Achieving Our Tax Services Strategic Outcome

Strategic Results

The tax services activities carried out by the CRA directly touch the lives of over 30 million Canadians, as well as thousands of businesses, trusts, and other organizations. We act on behalf of the Government of Canada and provincial and territorial governments, and certain First Nations, to administer, assess, and collect taxes.

Our goal

As in previous years, the goal we pursued in 2009-2010 was to ensure the integrity and fairness of Canada’s tax system.

Our outcome

During 2009-2010, we achieved further progress in making it easier for taxpayers to comply and making it harder for them to be non-compliant. As reflected in our measures of compliance behaviour beginning on , the majority of taxpayers, businesses, and registrants are meeting their obligations. On the other hand, our estimates of reporting compliance indicate that there may be more dollars at risk for some taxpayer sectors. Overall, we are confident that non-compliance levels are relatively low, although the dollar value of non-compliance is financially significant.

Our challenge

We face the ongoing challenge of maintaining high levels of compliance in an environment where demographics, societal values, technology, and economic conditions are changing at an ever-faster rate.

Spending Profile

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

A well-functioning tax system is critical to the ability of federal, provincial, territorial, and First Nation governments to deliver programs and services that are important to Canadians and Canadian businesses. As Canada’s tax administrator, the CRA exercises its mandate within a framework of laws enacted by Parliament and by provincial and territorial legislatures. Under the Tax Services strategic outcome, we work to promote taxpayer compliance and protect Canada’s revenue base. We do this by delivering a number of programs that help taxpayers meet their obligations, and we detect and address instances where this does not occur.

Our focus

The Canadian tax system is based on voluntary compliance and self-assessment. Taxpayers are expected to determine how much tax they owe under the law and then pay the correct amount of tax. The CRA’s fundamental approach to tax administration is to have individuals and businesses comply with their obligations without our intervention. We believe that promoting voluntary compliance is the most cost-effective way to administer taxes in Canada.

Compliance with Canada’s tax laws means that taxpayers:

• register as required under the law in specific circumstances (for example, for the GST);
• file returns on time;
• report complete and accurate information to determine tax liability; and
• pay all amounts when due.

Non-compliance is when taxpayers do not meet any one of these obligations.

We strive to minimize the compliance burden for taxpayers by streamlining administrative processes and providing quality service, while respecting the intention of relevant legislation. Where individuals and businesses either unintentionally or intentionally fail to fully comply, we use a wide range of mechanisms in our verification and enforcement programs to induce taxpayer compliance and to protect Canada’s revenue base. When taxpayers disagree with us, we provide them with the opportunity for redress, which is a formal, objective review of their file. This fosters taxpayers’ confidence in the fairness of our self-assessment system, and encourages them to meet their obligations voluntarily.

Underpinning this approach is our use of risk management to identify current and emerging compliance risks, and to assess them for their potential effect on the revenue base and on compliance. We then develop strategies for mitigating the greatest risks to compliance. These strategies address specific segments of the tax population or particular areas of non-compliance, using a mix of instruments and activities, such as outreach activities or audits. Part of our approach to compliance is to maintain an audit presence across all industry sectors and for all types of taxpayers. Overall, we believe this approach helps promote voluntary compliance and deters non compliance by increasing the credibility and visibility of our compliance programs.

Our influence on taxpayer behaviour

We recognize that many factors affect taxpayer behaviour. These factors include the public’s perception of government, the values held by society, the economy and people’s ability to pay, all applicable legislation, people’s feelings about the fairness of Canada’s tax regime, and the growing complexity of taxpayer issues.

Other factors also contribute to the outcome we seek. We are aided by legislation that reduces the risks of non-compliance; for example, the Income Tax Act requires employers to withhold and remit deductions at source. We also support the Department of Finance as it seeks appropriate legislation by providing information on compliance challenges that we have identified and the costs of administering proposed legislative changes.

