Addressing non-compliance

Our core business

The CRA addresses non‑compliance through verification and enforcement activities at domestic and international levels, including administering international tax agreements and exchanging information with treaty partners. We do reviews, examinations, audits, and investigations. We also conduct research to understand the drivers and mechanisms of non-compliance, leading to tools and strategies to improve our effectiveness in addressing non‑compliance and non-compliant behaviour. We manage the largest debt collection service in Canada, including receivables arising from income tax, GST/HST, the Canada Pension Plan, Employment Insurance, and defaulted Canada student loans.

Over the planning period, we will measure our success in addressing non-compliance by comparing our results against external service standards, Footnote 1 as well as the following performance indicators and targets. Footnote 2

Trends and challenges

• Economic slowdowns usually have a negative impact on tax revenues, even once recovery is under way. This puts more pressure on the CRA's compliance programs.
• The increasing complexity of the Canadian and international economies, including cross-border transactions, presents new challenges to detecting and deterring non-compliance. Business intelligence, driven by sophisticated IT applications to detect non-compliance and assess risk, will be key to the CRA's effectiveness in responding to these challenges.
• As with any major tax change, the implementation of the harmonized sales tax in Ontario and British Columbia may introduce new compliance risks; the CRA will need to be vigilant in detecting and addressing these new compliance challenges.

Over the planning period, we will undertake the following initiatives to respond to the challenges we face in addressing non-compliance.

Payment non-compliance

Two main sources contribute to outstanding accounts receivables: debts that taxpayers create by not paying amounts owing when they file their returns, and debts identified by the CRA through our compliance activities. The accumulation of new debt depends on factors that are outside of our control, including domestic and international economic situations, aggressive tax planning, strategic insolvencies, and socio-economic factors that may influence taxpayer compliance behaviour.

We recognize that the growing debt portfolio is a concern and, consequently, effective inventory management remains a key priority. We will refine our management of the growing tax debt through various means, including addressing the underlying causes of payment non-compliance at the behavioural level.

Identify aggressive tax planning schemes

Aggressive tax planning is a challenge confronting all developed countries. It can involve very complex structures with both domestic and international elements. The objective of this type of tax planning is to realize tax benefits that were never intended under the normal application of the tax laws. Identifying aggressive tax planning schemes and evaluating the level of non‑compliance associated with them enables the CRA to take appropriate action at an early stage, dissuading taxpayers and their advisors from considering these types of arrangements.

The CRA will continue to use risk assessment, the application of third-party penalties to promoters of abusive schemes, and ongoing collaborative efforts with other tax administrations to identify aggressive tax planning schemes and to take action against those who participate in these types of arrangements.

Identify non-compliance in the underground economy

The underground economy undermines the competitiveness of Canadian businesses because it offers an unfair advantage to those who fail to comply with Canada's tax laws. We use a mix of education, outreach, communication, and compliance actions to combat the underground economy. We also work with other federal agencies and departments, provincial and territorial governments, tax administrations in other countries, international organizations, professional organizations, and key industry groups to share best practices and develop innovative strategies. We carry out identification projects to detect non-filers engaged in underground economy activities and require them to file outstanding tax returns and register for GST/HST.

Use risk assessment to identify non-compliance by employers and gst/hst registrants

Employers and GST/HST registrants are of particular interest to us because of their responsibility to collect
GST/HST and deductions at source for employees. We will address non-compliance with remittance, filing, and withholding rules through improvements in our internal quality assurance process as well as improved file selection for examinations. We will also continue to advance tools and risk-management techniques to improve workload management and optimize our use of resources.

Implement an enhanced tobacco stamping regime

We collect the excise duty on tobacco products manufactured domestically. Protecting the duty revenue from tobacco products ensures that high prices on such goods can be maintained, thereby contributing to the Government's health objective of reducing smoking among Canadians.

During the implementation period of the tobacco stamping regime, we will continue to consult with the tobacco industry, provincial and territorial governments, and other federal agencies and departments to further ensure compliance with the Excise Act, 2001. We will work closely with both Treasury Board of Canada Secretariat and Department of Justice Canada officials to complete the regulatory amendments for the new regime, including the stamping regime guidelines and excise duty notices.

Administering the sr&ed program

The federal Scientific Research and Experimental Development (SR&ED) Program provides broadly based support for all types of SR&ED activities performed in Canada. This program provided almost $3.3 billion in tax assistance in 2009. We are consolidating and clarifying the SR&ED policy and related guidance documents to help clients better understand the SR&ED program. This will enhance accessibility and reduce the administrative burden on SR&ED claimants, particularly small businesses.

We are also developing a training program for the SR&ED program's research and technology staff. Implementation of this program, coupled with quality assurance reviews, is intended to enhance the quality of our SR&ED claims processing and improve the nationwide consistency of our application of law and policy.

Use risk assessment to detect and correct reporting non-compliance

The CRA uses tools and risk-management techniques to direct our compliance reviews, audits, and investigations to individuals, businesses, and non-profit organizations that are identified as being a high risk for not complying with tax laws. We are engaged in a business transformation initiative that will improve the effectiveness of our compliance programs by improving research and risk‑assessment capabilities. We are also developing an inventory of risk-profiling activities to share best practices, and to determine if there are any gaps within taxpayer segments.

The CRA will continue to explore ways to more accurately detect non-compliant reporting behaviour, improve our use of business intelligence within the CRA, engage in dialogue and share information with other tax jurisdictions and academics, and lever risk identification technologies developed both within and outside the CRA.

The implementation of HST in British Columbia and Ontario could increase the rate of non-compliance. The CRA will ensure GST/HST compliance policy and procedures are enhanced, improve risk assessment and select files for audit based on GST/HST specific risks, and develop strategies for GST/HST workload development.

detect and deter non-compliance in the Charities program

Registered charities in Canada are tax-exempt and can issue charitable donation receipts to donors. To maintain these privileges, registered charities must file a Registered Charity Information Return and financial statements, and operate within the parameters of the Income Tax Act. Although cases of serious and intentional non-compliance by registered charities are not widespread, they do exist. Examples include abusive tax shelter donation arrangements, false receipting, and unacceptable fundraising practices.

Over the planning period, the Charities Program will focus on addressing identified non-compliance in a timely manner.

Deliverables

The following table lists the initiative and the associated deliverables that we will undertake over the planning period to address non-compliance.

Footnote 1

Please visit www.cra.gc.ca/annualreport for a complete list of CRA external service standards.

Footnote 2

We continue to seek opportunities to improve how we measure our success in identifying non-compliance.