Reporting Compliance

Overview

We undertake examinations, audits, and investigations to ensure compliance with Canada’s tax laws. This includes verification and enforcement activities at the domestic and international level, including the administration of international tax agreements. We also provide information to taxpayers to help them comply. We conduct research to improve identification of non-compliance and develop strategies to address it.

Our Expected Results:

1. Non-compliance is detected and addressed.

2. Processing is timely and accurate.u

Our Assessments:

1. Met

2. Met

Spending Profile

(in thousands of dollars)

Our 2008-2009 priorities

In support of the overarching theme of achieving excellence in program delivery, we committed to undertake a number of initiatives that focused on strengthening service and addressing non-compliance.

Strengthening service

To strengthen service delivery, we focused on increasing the accessibility and efficiency of our programs and services.

The Government of Canada has been working to harmonize tax and benefits administration across Canada to make it easier for Canadians to comply with their obligations and receive their entitlements. Having the CRA administer tax and benefit programs for federal, provincial, territorial, and First Nations governments simplifies participation in the tax system and increases the competitiveness of the Canadian economy. In 2006, the Government of Ontario and the Government of Canada agreed the CRA would administer Ontario's corporate income tax beginning in 2009.

Audits of Ontario and federal corporate income tax have been fully integrated for all large file audits started in 2008-2009. For other files, integrated audits have been phased in. Staff training and other implementation activities have been completed and we are on track to meet our commitment to Ontario that all audits started after April 1, 2009 will be integrated audits.

Scientific Research and Experimental Development

To strengthen service delivery, we focused on increasing accessibility to, and the efficiency of, the Scientific Research and Experimental Development (SR&ED) tax incentive program. In 2008, Canada's SR&ED program provided about $4 billion in tax assistance to over 18,000 claimants.

During 2008-2009, we made it easier for businesses to apply for this tax incentive by publishing a simplified claim form and associated guide, as well as a new CD-ROM, brochure and leaflet. In addition, we developed a Web-based SR&ED Eligibility Self-Assessment Tool (ESAT) to help claimants identify whether their research and development projects may qualify under the program. Statistics on Web visits to our SR&ED home page indicate that awareness of the SR&ED program has increased, which we attribute, in part, to the release of these new products.

For more information on the CRA's administration of this federal incentive program please refer to www.cra.gc.ca/sred .

Addressing non-compliance

We strive to understand the compliance risks that challenge the Canadian tax system. The first Compliance Review in 2004-2005 identified four main high risk compliance areas, including aggressive tax planning, GST/HST high risk, underground economy, and revenue collection and non-filers/non-registrants to develop an agenda for strengthening compliance and integrity, both short and long term. A second Compliance Review was initiated in 2007-2008. The objective of this exercise was to identify new or confirm existing compliance priorities set out in our first Compliance Review and recommend new or revised strategies for addressing them.

The second Compliance Review identified five major compliance priorities which were aggressive tax planning, the underground economy, payment compliance, wilful non-compliance, and contraband tobacco.

Aggressive tax planning

Some tax intermediaries promote aggressive tax plans and schemes which go beyond the spirit of the law and are designed to obtain tax advantages that were not intended by governments. These abusive schemes and transactions are used to reduce, avoid or evade Canadian taxes sometimes through international transactions and, in particular, through the use of tax havens. Left unchecked, the integrity and fairness of Canada's tax system could be at risk.

In 2008-2009, we met our audit targets related to the high risk compliance area of aggressive tax planning by completing cases involving aggressive domestic and international tax planning, high-risk international tax avoidance, complex high-risk international issues, and tax shelters.

Implementation of our International Tax Compliance Action Plan is in progress and some of the actions are underway or ongoing to support four strategic objectives. These are to strengthen and modernize our core compliance programs; strategically and proactively communicate compliance actions; develop enhanced policy and legislative change proposals targeting international non-compliance; and leverage bilateral and multilateral relationships to achieve the overall goal of the Plan. A formal mid-term evaluation of the Plan is scheduled for 2009-2010.

Our compliance activities also target aggressive inter-provincial tax planning including any and all inappropriate attempts to shift income or profits between provinces to reduce or avoid paying provincial taxes. We are also developing an inter-provincial tax avoidance and provincial income allocation action plan for implementation in 2009-2010. In preparation, we have dedicated resources to address files where federal tax is not at issue but provincial tax is being avoided. In addition, we have established five inter-provincial tax avoidance centres of expertise to undertake research on provincial issues and possible strategies that are in use or could be in use.

Underground economy

The underground economy (UE) undermines the competitiveness of Canadian businesses because it offers an unfair, illegal advantage to those who fail to comply with Canada's tax laws.