In addition, financial institutions offer convenient, accessible services that enable taxpayers to receive and deposit refunds and remit tax payments on time. We also work with international tax administrations and organizations to share expertise and research results, as well as to discuss emerging compliance issues. Notwithstanding these factors, the CRA’s administration of Canada’s tax laws plays a key role in shaping taxpayers’ compliance behaviour. Our efforts toward achieving our expected results contribute significantly toward achieving our strategic outcome. The results identified through our strategic outcome measures provides evidence in support of our conclusion that taxpayers meet their obligations and Canada’s revenue base is protected.

Achieving Our Business Objectives

Our Corporate Business Plan 2009-2010 to 2011-2012 outlined two objectives that governed our strategies during this past fiscal year. They were:

1. Strengthening service–making it easier to comply; and

2. Tax integrity–making it harder to be non-compliant.

Achieving these objectives involves significant challenges that we have been addressing for several years, investing considerable resources through both short-term and longer-term initiatives.

In the following sections, we will report against the most critical of these initiatives, identifying progress made during 2009-2010.

Our key initiatives under strengthening service

Taxpayers are the focus of our service work. We are committed to providing timely and accessible information and services to make it easier for taxpayers to comply with their obligations and receive their rightful share of entitlements. Each tax service we deliver must be integrated with our compliance strategy and must consider costs and our capacity, as well as the needs and expectations of the individuals, businesses, and government clients we deal with every day.

CRA Service Strategy

In December 2008, we launched a comprehensive three-year service strategy aimed at refining our service delivery model so that we can deliver services through multiple, integrated, and accessible channels, while encouraging and enabling more Canadians to conduct their tax and benefits affairs with the CRA electronically and on a self-service basis.

In support of these service objectives (see Service Strategy results achieved on ), we have undertaken specific activities and projects as part of three broad activities:

• expand the suite of self-service options;
• optimize the telephone channel; and
• strengthen outreach and communication.

Expand the suite of self-service options

It is our aim to enable taxpayers dealing with the CRA to self-serve, more often and for more transactions, and we encourage them to do so by actively promoting self-serve options. As we continue to study and monitor how taxpayers use traditional service channels that involve agent assistance, we will better see how to expand the capacity for taxpayer self-service on the Web. Canadians are becoming more Internet-literate, and advances in the public and private sector are creating an external pull for a greater electronic service presence for the CRA.

Figure 1 Rates of Electronic Filing and Payment

Data quality: Good

Electronic self-service is the most economical means of reaching the greatest number of individuals and businesses and it represents the best opportunity to respond to the evolving service expectations of taxpayers. Our Smartlinks program supports taxpayers who self-serve by providing direct telephone access to tax experts and provides us the opportunity to solicit feedback in order to improve the Web site. In 2009-2010, we expanded this feature to the transactional pages of our My Business Account electronic service.

Optimize the telephone channel

While many Canadians use electronic self-service options, we continue to serve and support taxpayers through more traditional channels. For example, a large number of taxpayers interact with us over the telephone.

Figure 2 Agent-Assisted Enquiries

Data quality: Good

Comprehensive automated response systems provide service 24 hours a day, seven days a week. During regular business hours, we can route calls among call centres as demand increases or decreases. This allows us to use our resources more effectively, reduce costs, provide extended hours of service, and efficiently resume our business after any service interruption.

Taxpayers continue to rely on agent-assisted services, which are predominantly provided by telephone. We are improving our understanding of why taxpayers use the telephone through our Profile of Enquiries studies. We are also providing our agents with more updated and relevant reference tools, and making system improvements to ensure the information agents provide to callers is consistent. This will ensure that our agent-assisted telephone services meet taxpayers’ needs.

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 on their own.

Strengthen outreach and communication

Figure 3 Visits to CRA Web-Based Tax Products

Data quality: Good

Through our communication and outreach activities, we deliver the information taxpayers need to meet their obligations. Given changing demographics, compliance risks, and other key trends, outreach programs and communications activities delivered by programs across the CRA must continually adapt. They must also be fine-tuned to the needs of specific taxpayer subgroups such as seniors, new Canadians, youth, small or new businesses, and high-risk sectors.

