Our 2005-2006 Results

Our Program Activities

Assessment of Returns and Payment Processing (PA2)

Within the Assessment of Returns and Payment Processing program activity, we are responsible for processing activities at seven Tax Centres across Canada. As discussed in the section entitled, Achieving Our Tax Services Strategic Outcome, this program activity helps ensure that taxpayers meet their obligations and Canada's revenue base is protected in several ways.

In 2005-2006, spending for this program activity totalled $811.3 million (8,718 FTEs) or 21.9% of the CRA's overall expenditures ¹ . Of this $811.3 million, $555.6 million was for net program expenditures and $255.7 million was allocated to this program activity for Corporate Services.

Figure 14 Resource Spending

• Individual Returns Processing – processes returns for tax programs through initial assessment, pre-and post-assessment validation review, accounting adjustments, and general correspondence:
  • spending of $202 million (3,534 FTEs);
  • processed close to 25 million individual returns from February 14, 2005 to January 27, 2006, over 13 million of which were paper; and
  • refunded $18 billion to almost 15 million individual taxpayers.
• Business Returns Processing – registers businesses in Canada using the Business Number; processes, assesses, and validates information filed via T2 (corporate income tax), T4 (employee), T5 (interest income), and GST/HST returns; establishes and maintains account status; carries out excise programs; and receives all payments:
  • spending of $138.1 million (2,487 FTEs);
  • administered about 1.5 million employer accounts and over 2.5 million GST/HST registrants (excluding Quebec); and
  • processed close to 1.7 million corporate returns, almost 590,000 visitor rebates, approximately 6.8 million GST/HST returns, over 185,000 trust returns, and almost $330 billion in payments.
• Scientific Research and Experimental Development Program (SR&ED) – provides investment credits as an incentive to conduct qualifying industrial research and development activities in Canada:
  • spending of $52.7 million (520 FTEs); and
  • provided $1.8 billion in tax credits.
• GST administration in Quebec – administers both the MOU with the ministère du Revenu du Québec (MRQ) and payments to the MRQ:
  • spending of $131.4 million (we do not attribute FTEs to this sub-activity).
• Functional direction – re-engineers specific business processes for the CRA related to this program activity; and provides financial planning and management support services for PA2:
  • spending of $31.5 million (296 FTEs).
• Allocation of Corporate Services spending
  • total of $255.7 million allocated to this program activity (1,878 FTEs).

Performance Report Card

Performance Discussion

Our Assessment of Returns and Payment Processing activity has the following expected results:

• Assessment and payment processing are timely and accurate; and
• Non-compliance is identified and addressed.

We met the first of these expected results by meeting the returns processing targets for our key indicators:

• we met all of our key external service standards and internal performance standards for timeliness;
• take up of electronic filing continued to rise; and
• our quality assurance results related to processing individual paper returns met our 98% target.

We also met our second expected result with high recovery rates in our tax review programs.

By providing taxpayers increased convenience and accessibility through electronic payment technology, we help them comply with the remittance obligations discussed on , and help protect Canada's revenue base. The results from our tax review programs also helped protect the tax base.

Key external service standards for timeliness – We met our most important processing service standards involving high impact or high volume activities in 2005-2006. Our results against our key external service standards were as follows:

• between February 14, 2005 and May 30, 2005, T1 paper returns were processed on average in 25 days, which is within our standard of four to six weeks;
• between February 14, 2005 and May 30, 2005, T1 electronic returns were processed on average in 13 days, which is within our standard of two weeks;
• we met our target of 95% by processing over 98% of 6.8 million GST/HST returns within 21 days;
• we processed almost 1.5 million T2 paper returns, 88% within 50 days, meeting our 75% target; and processed 96% within 90 days, meeting our 90% target;
• we met our 95% target for processing over two million Statements of Arrears on time;
• we issued 99% of almost 2.6 million Statements of Interim Payments on time, meeting our target of 95%; and
• we met our 90% target for processing over 35,000 fairness requests in 4-6 weeks.

We met our four service standards for our SR&ED program in 2005-2006. This program provided $1.8 billion in tax credits to encourage Canadians to conduct research and development in Canada.

Further details regarding our performance against our external service standards, including results for prior years, can be found on .

Key internal performance standards for timeliness – In 2005-2006, we:

• handled over 35.6 million payments, depositing over 99% of the value of all tax funds within 24 hours;
• processed over 99% of on time filed T1 returns by mid-June, meeting our target of 98%;
• processed 95% of over 930,000 T4 returns by April 30^th, meeting our target of 90%; and
• processed 93% of over 220,000 T5 returns (received between January 1 and March 31, 2006) by May 31^st, meeting our 90% target.

The amount of refund interest we pay is another indicator which shows whether or not we are processing returns in a timely fashion. In 2005-2006, we paid out $576 million in refund interest to filers of personal, corporate, GST/HST, and Excise tax returns. This was the lowest total of refund interest paid for any of the past four years (Figure 15).

Figure 15 Interest Paid on Refunds

In addition, to protect Canada's revenue base, our Refund Set-Off Program provides an automated service by which the tax refunds of individuals may be set-off to debts owed by taxpayers under federal, provincial, or territorial programs—debts that might otherwise become uncollectible. In 2005-2006, refund set-offs totalled almost $170 million, of which almost $54 million was collected on behalf of Canada's provinces and territories.

Electronic Processing

An important part of our approach to improve the timeliness, accuracy, and efficiency of returns processing is to encourage greater participation by taxpayers in our electronic filing options.

Take-up (T1) – Electronic filing of T1 returns has increased annually since 2001 (Figure 16). Over 49% of 2004 individual tax returns were filed electronically in the 2005 filing season ² , just short of our 50% goal.

