CRA Annual Report to Parliament 2008-2009 - Accounts Receivable and Returns Compliance
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Accounts Receivable and Returns Compliance
Overview
Our Accounts Receivable and Returns Compliance area manages the largest debt collection service in Canada, including receivables arising from income tax, GST/HST, the Canada Pension Plan, Employment Insurance, and defaulted Canada student loans. In addition, this area promotes compliance with Canada’s tax legislation covering employers, payroll, and the GST/HST.
Our goal during 2008-2009 was to further our business transformation agenda, with a focus on implementing new technology and enhanced processes in order to put in place a taxpayer-centred approach aimed at addressing non-compliance and maximizing tax debt collections.
In 2008-2009, we achieved success in addressing the tax debt effectively in critical areas. In addition, we reached our goals related to identifying and addressing non-compliance as it relates to employer, payroll, and GST/HST accounts. We believe the technological innovation and process enhancements put in place this past year significantly contributed to improvements in the management of our tax debt inventories.
Due to the unpredictable nature of the intake of new debts, we face the constant challenge of resolving tax debt on a timely basis and keeping it within targeted levels. In addition, the current state of the economy places significant pressure on our capacity to identify and address hidden non-compliance in key risk areas, like employers and businesses required to collect GST/HST.
1. Tax and non-tax debt are resolved on a timely basis and are within targeted levels.
2. Non-compliance is detected and addressed.
Spending Profile (in thousands of dollars)
In 2008-2009, spending for this program activity totalled $724 million (9,238 FTE s), or 17.2% of the CRA ’s overall expenditures. Of this $724 million, $498 million were net program expenditures , and $226 million was allocated to this program activity for internal services.
2008-2009 priorities
In support of the overarching theme of achieving excellence in program delivery, we committed to undertake a number of business transformation initiatives that focused on addressing non-compliance.
Addressing non-compliance
Over the past several years, we have been developing the Integrated Revenue Collections (IRC) platform, the framework upon which our business transformation is built. IRC technology allows us to access large amounts of taxpayer data related to both filing compliance and accounts receivable. In turn, this has enabled us to identify trends, patterns, and relationships to guide our development of strategies aimed at increasing the levels of compliance and revenue recovery. During 2008-2009, our IRC project yielded a new toolset that we began to use to analyze taxpayer accounts with a view to increasing the dollar recovery potential of the files we select for compliance action. We also completed a pilot project in our non-filer/non-registrant area to refine and enhance related file selection processes.
Priority: Implement business transformation technologies
Achievement: In 2008-2009, through our IRC project, we developed an integrated taxpayer-centred approach aimed at modernizing processes.
Also in 2008-2009, we enhanced our collections risk-management framework with the development of our first tactical plan. A key component of the plan was the analysis of a cross-section of Canadian industries, which enabled us to better identify those sectors that present a higher degree of collections risk. Based on the results of our study, we are examining a subset of these industries in order to implement some specific collection strategies in 2010-2011.
To further help us keep tax debt within targeted levels, we strengthened our accountabilities by establishing more, clear, and concise performance measurements in 2008-2009. For example, we introduced a single resolution target range in place of separate targets for cash and write-offs to strengthen our tax services office (TSO) agents’ focus on resolving all accounts. We also modified our target for the value of TSO accounts receivable older than five years from a percentage value to a dollar value. Debt over five years when expressed in percentage terms was dependent on the value of new intake. When expressed in dollar terms, the debt over five years becomes a more concrete target.
Our strategies to improve our capacity to manage the tax debt as well as to detect and address non-compliance are slowly beginning to have a tangible impact on our achievements related to our expected results.
Expected results
Our expected results are the criteria by which we measure and report the effectiveness of our activities to Canadians. We carry out our Accounts Receivable and Returns Compliance activities to achieve two expected results:
Tax and non-tax debt are resolved on a timely basis and are within targeted levels
The CRA is mandated to collect taxes, related interest, and penalties owed to the Crown. Tax debt occurs when monies owed are not paid when they become due. Early risk determination of the ability to collect outstanding amounts facilitates both timely and efficient debt collection, since the longer the debt exists, the harder and more expensive it can be to collect. Our key strategy is to resolve routine, low-risk tax debt at minimal cost within a specified period of time so that our TSO agents can concentrate on more complex, higher risk accounts.
Similar to other tax administrations around the world, increasing tax debt inventories are a reality of our operating environment. Consequently, our focus is to ensure that tax and other government program debts are resolved on a timely basis and are within targeted levels.
