Standing Committee on Public Accounts (PACP) - November 17, 2020

Notice of meeting

43rd Parliament, 2nd Session

Meeting 6

Tuesday, November 17, 2020, 11:00 a.m. to 1:00 p.m.
Room 415, Wellington Building, 197 Sparks Street
Televised

Report 3, Taxation of E-Commerce, of the 2019 Spring Reports of the Auditor General of Canada

Witnesses

Office of the Auditor General

• Karen Hogan, Auditor General of Canada
• Mathieu Lequain, Director
• Philippe Le Goff, Principal

Department of Finance

• Paul Rochon, Deputy Minister
• Andrew Marsland, Senior Assistant Deputy Minister, Tax Policy Branch

Canada Border Services Agency

• John Ossowski, President
• Peter Hill, Vice-President, Commercial and Trade Branch

Canada Revenue Agency

• Bob Hamilton, Commissioner of Revenue and Chief Executive Officer
• Ted Gallivan, Assistant Commissioner, Compliance Programs Branch

Opening Remarks

Speaking notes for Mr. Bob Hamilton, commissioner of the Canada Revenue Agency

Standing Committee on Public Accounts
Report 3—Taxation of E-Commerce of the 2019 Spring Reports of Auditor General of Canada

Ottawa, Ontario
November 17, 2020

Check against delivery.

Good morning.

Thank you Mr. Chair, for the opportunity to appear before you to discuss the Canada Revenue Agency’s Action Plan on Report 3—Taxation of E-Commerce of the 2019 Spring Reports of the Auditor General of Canada.

I am accompanied by Ted Gallivan, Assistant Commissioner of the Compliance Programs Branch at the Canada Revenue Agency.

In Report 3—Taxation of E-Commerce, the Auditor General of Canada acknowledged that the Canada Revenue Agency (the Agency) had limited legislative authority to implement best practices done in other jurisdictions, such as simplified registration or requiring digital platforms who are non-residents to register for, and collect goods and services tax/harmonized sales tax (GST/HST).

Within that context, the Auditor General of Canada made two recommendations to the Agency and we accepted both of them.

First, the Auditor General of Canada recommended that, within its legislative authority, the CRA expand its compliance activities and leverage available third-party data to enhance its ability to detect and deter GST/HST non-compliance in e-commerce.

And secondly, the Auditor General of Canada called on the CRA to implement mechanisms to track and report on the number of compliance activities it conducts to manage the risk of non-compliance in e-commerce.

The Agency has agreed with both recommendations and has prepared and advanced a detailed action plan with timelines. Today, I would like to report to you on our achievements.

The Agency designs its compliance activities in alignment with the level of non-compliance and tax dollars at risk. In the past, efforts to address non-compliance— including educating taxpayers of their GST/HST obligations and conducting audits — allowed the Agency to ensure that focus remained on files with the highest risk of non-compliance, while promoting a fair tax system for all Canadians.

Within the confines of the legislation, we believe our level of compliance actions in the e-commerce sector were commensurate with the level of risk identified. However, e-commerce has grown rapidly over the last few years and increased more substantially in specific sectors during the pandemic as a result of non-essential businesses being ordered to close.

The Agency has developed an action plan to monitor and assess the elevated risks on an ongoing basis.

With respect to recommendation 1, the Agency has developed a comprehensive compliance strategy which will be finalized by December 2020 as committed to the Auditor General. This strategy will support the Agency’s efforts in better detecting and addressing non-compliance for GST/HST and Income Tax.

This work also led to the identification of the platform economy, where platform operators use technology such as the Internet to connect buyers and consumers with sellers and service providers.

More precisely, four categories of platforms have been identified including the sharing economy, the gig economy, person-to-person sales and social media influencers. Each category contains unique risks requiring tailored compliance interventions commensurate with the identified risks. Our strategy provides detailed plans to deal with the risk posed by these sectors.

The Agency also reviewed actions undertaken by other tax jurisdictions to address tax challenges in this sector. As a result of this work, compliance risks emerging from the platform economy and e-commerce were identified.

The Agency will also expand its compliance actions by better leveraging third party data to identify and address non-compliance. An effective tool in leveraging third party data is the Unnamed Persons Requirements (UPR). This type of requirement is authorized by the courts and enables the CRA to obtain information from an individual or a company about third parties.

With respect to recommendation 2, the Agency has already started to produce more strategic performance indicators, such as the tax gap estimates.

In December 2019, the Agency completed an analysis of its tracking and monitoring methodology with respect to the compliance activities it conducts to manage the risk of non-compliance in e-commerce, including the platform economy.

While the Agency conducted audits on e-commerce files in the past, these compliance actions were included in regular audit program results and therefore not tracked and monitored separately.

