporary construction work camps, and the deferral of corporation tax instalments for small business, among others. Improvements were also made to the Canada Pension Plan Regulations and the Insurable Earnings and Collection of Premiums Regulations to facilitate their administration and obviate the need for annual amendments. The CCRA was a key participant in the government's response to September 11 events by helping draft and subsequently execute our new-found responsibilities under the Charities Registration (Security Information) Act. This provides us with the legal framework to use and protect classified information that may tie an organization to terrorist groups.

Current-Year Performance: In our judgement, in addition to providing quality services, we are delivering an appropriate mix of programs to protect the tax base, while still promoting voluntary compliance by taxpayers (Fig. 8-2). The overall fiscal impact of our programs (Fig. 8-1) was approximately $6.5 billion, exceeding our commitment to the Government of Canada of $6.2 billion by 4.8%. We estimate that approximately 16% of the $6.5 billion will be subject to appeals and another 6% will be uncollectable for a net fiscal impact of about $5 billion. As well, our criminal investigations program, which refers the most flagrant cases of non-compliance such as fraud and underground economy for prosecution, continues to be effective—351 customs and tax investigations referred for prosecution vs. 312 the year before.

To ensure responsible enforcement, we have mechanisms that promote transparency in what we do and inform our clients of the breadth of our activities. Examples of key levers that support the fair and equitable treatment of taxpayers include audit protocol agreements for large corporations where we have continued audit presence and outreach for underground economy and Scientific Research and Experimental Development (SR&ED) tax credit. Protocol agreements are in place between the CCRA and approximately 30% of all large corporations (including subsidiaries), helping to ensure co-operation, openness, and flexibility in the audit process. We expanded our outreach initiatives to improve compliance within the underground economy and to inform non-residents and potential immigrants of their tax obligations and entitlements. We delivered $1.5 billion in credits under the SR&ED programs—the largest federally supported incentive program for research and development in Canada.

Year-to-Year Change: Our audit protocol agreement program continues to grow (Fig. 8-2). Review of possible tax avoidance issues in audits of large corporations has increased from 28% to 59% in 2001-2002. We have reorganized our operations to enhance the consistency and predictability of SR&ED program delivery. While we have made some progress in the timeliness of SR&ED delivery, we need to make further progress against our service standards ( Schedule B " Overall Performance Against Service Standards " ).

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Current-Year Performance: To encourage voluntary compliance and maintain the confidence of Canadians that the tax system is equitable and that more serious cases of non-compliance are being addressed, it is essential to maintain an adequate level of audit coverage within each of our major tax programs. Following an independent review of declining audit coverage rates in recent years, which included an assessment of our projections of the fiscal impact of increased audit resources, we received additional funding from the Government of Canada to invest in our compliance programs. Although we are unable to precisely measure our audit coverage rates, our best available estimates indicate that we were able to meet our current target rate for audits of large corporations and nearly meet our target rate for T2 basic files. However, our coverage for small and medium corporate, individual, and GST/HST files was below target according to our estimates. This was due in large part to challenges in hiring and training close to 900 additional auditors, which took longer than anticipated. Although our estimates indicate that we did not meet all of our audit coverage targets, the fiscal impact of our programs ($6.5 billion) exceeded the commitment ($6.2 billion) we made to the Government of Canada in relation to the new funding. This performance was broadly in line with our projection that our compliance programs would generate nearly $10 in additional assessments for every additional dollar invested.

Year-to-Year Change: With the aid of additional funding, we have succeeded in ramping up the resources needed to reverse the declining trend in audit coverage over recent years. The fiscal impact of our compliance programs has improved from $6 billion in 2001 to $6.5 billion. Although, in general, our audit coverage rates in 2001-2002 are similar to those in 2000-2001, our investments in hiring and training new audit staff position us well to meet our audit coverage (Fig. 9-1 and Fig. 9-2) and fiscal impact commitments for 2002-2003 through 2004-2005.

