annual report to parliament 2012-2013]

[accounts receivable and returns compliance]

[program description]

The Collections and Returns Compliance programs are committed to protecting the integrity of Canada's tax laws and supporting compliance with tax obligations by identifying, addressing, and preventing non-compliance, as well as ensuring that tax debt is resolved in a timely basis. We undertake a range of activities to promote and enforce compliance with Canada's tax laws for filing, withholding, registering, and debt obligations, including amounts collected or withheld in trust for the Government of Canada. This is achieved through education campaigns, automated strategies, call centres, and field operations. These activities are carried out on behalf of the federal, provincial, territorial, and certain First Nations governments.

2012-2013 financial resources (thousands of dollars)

Total budgetary expenditure	Planned spending (Footnote 1)	Total authorities	Actual spending (Footnote 2)	Difference
432,277	495,786	541,527	512,218	(16,432)

Sub-program	Planned spending (Footnote 1)	Actual spending (Footnote 2)	Difference
Trust accounts compliance	87,462	89,545	(2,083)
Non-filer/non-registrant compliance	62,215	64,360	(2,145)
Accounts receivable - tax programs	292,890	308,459	(15,569)
Accounts receivable - government programs	19,434	18,061	1,373
Automated operations and call centre	33,785	31,793	1,992
Total	495,786	512,218	(16,432)
Numbers may not add due to rounding.

(Footnote 1): Planned spending has been restated from what was shown in the Canada Revenue Agency 2012-2013 Report on Plans and Priorities in order to distribute the real property accommodations funding (previously centralized in the internal services program) to all applicable programs. It should also be noted that planned spending excludes severance payments, parental benefits and vacation credits, as this funding is received during the fiscal year and is only included in actual spending.

(Footnote 2): This figure represents the actual spending for the program on a modified cash basis. Please refer to page 156 for an explanation of how this figure relates to the CRA Financial Statements - Agency Activities.

2012-2013 human resources (full-time equivalents)

Sub-program	Planned	Actual	Difference
Trust accounts compliance	1,833	1,786	47
Non-filer/non-registrant compliance	912	893	20
Accounts receivable - tax programs	3,995	4,153	(158)
Accounts receivable - government programs	485	392	93
Automated operations and call centre	373	395	(22)
Total	7,599	7,619	(20)
Numbers may not add due to rounding.

[sub-program description]

Trust accounts - compliance	The Trust Accounts - Compliance Program protects the revenue streams that represent the most significant part of Canada's revenue base by facilitating and enforcing registration, withholding, remitting, reporting, and filing obligations for payroll deductions, GST/HST, other levies, and non-resident taxes. We influence compliance attitudes through targeted strategies and address non-compliance through automated systems, call centres, and field operations.
Non-filer/non-registrant - compliance	The Non-filer/Non-Registrant - Compliance Program facilitates and enforces filing by individuals, businesses and trusts. We use a risk-based approach that influences filing behaviour and address non-compliance through targeted strategies, automated systems, call centres, and field operations.
Accounts receivable - tax programs	The accounts receivable - tax programs is responsible for the collection of tax debts on behalf of the federal, provincial and territorial governments, as well as other government agencies.
Accounts receivable - government programs	The accounts receivable - government programs is responsible for the collection of non-tax debts where the responsibility for the collection function has been transferred to the Canada Revenue Agency from other organizations.
Automated operations and call centre	The Automated Operations and Call Centre Program is responsible for preventing non-compliance with filing obligations and remitting requirements for taxpayers and GST/HST registrants. This is achieved by resolving a high volume of low-risk accounts primarily through automated letters, phone calls, and reminders.

[performance summary and lessons learned]

[addressing non-compliance]

The CRA is in the business of protecting Canada's revenue base. We maintain the integrity and sustainability of our self-assessment tax system by ensuring that individuals and corporations file and register when required and pay the amounts they owe. The effective identification, deterrence and correction of payment, filing and registration non-compliance is critical to maintaining Canadians' trust and confidence in our tax system.

Collecting overdue amounts and returns in a timely and efficient fashion is a key element in our strategy to combat non-compliance. When money is owed but not paid or when a return is due but not filed, the CRA reviews the account to determine the risk of loss the file represents and takes progressive action to resolve the non-compliance. Depending on the nature of the file, the action taken can vary. Compliance action can be something as simple as the issuance of a letter to remind a taxpayer of their payment obligations, or at the other end of the compliance spectrum, it could mean prosecution through the courts to enforce filing requirements. In all cases, the objective is the same, to ensure that the right level of compliance intervention is applied at the right time and by the most cost-effective and appropriate means possible.

