Tax Administration Diagnostic Assessment Tool (TADAT) Summary Report
World-Class Tax and Benefit Administration
May 14, 2018
The Canada Revenue Agency (CRA) is responsible for administering hundreds of billions of dollars in taxes annually. The tax revenue it collects is used by federal, provincial, and territorial governments to fund the programs and services that contribute to the quality of life of Canadians. The CRA also delivers billions of dollars in benefits, tax credits, and other services that support the economic and social well-being of Canadian families, children, and persons with disabilities. It is important that the CRA can demonstrate that it is effective in achieving these goals. In the spring of 2017, the Commissioner challenged the Agency to take a courageous look at itself to ensure it is a world-class tax and benefit administration (WCTBA). This challenge would be accomplished by engaging employees on a journey, conducting a robust and comprehensive assessment, and ultimately informing and guiding future plans and decision making.
The CRA began its assessment in the spring of 2017 using the International Monetary Fund’s Tax Administration Diagnostic Assessment Tool (TADAT) as the foundation piece. Information gathering supporting the assessment occurred in the fall of 2017 through structured interviews with CRA subject matter experts (SMEs) in all branches and regions.
The TADAT was selected because it is an internationally-recognized and objective tool that assesses the health of tax administrations according to common performance outcomes. It is important to note that the TADAT identifies whether certain drivers of effectiveness are present but does not necessarily assess their effectiveness. In other words, the assessment associated with the TADAT dimensions represents the extent to which good practices are in place, but they are not necessarily reflective of the effectiveness of those practices.
This performance report is based primarily on TADAT findings, and is supplemented with evidence from program audits/evaluations, and public opinion research, thereby delivering a more comprehensive and robust performance analysis. The intent is to provide a broad perspective of Agency performance according to the TADAT Performance Outcome Areas (POAs) and their indicators. A preliminary management response is included in Annex 1. The CRA is developing more detailed responses to address the opportunities for improvement identified in the TADAT findings.
This assessment has been a collaborative process that would not have been possible without the exceptional participation and commitment of branch and regional SMEs, the CRA’s panel of senior executive advisors (SEA) and tremendous support from the TADAT Secretariat.
The organizational structure of the CRA can be referred to as a modified functional model. Reporting directly to the Commissioner are the Deputy Commissioner, five operational assistant commissioners, five regional assistant commissioners and eight corporate assistant commissioners as illustrated below. The Agency delivers its services through approximately 40,000 employees located across the country in its headquarters and 47 regional offices.
This is a representation of the organizational structure of the Canada Revenue Agency from the Minister down to the Assistant Commissioners.
At the top of the page is a rectangle with the name of the Minister, Diane Lebouthillier, and below her name is the title Minister of National Revenue. A photo of the Minister's face also appears in the rectangle.
At the bottom of the left-hand side of the rectangle a dotted line leads down to another rectangle which contains the name of Sherra Profit and below her name the title Taxpayers' Ombudsman. The rectangle's frame consists of dotted lines to illustrate the arm's length relationship between the Minister and the Taxpayers' Ombudsman.
A second line, which is solid, at the bottom of the right-hand side of the Minister's rectangle leads to a box containing the name Suzanne Gouin and below her name the title Chair, Board of Management. A photo of Suzanne Gouin's face also appears in the box.
A third line, which is solid, at the bottom of the middle of the Minister's rectangle, leads to a rectangle containing the name Bob Hamilton and below his name the title Commissioner of the Canada Revenue Agency. A photo of the Commissioner's face also appears in the rectangle.
There is also a solid line leading from the rectangle for Suzanne Gouin to the rectangle for Bob Hamilton to illustrate that the Commissioner has a reporting relationship to both the Minister of National Revenue and the Chair of the Agency's Board of Management.
On the left-hand side of the rectangle for Bob Hamilton there is a solid line leading to a rectangle containing the name Nancy Chahwan and below her name the title Deputy Commissioner. A photo of Nancy Chahwan also appears in the rectangle.
A solid line leads from the bottom of the rectangle for the Commissioner to a series of boxes in three columns containing the names and titles of the Agency's Assistant Commissioners.
The column on the left contains the names of the Assistant Commissioners of each program branch at Headquarters and, reading from top to bottom, this is the information that appears:
Assessment, Benefit, and Service
Collections and Verification
International, Large Business and Investigations
Domestic Compliance Programs
The column in the middle contains the names of the Assistant Commissioners for the Regions and, reading from top to bottom, this is the information that appears:
The column on the right contains the names of the Assistant Commissioners of each corporate branch at Headquarters and, reading from top to bottom, this is the information that appears:
Assistant Commissioner and Chief Audit Executive
Audit, Evaluation, and Risk
Assistant Commissioner and Chief Financial Officer
Finance and Administration
Assistant Commissioner and Chief Information Officer
Assistant Deputy Minister
Tax Law Services Portfolio
Legislative Policy and Regulatory Affairs
Assistant Commissioner and Chief Privacy Officer
Strategy and Integration
The TADAT framework
The report is structured around the TADAT’s framework of 9 Performance Outcome Areas (POAs) and 28 high level indicators that are critical to understanding a tax administration’s performance. Each indicator score takes into account 47 measurement dimensions. A four-point ‘ABCD’ scale is used to score each dimension and indicator. The scoring criteria for each indicator and the methodology used to calculate dimension scores are detailed in the TADAT Field Guide, available at www.tadat.org.