The CRA uses a mix of education, outreach, communication and compliance actions to combat the UE. We also work with other federal departments, provincial governments, tax administrations in other countries, international organizations, professional organizations and key industry groups to share best practices and develop innovative strategies to address the UE.

During 2008-2009, we conducted over 12,800 UE audits, resulting in over $265 million in fiscal impact. In addition to our dedicated UE audit resources, we have incorporated audit techniques to detect unreported income in all of our small business audits thereby increasing our scope for detecting unreported income. In 2008-2009, our UE and non-UE SME audit activities detected unreported gross income of $562 million and $810 million, respectively.

Annually, a number of pilot projects are undertaken to test innovative compliance approaches to detect and deter UE activity. Successful pilots are then integrated into our program activities and strategies. In 2008-2009, we evaluated the results of the 2005-2006 pilot projects and where results were positive we incorporated the activities into our regular work activity. Two such examples are the books and records review and construction summary worksheet which now form part of the SME business audit program and Non-filer/Non-resident program.

GST/HST high-risk compliance

Our approach to GST/HST compliance is to strengthen our Agency-wide capacity, enhance our enforcement activities, improve our ability to identify high-risk registrants and refund claims before refunds are issued, and broaden our engagement of stakeholders. Assessing the level of compliance is the first step in developing a compliance strategy for GST/HST refund claims, therefore the Agency initiated a project to estimate overstatements using post payment audits of credit returns filed in 2004. The report from the audits of 2200 randomly chosen GST/HST refund claims has been analyzed and we are looking at how to best integrate recommendations into our workload. Furthermore, we acquired investigative analysis software to aid in the detection of non-compliance as well as enhance our risk rating, analysis, and audit functions.

Compliance Communication Strategy Action Plan

Significant progress has been made over the past year in successfully implementing the many activities outlined in the action plan. Some activities carried out in the past year include:

• Tax Alerts, including topics such as tax shelters, sales suppression software, RRSP strips, email scams, income earned abroad, and more.
• News Canada – a series of articles related to the UE and a series of articles in partnership with the Federal / Provincial / Territorial Underground Economy Working Group related to filing.
• News releases – information on compliance volumetrics were released to raise awareness of the CRA's compliance activities, as well as the risks and consequences of non compliance.
• Project Trident communications strategy – Project Trident targets three types of fraud: identity theft, charities fraud, and tax preparer fraud. In order to ensure that the project has a maximum impact on public compliance, the CRA developed a global approach, including a series of special Web pages to attract attention to the smaller cases that make up Project Trident.
• Trade School Initiative – CRA and the provinces of British Columbia, New Brunswick and Ontario, as members of the Education Committee of the Federal-Provincial-Territorial Underground Economy Working Group, launched a new educational initiative to teach tax responsibilities to students preparing for careers in the construction and renovation industry. The initiative will include a special Web site, video, pamphlet, and CD-ROM.
• Canadians were invited to produce creative videos about the negative effects of the underground economy and submit them to the CRA by posting them to a special channel on YouTube.

A performance measurement framework is being developed that will enable the CRA to determine the effectiveness of the Compliance Communication Strategy.

Expected results

Non-compliance is detected and addressed

Performance Rating: Met

As identified in our Performance Report Card, during 2008-2009 we exceeded both of our targets related to the number of files audited.

Fiscal Impact

Our audit programs detected a total of $8 billion in fiscal impact during 2008-2009. This total included $5.2 billion identified through international and large businesses audits; $2.2 billion resulting from audits and examinations in small and medium-sized enterprises; $358 million from special incentive audits; and $187 million as a result of audits related to our Special Enforcement Program.

The most recent Core Audit Program (CAP) estimates for SME corporate filers are based on audits conducted during the 2007-2008 program year. Targeted audits for SME corporate filers were found to be more effective in terms of additional income assessed than random audits of this population by a ratio of three to one.

Overall, our indicators show that our Reporting Compliance area achieved its expected result during 2008-2009 by detecting and addressing non-compliance.

Processing is timely and accurate

Performance Rating: Met

Voluntary Disclosures Program

The Voluntary Disclosures Program (VDP) encourages taxpayers to correct past errors or omissions and report their tax obligations without penalty or prosecution. In 2008-2009, the program saw an 11% growth in intake and processed over 11,000 disclosures totalling almost $575 million in additional tax revenue. We saw a 31% growth in intake for the late filing of information returns, like foreign reporting requirements. These returns contain information we use to enhance our risk assessment processes and the identification of non-compliance. We have promoted the VDP in news releases and tax alerts and have incorporated it into compliance initiatives.

Performance Report Card

Date modified:

2009-11-05