Figure 13 Allocation of tax debt between TSOs, Automated Systems and DMCC, MRQ, and Other Receivables strategies
At the end of the 2008-2009 fiscal year, total tax debt amounted to approximately $24.4 billion, an increase of $1.2 billion over 2007-2008. As shown in Figure 13, accounts requiring extensive analysis and investigation by TSO agents represented $18.1 billion. This includes actioned accounts where a pending resolution has been reached (for example, the taxpayer has agreed to pay the debt over a specified time period), but all or some of the debt has not yet been paid. The $3.8 billion in debt represents the portion of our year-end inventory that will be subject to lower cost, risk-based debt management strategies, including automated follow-up communications, correspondence, and action by our Debt Management Call Centre. In addition, $1.5 billion was the responsibility of Revenu Québec, and the remaining $1 billion of miscellaneous debt was assigned for handling through other means.
Total tax debt rose to $24.4 billion at the end of 2008-2009. This an increase of 5.2% over the previous year.
To assess our performance in addressing tax debt on a timely basis, [Footnote 1] each year we expect our TSO agents to resolve at least 60% of the TSO intake of new debt. This is debt that is directly assigned to the TSO for resolution in the current year. As noted in our Performance Report Card, in 2008-2009 we exceeded our overall timeliness target by achieving 62.7%. We balance the timely resolution of new tax debt with working to resolve older debt as well. It is our view that achieving this balance is the best way for us to manage tax debt.
As shown in the adjacent table, we resolved approximately $35.1 billion [Footnote 2] of tax, unpaid at time of assessment during 2008-2009, compared to approximately $30.5 billion 2 in 2007-2008. This is an increase of $4.6 billion or 15.1%. Of this $35.1 billion total, about $17.5 billion 2 was resolved before moving to our higher cost risk-based debt management strategies as described earlier in this section.
Figure 14 2008-2009 TSO Intake, Resolution, and Inventory ($Billions)
A significant increase in tax debt resolution was achieved in our TSOs this year with a $4.4 billion or 33.3% improvement over last year. This was partially attributable to the resolution of several large commercial accounts. In 2008-2009, the $17.6 billion tax debt resolution in our TSOs represents 93% of the value of TSO intake of new accounts receivable, exceeding our target of 90%.
As shown in Figure 15, the percentage of debt under one year of age (39%) has risen. In addition, over the past five years, the proportion of tax debt between one and five years of age has been reduced to 45%.
At the end of 2008-2009, the age of debt over five years had remained relatively steady at about 16%, or $2.84 billion. This result was within our target of $2.95 billion. We believe that the value of TSO tax debt inventory older than five years of age will remain within the established targets, and ultimately decrease over time.
Overall, our results, when considered in concert with the achievements we have made related to our business transformation agenda, demonstrate that tax and non-tax debt is resolved on a timely basis, and tangible progress has been made in both understanding and managing the growing tax debt.
Non-tax debt collections work included collecting EI overpayments, CPP overpayments, defaulted Canada Student Loans, and other debts on behalf of Human Resources and Skills Development Canada (HRSDC). In 2008-2009, as in past years, we exceeded our production targets, collecting over $622 million or $32.2 million more than our target.
Non-compliance is detected and addressed
To address individuals and organizations who fail to comply with Canada’s tax laws, we facilitate and enforce compliance with taxpayers’ and employers’ compliance obligations under the various legislation we administer. Two key groups, non-filers/non-registrants (NF/NR) and employers who withhold deductions at source are of high interest.
Among the factors that contribute to the growth of tax debt in Canada is the increasing number of taxpayers who are pursuing aggressive tax planning schemes.
With regard to our NF/NR operations, we enforce taxpayer obligations to file individual, trust, GST/HST and corporate tax returns. In 2008-2009, we met our target for identified non-compliance.
This year, we introduced two new indicators that will strengthen the measurement of our operational performance. The first provides the percentage of outstanding tax returns, summaries, and remittances identified that became compliant after the CRA initiated an action. The second was a percentage measure of the effectiveness of our actions in identifying businesses required to register for the GST/HST. Measurement of results related to these two new indicators is expected to begin in 2009-2010.
Through our employer withholding activities, we enforce an employer’s obligations to withhold, report, and remit source deductions and taxable benefits. As noted in our Performance Report Card, our reviews enabled us to identify non-compliance of $2.5 billion, exceeding our target of $1.4 billion.
We are continuing to work with the Organisation for Economic Co-operation and Development (OECD) to identify and respond to compliance threats and share both our knowledge and best practices.
Performance Report Card
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Dollar value of TSO tax accounts receivable older than five years ($billion) [Footnote 1]
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$1.4 [Footnote 1]
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[Footnote 1] We are currently developing an appropriate intake resolution indicator for the non-TSO collections sources.
[Footnote 2] Values are approximate only due to ongoing financial adjustments.
- Date modified:
- 2009-11-05