- ‘A’ denotes performance that meets or exceeds international good practice. In this regard, for TADAT purposes, a good practice is taken to be a tested and proven approach applied by a majority of leading tax administrations. It should be noted, however, that for a process to be considered ‘good practice,’ it does not need to be at the forefront or vanguard of technological and other developments. Given the dynamic nature of tax administration, the good practices described throughout the field guide can be expected to evolve over time, as technology advances and innovative approaches are tested and gain wide acceptance.
- ‘B’ represents sound performance (i.e., a healthy level of performance but a rung below international good practice).
- ‘C’ means weak performance relative to international good practice.
- ‘D’ denotes inadequate performance, and is applied when the requirements for a ‘C’ rating or higher are not met. Furthermore, a ‘D’ score is given in certain situations where there is insufficient information available to assessors to determine and score the level of performance. For example, where a tax administration is unable to produce basic numerical data for purposes of assessing operational performance (e.g., in areas of filing, payment, and refund processing) a ‘D’ score is given. The underlying rationale is that the inability of the tax administration to provide the required data is indicative of deficiencies in its management information systems and performance monitoring practices.
TADAT summary findings
There are a considerable number of areas that the TADAT has clearly identified as good practice. Of 28 indicators, 22 (79%) were assessed as having performance that meets or exceeds international good practice (TADAT “A” score) or is sound and healthy (“B”/”B+”). The summary results of the main strengths and weaknesses of the TADAT assessment are included in the table below, with further context provided in the accompanying text. A summary of TADAT scores for each of its 28 indicators can be found in Annex 2.
- The CRA gathers, interprets, and uses data from a range of business intelligence to understand compliance risks and inform its compliance efforts.
- The CRA identifies and has a planning framework to mitigate corporate risks.
- The CRA offers a variety of service channels to Canadians to help them comply with their tax obligations.
- The CRA uses electronic filing facilities and payment methods to facilitate the timely filing of tax returns and the timely payment of taxes.
- The CRA has rigorous internal audit and internal affairs functions to monitor its operations, subjects financial statements to extensive external oversight, and monitors public perception.
- The CRA does not provide comprehensive upfront validation checks to ensure that business applications for registration are authentic.
- The lack of high assurance of business registration information may have negative impacts on compliance activities.
- Compliance risk mitigation strategies, while well developed within CRA branches for certain targeted initiatives, do not align to horizontal outcomes achievement.
- The CRA does not always provide timely access to information through telephone enquiry services.
- The age and size of the CRA’s outstanding tax debt continues to grow.
- The CRA does not resolve taxpayer disputes in a timely manner.
Intelligence gathering and research
The CRA’s compliance branches gather, interpret, and use data from a range of external sources (for ex., financial institutions, other government agencies, other tax jurisdictions, studies into taxpayer perception, and topical compliance issues like the underground economy). CRA compliance branches also gather and interpret data from a range of internal sources, especially information returns, studies into taxpayer behaviour and internal research on specific industries, compliance trends, claims, and review/audit results.
Corporate risk mitigation
The process used to identify, assess, and mitigate corporate risks is comprehensive and identifies, assesses, and mitigates institutional (corporate) risks across all core business processes. This process is used to produce an annual Corporate Risk Profile which registers potential and emerging risks in the tax administration’s operational environment as well as those potentially affecting the realization of organizational priorities and objectives. A business continuity plan exists and regularly tests the CRA’s ability to respond to various disruptions through emergency response and continuity management exercises. Staff are trained on security and emergency measures with officials in mission critical roles identified across the organization. Continuity Management Coordinators across branches and regions receive additional training. Contingency plans ensure minimal risk to taxpayers even during periods of disruptions, such as benefits programs that have special arrangements for continued work during blackouts. The CRA’s corporate risk management process follows relevant International Standards Organization (ISO) and Government of Canada standards and policies.
Service channels and assistance
Taxpayers have access to information on taxes and entitlements, which is tailored to suit the needs of key taxpayer segments. The CRA provides information to taxpayers through multiple channels: its website, telephone services, teaching taxes program, the Community Volunteer Income Tax Program, correspondence, digital community outreach services, My Account, My Business Account, and its Liaison Officer service.
A variety of options are provided to taxpayers to facilitate their voluntary compliance. For the reference period used in the study (2016), nearly 75% of all payments were posted electronically through a variety of sources and just over 85% of all returns were filed electronically. The Agency also offers an Auto-fill My Return service that automatically fills returns with all the third party information in its possession. Other services offered to taxpayers to reduce their cost of compliance include simplified record keeping and reporting arrangements for small business taxpayers, as well as less frequent filing and payment requirements for small businesses. Beginning with the 2017 tax year, under a new automated service called "File My Return", low-income Canadians are also able to file their tax returns by phone.
The CRA follows the Government of Canada’s ‘digital first’ strategy, which is aligned with international good practices, by moving towards the delivery of services through digital channels. The TADAT assesses strong performance in the use of electronic filing and the use of electronic payment methods.
The CRA has an independent internal audit function which verifies the soundness of the CRA’s internal controls, risk management, and governance framework. The Chief Audit Executive, who is the head of the internal audit function, reports directly to the Commissioner and has a secondary reporting relationship to the Chair of the Audit Committee of the Board of Management. The function produces an annual internal audit plan outlining internal control checks and information technology system audits, and provides wide coverage and scrutiny of key operations. The Agency’s internal affairs also provides assurance with a rigorous process for the investigation of wrongdoing. Furthermore, the organization and administration of the Agency is subject to the oversight of the CRA’s Board of Management, and financial statements for Agency activities and administered activities are audited by the Office of the Auditor General of Canada. In addition, the CRA conducts Annual Corporate Research, a public opinion research survey and focus group built around assessing the public’s perceptions of the Agency’s high-level reputation, services, and tax compliance activities.
