Accounts Receivable and Returns Compliance

Our Day-to-Day Activities

Our Accounts Receivable and Returns Compliance area manages the largest debt collection service in Canada. It collects receivables arising from taxes (income tax, GST/HST) and programs such as 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 GST/HST.

Our goal

In 2009-2010, our goal was to promote and enforce compliance with Canada’s tax laws for filing, withholding, registering, remitting, and debt obligations, including those amounts collected or withheld in trust on behalf of the Government of Canada, the provinces, the territories, and certain First Nations governments.

Our outcome

In 2009-2010, we mostly met the targeted level of resolving our tax debt and government programs’ (non-tax) debt on a timely basis. Our tax debt and government programs’ (non-tax) debt were within targeted levels. Non-compliance was detected and addressed within targets.

Our challenge

Our challenge is to identify, address, and prevent non-compliance, and to ensure we continue to resolve tax debt on a timely basis and keep it within targeted levels.

Spending Profile

Our 2009-2010 priorities

To achieve excellence in program delivery, we committed to undertake a number of initiatives that focused on improving tax integrity.

Tax integrity

The CRA is committed to continually improving its management information systems to determine the results of collection efforts, and then using this information to guide its decision–making for each of its collection modes and actions. We use performance measurement indicators to gauge the effectiveness of our collection efforts.

Over the past several years, we have been developing the Integrated Revenue Collections (IRC) platform. IRC technology allows us to access large amounts of taxpayer data related to both filing compliance and accounts receivable. This data helps us identify trends, patterns, and relationships so we can develop strategies to increase the levels of compliance and revenue recovery.

We continue to develop, test, and pilot data mining models to better understand and predict taxpayers’ behaviour and to make risk assessments of the non-compliant community.

In 2009-2010, we implemented more research data stores for the T1 (individual) tax revenue line. These data stores contain the information needed to analyze and conduct research to better understand taxpayer behaviours and to support queries on the non-compliant population. We are planning to expand these data stores to other tax revenue lines.

The Auditor General 2006 audit of tax accounts receivable was one of several drivers that led us to develop our risk management framework. It was designed to effectively manage field tax collection workloads by including analysis, risk-assessment, and action planning to address inventory pressures. The framework is based on a tactical plan that is completed yearly to reduce risks and capitalize on opportunities found through analysis and research. In 2009, as the first step in this exercise, we examined specific segments of Canadian industries that present a greater degree of collections risk. We analyzed the data and planned tactical solutions to be introduced in the future to reduce these risks.

Improvements in our understanding of the tax infrastructure and use of performance indicators increase our capacity to detect and address non-compliance.

Expected results

Our expected results are the criteria we use to measure our activities and report to Canadians on their effectiveness. We carry out our Accounts Receivable and Returns Compliance activities to achieve two expected results.

The CRA collects taxes, related interest, and penalties owed to the Government of Canada. Tax debt occurs when monies owed are not paid when they become due. Early risk determination of the ability to collect debt facilitates both timely and efficient debt collection, as the longer the debt exists, the harder and more expensive it can be to collect.

We increased our focus on our front-end collections program, which handles the resolution of routine, low-risk, tax debt at minimal cost within a specified period of time. This allows our Tax Services Offices (TSO) agents to concentrate on accounts that require more analysis and investigation. Front-end operations focus on resolving accounts early, through activities such as telephone contact and automated letters, before the accounts enter into resource-intensive debt management operations. Our TSO operations focus on more complex, higher–risk accounts that entail using escalating collection measures, including legal and enforcement actions, to deal with non-compliant taxpayers.

At the end of the 2009-2010 fiscal year, with the expectation of an increase, the total tax debt inventory rose to about $25 billion, an increase of $0.7 billion, or 2.9%, over 2008-2009 ^{[Footnote 1]} .As shown in Figure 11, $3.8 billion was the portion of our year-end tax debt that was subject to lower–cost, risk-based, debt management strategies through automated systems and our Debt Management Call Centre (DMCC). Tax debt requiring extensive analysis and investigation by TSO agents was $18.7 billion.

This debt includes actioned accounts where a pending resolution has been reached (for example, the taxpayer has agreed to pay the debt over a specified time) but the debt has not yet been paid in full. In addition, $1.5 billion was the responsibility of Revenue Québec, and Other Receivables (including non-resident tax, Customs in TSOs, etc) amounted to $1.0 billion.

Figure 11 Allocation of year-end tax debt between TSOs, Automated Systems and DMCC, MRQ, and Other Receivables strategies

Data quality: Good

As shown in the adjacent table, using our front-end operations and our TSOs allowed us to resolve about $29.6 billion ^{[Footnote 2]} of tax, unpaid at the time of assessment during 2009-2010. When compared to the results from 2008-2009, this was a difference of $5.6 billion or 15.9%. The decrease is primarily due to the timing of several large commercial accounts being resolved during the reporting period, which skewed the 2008-2009 results upward.