In 2009-2010, we worked with several government departments and agencies to reach out to different segments and communities to deliver tailored services or messages. Partners included Agriculture and Agri-Food Canada, Human Resources and Skills Development Canada, the Financial Consumer Agency of Canada, and the Province of Manitoba. We also continue to build on partnerships with the provinces of Ontario and British Columbia to provide information sessions on the transition to the harmonized sales tax.

To deliver information on various tax matters, including the new harmonized sales tax in Ontario and British Columbia, we used webinars and webcasts as outreach tools. This gave taxpayers in remote areas easy access to information. We also conducted a call-out campaign to give rural small business owners in Ontario and British Columbia information about the upcoming implementation of harmonized sales tax in their provinces.

Service Strategy results achieved

After the first year of implementation, we have made notable progress toward our service objectives and are making advances in implementing our initiatives.

With respect to the objective to consistently set and meet meaningful service standards for service, the CRA met 14 of the 16 selected service standards, and mostly met the remaining two standards.

In 2009-2010, 63.8% of interactions and transactions were undertaken on a self service basis by individual and business taxpayers and benefit recipients, up from 61.4% in the previous year. This represents an increase of 3.9% from one year ago and places us firmly on track to attain our objective of a 5% increase by 2012.

The first year of implementation of our Service Strategy saw progress toward our objective of increasing the level of satisfaction for overall quality among individual taxpayers by 5%. There was an increase of 1.6% in the level of satisfaction for service quality, with 63% of taxpayers who contacted the CRA reporting their level of satisfaction as either “satisfied” or “very satisfied.”

Our key initiatives under tax integrity

Our Corporate Business Plan 2009-2010 to 2011-2012 identified the following three key initiatives which were pursued during this past fiscal year:

• build on our Compliance Communications Strategy;
• broaden information exchanges; and
• enhance our relationships with others.

In addition to these initiatives, we undertook improvements to our programs to enhance our organizational capacity to manage tax and government programs debt. Our accomplishments in this area follow the discussion of these key initiatives.

Building on our Compliance Communications Strategy

Communication can significantly affect public perception of the CRA, influence positive compliant behaviour, and deter acts of non-compliance. For Canadians who do comply, communication about what the CRA is doing to combat tax cheating reassures them that we are serious about this matter. For those who are considering not complying or who do not comply, publicizing the consequences of non-compliance may act as a deterrent and lead them to rethink the risk associated with tax cheating.

For example, during 2009-2010 we developed a suite of directives that sets the direction of our future communication with taxpayers by issuing tax alert messages and publishing criminal convictions obtained by the CRA through the judicial process.

We also communicated with Canadians about the risks and consequences of using tax havens to avoid paying taxes, and about the actions that we take to counter these abusive practices. A pamphlet to inform taxpayers who are potential users of tax havens was published in 2009.

Broadening information exchanges

Our approach to compliance is supported through co-operation with other tax administrations, federal stakeholders, and international organizations. During the 2009-2010 fiscal year, we formed partnerships with a number of agencies to advance our compliance agenda. They include the Combined Forces Special Enforcement Units, Criminal Intelligence Service of Canada, Royal Canadian Mounted Police, Financial Transactions Reports Analysis Centre of Canada, and various provincial security regulators.

We enhanced our relationships with other tax jurisdictions through tax treaties and tax information exchanges. In 2009-2010, we participated with the Department of Finance Canada in negotiations to update existing treaties with Australia, Malaysia, the Netherlands, New Zealand, Poland, Singapore and Switzerland. We similarly pursued tax information exchanges with Anguilla, Aruba, Bahamas, Bahrain, Bermuda, Cayman Islands, Dominica, Guernsey, Jersey, Liberia, Saint Lucia, St. Kitts and Nevis, St. Vincent and the Grenadines, San Marino, and Turks and Caicos. These enhanced relationships improve our ability to conduct international compliance work by providing the CRA with access to offshore tax information, including bank information, notwithstanding bank secrecy legislation.

Enhancing our relationships with others

Our relationship with the Department of Finance Canada is critical to the success of our strategies. In 2009-2010, we worked with that department to prepare for the implementation of the Harmonized Sales Tax in Ontario and British Columbia.