Tax filers increasingly use digital channels in their interactions with the CRA. More than 25 million electronic returns for individuals were submitted during the 2017 filing season.
The Agency has made the business number (BN) registration process as simple as possible, within the self-assessment system of taxation in Canada, in the interest of serving taxpayers but, as a result, some of the information used for compliance and other purposes may at times be missing or not adequately authenticated.
The business number (BN) was implemented in 1994 to provide businesses with a single identifier to use when interacting with federal and provincial governments. The BN process was designed to allow businesses to provide information once to be used often by different participating government organizations, thereby decreasing the administrative burden on businesses and reducing duplication across government programs. A number of federal departments and agencies and numerous provincial government organizations have adopted the BN to deliver over 100 programs. The CRA is the registrar for all those that have adopted the BN, suggesting that these organizations place a large degree of trust in the Agency and its processes.
The Agency attempts to make the registration process for a business number simple to ensure applicants can obtain a tax number in the most efficient manner. The Agency may not follow a strict adherence to basic information requirements in support of registration with the exception of requiring a social insurance number for GST/HST applicants. Applicants may receive a business number through certain provincial and federal incorporating authorities by providing only the information necessary for those authorities, which does not necessarily include that which would normally be required to support compliance efforts.
Not having complete and authenticated information at the point of registration for all taxpayers can have a negative impact on compliance activities, and represents an increased burden at later points in the compliance process (for ex., pre-payment audit, collections, non-filer). It also means that post registration efforts to obtain missing data may require additional contacts with new registrants, thereby frustrating the original intention of a simple BN registration process for taxpayers.
The CRA continues to work with provincial partners to discuss information sharing and the need to have consistent and complete information for all parties. The Agency’s Business Number Identity Integrity Project recently assured the integrity of a large volume of registration information.
The CRA has some post-registration compliance activities in place to enhance the integrity of registration data. For example, post-registration reviews occur for certain program lines such as GST/HST. The CRA also uses a tri-lateral Business Number Strategy and Operations Committee and a subcommittee that meet regularly to discuss BN issues to identify impacts on compliance activities. Post-registration reviews and checks on the compliance implications of registration information provide some assurance that the CRA has accurate and reliable taxpayer information. However, they do not meet the TADAT standard of up-front quality assurance of registration information.
Effective compliance risk management
While the TADAT has demonstrated that the CRA undertakes intelligence gathering and research to identify compliance risks in respect of the main tax obligations, and that efforts have been identified that address compliance risks at the outcomes level (i.e. the underground economy strategy), data suggest that the Agency compliance risk mitigation strategies are largely branch-specific. While the Agency has multiple strategies around its compliance pillars (for ex., registration, filing, payment/remitting, and reporting) and segments (for ex., underground economy, large filers and offshore compliance), there is little evidence of a documented overarching compliance risk mitigation strategy. We have found little evidence that the Agency has mapped its compliance activities to the outcome levels, such as impact on taxpayer behaviour and sustained voluntary compliance. This observation is common to many large, complex tax administrations, as a single taxpayer may fulfill numerous roles within the tax world (e.g. GST registrant, small business owner) depending on the regulatory requirements being verified.
The CRA has multiple call centres which are accessible to businesses, individuals, and benefits recipients, however, fewer than 50% of calls are answered within a two minute timeframe. A recent report by the Auditor General (2017) indicated that CRA’s success in meeting internal service standards for call wait times was achieved by limiting access to its live agents or automated self-service call center systems. When busy signals are taken into account, the CRA’s time taken to respond to taxpayer and intermediary requests for information does not meet the TADAT standard of at least 70% of telephone enquiry calls being answered within six minutes.
The CRA has launched an action plan to modernize its call centres to help address the recommendations. As such, the CRA aims to improve timely access to information through telephone enquiry services by increasing agent hours, examining wait times and considering new self-service options. These efforts aim to achieve higher accessibility and a reduced number of call attempts required to reach an agent.
With the exception of telephone services, the TADAT’s evidentiary requirements were fully met with respect to many voluntary compliance dimensions and indicators (i.e. availability of information to taxpayers to ensure they can comply with their obligations).
Public opinion research and external reporting suggests that some of the services the CRA provides in support of its voluntary compliance efforts do not meet the needs of Canadians (publications and the website lack plain language, information is not easy to locate and some of its service channels are less than satisfactory in providing the necessary access or answers to taxpayer queries). This finding points to a need to strengthen the connectedness between taxpayer feedback and the design of information products.
Payment compliance and tax debt resolution
The TADAT recognizes that the aim of any tax administration is to attain high rates of voluntary on-time payment and low incidence of tax arrears. On time payment is a function of both a taxpayer’s willingness and ability to pay on time, and is an important performance measure for a tax administration predicated on voluntary compliance. The TADAT assesses the on-time payment rate and allows for a determination of whether the size and aging of the collectible debt is representative of good practices. Because the Agency does not report on voluntary on-time payment, and the size of its tax debt continues to grow and to age beyond the range of what would be reflective of good practice, it gets a relatively lower score on this performance area, which is explained below.
