Achieving Our Tax Services Strategic Outcome

Overview

The tax services activities carried out by the Canada Revenue Agency directly touch the lives of over 30 million individuals, businesses, trusts, and organizations. We administer, assess, and collect taxes on behalf of the Government of Canada, all provincial (except Quebec) and territorial governments, and certain First Nations. We strive to provide quality service and enhance public confidence in the integrity of Canada’s tax system.

Strategic Outcome

Taxpayers meet their obligations and Canada’s revenue base is protected.

Our Assessment:

Met

Spending Profile (thousands of dollars)

Taxpayers meet their obligations and Canada’s revenue base is protected

Under Canada’s self-assessment tax system, taxpayers are expected to determine their own liability under the law and pay the correct amount of tax. Our primary goal is compliance without our intervention—in other words, to ensure that taxpayers meet their obligations voluntarily so as to protect Canada’s revenue base. We believe that the majority of taxpayers will voluntarily comply with the law if they have confidence in the integrity of the tax administration system and have the information and services they need to meet their obligations.

Our focus

Voluntary self-assessment is the most cost-effective way to administer taxes. Higher rates of voluntary compliance reduce the costs of administration. This allows us to direct our resources to higher-risk areas, such as the underground economy, aggressive tax planning, and wilful non-compliance.

Our strategic themes of operational and workplace excellence were introduced in our Corporate Business Plan 2008-2009 to 2010-2011. We planned to achieve operational excellence and ensure the integrity and fairness of our administration of Canada’s tax legislation by:

1. strengthening our services;

2. enhancing our efforts to address non-compliance;

3. reinforcing trust; and

4. maintaining effective relationships.

By achieving program and workplace excellence, we believe we will be best positioned to protect Canada’s revenue base and ensure the integrity and fairness of Canada’s tax system.

1. Strengthening service

Our organization recognizes the value of service in fostering compliance within a tax system that is based on self-assessment. In December 2008, we launched our comprehensive Service Strategy. The goal of this strategy is to achieve continuous improvement in service delivery by providing service that is accessible to all taxpayers while promoting the use of our electronic services. Based on our existing performance management regime, we identified a framework for measuring the success of this strategy. We will assess and report on progress against our Service Strategy objectives on an annual basis beginning in 2009-2010.

Figure 1 Agent-Assisted Enquiries

Data quality: Good

Taxpayers continue to rely on agent-assisted service. As a result, the usage of the telephone service channel has seen an increase over the last few years, including the growth of over a million calls between 2008-2009 and the prior year. This increase was partly due to numerous enquiries concerning new legislation for the recently announced Home Renovation Tax Credit (see Figure 1).

Although an accessible and effective telephone channel is a cornerstone of our approach to service, we are committed to providing Canadians with a full range of electronic services to help them meet their tax obligations as easily as possible. Through continual improvements to our electronic services, we believe we are succeeding in enabling taxpayers to meet their tax obligations on their own.

Figure 2 Visits to CRA Web-Based Tax Products

Data quality: Good

Visits to our Web-based tax-related products over the past three calendar years have been trending upward (see Figure 2).For more information on the steps we have taken to enhance our service tools and information as well as our electronic service offerings, please refer to the sections entitled Taxpayer and Business Assistance and Assessment of Returns and Payment Processing.

To promote our electronic service offerings, we held seminars during 2008-2009 on E-services for businesses that included information on services such as GST/HST NETFILE, My Business Account, electronic payments, and Represent a client.

Figure 3 Rates of Electronic Filing and Payments

Data quality: Good

The take-up rate of electronic filing continues to rise, especially with businesses. In our view, the upward trend in electronic filing and electronic payments (see Figure 3) indicates that we are achieving success with our outreach activities designed to promote self-service.

This past year we targeted our outreach activities on areas of high-risk. We raised awareness about our services and discussed tax-related issues and concerns by targeting categories of taxpayers, such as new registrants and tobacco growers, and economic sectors, such as the construction and taxi industries. We provided a broad range of outreach programs, including some targeted, customized programs that we added to address changing demographic and economic factors. We also attended various functions to speak about our audit work and related initiatives. We consider such actions to be critical to promote higher levels of compliance within these populations. In turn, our efforts helped to protect Canada’s revenue base. Additional results achieved during 2008-2009 related to our objective to strengthen service are discussed in the section entitled Our Performance Results.

2. Enhancing our efforts to address non-compliance

Non-compliance takes many forms, from errors and omissions to deliberate tax evasion. We are constantly assessing non-compliance risks and taking steps to focus our resources on areas of highest risk.

