Our 2007-2008 Results

Our Program Activities

Accounts Receivable and Returns Compliance (PA3)

Overview

We manage the federal government’s largest debt collection service, managing debts arising from income tax, GST/HST, the Canada Pension Plan, Employment Insurance, and defaulted Canada student loans. In working with Canadians both to resolve their debt issues and to promote compliance with tax legislation governing employers, payroll, and the GST/HST, we help protect Canada’s revenue base.

We carry out our Accounts Receivable and Returns Compliance program activity to achieve two expected results:

• tax and non-tax debt are resolved on a timely basis and are within targeted levels; and
• non-compliance is detected and addressed.

Our Measure: Timely resolution of tax debt

It is important to address tax debt on a timely basis. The sooner we determine the risks involved in collecting a particular debt, the better we are able to effectively use our resources to resolve that debt. Consequently, the longer a debt exists, the harder it can be to collect it.

We manage millions of low-risk debt accounts on an ongoing basis. These are resolved using low-cost enforcement strategies, such as reminder letters and telephone contact. Accounts that present a greater risk are assigned to our Tax Services Offices (TSOs) for more intensive analysis and investigation. Figure 14 demonstrates the different risk levels and the dollar amounts in those accounts. Medium- to high-risk accounts make up 73% of our overall debt accounts. More than 90% of our tax debt resources are located in our TSOs to work with these higher-risk files.

Figure 14 Inventory Component Chart

To ensure that we are addressing the debt on a timely basis, we have in place a 60% target for the percentage of intake resolved in the year of intake, as detailed in our Performance Report Card. For 2007-2008, this target was met despite a 26% increase in the intake of new debt.

In striving to meet our timeliness targets for the resolution of tax debt, we constantly seek ways to improve our results. Our Corporate Business Plan 2007-2008 to 2009-2010 identified several priorities that we are pursuing.

During 2007-2008, we built on the successes of our National Collections Call Centre, our GST/HST, T1 National workload initiatives, and our instalment campaign. Specifically, we implemented our national insolvency strategy and established collections centres of expertise to address debt arising from international tax planning and tax avoidance schemes.

These results, as well as our strategies for improvement, lead us to believe that we are resolving tax debt on a timely basis.

Our Measure: Tax and non-tax debt are within targeted levels

We strive to keep our tax debt within manageable levels. Intake of new debt in the TSOs during the year was $16 billion, an increase of $3.3 billion over the previous fiscal year. Of this intake amount, $5.7 billion was from large accounts, which included accounts totalling $1.2 billion resulting from reporting compliance activities directed toward international and aggressive tax planning.

In line with our goal to manage debt effectively, we aim to achieve a target of 90% of the TSO workload resolved compared to new intake of debt to our TSO’s. During 2007-2008, we achieved an 83% result, largely due to the marked increase in new intake during the year. By not meeting this key expectation, it is our assessment that our overall expected result was mostly met for 2007-2008.

Figure 15 TSO Intake, Production and Inventory 2007-2008

Through 2007-2008, cash collections of $11.9 billion exceeded our target for cash collections by $3.2 billion. Despite this marked increase, the total tax debt inventory continues to grow. Activities currently under way to increase our ability to manage the tax debt include the following:

• focusing on significantly refining our program delivery model by modernizing our processes;
• improving processes and systems infrastructure through the Integrated Revenue Collections Project; and
• undertaking improvements designed to manage workloads more effectively, such as the creation of specialized work teams and centres of expertise to address complex receivables.

Canada, along with other tax administrations around the world, is experiencing marked increases in tax debt inventories. This has been reported in various studies by the OECD. The factors contributing to the increasing tax debt inventories are numerous and complex. Further discussion of the issues surrounding remittance non-compliance can be found on of the section entitled Achieving Our Tax Services Strategic Outcome.

In March 2007, we completed the development of our Individual Tax Debtor Research Model, which will allow us to better understand the make-up of tax debt and establish profiles for individual debtors.

In our Corporate Business Plan 2007-2008 to 2009-2010, we planned improvements to our processes to better manage our tax debt inventory, and this work is underway. For specific details please refer to Schedule B.