[trust accounts compliance]

In 2012-2013, $236 billion was collected through source deductions. The taxes collected through source deductions make up a significant part of Canada's tax revenue base. Every year, millions of employees have income tax deducted from their pay cheques to fund federal, provincial, and territorial government programs and infrastructure. In addition, amounts are deducted and contributed to the Canada Pension Plan (CPP) and employment insurance (EI) accounts of individual employees. Self-funded programs like the CPP and EI help to protect families and workers against the loss of income due to retirement, disability, and death, or in the case of EI, provide short term support to those who have lost their job. Employers are responsible for the deduction and remittance of these amounts when they prepare their employee payroll. They are also responsible for remitting the employer's portion of CPP contributions and EI premiums.

Our source deduction system functions well because Canadians trust that the income tax being deducted and the amounts held in trust for contribution to their CPP and EI accounts are properly calculated and remitted. Our role as administrators of this system is to ensure the integrity of Canada's source deduction system.

We support compliance by working with employers to make sure they understand their obligations. Our webinar series, Payroll Information for New Small Business, is an example of how we are using innovative techniques to help employers meet their obligations. These webinars provide answers to the most commonly asked questions by new small businesses. The goal is to make sure that employers understand their responsibilities. The information and support we provide to new businesses allows them to get it right from the start and helps to prevent a pattern of non-compliance from developing. However, when source deduction non-compliance is suspected or identified, we take corrective action by examining employer's books and records to ensure that the correct amounts are being deducted and remitted.

We are taking steps to improve our knowledge and understanding of employer needs at critical points in their business life cycle. One way we are doing this is by improving our system that tracks employer obligations to withhold and remit payroll deductions. The PAYDAC Renewal and Migration Project is a multi-year initiative that will allow us to better manage payroll compliance activities and provide a more personalized delivery of services to employers. This project will improve our capacity to gather the data needed to better understand and detect non-compliance behaviour.

Key results:

• We performed over 480,000 payroll account reviews
• Our trust examiners completed nearly 48,000 payroll account examinations
• We completed 847 employer compliance audits
• We identified $1.8 billion in non-compliance

[non-filer/non-registrant]

Non-filers are individuals, corporations, or trusts that do not file a tax return as required by legislation. Non-registrants are individuals and business entities that do not register for the GST/HST when required.

The vast majority of individuals and businesses file tax returns when required, register for the GST/HST when necessary, and pay their taxes on time without our intervention. This year, we saw a 1% increase in the overall percentage of taxpayers over the age of 18 who filed their income tax returns on time. While not everyone is required by law to file a tax return, high rates of voluntary compliance help to ensure that citizens receive the benefits to which they are entitled and contribute to the sustainability of our self-assessment system by lowering the cost of enforcing filing compliance.

Key results:

• 92.1% of individuals over the age of 18 filed an income tax return on time
• 95.3% of Canadian businesses have a GST/HST account
• Over 3.3 million businesses and individuals are registered for a GST/HST account
• 85.2% of corporations with taxable income filed their tax return on time

To help us identify potential non-filers, we use automated systems to match information slips and corporate business numbers against submitted tax returns. We also use informant leads and periodically run special projects to identify potential non-filers and non-registrants working in industry sectors that may be characterized by high levels of non-compliance. These special projects help us find non-compliant individuals or corporations who may not be identified by our normal risk assessment processes. We pay close attention to existing and emerging non-compliance trends and are always looking at new ways to strengthen our ability to identify non-filers and non-registrants.

When we identify non-filers and GST/HST non-registrants, we employ a number of strategies to promote and enforce compliance. We take a progressive approach to enforcement. In those rare cases where we are not successful in persuading taxpayers to respect their filing and registration obligations, we sometimes issue legal requirements to register or file and enforce compliance through prosecution action.