We maintained a strong presence in international organizations such as the Inter American Center of Tax Administrations, the Commonwealth Association of Tax Administrators, and the Centre de Rencontres et d’Études des Dirigeants des Administrations Fiscales in order to advance protocols and practices to guide the work of tax administrations around the world.

Making non-compliance more difficult has a significant international dimension that relates to aggressive tax planning and the abusive use of tax havens. In 2009-2010, we worked with a number of international groups, such as the Organisation for Economic Co-operation and Development, to identify and respond to compliance threats. We also worked with multilateral compliance groups, such as the Joint International Tax Shelter Information Centre, with whom we conduct analyses of compliance issues.

Debt management

Effective debt management is essential to protecting Canada’s revenue base. We collect debt once the account’s risk of loss has been assessed, and initiate appropriate actions to protect the Crown’s interest.

Over the past several years, we have significantly augmented our research capacity to enable us to better understand and manage debt. Our work in this area has allowed us to use information on taxpayer characteristics, compliance behaviour, and other factors to construct risk-based models that help us select appropriate and effective approaches for specific debtor cases. In 2009-2010, we began to use our risk-based approach to identify the right compliance response for individual debtors, ranging from helping individuals further understand their obligations, to undertaking swifter and firmer responses with those whose history demonstrates a higher risk of non-compliance. Our risk-based selection models are being integrated into our decision-making to more effectively manage the tax debt accrued by both taxpayers and businesses.

Figure 4 Trend and Composition of Total Tax Debt

Data quality: Good

Parallel to our research efforts, we continued to develop and implement risk-based approaches in 2009-2010 to address specific segments of our debt inventory that present us with greater challenges. Also, in an attempt to influence taxpayer behaviour and make it easier for the growing number of taxpayers who access our electronic services to comply with their remittance requirements, we added payment options to the catalogue of e-services. We also commenced the implementation of Phase II of our National Insolvency Strategy, with the goal of improving the coordination and management of complex filings under the Companies’ Creditors Arrangement Act. In addition, sectors of the CRA worked together to better manage collections related to aggressive international tax planning cases, an effort that has produced valuable information. Such improvements will serve both taxpayers and the CRA by enhancing our ability to address the current global accounts receivable inventory.

Further information on our improved approach and the activities we undertook in 2009-2010 to collect tax and non-tax debt can be found in the section entitled Our Day-to-day Activities.

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 our indicators into four broad categories of taxpayer obligations to help measure and assess our results against our tax services strategic outcome. These four categories are:

• Registration Compliance,
• Filing Compliance,
• Remittance Compliance, and
• Reporting Compliance.

To facilitate further research and discussion of compliance, we analyze the following segments of the population: individuals, self-employed individuals, corporations, GST/HST registrants, and employers. Our discussion of compliance includes macro-indicators which help us evaluate reporting compliance trends and to determine if the economic data provides an early indication of a change in the levels of compliance.

Registration Compliance

Our estimates of the rate of registration compliance have remained consistently above our target over the past several years. By comparing our data with information from Statistics Canada, we estimate that 93.5% of businesses were registered voluntarily to collect GST/HST in 2009-2010. This met our high degree of registration compliance target, set at 90%, considering that many businesses are not required to register to collect the GST/HST because, for example, their gross revenues are below the registration threshold set by law for their type of business.

Our assessment is also supported by the results from our non-registrant program (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. We are persuaded, therefore, that there is a very low risk that medium-sized or large enterprises are carrying on business without being registered to collect the GST/HST.

Filing Compliance

To gauge the compliance of individual taxpayers with their obligation to file a timely return, we compare our data for individual filers 18 years of age and older with Statistics Canada’s Census of Population data for this population. For 2009-2010, 92.8% of this population filed their tax return on time, exceeding our 90% target. In fact, these estimates have consistently remained above the 92.5% level for every year since the 2001-2002 reporting year, providing a reliable trend for the high degree of voluntary filing compliance that we observe.