Of particular interest is our activity in the TSOs, for it is here that we resolve the accounts that present a greater risk. In 2009-2010, the $14.3 billion tax debt we resolved in our TSOs represents 95.3% of the value of TSO intake of new debt, exceeding our target of 90%. This indicates that we are successfully managing our higher-risk TSO inventory.

Figure 12 2009-2010 TSO Intake, Resolution, and Inventory

Data quality: Good

To assess our performance in addressing tax debt on a timely basis, ^{[Footnote 3]} we expect our TSO agents to resolve at least 60% of the TSO intake of new debt in the year of intake. As noted in our Performance Report Card, in 2009-2010, we achieved 54.6%, falling short of our 60% overall timeliness target. With the recent economic downturn, we supported taxpayers by extending payment arrangements on new accounts and placed greater focus on resolving older debt. We believe these two factors contributed to the downturn in the timeliness measurement.

Figure 13 Age of Tax Debt

As shown in Figure 13, the proportion of the age segments of our debt inventory has remained relatively stable over the last five years. We believe that this trend confirms that we are managing all segments of the tax debt portfolio in a consistent manner. At the end of 2009-2010, debt over five years old represented about 16% of the inventory. In absolute terms, the dollar value of inventory greater than five years old at the end of 2009-2010 was $2.9 billion, slightly above our threshold of $2.7 billion. Aged inventory can be particularly challenging to resolve because the older an account gets, the more difficult it can be to collect. For this reason, we will continue to place a sustained effort on collecting older inventory.

Our government programs’ (non-tax) debt collections included defaulted Canada Student Loans, Employment Insurance overpayments, and other debts on behalf of Human Resources and Skills Development Canada. Our government programs’ (non-tax) collection model is based on the strategy that all new debts are handled by our Debt Management Call Centre before being transferred to a TSO agent. In 2009-2010, we exceeded our production targets, collecting over $615.3 million, or $24.8 million more than our target.

Overall, our performance results demonstrate that tax and government programs’ (non-tax) debt are mostly resolved on a timely basis.

The implementation of the Trust Compliance National Inventories initiative achieved some important benefits. It created a national inventory for all trust compliance work that allowed the equitable distribution of the varying types of compliance work to all compliance officers. It also removed geographical boundaries and facilitated the implementation of more effective processes, more detailed reporting, and clearer accountabilities. It resulted in positive impacts in both the Employer Trust Compliance and the GST/HST Delinquent Filer programs.

To address individuals and organizations who fail to comply with Canada’s tax laws, we facilitate and enforce their compliance obligations under the various laws we administer. Two key groups, non-filers/non-registrants (NF/NR) and employers who withhold deductions at source, are of high interest.

We enforce taxpayer obligations to file individual, trust, GST/HST, and corporate tax returns.

With regard to non-filers, one of our key approaches is to obtain returns at minimal cost within a specific period of time using our front-end operations. Front-end operations focus on early intervention to obtain returns by issuing a request and/or a demand to file before the accounts enter more resource-intensive debt management operations.

In the latter part of the fiscal year, we initiated a pilot project to further refine the way we target potential non-filer accounts. This pilot uses predictive analytics and risk scoring to improve the determination of tax potential for known non-filer cases. The results of the pilot will be known in 2010-2011, and will be used to further enhance strategies and advanced tools to address filing non-compliance.

The prevalence of underground economy activity and its ongoing threat to the security of the Canadian tax base continue to drive the need for the CRA to change negative taxpayer behaviour through educational outreach and responsible enforcement. The Underground Economy Non-Filer/Non-Registrant Identification projects are reflected in the data in the table above, and have resulted in 26,907 tax returns being produced by filers previously unknown to the CRA. The related fiscal impact generated was $274.8 million.

Through our employer withholding and GST/HST examination activities, we enforce employers’ and taxpayers’ obligations to withhold, report, and remit source deductions, taxable benefits, and GST/HST. These activities are designed to promote employer awareness and understanding of tax laws and obligations under the Income Tax Act, the Excise Tax Act, the Canada Pension Plan, the Employment Insurance Act and their respective regulations, to increase and encourage compliance. In 2009-2010, we completed 552,290 Payroll reviews and exams and 13,979 GST/HST Examinations for a generated fiscal impact of $1.6B.

Performance Report Card

^{[Footnote 1]} Values are approximate only, due to ongoing financial adjustments, and are subject to rounding.

^{[Footnote 2]} Values are approximate only, due to ongoing financial adjustments, and are subject to rounding.

^{[Footnote 3]} We are currently developing an appropriate intake resolution indicator for the pre-TSO collections sources.

Date modified:

2010-11-02