By identifying priority compliance risks, we are in a better position to articulate a strategy to mitigate these risks. For this reason, periodic compliance reviews are important for identifying and prioritizing the compliance challenges we face. During 2008-2009, we sustained our focus on reducing non-compliance in the high-risk areas of aggressive tax planning, GST/HST compliance, the underground economy, and non-filers/non-registrants and revenue collections by seeking to address the root causes of this behaviour. For additional information on the results we achieved in 2008-2009 in this regard, please refer to the sections entitled Accounts Receivable and Returns Compliance as well as Reporting Compliance.

We believe that effective communication can be used to affect Canadians’ perceptions and views of our tax administration, its fairness, and its effectiveness. With a strengthened and integrated compliance communications strategy, we aim to influence both compliance perception and behaviour. Effective messaging contributes to an open and transparent tax administration by helping Canadians understand what we do about non-compliance and why; where we see the risks to Canada’s tax system; and what we are doing to address those risks and protect Canada’s revenue base.

In 2008-2009, we used more effective targeting of compliance messages to provide taxpayers with the information they need to understand the risks and consequences of non-compliance. We also increased and improved media coverage by targeting media groups with specific information of interest to them. Additionally, we enhanced public knowledge and awareness of our compliance and enforcement activities to make the public confident that we take action against those who do not comply with Canada’s tax laws. For additional information on the results we achieved in 2008-2009 in this regard, please refer to the section entitled Reporting Compliance.

Figure 4 Composition of Total Tax Debt

Data quality: Good

The integrity of Canada’s tax regime is compromised, in part, by taxpayers who do not honour their obligations to pay the amounts they owe. During this past year, we have seen consistent increases in receivables in almost all revenue lines (see Figure 4). With the development of our Risk Management Framework in 2008, we have gained a better understanding of the makeup of debt and the levels of risk associated with different tax categories. The framework helped us put in place more appropriate case selection and resolution strategies to address specific areas of challenge. For more information on the results we achieved related to the tax debt in 2008-2009, please refer to the section entitled Accounts Receivable and Returns Compliance.

Unlike a private sector business that has processes in place to select and pre-screen its clients, the CRA deals with all taxpayers, whether they are good or bad risks, in remitting amounts owed. We have strategies in place to manage tax debt, and we use risk assessment and modern techniques to maximize our return on investment, while treating all taxpayers fairly and equally. Our strategy is designed to identify the millions of dollars of new tax debt arising every year, assess the risk represented by these accounts in terms of danger of loss, and identify the need for the appropriate actions to protect the Crown's interests. These actions are a series of escalating strategies designed to manage low-risk, high-volume accounts and lower-volume, high-risk accounts.

3. Reinforcing trust

We handle millions of transactions that have an impact on people and their opinions concerning us. Our success rests in large part on the professionalism and integrity of our employees. Their behaviour found to be in contravention of the CRA Code of Conduct is not tolerated and immediate action is taken to address it.

To build on public trust in our organization, during 2008-2009 we implemented our Greeting Policy, which enables callers to obtain the identity of the agent serving them. In addition, recognizing the Taxpayers’ Ombudsman’s important role in enhancing public trust, we facilitated access to our organization by establishing the CRA-Ombudsman Liaison Office. We believe these steps will help maintain the high level of confidence that Canadians have in the CRA.

4. Maintaining effective relationships

In our view, building and maintaining strong relationships with other federal government agencies and departments; as well as provincial, territorial, and First Nations governments increases the effectiveness and efficiency of our administration of Canada’s tax system. In particular, a healthy relationship with Finance Canada is critical to the success of our operations. Co-led by the CRA and Finance Canada, in 2008-2009 the new federal-provincial/territorial Coordinating Committee on Income Allocation (CCIA) began to review the current administrative policy for corporate income allocation among provinces, and will subsequently make its recommendations to government. In 2008-2009, we worked collaboratively with that department to ensure that our tax treaty priorities and jurisdictions of interest to the CRA from the perspective of enabling or enhancing information exchange in regard to tax matters were considered.

Co-operation among tax administrations, including the sharing of tax information, is a key tool in protecting the integrity of Canada's tax system. To supplement exchanges permitted by our tax treaties, we worked with Finance Canada to negotiate Tax Information Exchange Agreements with jurisdictions with which we do not have tax treaties. These new agreements will allow the CRA to request offshore banking information relevant to its administration and ensure that strict bank secrecy laws cannot be used to prevent an effective exchange of information.