In addition, our research on filing behaviour shows that, of the remaining individuals who were not compliant (7.2% in both 2005-2006 and 2009-2010), a large majority file their return within five years. For instance, although 92.6% of individuals filed their returns on time for the 2003 tax year, this percentage rose to 97.4% in less than five years. Filing for the following tax year (2004) showed exactly the same pattern, reaching 97.4% in less than five years, and filing behaviour for subsequent years follows a similar trajectory. We have learned from this research that the majority of non-compliant individual filers comply within about five years, indicating a long-term non-filing rate of about 2.6% for the 18-year-and-older population. Over the last six tax years, more than two thirds of the returns filed late owed no taxes for any tax year at the time of filing, with the remaining third owing taxes for at least one tax year.

It is important to note that a number of individuals have no legal obligation to file a tax return because, for example, their income is below the filing threshold and they are not subject to any special provisions (e.g., disposition of capital property) that would otherwise require them to file. While some of these individuals file to claim social benefits, such as the Canada Child Tax Benefit and the GST/HST credit, others are not entitled to these benefits or do not wish to participate. Our research found that almost 9% of individuals who filed late declared their total income as nil in at least one of the last six years that we studied.

Known individuals who do not file, and who we anticipate owe tax at the end of the calendar year, are subject to our non-filer program (see ). On balance, these estimates and our research demonstrate a high degree of voluntary compliance with filing obligations and a low risk to the protection of Canada’s tax base.

In the case of corporations, our compliance rate estimates apply only to corporations that are taxable, which are those that filed a T2 Corporation Income Tax Return showing that tax is payable. The incidence of timely filing among taxable corporations was 85.5% in 2009-2010, about one percentage point higher than the previous year but still below our 90% target. We have found that the majority of late filers actually submitted their returns within a year of their fiscal year-end, raising the filing rate to 92.5% each time.

Our indicator of timely filing of GST/HST returns by Canadian businesses shows that we have met our target over the last few years. Although we were unable to report an indicator for the 2007-2008 and 2009-2010 periods because our systems were undergoing a redesign, it is noteworthy that timely filing of GST/HST returns has exceeded 90% since 2001-2002.

With respect to employers who file their T4 returns on time, our compliance indicator relates to all employers who are obligated by law to deduct, remit, and report federal and provincial income taxes, Canada Pension Plan contributions, Employment Insurance premiums, and employer-provided benefits, whether they are unincorporated businesses, corporations, or charities. For 2009-2010, our indicator shows that 96.3% of these employers filed their T4 information returns on time, exceeding our 90% target. In fact, this indicator has exceeded 94% for every year since the 2001-2002 fiscal year, which assures us of a high degree of filing compliance among Canadian employers.

Remittance Compliance

We measure how various taxpayer segments comply with their remittance requirements by the degree to which they paid all taxes, based on their self-assessment, on or before the due date. When monies owed are not paid at the time of filing, we take steps to obtain payment, as explained beginning on .

We estimate that during 2009-2010, the proportion of individuals who paid their entire amount of self-assessed taxes on time was 93.7%, an increase over the prior period. The rate of remittance compliance for individuals exceeded our target of 90% this year, as it consistently has for several years.

Our estimate of remittance compliance for taxable corporations was 93.5% during 2009-2010, an increase over the prior period. Corporations’ remittance compliance has also exceeded our target over the last several years.

For employers who remit at-source deductions on behalf of their employees, the rate of timely remittance has been below our target of 90% for several years. This year, however our estimate indicates, that employers have remitted in a more timely fashion compared to previous years, as it reached 89.9% which is fractionally below target. On this basis, we are inclined to conclude that we mostly met our target for this compliance measure.

The last indicator shows outstanding tax debt as a proportion of CRA gross cash receipts. While we do not set a target for this ratio, our expectation is that this indicator shows a declining trend over time.

Reporting Compliance

We conduct various reviews and audits to identify areas where reporting by individuals and corporations may not be consistent with their obligations to report complete and accurate information.