The Agency does not report on on-time payment. Payments are recorded against a taxpayer’s oldest debt within their respective accounts. While there is a simplicity to the process to ensure the oldest debt gets resolved earliest and it limits exposure to collection limitations, which represents good financial management, it may also encumber efforts to inform payment compliance outcomes. The CRA is not an outlier in this regard: the most recent edition of the OECD’s Tax Administration series indicated that less than half of administrations surveyed could provide on-time payment data for core tax types. There may be options for the Agency to estimate the rate of voluntary on-time payments for the individual income tax revenue lines.
The overall size and average age of the outstanding tax debt represents a culmination of all enforcement activities from a wide variety of programs across the Agency. The debt is projected to continue to grow and age for the foreseeable future. The outstanding tax debt reached $38 billion in 2015 and could exceed $47 billion by 2020. Even without considering the addition of new debt, approximately $2 billion in interest accumulates every year due to the size of the outstanding inventory, compounding the tax debt growth.
At 13.6%, Canada’s year-end tax debt as a percentage of total net revenue is relatively low compared to the OECD average (31.1%), but may be considered high when compared to those of other leading tax administrations such as the United States and United Kingdom. Even so, it seems that these jurisdictions may rely on write-offs to achieve TAS-reported tax debt figures compared to Canada, which does not.
As context, it could be noted that the TADAT methodology references an ideal set of circumstances that may not always reflect the reality of individual organizations. Unlike most countries, Canada has chosen to restrict collection activities during the period following the creation of the debt, as well as during appeals. During these periods the Agency encourages and assists taxpayers to self-resolve their tax debt, leading to a large amount of debt outstanding over 12 months. In Canada, the bankruptcy laws also suspend collection actions and do not offer special priorities to the Government above other creditors. Generally speaking, this explains the trends in Canadian tax debt collection referenced by the TADAT assessment.
In general, however, the growth of tax debt has been an ongoing concern, and the government of Canada recently made significant investments to address the growing tax debt and ensure the results of its compliance activities are addressed appropriately. This is evidenced by the large investment in the 2016 Canadian federal budget. This funding complements additional efforts to streamline and enhance the effectiveness of the Collections program while safeguarding client rights.
Tax dispute resolution
The Agency does not meet all of its current service standards and the TADAT standard for good practice regarding tax dispute resolution. The TADAT standard is that the administrative review stage is completed for 90% of cases within 30 calendar days. The Agency’s standard is 80% of low-complexity cases resolved within 180 days.
A 2016 Auditor General report of the CRA’s income tax objections process noted that the CRA took too long to process objections and additionally identified gaps in how the Agency measured the time taken to resolve them.
In response to the above-noted Auditor General report and the Twenty-Fifth Report of the Standing Committee on Public Accounts (PACP), the CRA implemented an action plan to address seven key areas. The goal of this plan is to improve service to taxpayers through more timely resolution of their income and commodity tax disputes.
The CRA is a rules-based hierarchical regulatory body with an overarching compliance mandate. Its operational structure is predicated on a functional model which is used by other leading tax administrations. For efficiency and maximum effect, tax administrations are often structured to ensure there is the maximum expertise developed by the different tax administration functions. This applies both in dealing with tax issues and managing program activities to achieve the maximum functional effect with available resources. The intent of the following paragraphs is to:
- highlight issues with its application in the Canadian context; and
- stimulate a discussion on whether it continues to best serve the CRA’s needs.
Culture plays an important role in the achievement of goals, objectives, strategies, and outcomes. Peter Drucker, a famed social ecologist, once said “culture eats strategy for breakfast,” meaning that if an organization’s strategy or its goals do not align to its culture, culture will always win out. In the CRA’s Service Culture initiative, it was identified that our organizational structures, processes, and tools are seen as hindering service and innovation – with silos undermining collaboration.
A functional model is designed based on areas of functional expertise which can be likened to specialist enclaves, (for ex., returns processing, audit, collections, and appeals). The functional model defines and limits how organizations do things in spite of how they might want to do things.
The productivity of functional units is typically defined in terms of functional outputs (for ex., number of phone calls received and resolved, amount of assessed revenues, number of audits, and number of registrations). The findings of the TADAT suggest that the areas identified as those where there is room for improvement at the Agency are some of those where there is a preponderant focus on reporting on efficiency or output measures rather than on the downstream outcomes achievement. The evidence suggests that the Agency is doing a good job of identifying compliance threats and developing mitigation strategies within each of its enclaves. However, those results do not necessarily align with the achievement of the Agency’s outcomes. Examples that point to a lack of horizontality within a functional model are the lack of compliance outcomes data, lack of overarching compliance strategy, lack of integrated whole-of-taxpayer view, and growth in appeals inventory and the increase and age of a tax administration’s debt.
The issue of horizontality is not new, as it was raised previously in a 2007 study by IBM which reported:
The current organizational culture should evolve to support a more “whole of Agency” approach.
There was strong, vocal support for the need to evolve the Agency culture to create more focus on the success of the Agency as a whole. It was felt that the current culture reinforces a more segregated approach—with a greater focus on individual branch/regional outputs—as opposed to supporting stronger collaborative operational practices to meet enterprise-wide objectives.
While there are many factors that influence organizational culture, such as resourcing, funding, and leadership, both extended regional advisory group participants and Agency senior management identified performance measurement as an area that required better alignment with Agency-wide goals. Given that performance measurement, to a large extent, drives behaviours, it is important to determine if the weighting on Branch-specific measures could/should be realigned to better balance with Agency-wide metrics. This is not a small matter as organizational culture in an entity the size and complexity of CRA is often well entrenched and difficult to shift. However, if not addressed, it could greatly impede many of the other initiatives that are put in place to create horizontal links within the organization. In this context, understanding the relationship between organizational culture and performance measurement is key in influencing desired outcomes.
