Event: Tax Executives Institute (TEI) 49th Annual Canadian Tax Conference
Venue: Fairmont Château Laurier, Ottawa, Ontario
Date : May 5, 2015
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Part 1: Introduction
Good afternoon. It’s a pleasure to be here today.
Thank you for that kind introduction. The CRA and the Tax Executives Institute of Canada (TEI) have long enjoyed a constructive and mutually beneficial working relationship based on a common interest – efficient and accountable tax administration.
Consultation with TEI ensures that we have the benefit of your perspective and insight on emerging issues. It’s why we are keen to have strong CRA representation at this annual conference – and why professionals from all CRA programs participate in TEI roundtables throughout the year.
We rely on your knowledge and expertise as we improve our services and enforce taxpayer compliance. Those are the two main subjects I would like to discuss today.
Part 2: Service improvements
Improving CRA’s services not only helps taxpayers, it also promotes compliance. Reducing burden and red tape helps Canadians promptly and accurately meet their tax obligation, particularly small and medium-sized businesses, but also the larger entities many of you represent.
Canada enjoys an excellent reputation in this regard. We continue to rank in the top 10 countries worldwide for ease of paying corporate taxes, according to a recent joint study from PricewaterhouseCoopers and the World Bank Group.
Amongst the G7, Canada sits in first place.
To maintain that reputation, we are continually developing online services that allow for faster, cheaper, and more accurate corporate filing.
As you know, businesses can now use My Business Account to set up and manage their Direct Deposit information and pre-authorized debit agreements online. This electronic self-service feature provides round-the-clock control over paying, filing, making changes, and looking at balances.
Similarly, business owners and representatives can register for a business number and related accounts electronically using the CRA’s upgraded Business Registration Online service.
All told, businesses can now complete 50 different kinds of transactions online with the CRA.
Our Government believes that small businesses should spend their time growing their businesses and creating jobs – not choking on high taxes and red tape.
We have cut taxes significantly for entrepreneurs.
We introduced the Small Business Job Credit. This credit is expected to save small businesses more than $550 million over 2015 and 2016.
To encourage small business growth, Budget 2015 reduces the small business tax rate to 9 per cent by 2019.
This measure will reduce taxes for small businesses and their owners by $2.7 billion over the next four-year period.
Consulting stakeholders like you is one of my personal priorities. I have met with accountants, tax preparers, and small business owners across the country to learn first hand how the CRA can better meet their needs.
And we’re taking action on what you tell us.
The CRA is instituting a new, graduated approach to tax compliance—founded on in person guidance and targeted interventions. This co-operative approach is based on three initiatives.
First is the Liaison Officer Initiative. This education-first approach provides business owners with in person assistance to ensure that the information needed at key points in their business's life cycle is available, and aids compliance.
Second is the Registration of Tax Preparers Program that links tax returns to the individual tax preparer and business they work for. This allows CRA to identify, support, and correct those who are preparing erroneous or non-complaint files on behalf of their clients.
And third—the one of most interest to you—is better use of advanced business intelligence and specialized audit teams for specific sectors. This enhances our focus on high-risk files.
Our ultimate goal is to make it easy for those who want to comply with our tax laws, and difficult for those who choose not to.
Part 3: International Tax Evasion
That goal holds true for Canadian tax affairs around the world.
In fact, pursuing cases of international tax evasion and aggressive tax avoidance remains a priority of our Government.
Since 2006, our Government has introduced more than 90 measures to close tax loopholes and improve the fairness and integrity of the tax system.
Our recent Budget – I’m sure each of you has read all 518 pages with keen interest – included an additional $25 million over five years for the CRA to expand its offshore compliance activities, and an additional $58 million over five years to combat aggressive tax avoidance by large business entities.
I would like to highlight three measures our Government introduced in Economic Action Plan 2013 that have already yielded impressive results:
- the Offshore Tax Informant Program;
- the Unnamed Persons Requirements; and
- the reporting of Electronic Funds Transfers over $10,000.
Let’s start with the Offshore Tax Informant Program (OTIP). OTIP allows the CRA to pay a reward for providing credible and specific information about major international tax non-compliance when it leads to the collection of additional federal taxes.
Operational since January 2014, the OTIP hotline has received more than 1900 calls.
Second, our Government streamlined the legal process that allows the CRA to get information from third parties, such as banks. This has made it easier to access information on unnamed individuals who hold foreign assets or are involved in foreign financial transactions.
The CRA has used the unnamed person requirements in domestic and international cases, including those involving offshore accounts in Liechtenstein and Switzerland.