Figure 16 Take-up of Electronic Filing for Individual Income Tax Returns

We continue to pursue increases in individual returns that are filed electronically. In 2005-2006, we aimed marketing activities at reaching a greater number of individuals and businesses to further increase take-up rates for electronic filing.

Take-up (T2) – Approximately 10% of all corporate income tax returns were filed electronically in 2005-2006, meeting our target of 7% and nearly doubling the 2004-2005 proportion of 5.94%.

Enhancements to Other Electronic Services – Other services achieved increased take-up as well:

• Internet filing of GST/HST returns increased by over 32% (from 250,413 in 2004-2005 to 331,671 this year), which represents almost 5% of the total for this workload; and
• T4 Internet filing rose by over 17% (from 79,282 returns in 2004-2005 to 93,070 this year) and now represents almost 10% of the total for this workload.

We are continually searching for ways to better respond to the needs of taxpayers. The introduction of electronic payment processing has enabled us to take advantage of emerging technology. In 2005-2006, electronic payments increased by 20% from the prior year.

In addition, My Account, our secure online service allowing individuals the convenience of managing their personal tax and benefit information, continues to grow in response to feedback. Reaching almost one million enrolments for My Account, there were 1,623,760 visits to the My Account Welcome page in 2005-2006. Enhancements added to My Account in 2005-2006 allow enrolled individuals to view their direct deposit information, tax returns, and carryovers.

Since about 50% of all taxpayers use tax professionals or representatives, in 2005-2006, we introduced a new online service called ‘Represent a client' on our Web site. This service allows authorized representatives to authenticate themselves, register, and transact online on behalf of their individual clients.

Accurate assessment of T1 paper returns – The primary tool for determining if we assess returns accurately is our T1 Quality Evaluation Program, which reviews initial assessments of individual tax returns for each year. Our review for 2005-2006 ³ indicates processing errors with an impact on a taxpayer's refund or balance due were approximately 1%, meeting our 98% accuracy target. In 2004-2005, the last year for which figures are available, the amounts involved were generally $300-$400 per error.

The need for effective processes to identify non-compliance is essential to managing compliance risk and ensuring that people pay their required taxes. Therefore, we subject selected returns to further review at a later date under our post-assessment programs. We devote resources to areas where our assessments indicate that the risk and potential revenue consequences of non-compliance are higher. Our strategy is designed to make administration of the tax system more equitable, recover more revenue, and impose less burden on compliant taxpayers. Our review programs also promote taxpayer education by identifying common areas of misunderstanding.

Once tax returns are filed, we conduct pre-assessment reviews based on a risk scoring approach to select returns for detailed review. In addition, our post-assessment reviews involve targeted reviews based on risk assessment as well as random reviews. The random reviews facilitate both an estimation of the non-compliance rate for these deductions and credits ( ) as well as ongoing refinement of risk assessment rules.

The success of our risk assessment approach is demonstrated by average targeted recoveries exceeding random recoveries. In 2004 (the last year of available results), we assessed additional tax in 24% of targeted reviews and 16% of random reviews. The average additional amounts assessed were $187 and $69 respectively. These results suggest we have effective criteria for selecting accounts for review.

Pre-Assessment Tax Review Programs – The Confidence Validity Program under which we conduct pre-assessment reviews identified $91.7 million in additional assessed tax in 2004-2005 ⁴ (Figure 17).

Figure 17 Taxes Assessed through Pre-Assessment Reviews

Post-Assessment Tax Review Programs – Our Matching Program, taking place after the Notice of Assessment is sent, compares information on an individual's tax return to information provided by third-party sources, such as employers or financial institutions. This activity provides support for important programs such as the Canada Child Tax Benefit, the GST/HST credit, and the Guaranteed Income Supplement by correcting the net income individuals reported. Also, our Matching Program corrects errors relating to an individual's Registered Retirement Savings Plan (RRSP) deduction limit; spousal-related claims; child-care expenses; provincial and territorial tax credits; and provincial tax reductions. In 2005-2006, over 998,000 corrective actions under our T1 Matching Program generated additional tax assessments of $465.9 million.

Our Processing Review Program promotes compliance and helps maintain confidence in the fairness of our programs through increased education, effective risk-scoring systems, and a balanced approach to our file selection process. In 2005-2006, our Processing Review Program recovered almost $131 million in provincial, territorial, and federal taxes.

Our matching and processing review programs reviewed three million T1 returns this past year and assessed $596.8 million in additional tax (Figure 18).

Figure 18 Individual Income Matching and Processing Review Program Results

In the course of reviewing individual tax returns, we also identify under-claimed credits relating to tax deducted at source or Canada Pension Plan contributions by comparing the individual's return to third-party information. Given the complexity of tax legislation, we expect to find errors made by taxpayers on their tax returns. In some instances, taxpayers calculate an amount of tax payable greater than the amount that should be assessed.

Our beneficial adjustments initiative adjusts returns to allow amounts to which the filer is entitled and issue a refund, if applicable. In 2005-2006, we adjusted over 295,000 returns, averaging almost $200 each. Figure 19 shows recent levels of beneficial adjustments.

Figure 19 Total Value of Beneficial Adjustments

¹ Spending and FTE figures for sub-activities may not add up to this total due to rounding.

² T1 intake from February 14, 2005 to June 29, 2005. We are reporting filing season information that ends within the fiscal year. Therefore, the result of 49% is the same as the one reported in last year's Annual Report.

³ Period of review was March 3, 2005 to June 23, 2005.

⁴ Due to data availability, information is always from the prior fiscal year.

Unaudited

Date modified:

2006-11-23