In addition, the CRA Corporate Risk Profile has identified horizontality as a moderate risk in that the CRA may not be flexible enough to manage the functional interconnectivities (corporate functions, program functions, and regional operations) brought about by the changing nature of business.
The Audit, Evaluation and Risk Branch (AERB) identified eight risk drivers that are reflective of a lack of horizontality (numbers are the numerical identifiers of risks as assigned by AERB in the Corporate Risk Profile).
Horizontality as a risk cluster
This image demonstrates the group of previously-identified corporate risks that combine to undermine horizontality at the Canada Revenue Agency. In the middle of the image are eight numbered circles. The number of each circle corresponds to the corporate risk number assigned to it in Audit Evaluation and Risk Branch’s most recent edition of the CRA Corporate Risk Profile. Risk Action Plan initiatives are planned or ongoing to address issues concerning horizontality for the corresponding sub-risk clusters except for Tax debt. So, the horizontality risk cluster consists of sub-risks and corresponding numbers including:
Number 9, Employee health, well-being, and safety: The implementation of major horizontal projects could create varying levels of stress across the Agency.
Number 4, Protection of taxpayer information: Anticipated changes to Access to Information Act and Privacy Act will require appropriate and consistent response across functional units.
Number 22, Tax debt: Initiatives and Programs launched by other Branches within the Agency may not consider the downstream consequence on collections.
Number 11, Pace of Delivery: Misalignment between various systems and processes might influence the Agency’s ability to implement changes in a timely manner.
Number 6, Business intelligence: BI is decentralized across Branches and regions and data systems are not connected across the tax continuum.
Number 24, Communicating objections and appeals results: Gaps exist in sharing information on objections and appeals decisions with audit and assessing areas
Number 2, External communication: Inconsistent treatment and service to taxpayers dependent on regional offices
Number 15, Information Management: Information management procedures and policies are decentralized throughout the Agency
The central idea the image conveyed by the graphic is the interdependency of risks at the Agency. This means that weakness in mitigating one or more of the above risks has the potential to harm the Agency’s ability to work effectively across branches and ultimately undermines the effectiveness of tax administration more broadly.
The TADAT found deficiencies in a number of areas related to performance management. For example, the Agency does not track on-time payment information and the on-time filing rate is based on a metric that does not consider the expected filing population. This information is important to a tax administration predicated on voluntary compliance; it ensures that the relative success of its efforts to support voluntary compliance can be measured and monitored accurately. The Agency has also employed performance metrics for appeals and call centre accessibility that external audits have found to be wanting in terms of clarity; the same might be found of compliance activities that measure tax earned by audit, numbers of audits, and time to resolve a file, for example.
Performance measurement is complementary to horizontal performance, as the right “whole-of-Agency” measures may incite “whole-of-Agency” performance. Reviewing performance measurement from the perspective of ensuring meaningful and clear performance metrics that address whole-of-agency objectives is therefore worth considering.
The TADAT is the first component of the WCTBA assessment framework on which the initiative is reporting. It has identified several good practices for which the Agency should be proud. It has also identified areas for improvement. While the results of the TADAT indicate that the Agency is positioned in the top tier of tax and benefit administrations, the assessment process is not yet complete. Additional elements of the WCTBA assessment regarding people, innovation, and benefits administration will be integrated.
These results have been circulated across the Agency to refine the interpretation of the results. Agency management has responded to the results of the assessment. We will continue to gather feedback as well as engage key stakeholders to determine how the assessment results resonate with them.
Annex 1 – CRA management response
The CRA embarked on a journey to ensure it is world-class tax and benefit administration that supports the economic and social well-being of Canadians. A key element of the CRA’s journey is a comprehensive and objective self-assessment, using a basket of tools, to help us identify our strengths and opportunities for improvement. The CRA’s application the International Monetary Fund’s Tax Administration Diagnostic Assessment Tool (TADAT) as a foundational component of its self-assessment has been useful to diagnose its health by examining the extent to which it has implemented tested and proven approaches applied by a majority of leading tax administrations.
We are proud that the initial findings of the TADAT, which provide objective evidence of world-class performance in 22 of the 28 indicators it assessed. We will celebrate this success!
As expected, the TADAT also identifies some areas that warrant attention to ensure we are world-class. Given the scope and importance of topics addressed by this assessment, development of responses requires careful consideration and internal discussions that will take time. With this in mind, we undertake to work collaboratively to develop responses to inform and guide Agency decisions and plans into the future.
