Tax Services

Expected Outcome

Performance Summary – We have mostly met this Anticipated Result, as demonstrated by the following performance against expectations:

• resolution of accounts (through cash collections, write-offs, and other adjustments) came close to meeting the intake of new debt
• exceeded cash collections commitment to the Government of Canada by $530 million
• reduced the share of accounts over 5 years of age in our Tax Services Offices (TSO)

In 2002-2003, the Government of Canada changed its accounting policy to a full accrual basis rather than the modified cash basis, as announced in the 2003-2004 Federal Budget. This change in accounting method greatly increased the amount reported as a receivable. Under the accrual basis of accounting, the CCRA Financial Statements indicate a total of $50.8 billion in receivables. Of this amount, approximately $30 billion is attributable to the recording of accrued receivables which relate to the current fiscal year but which are not payable until the next fiscal year. The vast majority of these amounts are paid when they become due and require no collection action. The remainder of the $50.8 billion consists of $4.6 billion in amounts in dispute and $16.2 billion in undisputed arrears (accounts receivable). We assess our performance in managing our accounts receivable program, as discussed under this anticipated result, on actual assessments that are under collection status ($16.2 billion). Notes 2 and 4 of the CCRA's Financial Statements Administered Activities provide further explanation of amounts receivable on an accrual basis.

The vast majority of individuals and businesses pay their reported taxes on a timely basis, and less than 5% of all assessed taxes and excise duties are referred to our Accounts Receivable program for collection action each year. The primary purpose of the Accounts Receivable program is to collect outstanding balances in a timely and efficient manner. However, some of these arrears are not recoverable for various reasons, such as the financial situation of the taxpayer. The collection of these balances is an important element of the compliance continuum and is intended to help ensure that all taxpayers pay their fair share and that the revenue needed to fund government programs remains available.

Our most significant challenge managing accounts receivables has been to reduce the gap between the accounts resolved (either through collection or write-off of accounts that are uncollectable, and other adjustments) and the rising trend in new intake of debt (Fig. 3-1). The CCRA obtained additional resources from the Government of Canada to support the implementation of various strategies to improve our capacity to address the intake of new debt as well as the aging of arrears. With the aid of these additional resources, we have focused our accounts receivable strategy on three key objectives: keeping the pace of resolving accounts in line with intake of new debt; meeting our cash collection commitment to the Government of Canada; and reducing the age of accounts receivable. This year, the resolution of accounts included cash collections of $8.7 billion, exceeding our commitment to the Government of Canada by $530 million, as well as approximately $1.7 billion in write-offs of bad debts. Taken together, this came close to matching our intake of $11.1 billion in new debt. To address our commitment with respect to the age of accounts receivable, we increased our focus on older accounts in our TSOs. We reduced the amount of arrears for accounts over five years from $2.3 to $2.2 billion, and the share decreased from 19% to 18% of all arrears, not quite achieving our commitment of 17.61%.

Approximately, 18% of the $1.7 billion in bad debts that were written off this year was covered under the bankruptcy and insolvency statutes. In each of the previous two years, write-offs were lower, amounting to approximately $1 billion. The Office of the Auditor General of Canada has noted in its April 2002 audit of the CCRA that “The Agency has a number of controls in place to guard against inappropriate write-offs. Different levels of authority approve write-offs as their amounts increase; the higher the amount, the higher the level of authority to approve it.”

Largely as a result of sustained high-cash collections, increased write-offs, and a change in the accounting method for Customs receivables, the overall total of undisputed assessed arrears grew by less than 2% (from $15.9 billion to $16.2 billion) compared to 14.4% the previous year. We have reviewed the appropriateness of using the ratio of undisputed assessed arrears to gross revenue and have determined that it is not a meaningful or relevant indicator of our performance. The level of gross revenue is influenced by factors outside the CCRA's control, such as economic conditions and government fiscal policy. The cost to resolve $1,000 remained at $17.

3-1 Total Undisputed Assessed Arrears, Intake, and Accounts Resolved

* Intake and accounts resolved amounts relate to TSO collections activity. The $16.2 billion does not include $4.6 billion in assessed amounts under dispute, against which we are precluded by law from taking active collection measures.

Of the $16.2 billion in undisputed arrears owed to the Government of Canada, the largest share ($7.4 billion) is owed by individuals, followed by $4.1 billion owed by GST/HST registered businesses.

3-2 Total Undisputed Assessed Arrears By Revenue as of March 31, 2003

The CCRA is working to ensure that the majority of arrears is collected; 18% has already been arranged or secured and 53% is being negotiated and worked on by our collections officers. Approximately 7% is being pursued under the Bankruptcy and Insolvency Act (BIA). We estimate that 22% of the undisputed arrears may eventually be written off. However, this percentage could be as high as 36% ($7.2 billion allowance for doubtful accounts) depending on the resolution of accounts that are currently under negotiation or under dispute. A recent Supreme Court of Canada decision held that the collection of debts assessed pursuant to the Canada Income Tax Act is subject to the six-year limitation period of the Crown Liability and Proceedings Act. This decision further ruled that the collection of provincial income tax debts is governed by provincial limitation law and significantly impacts the collection of those debts which exceed the applicable limitation periods. We are currently working with the Department of Finance to obtain retroactive amendments to existing legislation that will ensure that all taxpayers are treated equally and the tax base continues to be protected.

We implemented many innovations to improve workload allocation, streamline procedures, and put a stronger focus on program delivery. We piloted the personal income tax (T1) “national pool” of accounts, that allows collectors to access national arrears workloads, notwithstanding previous geographic barriers. This initiative resulted in the streamlined collection of $165 million in cash, the closing of 41,000 accounts and freed up more TSO resources to address complex accounts. With the success of the pilot, we will be implementing this initiative nationally in the coming year. Our National Collections Call Centre is internationally recognized and used as a model by other revenue administrations such as Japan's National Tax Agency. The centre addresses high-volume, low-risk personal income tax and GST/HST accounts. This year it handled 2.1 million calls and dealt with $1.2 billion dollars in arrears.

Date modified:

2003-10-29