For individual taxpayers, all tax returns are subjected to risk assessment review by CRA systems, which may include a comparison to third party information from employers, financial institutions and other sources. This process improves the accuracy and completeness of information provided by the taxpayer, and identifies many types of non-compliance. In addition to improving the reported information, this process begins to compile and refine non-compliance risk information about taxpayers, about types of deductions, types of credits, and so on, by comparing the filing information over a historical period. Risk scores obtained from this process enable us to perform a number of targeted reviews in each tax year that focus the available resources on taxpayers and line items that pose the greatest risk. At the same time, a review of a random sample of individual tax returns is conducted to learn about the non-compliant behaviour of the entire population of individual taxpayers with respect to key credits and deductions, and to put the effectiveness of our targeted reviews in context.

In 2009-2010, our review programs estimated that 15.4% of claims or deductions made by individuals were non-compliant, meaning they would be disallowed following a review ^{[Footnote 1]} . It should be noted that the number and type of credits and deductions have changed over the 2007-2008 to 2009-2010 period, so that the non-compliance rate shown in the above table represents both changes in compliance and in the scope of the study.

Individual returns are subjected to reviews either because they have been chosen randomly, or because they were identified as presenting a higher risk of non-compliance based on the information generated from the review process, as described above. Although the goal of our program is not simply to assess dollar values, we use an additional metric to gauge the effectiveness of the risk assessment process that informs our targeted reviews, namely, the value of additional tax dollars assessed by targeted reviews compared with random reviews. Over the 2006-2007 to 2009-2010 period, our risk assessment process enabled our targeted reviews to be more than three times as effective as a random review. In the latest fiscal year, they were 3.6 times more effective in identifying non-compliance than were reviews selected randomly.

For large businesses, we detect and address non-compliance through a combination of corporate audits and risk assessment, which includes research and monitoring. We have increased our use of research relating to risk-based targeting of large business in response to the evolution of large businesses as a result of globalization and electronic commerce that have made certain complex business structures more prone to risks of non-compliance. Our approach in the past was to audit 100 percent of the largest businesses over a two year period. Though we still audit nearly 100 percent of large businesses over a two to three year period, we have moved to an approach that strikes a better balance between compliance burden and non-compliance detection by employing risk information to focus our audit activities and resources on businesses that present greater risk to the revenue base. The process involves an annual risk assessment of large taxpayers that uses expertise from across CRA to assess the risk levels using information related to the nature of the taxpayer’s business, their current and past behaviour including aggressive tax planning, transparency, as well as information available from our tax treaty partners that indicate potential risk of non-compliant behaviour.

For small businesses, including self-employed individuals, we rely more on risk assessment in selecting businesses for audit. Our Small and Medium-sized Enterprise (SME) audit program selects its audits based on a range of risk information that includes past risk history and business condition indicators that are associated with non-compliance risk. These risk indicators are validated and refined by our Core Audit Program (CAP), which estimates the non-compliance rate for SME population segments by randomly selecting enterprises for audit, and over time, provides indications of compliance trends.

In 2008-2009, our Core Audit Program selected businesses that are registered to collect GST/HST as the SME segment for examination, and the results are being reported in this year’s Report. By examining businesses that were subjected to its random sample audit, the CAP estimated the percentage of all businesses in this segment that are likely non-compliant to a significant degree, defined as businesses underreporting $5,000 or more in federal taxes. The CAP also examined this SME segment in 2005-2006. Due to differences in sampling design, however, the results for these two years are not comparable. ^{[Footnote 2]}

The results of our audit and review programs that deal with reporting non-compliance in various segments of the business population can be brought together to report on the total dollar value of non-compliance identified and addressed (Figure 5).

Figure 5 Total Dollar Value of Identified Non-Compliance

Data quality: Good

These programs identified $14.4 billion in non-compliance in 2009-2010, a 10% increase over 2008-2009, which had increased about 6% over the prior year, after a 4% decline from 2006-2007.