Key results:

• We received nearly 618,000 income tax and information returns as a result of actions undertaken by the Non-Filer/Non-Registrant Compliance Program
• The Non-Filer/Non-Registrant compliance Program identified over $2.9 billion in non-compliance

We are improving our workload management in the non-filer and non-registrant program through the use of debt management call centre agents to resolve low-risk, low-complexity files that do not require an in-depth review or specialized contact. The use of call centre agents allows us to better balance our workloads and process files that can come from any region in the country. This new approach is a good example of how we are creating efficiencies by taking advantage of existing call centre facilities to more effectively manage our non-filer workload.

[GST/HST non­filers]

GST/HST registrants are responsible for collecting GST/HST on the taxable supplies of goods and services they provide. The CRA has a dedicated GST/HST Delinquent Filer Program that uses a variety of compliance approaches. This includes the use of automated reminder letters and telephone contact by call centre agents to establish filing arrangements. Businesses who are GST/HST registrants are required to collect and remit amounts to the Crown. Because they play such an important role in the collection of government revenue, the CRA places a high priority on ensuring that GST/HST registrants file when required and remit on time.

This year, we continued to pilot an automated reminder service that sends a series of calls to new employers and GST/HST registrants to remind them of their filing obligations. We believe that this convenient service helps to support and encourage compliance.

Key result:

• We resolved over 336,000 GST/HST files through our GST/HST Delinquent Filer Program

[payment of tax debt]

The effective resolution of outstanding tax debt is a critical element in protecting Canada's tax base and ensuring that government has the revenues needed to support social programs and address priorities. In 2012-2013, the CRA resolved $37.3 billion dollars in outstanding tax debt on behalf of federal, provincial, and territorial governments.

Our ability to successfully collect debt often depends on taking decisive action in a timely manner. The longer the debt remains outstanding, the more difficult and expensive it can be to resolve. The CRA is working to improve its risk-based debt management strategies and create more effective collection processes that deliver the best collections outcomes possible.

Key results:

• 94.5% of individuals over the age of 18 who owed taxes paid them on time
• We resolved $20.9 billion in tax debt through our call centre and by using automated strategies
• We resolved $16.4 billion in outstanding tax debt through our tax services offices

We take a progressive approach to debt collection, and we determine the level of intervention used by assessing the risk of loss associated with the debt. Examples of compliance intervention include:

• automated reminder messages and letters to pay outstanding amounts;
• telephone contact by call centre agents to make payment arrangements;
• formal collection actions through the Accounts Receivable National Inventory; and
• collection actions by senior collection officers from one of our tax services offices.

Risk-scoring models help us to determine which files present the highest potential for tax debt recovery. The efficient resolution of files depends on our ability to quickly direct accounts to the most appropriate compliance action. We are investing resources in the analysis of non-compliance behaviour and using these findings to challenge the assumptions we used to develop our risk models and the business rules used to control workloads.

The automated distribution of workload based on risk and complexity is allowing us to achieve greater efficiencies by processing higher volumes of files that can originate from any region in the country. In this past year, our Debt Management Call Centre (DMCC) used the Automated Dialer Announcement Device to contact new GST/HST registrants and employers to remind them of the dates that their returns and payments are due. We plan to increase the use of dialer announcement technology to support payment compliance.

Accounts that cannot be resolved through DMCC contact are forwarded to our Accounts Receivable National Inventory to be worked by a TSO collections officer. The use of a national inventory approach allows collections officers from any tax services office in the country to work on any account in the national inventory, which leads to a more balanced TSO workload distribution. The most challenging collection accounts are addressed by senior collections officers who sometimes work in collaboration with the Department of Justice to resolve accounts.

In 2012-2013, our tax services offices resolved 90% of the total net dollar value of debt received during the fiscal year. However, because of our focus on aged debt, the CRA did not meet its target of 60% for resolving new tax debt in the year of intake. A new legislated collections limitation period required the CRA to make a strategic decision to focus more resources on resolving debt that had been outstanding for several years. As a result, significant progress was made in resolving these aged accounts. The percentage of aged accounts more than five years old was reduced from 16.4% of total inventory down to 14.4%. This should significantly reduce the likelihood of unrecoverable tax debt in the future. The CRA will continue to focus its efforts on collecting outstanding debts in a timely manner and monitoring debt aging trends closely.