Current-Year Performance: The Tax Services business line has about 27,600 full-time equivalent (FTE) staff members. The CCRA undertook several initiatives to attract, train, and retain auditors, economists, and other personnel to ensure that a strong, capable workforce is in place within the organization. With the approval of additional resources received mid-way during the year, much of our effort was focused on recruiting auditors for our compliance programs. We experienced some delays in our recruitment efforts for a number of different reasons, including accommodation and security clearance issues following September 11. However, by the end of the fiscal year, we met this year's targets for hiring approximately 900 auditors for compliance programs. In addition, with our Future Directions initiative, our most ambitious review of our delivery services, and the increasingly dynamic global environment in which we operate, the mix of skills in our workforce will have to change and adapt across all our service delivery lines. To keep pace, our investment in training and learning for our existing employees will require more attention over the coming years. Our annual survey indicates that an estimated 85% of Canadians who have had contact with Tax Services agree that the staff are knowledgeable and competent.

Year-to-Year Change: As part of our multi-year hiring objective in the compliance area, we were successful in meeting our 2001-2002 target of hiring some 900 additional audit staff by the end of the year, which, as a result for this year, only had a marginal impact on our FTE count. In addition, we carried out substantive training activities to prepare our compliance staff to meet our audit coverage targets for the coming years, and developed learning products and plans to accelerate the time it takes for new human resources to become fully productive. Across all of our functions the number of Tax Services staff has remained virtually constant (Fig. 10-1). Recruitment efforts will continue to address staffing needs in all areas, particularly audit and collection staff required to meet the future multi-year hiring targets associated with the new funding.

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Current-Year Performance (Year 2 of 5): Extensive consultations with client groups via our Future Directions initiative have confirmed electronic service delivery as the driving force behind our ongoing business transformation for improved service and efficiency. We have continued to aggressively expand the range of electronic service options (Fig. 11-1), and a substantial share of our clients are taking advantage of these services.

Besides the Internet, we have continued to explore the use of telephony technology. We are looking at innovations such as allowing business clients to file nil payroll reports and GST/HST returns over the telephone.

Other innovations include changes to business practices, such as permitting individual clients to pre-authorize the debiting of their accounts for instalment or arrears payments. Projects to re-engineer or replace legacy systems, such as the GST/HST Redesign and the Other Levies Project, both of which incorporate the standardized accounting platform and T1 Matching Redesign, are proceeding as planned.

Through the Excise Act, 2001, scheduled for implementation in 2002-2003, we will be able to provide a more modern and efficient framework for administering and enforcing the taxation of alcohol and tobacco products.

Year-to-Year Change: We successfully met our key program commitments for innovation earmarked for 2001-2002. Under the Future Directions Initiative, we made solid progress in developing an integrated service vision across agency business lines.

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The Road Ahead – 2002 and Beyond

1. Implement multi-faceted framework for managing accounts receivable, including nationalizing collections workload (Anticipated Result 4).

2. Deploy the additional resources provided by the Government to meet the commitments for audit coverage and anticipated fiscal impact for 2002-2003 through 2004-2005 (Anticipated Results 4, 8, 9 and 10).

3. Improve the timeliness of processing T2 corporation returns against the revised service standards (Anticipated Result 3).

4. Continue implementation of Other Levies Project as stated in the Corporate Business Plan (Anticipated Result 11).

5. Continue expansion of electronic delivery initiatives as stated in the Corporate Business Plan and Future Directions. This includes: building capability to process 75% of returns electronically in the next few years; and introducing T2 Internet Filing for corporation returns (Anticipated Results 3 and 11).

6. Improve performance against existing service standards; expand the scope of these standards beyond timeliness, and include standards for telephone enquiries (Anticipated Result 2A).

7. Fully implement a systematic, nationwide fairness monitoring program (Anticipated Result 2B).

8. Finalize the framework for measuring compliance and develop appropriate indicators (Anticipated Result 5).

9. Implement Excise Act, 2001 (Anticipated Result 11).

10. Continue participation in International e-compliance and e-service committees to clarify existing policies and practices in an e-commerce world (Anticipated Result 8)