|POA 1: Integrity of the Registered Taxpayer Base|
|P1-1. Accurate and reliable taxpayer information||C|
|P1-2. Knowledge of the potential taxpayer base||A|
|POA 2: Effective Risk Management|
|P2-3. Identification, assessment, ranking, and quantification of compliance risks||A|
|P2-4. Mitigation of risks through a compliance improvement plan||A|
|P2-5. Monitoring and evaluation of compliance risk mitigation activities||C|
|P2-6. Identification, assessment, and mitigation of institutional risks||A|
|POA 3: Supporting Voluntary Compliance|
|P3-7. Scope, currency, and accessibility of information||D|
|P3-8. Scope of initiatives to reduce taxpayer compliance costs||A|
|P3-9. Obtaining taxpayer feedback on products and services||A|
|POA 4: Timely Filing of Tax Declarations|
|P4-10. On-time filing rate||B|
|P4-11. Use of electronic filing facilities||A|
|POA 5: Timely Payment of Taxes|
|P5-12. Use of electronic payment methods||A|
|P5-13. Use of efficient collection systems||A|
|P5-14. Timeliness of payments||D|
|P5-15. Stock and flow of tax arrears||B|
|POA 6: Accurate Reporting in Declarations|
|P6-16. Scope of verification actions taken to detect and deter inaccurate reporting||B|
|P6-17. Extent of proactive initiatives to encourage accurate reporting||A|
|P6-18. Monitoring the extent of inaccurate reporting||C|
|POA 7: Effective Tax Dispute Resolution|
|P7-19. Existence of an independent, workable, and graduated dispute resolution process||A|
|P7-20. Time taken to resolve disputes||D|
|P7-21. Degree to which dispute outcomes are acted upon||A|
|POA 8: Efficient Revenue Management|
|P8-22. Contribution to government tax revenue forecasting process||A|
|P8-23. Adequacy of the tax revenue accounting system||B|
|P8-24. Adequacy of tax refund processing||B+|
|POA 9: Accountability and Transparency|
|P9-25. Internal assurance mechanisms||A|
|P9-26. External oversight of the tax administration||A|
|P9-27. Public perception of integrity||A|
|P9-28. Publication of activities, results, and plans||B+|
|Indicator||Score 2018||Summary Explanation of Assessment|
|P1-1. Accurate and reliable taxpayer information||C||The Canada Revenue Agency’s (CRA) systems are set up to capture adequate information on taxpayers but issues persist in regards to ensuring the accuracy of the information. The Agency made a strategic decision to prioritize a facilitated registration process, but in so doing, relies on external partners for registration information. It does not systemically conduct post-registration reviews nor undertake large-scale cross-matching of third-party information. This has a negative implication for downstream tax functions (for ex., risk assessment), given their reliance on accurate and complete information, and paradoxically may require more interactions with taxpayers because of incomplete information. The CRA initiated a Business Number Identity Integrity (BNII) Project in 2012 to redesign the business number (BN) system. The project’s scope was modified in 2015 to focus on the Agency’s role in the process as well as the security of information. Data integrity activities undertaken as part of the BNII included reviewing 243,156 BNs, updating information related to 76 percent (194,798) of these and closing of the remaining 24 percent (48,358) of reviewed BNs. Updated information largely consisted of correcting suspect or missing information.|
|P1-2. Knowledge of the potential taxpayer base||A||The CRA plans specific initiatives in order to detect unregistered businesses and individuals. Strong performance in this area is due to the non-filer/non-registrant program, which uses various means to detect businesses and individuals suspected of operating in the underground economy. The program also uses Unnamed Person Requests to identify unregistered online vendors. A 2012 Auditor General Report of the CRA’s non-filer/non-registrant program found that the Agency used identification projects to find taxpayers who may be participating in the underground economy and that the majority of these projects were meeting or exceeding their performance targets.|
|Indicator||Score 2018||Summary Explanation of Assessment|
|P2-3. Identification, assessment, ranking, and quantification of compliance risks||A||The Agency undertakes comprehensive intelligence gathering and research to identify compliance risks in respect of its main tax obligations. It also has a structured risk assessment process which is part of a multi-year strategic planning process. Indeed, the Organization for Economic Cooperation and Development’s (OECD) report entitled Tax Administration 2017recognizes the CRA’s work on large business and international compliance risk management. A 2016 CRA Internal Audit of Risk Assessment and Audit File Selection in Compliance Programs suggested further improvements to both risk assessment and file selection process could be achieved through ongoing investment in, and refinement of, automated tools and improved data analysis capacity. The CRA is now developing an advanced capacity to improve taxpayer profiling by analyzing behaviour across business lines and compliance obligations.|
|P2-4. Mitigation of risks through a compliance improvement plan||A||The CRA has compliance improvement plans that include mitigation activities in respect of identified risks that cover all core taxes, compliance obligations, and taxpayer segments. The OECD suggests an integrated compliance plan is a best practice. Compliance is an Agency strategic priority addressed in the Corporate Business Plan at a high level, however, an integrated, whole-of-Agency compliance improvement plan may further assist with coordination and prioritization of compliance activities toward common objectives.|
|P2-5. Monitoring and evaluation of compliance risk mitigation activities||C||Governance arrangements are in place to monitor and approve compliance risk mitigation strategies. However, compliance outcomes in terms of revenues collected or subsequent taxpayer behaviour are not systematically monitored and evaluated by the Agency’s corporate committees. CRA compliance results are largely measured using tax earned by audit (TEBA), which does not measure changes in taxpayer behaviour brought about by CRA compliance interventions or the money ultimately collected.|
|P2-6. Identification, assessment, and mitigation of institutional risks||A||The CRA has a structured process in place to identify, assess, prioritize, and mitigate corporate risks. The process follows relevant International Standards Organization and Government of Canada standards and policies. A 2014 Internal Audit of the CRA’s Enterprise Risk Management confirmed that the CRA has a formal approach for developing its Corporate Risk Profile that is consistent with its risk management process.|
|Indicator||Score 2018||Summary Explanation of Assessment|