The United States (U.S.) is our most important trading partner and the Canada-U.S. Tax Convention is by far our most complex; changes made to the Convention were effective in January 2009. We have worked with the U.S. Internal Revenue Service and the private sector during 2008-2009 to ensure the smooth implementation of these changes. In addition, this past year, through our partnership with the Department of Foreign Affairs and International Trade, we ensured full compliance by exporters with the Softwood Lumber Products Export Charge Act, 2006 through a rigorous verification program, thereby maintaining industry access for Canadian exports to the U.S.

There is a need for strong leadership in international tax organizations and a need to build relationships and capabilities to protect Canada’s interests and values. For many years, we have been working with our international partners to address the challenges associated with an increasingly complex tax environment. During 2008-2009, in addition to collaborating on a range of tax matters, we worked with Human Resources and Skills Development Canada (HRSDC) to negotiate bilateral social security agreements with Macedonia, Poland, Brazil, Argentina, Australia, and Romania to ensure that companies, employees, and self-employed individuals contribute to the appropriate national social security system.

Our work with international partners enables us to keep abreast of different types of financial products, corporate structures, and international tax laws that evolve to meet changing business practices. Our participation in conferences, working groups, and other forums serves to ensure that we remain in a position to identify emerging compliance risks and, ultimately, to protect Canada’s revenue base.

Such steps are critical to our efforts to ensure that Canadians meet their tax obligations and that Canada’s revenue base is protected.

Our strategic outcome measures

We use our strategic outcome measures to gauge the compliance behaviour of Canadian taxpayers. Using data from internal and external sources as a baseline of compliance information, we group these indicators into the following four broad categories of taxpayer obligations to help us measure and assess our results against our Tax Services strategic outcome.

These are Registration Compliance, Filing Compliance, Reporting Compliance, and Remittance Compliance. These are reviewed in detail in the following sections.

Registration Compliance

Registration Compliance estimates the proportion of Canadian businesses that have registered as required by law to collect the GST/HST.

By comparing our data with information from Statistics Canada, we estimate that 93.8% of businesses were registered as required by law to collect GST/HST in 2008-2009. This result exceeded our 90% target. In our view, this represents a high degree of registration compliance, considering that many businesses are not required to register for GST/HST, because, for example, their gross revenues are below the registration threshold.

Our performance assessment is also supported by the results from our non-registrant area (discussed on ), which seeks to ensure that all businesses that are required to register for the GST/HST meet their obligations. Each year, this program identifies several thousand small businesses that are required to register, mostly those that are new or that recently exceeded the registration threshold.

Filing Compliance

Filing Compliance indicators estimate the proportion of the Canadian population who file their returns on time.

Individual taxpayers include all persons who file or are required to file a T1 Individual Income Tax and Benefit Return. By comparing our data with census data from Statistics Canada, we estimate that filing compliance for the Canadian population aged 18 and over during 2008-2009 was 92.8%, which exceeded our 90% target. This estimate, in our view, provides assurance that there is a high level of voluntary compliance among individuals when it comes to filing tax returns.

In the case of corporations, our compliance rate estimates apply only to those that are taxable, which are those corporations that filed a T2 Corporation Income Tax Return showing total tax payable greater than zero. During 2008-2009, the incidence of timely filing among taxable corporations fell slightly to 84.4%, below our 90% target.

The proportion of GST/HST returns that were filed on time during 2008-2009 is estimated to be 90.5%, which meets our target of 90%, but continues to reveal a downward trend. As with corporations, the remaining GST/HST returns filed were late.

Employers (which include individuals, corporations, and charities) are legally responsible for deducting, remitting, and reporting federal and provincial income tax, CPP contributions, EI premiums, and employer-provided benefits. During 2008-2009, a large majority of employers (96.4%) filed their T4 Information Returns on time, exceeding our 90% target, which means that less than four percent were filed after the deadline.

Overall, it is our assessment that we mostly met our expectations related to filing compliance this past year.

Reporting Compliance

Reporting Compliance indicators contribute to our assessment of the degree to which taxpayers report complete and accurate information.

We conduct various studies and reviews to detect areas where non-compliance with reporting obligations may be emerging or increasing. For example, we conduct an annual random sample of individual income tax returns filed to estimate the non-compliance rate for individuals with respect to key deductions and credits that are not subject to third-party reporting.

Our sample for 2008-2009 estimated this non-compliance rate for individuals as 16.5%, primarily for 2007 tax returns. After stabilizing over the past two years, our most recent estimate shows upward movement and did not meet our expectations. We estimate the dollars at risk for the entire target population to be approximately $830 million, which is an increase over last year’s $662 million.