Key results:

• $18.3 billion in accounts receivable was referred to TSOs for collection action
• 51% of new tax debt received in the TSOs was resolved in the year of intake
• The percentage of accounts with tax debt over five years of age decreased from 16.4% to 14.4%, well within our target of 18%

[payment of government programs non-tax debt]

The CRA collects a number of non-tax debts on behalf of the federal government. Examples of non-tax debt collection include: defaulted Canada student loans, employment insurance overpayments, and other debts on behalf of Human Resources and Skills Development Canada (HRSDC). Since the transfer of the functions and resources of collections activities from HRSDC to the CRA, we have managed to improve collection productivity, and overall recoveries have climbed.

We are providing support to those debtors who are willing to work with us to reduce and resolve their outstanding debt. However, we take firm action against those not willing to work with us to address their obligations. We believe this measured approach of working with debtors and taking firm action when necessary has contributed to the increased recoveries seen in 2012-2013.

Key results:

• The CRA recovered $600 million of the HRSDC outstanding debt portfolio, exceeding the 2012-2013 target by $17 million, or 3%.

[conclusion]

The CRA understands that sometimes non-compliance is the result of unintended errors, misunderstandings, or a lack of information. Our research is providing insights into the factors that contribute to this type of non-compliance and we are using these findings to reduce the compliance burden and prevent non-compliance from occurring in the first place.

We are making steady progress in our efforts to better understand non-compliant behaviour and refine our risk assessment strategies. These findings are being used to rationalize and improve the way we address and distribute our workloads. Innovations such as our Accounts Receivable National Inventory are helping us to increase efficiencies. Our goal is to ensure that we are initiating the most appropriate compliance action, at the right time to deliver the best possible compliance outcome at the lowest cost possible. A recent International Tax Benchmarking study, conducted jointly by Her Majesty's Revenue and Customs (United Kingdom) and Capgemini Consulting, found that Canada had the second lowest cost of collecting a dollar of debt among the ten countries surveyed.

[performance results]

Expected results	Indicators	Targets	2010-2011	2011-2012	2012-2013
Identified non-compliance
Non-filers and GST/HST non-registrants are identified and addressed through compliance actions	T1/T2/T3 non-filers and GST/HST non-registrants ($ billion)	$2.6	$2.8	$2.6	$2.9
	Employer/Payroll/GST/HST Reviews, Exams and Compliance Audits ($ billion)	$1.6	$1.6	$1.7	$1.8
Tax debt and government program debt is resolved on a timely basis and is within targeted levels	Percentage of accounts receivable dollars resolved in the fiscal year compared to the dollar value of accounts receivable (intake) received in the fiscal year	90%	n/a	n/a	93.5%
Ensure compliance with filing and remitting requirements as they relate to the Income Tax Act, Canada Pension Plan, Employment Insurance Act and the Excise Tax Act	Trend in the total dollar value of assessments related to employer, GST/HST and part XIII related compliance activities ($ billion)	0% change compared to baseline year	Baseline year	(8.15%)	10.2%
Ensure compliance of individuals, corporations and trusts with filing and registration requirements as they relate to the Income Tax Act, Excise Tax Act and other legislation	Trend in the dollar value of estimated assessments related to GST/HST non-registration activities and non-filer activities for individuals, trusts, and corporations resolved at the TC/TSO level ($ billion)	0% change as compared to baseline year	Baseline year	(2.8%)	13.1%
Tax accounts receivable assigned to the tax services offices are collected and resolved, on behalf of the federal, provincial and territorial governments, on a timely basis and within targeted levels	Percentage of tax services offices tax intake (dollars) resolved in the year of intake	60%	64.4%	61.6%	51.2%
	Percentage of tax services offices tax accounts receivable aged inventory (>5 years) compared to closing tax services offices inventory	18%	16.9%	16.4%	14.4%
	Percentage of the dollar value of tax accounts receivable resolved at the tax services offices in the fiscal year compared to forecasted	100%	n/a	n/a	96.0%
Government programs accounts receivables are collected and resolved on behalf of the federal, provincial, and territorial governments on a timely basis and within targeted levels	Percentage of the dollar value of government programs accounts receivable resolved in the fiscal year compared to forecasted	100%	110%	105%	104%
Accounts resolved through high volume/low cost interventions	Percentage of selected non-filer (individuals and corporations) accounts resolved in the fiscal year through automated operations and call centre	45%	n/a	n/a	34.5%
	Percentage of pre-tax services offices tax intake (dollars) resolved in the year of intake	76%	n/a	n/a	79.5%

n/a: This is a new indicator for 2012-2013. Prior year results are not available.

Date modified:

2013-11-06