|P3-7. Scope, currency, and accessibility of information||D||The CRA scores poorly because it does not meet the standard for timely access to information through telephone enquiry services. This score is consistent with the recent Auditor General report on call centres, which observed deficiencies in accessibility, and the perspective of Canadian small businesses surveyed by the Canadian Federation of Independent Business, and the CRA’s Fairness in Tax Administrationresearch. The Agency has plans in place to address this issue. Poor telephone accessibility overshadows a number of other areas where the Agency does possess appropriate drivers of performance. The Agency provides a range of information to taxpayers through multiple channels, dedicates resources to ensure current and accurate information, reviews external correspondence for clarity, and provides proactive taxpayer assistance programs, such as the Community Volunteer Income Tax Program. However, despite the existence of these drivers of performance, a 2016 Employer Compliance Program evaluation and 2016 Serving You Better consultations indicated that further improvements to published material is necessary. Federal Budget 2018 proposes additional funding to enhance telephone technology and hire more agents. The Government also proposes making investments to improve the way the CRA monitors agent feedback and to provide additional training to ensure Canadians get the information they need.|
|P3-8. Scope of initiatives to reduce taxpayer compliance costs||A||The Agency has various initiatives for taxpayers to reduce the cost of compliance. Taxpayers have access to an Auto-Fill My Return service to automatically populate their return with information in the CRA’s possession. Beginning in the 2017 tax year, low-income Canadians also will be able to file their returns by phone using a new automated File My Return service. While the Agency seeks to reduce compliance costs through initiatives such as Serving You Better (formerly Red Tape Reduction) and services such as automated filing, public opinion research indicates that awareness of these services is low.|
|P3-9. Obtaining taxpayer feedback on products and services||A||The CRA obtains taxpayer feedback through consultations with taxpayer representatives and tax practitioners, which is taken into account in the design of administrative processes and products. An annual taxpayer survey is conducted by an independent third party, and feedback is obtained through different service channels and after certain compliance audits. The CRA also obtains feedback on products and services throughServing You Better consultations, a dedicated Service Complaint Business Line, and the Office of the Taxpayers’ Ombudsman.|
|Indicator||Score 2018||Summary Explanation of Assessment|
|P4-10. On-time filing rate||B||Canada’s on-time filing rates are: 91 percent (personal income tax); 86 percent (corporate income tax); 63 percent (goods and services tax/harmonized sales tax [GST/HST]), and 90 percent (employer withholding). Overall, this falls shy of the TADAT standard of an average on-time filing rate exceeding 90 percent. In Canada, filing a return is generally only a legal requirement for individuals who have tax payable. A taxpayer’s situation (that is, if one has a liability) may change from year to year, complicating the calculation of the expected number of returns, upon which an on-time filing rate is based. The CRA has traditionally reported the on-time filing rate as the number of returns received on time as a percentage of the number of total returns received, which may omit taxpayers who should have, but failed to, file and thus inflate the rate. The Agency is revising its performance measure to use an estimate for the number of returns expected as the denominator of the on-time filing rate.|
|P4-11. Use of electronic filing facilities||A||Eighty-five percent of returns are filed electronically for each core tax, with all large taxpayers filing returns electronically. The CRA’s digital strategy to promote electronic filing is demonstrating success. While uptake of CRA services is generally high, small and medium sized businesses indicated in the 2016 Serving You Better consultations that they would like to learn more from the CRA about My Business Account and how to use it. This view was shared by CRA employees polled during the same survey.|
|Indicator||Score 2018||Summary Explanation of Assessment|
|P5-12. Use of electronic payment methods||A||Electronic payments account for more than 75 percent of the value of total tax collections for each core tax. The CRA provides a variety of electronic payment options and has developed partnerships with financial institutions to support and facilitate electronic payment.|
|P5-13. Use of efficient collection systems||A||Source deductions are in place for all employment income, advance payment arrangements are in place for all business income, and mandatory reporting is in place for interest and dividend income. The vast majority of total gross tax receipts for individual income tax on employment income are received through source deductions, and instalment payments accounted for 89 percent of total gross receipts in fiscal year 2016-17.|
|P5-14. Timeliness of payments||D||The level of performance is unknown because the CRA does not track on-time payment, indicating potential deficiencies in the Agency’s management information systems or performance management practices. The CRA is not an outlier in this regard: the OECD’s Tax Administration 2017 indicated that less than half of administrations surveyed could provide on-time payment data for core tax types. The OECD urged countries to improve their capabilities in this area, identifying it as an important performance measure for tax administrations predicated on voluntary compliance.|
|P5-15. Stock and flow of tax arrears||B||The stock of tax arrears is relatively high and comprised of old debt. The value of tax arrears older than 12 months past due is approximately 60 percent. Much of this debt may not be collectible. To this end, federal Budget 2016 provided the CRA with $351.6 million over five years to improve its ability to collect outstanding tax debts. In Canada, the tax debt amount observed is based on an expectation of debt turnover that does not align with our legislative framework, which includes restrictions on collection of new and appealed debt and our administrative practices regarding ability to pay. This means that tax arrears may age during the appeals process and may ultimately not be collectible. Therefore, any action to bring the stock or age of debt down may require a much more aggressive collection posture, with only marginal gains.|
|Indicator||Score 2018||Summary Explanation of Assessment|
|P6-16. Scope of verification actions taken to detect and deter inaccurate reporting||B||The Agency’s audit programs cover all core taxes and taxpayer segments, select audit cases based on risk, and use a range of audit techniques, but do not routinely evaluate the impact of audits on levels of taxpayer compliance. There is large-scale automated cross-checking of information to verify returns with GST/HST filings, financial institutions, and employer submissions. The cross-checking does not, however, systematically extend to other sources of third-party information on a large scale.|
|P6-17. Extent of proactive initiatives to encourage accurate reporting||A||A system of public and private binding rulings is in place with cooperative compliance arrangements available to qualifying taxpayers. The Agency undertakes a variety of proactive initiatives to encourage and facilitate accurate reporting including the Liaison Officer Initiative, behavioural insight campaigns and seminars with high-risk industries.|
|P6-18. Monitoring the extent of inaccurate reporting||C||The CRA’s score is due to the fact that its measurement of the tax gap is new and is limited to a few components, and that its results have not been used to improve the accuracy of reporting. The CRA has recently provided the Parliamentary Budget Officer with information to enable the calculation of tax gap estimates for the Government of Canada.