Third, as of January 2015, the CRA has been receiving detailed information from financial intermediaries on international electronic funds transfers (EFTs) valuing $10,000 or more.
Now, given new legislation introduced by our Government in 2014, CRA knows of all large sums—$10,000 or more—that enter or leave the country.
In the first three months of operation, the CRA received over three million international EFT reports and expects to receive 10 million each year.
EFT data is matched against taxpayer reporting of their international holdings and income tax filings. The OTIP also uses this data to identify offshore accounts or holdings linked to informant information.
This new reporting requirement is a critical new tool in helping us combat international tax evasion and avoidance. But let me be clear—it does not add a reporting burden to the private sector or taxpayer.
As you are aware, we publicize court convictions in local, regional, and national media.
Publicizing tax court convictions communicates the serious consequences of defrauding the Canadian tax system.
If convicted of fraud under Section 380 of the Criminal Code of Canada, an individual can face up to 14 years in jail.
The message is getting across. In 2014-15, the number of voluntary disclosures of offshore assets received doubled compared to the previous year, and the unreported income increased by over 150%.
That’s right – in 2013-14 we had a record high 5,248 voluntary offshore disclosures. But, in 2014-15 with the introduction of EFT reporting looming, the voluntary disclosures of offshore assets doubled to 10,188.
Hiding money offshore is becoming virtually impossible. Getting caught for hiding money offshore has become infinitely easier.
Part 4: Base Erosion and Profit Shifting (BEPS) Project and FTA Update
Of course, we cannot address international tax avoidance and evasion alone.
It requires international cooperation.
Canada is constantly looking for ways to enhance the exchange of information through negotiations of tax agreements, renegotiations of existing treaties, and enhancements of administrative arrangements with other countries.
We have an extensive network of bilateral income tax treaties and Tax Information Exchange Agreements – or TIEAs.
As you know, TIEAs holds numerous administrative benefits, not least of which is the ability to identify citizens trying to hide money offshore.
Canada signed its first TIEA just six years ago and now has 22 TIEAs in force, with a further 8 under negotiation.
That’s 30 tax-sharing agreements that will help further prevent tax cheats hiding money offshore.
Beyond TIEAs, we have 92 tax treaties in force—one of the largest such networks in the world.
Furthermore, in 2013 Canada ratified the Convention on Mutual Administrative Assistance in Tax Matters. This Convention is a multilateral instrument, whose purpose is to improve international tax co-operation and the exchange of information between taxation authorities.
Canada is a long-standing member of the Organisation for Economic Co operation and Development (OECD). As such, we have worked to develop and encourage multilateral participation in an international tax system that eliminates double taxation on cross-border trade and investments.
However, amid growing concerns that rules are not keeping pace with modern business practices in a global economy, the OECD and the G20 launched the Base Erosion and Profit Shifting – or BEPS – Project in 2013.
I understand that you just completed a panel discussion on this initiative.
The BEPS Project aims to provide governments with clear international solutions for countering aggressive corporate tax planning strategies that exploit gaps and loopholes of the current system. This will stop artificial profit shifts to locations boasting more favourable tax treatment.
Last September, the G20 Finance Ministers welcomed the first seven deliverables of the BEPS action plan. They also endorsed the global Common Reporting Standard and committed to begin exchanging financial account information automatically—subject to the completion of necessary legislative procedures.
Canada will implement the common reporting standard starting on July 1, 2017—allowing for a first exchange of information in 2018.
Last October, the heads of tax administrations from 38 countries met in Dublin for the 9th meeting of the Forum on Tax Administration. It was an especially productive meeting, and I’d like to share the highlights with you.
Member countries realized that they had to work even more closely together if they were going to support the implementation of global initiatives like the BEPS and Common Reporting Standard Projects.
The countries agreed to a strategy for systematic and enhanced co operation, based on existing legal instruments.
This strategy will allow us to quickly understand and deal with global tax risks whenever and wherever they arise.
The Forum also introduced a new platform called the Joint International Tax Shelter Information & Collaboration Network.
I am pleased to report that this new network has quickly expanded, and participation is now open to all member countries of the Forum on Tax Administration. This is a clear demonstration of our growing commitment to work together to stop cross border tax avoidance and ensure fairness.
Member countries also agreed to invest the necessary resources to implement the new standard on automatic exchange of information. This standard warrants the proper use of the information to counter tax evasion wherever it arises, while still protecting taxpayer confidentiality.
