(Chapter 4 – Interest on Advance Deposits from Corporate Taxpayers—Canada Revenue Agency - Spring 2009 Report of the Auditor General)
Ottawa, 12 May 2009 – The government has incurred at least $90 million in unnecessary interest costs over the past three years on amounts deposited with the Canada Revenue Agency, says Sheila Fraser, the Auditor General of Canada, in her Report tabled today in the House of Commons.
Corporations that expect a reassessment of their income tax returns for a certain tax year may remit funds in advance, which the Agency holds to be applied when the reassessment is processed. This practice, which permits taxpayers to minimize their exposure to interest charges, is supposed to be limited to situations where there is a bona fide possibility of a reassessment.
The audit found that while a number of corporations are keeping large balances on deposit with the Agency–totalling more than $4 billion from year to year—only a portion of these deposits relate to likely reassessments. Agency initiatives to refund excess deposits have met with little success. If corporations choose to keep the funds on deposit, the Agency lets them.
“The Agency has a responsibility to ensure that it does not make large interest payments that could be avoided,” said Ms. Fraser. “It has recognized for years that certain corporations might be leaving large balances in their accounts to take advantage of favorable interest rates.”
The Report notes that when the Agency holds amounts on deposit unnecessarily, the federal government is really borrowing the amounts at a higher rate of interest than necessary. The difference of at least two percent between the government’s borrowing rate and the interest rate it is paying on these deposits represents a total of at least $90 million in unnecessary interest costs over the past three fiscal years.
“The Canada Revenue Agency needs to develop a robust administrative policy on managing advance deposits and apply it consistently to reduce unnecessary interest costs,” said Ms. Fraser.
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The chapter “Interest on Advance Deposits from Corporate Taxpayers” is available on the Office of the Auditor General of Canada website.
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