The CRA has programs in place that monitor the accuracy of reporting by filers and complete audit studies to increase its knowledge of inaccurate reporting.
In 2016, the CRA also began examining Canada’s tax gap and publishing a series of reports analyzing different components of tax non-compliance. These different types of non-compliance can arise from a wide variety of factors (both intentional and unintentional), involve different types of taxpayers (such as individuals, corporations, trusts, and non-residents), and can include both domestic and international dimensions. Since the tax gap encompasses many facets of non-compliance and involves unreported income, assets, and economic activities that are deliberately hidden from the government, its estimation is complex and requires nuanced analysis. In spite of these difficulties, the CRA is developing and applying innovative approaches to measure the various components of the Canadian tax gap. So far, the CRA has published three tax gap reports:
|Indicator||Score 2018||Summary Explanation of Assessment|
|P7-19. Existence of an independent, workable, and graduated dispute resolution process||A||The CRA has an appropriately graduated and independent mechanism of administrative and judicial reviews available to, and used by, taxpayers. Efforts to make taxpayers aware of its existence are also evident. While the CRA possesses the appropriate drivers of performance for an “A” score, public opinion research shows that timeliness is an important consideration in determining the ‘workability’ of a dispute resolution mechanism. The Agency’s poor performance in terms of timeliness (described below) may therefore undermine the effectiveness of its process.|
|P7-20. Time taken to resolve disputes||D||The CRA does not resolve 90 percent of disputes it receives within 30 calendar days. A recent Auditor General report drew attention to the fact that the CRA took too long to resolve disputes. The CRA responded with an action plan that aims to reduce the time taken to respond to disputes and the inventory of unresolved objections. The TADAT Secretariat acknowledges that the “A” standard requires calibration as few tax administration are able to achieve it.|
|P7-21. Degree to which dispute outcomes are acted upon||A||The CRA regularly monitors and analyzes dispute outcomes and uses this information in the formulation or adjustment of policy, legislation, and administrative procedures. Every adverse court decision of a material nature is reviewed and discussed in the Adverse Decision Committee (ADC), whose purpose is to identify the impacts to the Agency. In cases when the Agency decides not to appeal, advice from the Committee can include proposed legislative or tax policy changes to address identified concerns.|
|Indicator||Score 2018||Summary Explanation of Assessment|
|P8-22. Contribution to government tax revenue forecasting process||A||The CRA has dedicated staff who provide Finance Canada with the data required to support budgetary forecasts and estimates of tax revenue. The Agency gathers data on tax revenue collections and monitors tax revenue collection against budgeted revenue forecasts.|
|P8-23. Adequacy of the tax revenue accounting system||B||The CRA has an automated accounting system that meets government information technology and accounting standards. This system interfaces with the Department of Finance’s revenue accounting system, and is subject to audit. The CRA made an informed business decision to move from a one-day to a two-day standard for posting payments in the interest of overall Agency efficiency. However, posting payments within two business days of receiving them is longer than the TADAT standard of one business day.|
|P8-24. Adequacy of tax refund processing||B+||The GST/HST refund system is adequate, but the time taken to pay (or offset) GST/HST refunds is longer than the TADAT standard of 90 percent of claims being paid, offset or declined within 30 calendar days. While 91 percent of total claims are processed within 30 days, these represent only 79 percent of total claims by value. Delays in payment of GST/HST refunds are caused, in part, by a rigorous pre-payment review, which implies extra time verifying the accuracy of refund amounts. Refunds of low-risk taxpayers, however, are fast-tracked through the system.|
|Indicator||Score 2018||Summary Explanation of Assessment|
|P9-25. Internal assurance mechanisms||A||The internal audit and internal affairs units perform all necessary assurance functions, cooperating with internal and external authorities as required. This score is consistent with internal federal government reporting, which recognized Agency leadership in integrated security management, including TADAT assessment areas such as departmental security and business continuity planning.|
|P9-26. External oversight of the tax administration||A||The CRA’s financial statements and operations are subject to extensive external oversight and has a rigorous process for the investigation of wrongdoing. Additionally, the Office of the Taxpayer’s Ombudsman is an independent body that investigates unresolved complaints from taxpayers about the service and treatment they have received from the CRA.|
|P9-27. Public perception of integrity||A||The CRA hires an independent agency to conduct a statistically valid survey to monitor the level of confidence Canadians have in the Agency.
The Agency is in the process of reporting on a new indicator, the public perception index (PPI), for the first time in 2017-18. The PPI indicators include:
|P9-28. Publication of activities, results, and plans||B+||The CRA provides full financial and operational performance information. This information is made public in its Departmental Results Report (DRR) eight months after the end of the fiscal year, which fails to meet the TADAT standard of six months. Strategic and operational plans are made public in advance of the period covered by the plans. Financial and operational data produced for inclusion in the DRR follow a schedule established by the Treasury Board of Canada, meaning that achievement of the TADAT standard is largely outside the control of the Agency. The Agency meets the test of timeliness within the Government of Canada framework.|
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