Tax Services

Expected Result - Tax debt is resolved on a timely basis and is within targeted levels

In 2004-2005, we invested additional resources in revenue collections to increase revenues and to identify uncollectible debts to be written off. By doing so, we were able to eliminate the gap between the dollar value of accounts resolved and the intake of new debt, lower the ratio of gross tax debt to gross cash receipts, and reduce the inventory of older accounts.

Almost all reported income taxes are paid on time by individuals and businesses (see Estimated Compliance Rates and Indicators).

Level of tax debt is within forecasted dollar levels

Managing tax debt is a significant challenge, since the CRA has limited control over the external environment. According to available information, the collection of tax debt is a growing problem for a number of OECD countries.

Multiple initiatives implemented in 2004-2005 helped to improve tax debt management. In 1999-2000, our internal estimates of year-over-year trends in the growth of tax debt had projected that gross tax debt would climb to almost $29 billion in 2004-2005 with the level of resources that were available at that time. We estimated that, with additional resources, we could slow this growth. A request for additional funding to manage the growing level of tax debt was made to the Government of Canada in 2000-2001, and was accepted. Performance results show that the level of tax debt, at $18 billion, is considerably below the $20.2 billion, which was the amount projected in the CRA's 2001 Resource Management Review submission to the Government of Canada requesting the additional funding (see Figure 17).

Figure 17 Projected Growth in Tax Debt

Meet cash collection commitments to the Government of Canada

Cash collections in 2004-2005 totalled $8.84 billion, exceeding our $8.54 billion cash commitment to the Government of Canada by approximately $300 million. This represents a decrease from the $9.42 billion collected in the previous year, mainly due to our increased focus on resolving older accounts, as well as the lower intake of new debt.

Dollar value of accounts resolved meets or exceeds the intake of new debt (assuming stable levels of intake)

The 2004-2005 fiscal year represented a milestone in terms of the production recorded by Tax Services Offices (cash collections plus write-offs, in whole or in part) relative to tax debt intake. Production matched the intake of new debt. In other words, accounts resolved (cash collections, plus approximately $2.4 billion in write-offs, in whole or in part), which totalled about $11.2 billion, represent the equivalent of 100% of new debt (see Figure 18). If this trend continues, it should contribute to a significant slowing of the growth of tax debt. Contributing factors are: a 4% decrease in intake; the increased effort to address new debt in 2004-2005; and the significant increase in write-offs.

Figure 18 Tax Services Offices--Intake, Accounts Resolved and Cash Collections

Stabilize or prevent further deterioration in the ratio of outstanding tax debt to gross cash receipts

The ratio of our tax debt to our gross cash receipts decreased slightly to 5.43% in 2004-2005 from 5.54% in the previous year. External factors, such as individual debt load or income levels of self-employed individuals whose taxes were not deducted at source, can affect this ratio. Internal factors also exert an influence on this ratio, such as the amount and status of tax assessed as a result of audits, the timing of processing, and the accumulation of accrued interest on older accounts. Consequently, this ratio is used as a trend indicator of the global performance of our tax debt management strategy rather than as a performance target.

Increase productivity, as measured by cost to resolve $1,000 in tax debt

To facilitate the timely resolution of routine accounts outstanding, we directed newly-assessed, high-volume, low-risk accounts to our National Collections Call Centre. In 2004-2005, more than $1.5 billion in payment arrangements for over half a million accounts were made, an increase of almost 3% over last year's dollar value.

In 2004-2005, we marked the second complete year of the T1 national workload, where work is distributed on the basis of available resources and capacity, regardless of geographical boundaries. The strategy is to resolve routine tax debt with minimal enforcement action within a specified period of time, in order to allow our TSO collections agents to concentrate on more complex T1 accounts. Additional resources were added in the third quarter to increase production and, as a result, overall cash collections totalled $676 million, an increase of nearly 24% over last year. This year was the first full year that the GST revenue line was added to the national workload; in 2004-2005, it generated cash collections of an estimated $387 million.

We were able to reduce our Tax Services Office's cost to resolve $1,000 in tax debt to $16, down from $17 in 2003-2004.

Reduce the inventory of older accounts (greater than five years) relative to prior years

Reducing the size of the inventory of older accounts continued to be a high priority in 2004-2005. We reviewed outstanding accounts and reduced many to their net realizable value (see Figure 19), thereby resolving over $1 billion in older inventory (i.e., greater than five years of age). As a result of this special initiative, the proportion of accounts over five years of age within our total TSO inventory decreased from 19% to 17%.

Figure 19 Tax Services Offices--Write-Offs

In contrast to the progress on our older inventory, the proportion of accounts under one year of age in our inventory rose in 2004-2005 due to the impact of the labour disruption in 2004 (see Figure 20). As for accounts between one and five years of age, we were able to keep their proportion stable, at slightly less than 50%. We expect that our approach to resolving older accounts will continue to yield positive results and help us achieve our objective, which is to continue to reduce the size of the inventory to fulfill our commitment to the Government of Canada.

Figure 20 Tax Services Offices--Aging of Tax Debt

Note: Tax Services Office inventory excludes accounts handled by the National Collections Call Centre.

Enhance processes for managing tax debt

The CRA has been implementing a debt management strategy to stem the growth of our tax debt inventory and reduce the proportion of older accounts. We continue to work towards the following objectives set when the CRA received additional funding from the Government of Canada under the Resource Management Review: increase risk identification; meet our cash collection commitment to the Government of Canada; increase the ratio of resolved accounts to the intake of new debt; and reduce the age of tax debt.

The Board of Management encouraged the CRA to review the underlying factors driving the growth in the level of tax debt over the past few years. To this effect, a management review ¹ was completed in January 2005. Its objectives were to identify factors influencing the growth, provide assurance that tax debt is managed effectively, and identify opportunities for potential improvement.

This review found that, while growth in tax debt results partly from factors beyond our control (e.g., heavy individual or corporate debt loads result in late payments), overall, the CRA is managing factors within its control through approaches set out in our tax debt strategy. For example, national pools for routine collections were established. These allowed telephone-based collection work to be distributed regardless of regional boundaries, and freed up staff to focus on older, more complex accounts. Further opportunities for improvement will be addressed through specific strategies in the coming years.

We have recently launched the Revenue Collections Business Transformation Initiative. This initiative will better position the CRA to integrate the collections workloads of other government departments. One of the key components to the effective transformation of our business is the modernization of our technological platform (Integrated Revenue Collections). It will support our move towards an integrated, client-centred approach, and improve our ability to manage debt and compliance issues.

This modernization of technology will allow us to efficiently manage and distribute our workload and to develop and deploy strategies that are best suited to resolve client issues. In 2004-2005, we developed a conceptual framework of our data environment for exploratory and compliance research activities.

¹ The Executive Summary of the Review of the Management of Accounts Receivable is available at http://www.tbs-sct.gc.ca/rma/database/1det_e.asp?id=11865

Date modified:

2005-10-26