We also monitor and analyze a number of macro indicators that gauge trends in taxpayer behaviour with respect to reporting compliance ( ). Our first indicator compares the trend of personal income reported to the CRA to the trend of personal income reported to Statistics Canada. It shows that, over the 1998 to 2008 period, personal income reported to the CRA increased by about 62%, whereas Statistics Canada’s estimate used for its national accounts indicates a 64% increase. Given that this indicator tracks, over a ten-year span, reporting of personal income compared to an independent estimate, it is an indication that Canadians are generally reporting changes in personal income to the CRA.

Our second macro indicator compares corporate income tax reported to the CRA with corporate profits reported to Statistics Canada. The indicators tracked one another favourably over the 2000 to 2007 period. The Government of Canada’s decision to reduce corporate tax rates and to grant other favourable treatments to corporations beginning in 2008, however, has led to a downward shift in corporate income taxes compared to profits. While our indicator is not designed to adjust for such rate reductions, the result is fully consistent with the change in corporate tax treatment that we experienced.

Our Macro Indicators

Figure 6

The trend in personal income reported to the CRA compared to personal income estimated by Statistics Canada.

Figures for the years 2005, 2006, and 2007 have been restated as a result of improved data.

Data quality: Reasonable

Figure 7

The trend in corporate income taxes that we have assessed compared to corporate profits before tax reported to Statistics Canada

Figures for the years 2001 and 2002 have been restated as a result of improved data.

Data quality: Reasonable

Figure 8

The trend in net income of unincorporated businesses reported to us compared to Statistics Canada’s estimate for its National Accounts

Figures for the years 2005, 2006, and 2007 have been restated as a result of improved data.

Data quality: Reasonable

Figure 9

The trend in CRA’s net GST/HST revenue compared with retail sales and personal expenditure estimated by Statistics Canada.

Data quality: Reasonable

The indicator (Figure 8) comparing the income of unincorporated businesses with Statistics Canada’s estimates has generally demonstrated consistent movement over the last ten years. This is income earned by individuals through sole proprietorships, partnerships or family trusts. Since the 2008 data indicates a sharp movement away from this historical pattern, however, we must further examine the underlying factors that affect our indicator and Statistics Canada’s estimates.

Our macro indicators also compare the movement of GST/HST revenue with two indicators of the tax base for these taxes: retail sales and personal expenditure, both estimated by Statistics Canada. The trend of GST/HST revenue (Figure 9) tracked the indicators of the tax base favourably until 2005. Two successive reductions in these tax rates since 2006 have led to reductions in GST/HST revenue.

Conclusion

Our strategic outcome measures provide estimates of filing, registration, remittance, and reporting compliance to gauge the levels of voluntary compliance with Canada’s tax laws. Our review of these estimates for 2009-2010 indicates that voluntary compliance remained generally high, although the dollar value of identified non-compliance is financially significant. Our assessment of our results indicators is that they are consistent with a high level of taxpayer compliance.

It is our assessment that we met our Tax Services strategic outcome in 2009-2010. We draw our overall conclusion largely from the significant proportion of Canada’s revenue base originating from personal income that is subject to third-party reporting, and that a major proportion of the remainder originates from large corporations that are subject to a high rate of audit coverage. In addition, much of our assurance that we are achieving our strategic outcome is based on our robust system of checks and balances, which includes both preventive and detection activities. These activities incorporate a mix of compliance tools to protect Canada’s revenue base from non-compliance.

^{[Footnote 1]} Credits and deductions for the random sample in 2009-2010 included an additional credit compared to the previous year with a rate of non-compliance lower than the average. Excluding this item would result in a non-compliance rate of 17%. Similarly, the study that produced the 2008-2009 results included an item that was not part of the key credits and deductions of the prior year. Excluding the latter from both 2008-2009 and 2009-2010 would result in non-compliance rates of 16.2% and 16.7%.

^{[Footnote 2]} Our Core Audit Program examined businesses registered to collect GST/HST in 2005-2006 and 2008-2009. However, the 2008-2009 exercise includes certain large businesses in the SME sample that affect both the estimates of frequency and dollar amount of non-compliance. Consequently, the results obtained form the exercised for 2005-2006 and 2008-2009 are not comparable.

Date modified:

2010-11-02