Our remaining reporting compliance indicator focuses on small businesses. Although most Small and Medium-sized Enterprise (SME) audits are selected on the basis of risk, our Core Audit Program (CAP) selects a random sample of SMEs to estimate a reliable compliance rate, with different segments of the SME population selected each year. This provides us with accurate reporting compliance estimates that allow for monitoring compliance trends over time and for validating and refining the risk criteria used in our risk assessment system. In 2008-2009, a new Core Audit Program (CAP) non-compliance rate estimate was established for corporate SME filers based on audits conducted during the 2007-2008 program year. This segment of the SME population has been reviewed twice: once in 2002-2003, when the non-compliance rate estimate for SME corporations was 8.5% (+/- 3.1%), and again in 2007-2008, when the non-compliance rate estimate was 13.8% (+/- 2.8%). The difference of approximately five percentage points does not necessarily indicate an increase in the level of non-compliance. It could be attributable to any number of factors including improved audit performance, an increase in non-compliance, or a combination thereof. Furthermore, the variance factors noted in parenthesis above could in fact negate the apparent increase in the estimate. ^{[Footnote 1]}

We also analyze various macro-indicators to evaluate reporting compliance trends. As graphically depicted, our macro-indicators provide us with assurance that taxpayers, in general, are complying with their obligations and that levels of reporting non-compliance are relatively low.

Our Macro Indicators		Rating
Figure 5 Growth in personal income reported to the CRA tracks favourably relative to that estimated by Statistics Canada. * Figures for the years 2004, 2005, and 2006 have been restated as a result of improved data. Data quality: Good		Met
Figure 6 Growth in corporate income taxes that we have assessed tracks favourably with growth in corporate profits before tax estimated by Statistics Canada. * Figures for the years 2001 and 2002 have been restated as a result of improved data. Data quality: Good		Met
Figure 7 Growth in net income of unincorporated businesses reported to us tracks favourably with National Accounts Estimates of the growth in net income of unincorporated businesses. * Figures for the years 2005 and 2006 have been restated as a result of improved data. Data quality: Good		Met
Figure 8 Due to a variety of factors, including recent reductions in the GST rate, trending information related to GST revenue is no longer clear and we can draw no conclusions from this data. Data quality: Good		N/A

Remittance Compliance

Remittance Compliance indicators estimate the proportion of taxpayers who owed taxes and paid the full amount on time.

Our remittance compliance estimates reflect the degree to which various taxpayer segments paid all taxes determined through self-assessment on or prior to the filing deadline. Where monies owing were not paid at the time of filing, we initiated a series of steps to obtain payment; these steps are explained beginning on .

Similar to the previous year, during 2008-2009 we mostly met our overall remittance compliance expectations. We met our 90% target for both individuals and taxable corporations. Our estimate for employers who forwarded at-source deductions on behalf of their employees, however, indicates a continued downward trend, while our ratio of outstanding tax debt to gross cash receipts continues to rise.

Conclusion

Our estimates of taxpayers’ filing, registration, and remittance compliance indicate that overall levels of voluntary compliance with Canada’s tax laws continued to be high in 2008-2009. Our estimates of reporting compliance, however, indicate the incidence of non-compliance may be slowly increasing and there are indications that the dollars at risk for some taxpayer sectors may be increasing. Although performance results provide evidence that non-compliance is at relatively low levels, the results of our program activities demonstrate that such non-compliance is, in total, financially significant. In 2008-2009, our programs to address reporting non-compliance identified a total dollar value of over $12.9 billion (see Figure 9), exceeding our estimates, which we based on historical results combined with available resource levels.

Figure 9 Dollar Value of Identified Non-Compliance

Data quality: Good

We anticipate the results from the action plans we develop related to our Compliance Review II will have a positive impact on levels of reporting compliance over the long term.

In light of our overall measurement and given that a significant proportion of Canada’s revenue base is subject to third-party reporting, it is our assessment that, for the majority of Canadians, the incidence and magnitude of non-compliance is relatively low, though financially significant. Consequently, it is our assessment that we met our Tax Services strategic outcome in 2008-2009.

^{[Footnote 1]} The CAP non-compliance rate is an estimate based on a sample of the target population. It is shown as a range of numbers, as it is based on a 95% confidence interval; this means that there is 95% probability that the non-compliance rate lies within the bounds of the plus/minus allowance.

Date modified:

2009-11-05