During 2007-2008, we achieved our target to reduce the proportion of TSO tax debt older than five years of age to less than 16% of total tax debt. For the fiscal year ending March 31, 2008, this ratio was 15.4%, representing a decline of 3.1 percentage points from last year. ^{[Footnote 1]} One of the contributing factors for this decrease is the above-noted increase in new intake during the year. Since our aged inventory ratio is affected by the level of new intake, we have decided to change this target for future years from a percentage to a dollar value.

From 2006-2007 to 2007-2008, total accounts receivable increased by 16% (or $3.0 billion) to $21.6 billion. The main contributor to this increase was the $2.1 billion intake in our corporate revenue line; representing 68% of the overall increase. This increase is shown in Figure 16, which incorporates data from our four main revenue lines. This also affected TSO inventories, which at fiscal year end were $16.8 billion. We expect the increase in our audit activities related to complex international and tax avoidance transactions will continue to have an impact on corporate arrears.

Figure 16 Trend in Accounts Receivable

Our non-tax collections work focuses on collecting EI overpayments, defaulted Canada Student Loans, CPP overpayments, and other debts on behalf of Human Resources and Social Development Canada. During 2007-2008, we exceeded established objectives, collecting $614.7 million, or $48.6 million more than our target.

To maintain our success in delivering collections services for our government clients, we work closely with client collections areas to create a more efficient workplace. We are working toward an integrated taxpayer-centred approach, aimed at modernizing processes and facilitating the integration of tax and other government programs’ debt workloads. This approach will allow for greater efficiency and flexibility in collecting debts that arise from various sources.

Overall, our results—and our achievements related to our priorities—demonstrate our commitment to ensure that tax and non-tax debt are within targeted levels, thereby protecting Canada’s revenue base.

Our Measure: Dollar value of non-compliance

There will always be individuals and organizations who, for a variety of reasons, fail to comply with Canada’s tax laws. To address this, we facilitate and enforce compliance with taxpayer and employers’ obligations under the various Acts we administer.

In 2007-2008, we set targets for the dollar value of identified non-compliance for two key areas: Non-Filer/Non-Registrant (NF/NR) and Employer Withholding.

In our NF/NR area, we enforce taxpayer obligations to file individual, trust, and corporate tax returns. In 2007-2008, we identified and addressed non-compliance by obtaining more than 761,000 individual and corporate returns from taxpayers who had failed to file, resulting in the identification of $2.4 billion in identified non-compliance. These results exceeded our target of $2.2 billion. We also addressed non-compliance by initiating legal actions that resulted in the conviction of 1,296 non-compliant taxpayers, over $1.4 million in fines levied, and 49 prison sentences handed out by the courts. Our Contract Payment Reporting Initiative secured over 57,000 additional individual and corporate tax returns.

In our Employer Withholding area, we enforce employers’ obligations to withhold, report, and remit source deductions and taxable benefits. In 2007-2008, our Employer Withholding area addressed over 666,700 instances of non-compliance, resulting in identified non-compliance of $1.4 billion. This result exceeded our forecasted target of $1.3 billion.

With respect to our GST/HST compliance area, our goal is to ensure registration and filing compliance with the legislative requirements under the Excise Tax Act. As mentioned in previous sections of this report, a change aimed at enhancing systems capabilities in the GST/HST operating system was implemented in 2007-2008. We cannot provide registration and filing compliance information on GST/HST returns at this time as comprehensive data from our GST/HST system is not available. We addressed GST/HST non-compliance through education, assisted compliance activities, and prosecutions when warranted. We anticipate being able to resume reporting on these activities in our 2008-2009 annual report.

We believe that, when taken as a whole, our results in detecting and addressing non-compliance demonstrate our success in facilitating and enforcing compliance with the requirements of Canada’s tax system.

Performance Report Card

Timely Resolution of Tax Debt

Tax and Non-Tax Debt Are Within Targeted Levels

Dollar Value of Non-Compliance

^{[Footnote 1]} Effective this fiscal year, we are reporting aged inventory exclusive of MRQ GST/HST. Our adjusted 2006-2007 ratio (to exclude MRQ GST/HST) was 18.5%.

Date modified:

2009-01-29