As a result of this analysis, new tracking and monitoring mechanisms and procedures have been developed and are being implemented by early 2021 to help with analyzing results from these audits.

In light of all of these measures included in the action plan, I am pleased to report that the Agency has already achieved a number of its commitments identified in its action plan provided in response to the Report 3—Taxation of E-Commerce of the Auditor General of Canada. We are well underway to meeting the remaining deliverables.

Thank you, Mr. Chair, I will be happy to answer the questions you may have.

Supporting Documentation

OAG Spring 2019 Report – Report 3

2019 Spring Reports of the Auditor General of Canada to the Parliament of Canada
Report 3—Taxation of E-Commerce

Overview: Impact on CRA (from AERB)

2019 Spring Reports of the Auditor General of Canada
Report 3 – Taxation of E-Commerce

Impact on the Canada Revenue Agency – expected to be moderate

Audit objective

The objective of this audit was to determine whether, according to their respective roles and responsibilities, the CRA, the Canada Border Services Agency, and the Department of Finance Canada, with regard to e-commerce, ensured that the tax system was neutral, and that the GST/HST tax base was protected.

Audit scope

This audit included the CRA, the Canada Border Services Agency, and the Department of Finance Canada. For the CRA portion of the audit, the OAG examined whether:

• CRA adapted its compliance strategies to enable consistent assessment of GST/HST in accordance with the current legislative framework;
• CRA considered best practices to preserve the GST/HST tax base for e-commerce.

The OAG did not examine the CRA’s GST/HST collections processes.

The audit covered the period between January 1, 2014, and February 15, 2019.

Highlights

• Due to the changing retail landscape in Canada, as people make more purchases online, the increase in e-commerce creates challenges for assessing and collecting GST/HST.
• E-commerce includes: physical products purchased online, digital products and services purchased and delivered online (i.e., video streaming), and supplies purchased online (i.e., accommodation or ride sharing).
• The current legislative obligations for GST/HST in Canada are complex for vendors and consumers. Many factors influence an individual’s or business’ legislative obligations to collect or remit GST/HST to the government.
• The Canadian tax system must keep pace with e-commerce, and adapt to the challenges and opportunities it presents. The Government of Canada must ensure that everyone who should remit sales taxes does so and that the taxes are collected fairly and effectively.
• The federal government could not assess and collect all sales taxes on e-commerce transactions. The OAG estimated losses of $169 million in GST on foreign digital products and services provided in Canada in 2017.
• The OAG found the following:
  • The existing legislation for the sales tax system placed Canadian businesses at an unfair disadvantage in relation to foreign vendors.
  • The CRA did not have the legislative authority to require foreign vendors of physical and digital products to register for, collect, and remit GST/HST.
  • The CRA also lacked the legislative authority to implement compliance practices that have been effective in other jurisdictions, such as simplified registration or use of third-party data to detect non-compliance with tax laws.

Positive observations about the Canada Revenue Agency

• The OAG found the following:
  • The Department of Finance Canada worked with the CRA to analyze options for the administration of GST/HST in Canada. This analysis looked at ways to ensure consistent treatment of domestic and foreign vendors and their obligation to collect GST/HST.
  • CRA identified digital commerce and the sharing economy, which includes accommodation sharing services, as risks in its corporate risk profiles.
  • CRA contributed to the Organisation for Economic Co-operation and Development (OECD) guidelines on sales tax on electronic commerce, however, CRA did not have the legislative authority to implement these practices in Canada at the time of this audit.

Negative observations about the Canada Revenue Agency

• The OAG found the following:
  • CRA undertook few activities to ensure that e-commerce vendors, including accommodation sharing vendors, registered for, collected, and remitted the sales taxes when required.
  • CRA did not follow Québec and British Columbia’s initiatives to reach out to prominent e-commerce platforms to ask them to voluntarily collect and remit GST/HST on behalf of vendors on their platforms.
  • CRA did not use the limited third-party data it had to conduct compliance activities for GST/HST but it intended to do so.
  • CRA had very few compliance activities to determine whether vendors of physical or digital products were foreign or domestic and therefore required to register for GST/HST.
  • Although the CRA identified the sharing economy as a risk in its annual corporate risk profiles, it had no planned compliance activities targeted specifically at the accommodation sharing sector which generated revenues of $2.8 billion in Canada in 2018.

OAG recommendations and Agency response

The audit report contains three recommendations. The following two recommendations are addressed to the CRA:

1. Recommendation. Within its legislative authority, the Canada Revenue Agency should expand its compliance activities and leverage available third-party data to enhance its ability to detect and deter non-compliance for GST/HST in e-commerce, including accommodation sharing.
   