Finally, there was agreement to improve the practical operation of the Mutual Agreement Procedure. This ensures that issues of double taxation are addressed more quickly and efficiently in order to meet the needs of both governments and taxpayers.
In short, Forum on Tax Administration member countries are expanding our ability to work together on operational projects while respecting our treaties and legal responsibilities to protect taxpayer information.
These are important developments on the international front.
Part 5: Underground Economy
Here at home, we are pursuing tax cheats who would defraud the system by participating in the underground economy. Last fall, I launched a three-year strategy, Reducing Participation in the Underground Economy, to combat the underground economy in high-risk sectors of the Canadian economy.
Finalizing the strategy was the first order of business last November, when I chaired the inaugural meeting of our Underground Economy Advisory Committee—which is comprised of representatives from key industry sectors and academia.
I met with the committee again last week to review and affirm the key themes that emerged in our initial discussions.
These themes were often echoed in provincial/territorial UE roundtable discussions.
We discussed how using social marketing techniques to educate and inform consumers is helping to reduce the social acceptability of participating in the underground economy.
Our case in point is the successful Get it in Writing! Campaign – a collaborative initiative with the Canadian Home Builders’ Association. In March, I announced that our Government is contributing nearly $745,000 over three years to support this particular campaign.
The message is that paying for services under the table not only exposes consumers to personal and financial risk, but it also undermines honest businesses, harms the economy, and jeopardizes the programs and services that help make Canada one of the best countries in the world.
Economic Plan 2015 includes an investment of $118 million over five years to expand the CRA’s underground economy specialized teams.
We are invested in safeguarding public confidence in the fairness and integrity of the tax system.
As I mentioned earlier—over the next five years, our Government is also investing $25 million for the CRA to expand its activities to combat international tax evasion and aggressive tax avoidance, and $58 million for the CRA to combat aggressive tax avoidance in Canada by the largest and most complex business entities.
This $200 million investment will pay off. In fact, the revenue impact of these new measures is expected to be $831 million over five years.
Part 6: Increasing the Tax-Free Savings Account Contribution Limit
I will close by touching on a few of our Government’s efforts to support the Canadian families we serve every day.
By reducing taxes year after year and enhancing benefits to Canadians, our Government has given families and individuals greater flexibility to make the choices that are right for them.
Whether they want to purchase a new home or car, start a new business or save for retirement, Canadians have many reasons to save at every stage of life.
That is why our Government introduced the Tax-Free Savings Account.
Tax Free Savings Accounts (TFSAs) provide greater savings incentives for low- and modest-income individuals.
Canadians have embraced the TFSA for their savings needs. As of the end of 2013, nearly 11 million individuals had opened a TFSA.
The TFSA is a popular means of saving for Canadians at all income levels. Individuals with annual incomes of less than $80,000 accounted for more than 80 per cent of all TFSA holders and about 75 per cent of TFSA assets as of the end of 2013. About half of TFSA holders had annual incomes of less than $42,000.
In order to provide Canadians with greater opportunity to save on a tax-free basis, this Budget will increase the annual TFSA contribution limit to $10,000, effective for 2015 and subsequent years.
Part 7: Budget Highlights
Economic Action Plan 2015 fulfills our Government’s promise to balance the budget. And we achieved that feat while cutting taxes – today, the overall federal tax burden is at its lowest level in 50 years.
Our new challenge is to make sure that the gains we are seeing are truly long-term and sustainable.
That means continuing to help families and communities prosper through ongoing tax relief.
It also means supporting jobs and growth. We have announced a number of measures to support small businesses, including a reduction in the small business tax rate and the introduction of a quarterly remitter category for new employers.
I’d like to make special mention of the Government’s new Action Plan for Women Entrepreneurs, which is helping connect women with the tools they need to reach their full growth potential.
Building on a strong history of supporting Canadian women in business, this series of initiatives includes mentorship, networking opportunities, and increased access to financing and international markets.
As a member of the Government Cabinet that boasts the largest-ever female representation, I am especially proud of this action plan.
Part 8: Conclusion
Bloomberg Rankings recently issued the results of an analysis of the most attractive countries in the world to do business. Canada leapt to second place, behind only Hong Kong.
And Canada’s overall marginal effective tax rate is by far the lowest in the G-7—about 17 percentage points lower than that of the United States.
Our Government recognizes that a well-functioning tax system is essential to keep Canada positioned as an attractive place to work, invest, and do business.
I very much support and appreciate the working relationship that TEI has developed with CRA. Together we are building a stronger, healthier tax system and a more prosperous, competitive Canada.