   Canada Revenue Agency’s response
   Agreed. Based on the current legislation, the CRA’s compliance actions to date have been fully satisfactory. The CRA has already identified the e-commerce sector as a risk, and its efforts to address non-compliance in this sector, as supported by educating taxpayers of their GST/HST obligations and conducting test audits, is commensurate with the level of risk of non-compliance and the tax dollars at risk. These efforts allow the CRA to ensure that focus remains on files with the highest risk of non-compliance, while promoting a fair tax system for all Canadians. The OAG estimated losses of $169M in GST on foreign digital products and services provided in Canada in 2017. This represents a small fraction of the over $4.9B in the GST/HST Gap Estimate (source GST/HST tax gap by CRA). Since the CRA expects the scale of e-commerce to continue to grow, the CRA will develop a dedicated compliance strategy to better detect and address non-compliance for GST/HST in e-commerce, and will continue to expand its compliance actions including better leveraging third party data. The strategy will further support and complement existing compliance efforts undertaken by the CRA to address the non-compliance within the sector.
2. Recommendation. The Canada Revenue Agency should implement mechanisms to track, monitor, and report the number of compliance activities it conducts to manage the risk of non-compliance e-commerce.
   
   Canada Revenue Agency’s response
   Agreed. The Canada Revenue will analyze its tracking and monitoring methodology with respect to the compliance activities it conducts to manage the risk of non-compliance in e-commerce. As similar recommendations were made in the recent OAG compliance audit, initiatives being implemented as part of the Agency’s response to those recommendations will align with this current OAG recommendation.

Action Plan (already shared with PACP)

Canada Revenue Agency detailed action plan

Issue Notes

Does CRA agree with the OAG recommendations?

Key messages:

• The CRA agrees with the recommendations from the OAG.

Recommendation 1

• With respect to recommendation 1, the CRA has already identified e-commerce as a corporate risk.
• The CRA’s efforts to address non-compliance in this area, including educating taxpayers of their GST/HST obligations and conducting test audits, is in line with the level of non-compliance and the tax dollars at risk.
• This approach ensures that focus remains on files with the highest risk of non-compliance, while promoting a fair tax system for all Canadians.
• We anticipate that the scale of e-commerce will continue to grow. To reinforce our existing compliance efforts, the CRA has developed a dedicated compliance strategy to better detect and address non-compliance in the platform economy, which includes e-commerce, for income tax and GST/HST.
• This strategy will help the CRA gain insight between the e-commerce risks and other general audit risks, as well as to refine its compliance approach to address the needs of participants in the platform economy.

Recommendation 2

• With respect to recommendation 2, the CRA has already started to produce more strategic performance indicators, such as the tax gap estimates launched in 2016.
• As similar recommendations were made in the recent OAG compliance audit (Report 7—Compliance Activities in 2018), initiatives being implemented as part of the Agency’s response to those recommendations will align with this current OAG recommendation.
• More recently, the CRA has completed an analysis of its tracking and monitoring methodology with respect to the compliance activities it conducts to manage the risk of non-compliance in e-commerce.
• New tracking and monitoring mechanisms and procedures determined as a result of this analysis are being implemented. The mechanisms will be used to analyze results from platform economy audits.
• Results will also be leveraged to determine whether additional changes CRA business systems are required.
• The CRA will continue to build on this work with additional estimates to better report on our successes to Canadians.

Does CRA agree with the OAG findings?

Key messages:

• The OAG’s findings regarding the emerging presence and revenues within e-commerce align well with the CRA’s identification of the area as a risk and further underlines the importance of its efforts to promote voluntary compliance and address and deter non-compliance within this area.
• The CRA’s efforts to address non-compliance in this area are in line with the level of non-compliance and tax dollars at risk.
• The first step in our compliance strategy is promoting voluntary compliance, which allows us to focus our audit efforts on those who are intentionally non-compliant.
• The CRA has taken a number of steps to educate taxpayers on their GST/HST obligations. For example, we have:
  • collaborated with an accommodation sharing platform on an education campaign for the 2016, 2017, 2018 and 2019 tax years to remind their members of their tax obligations from both an income tax and GST/HST perspective. During this period, there was a marked increase in web traffic to the CRA webpage.
  • sent educational letters to new GST/HST registrants operating taxi or ride-sharing businesses in the spring of 2018.
  • created a webpage to provide basic tax and GST/HST information for those operating in common platform economy spaces.
• In addition, the CRA also undertook digital currency audits to better understand the risks in this area. This was another recently identified risk the CRA sought to address as early as 2015. The results from these audits have helped to develop our overall risk assessment tools to ensure that our compliance efforts reflect the level of risk.
• Another important point is that CRA’s compliance actions within e-commerce are not tracked separately because registrants do not self-identify as e-commerce vendors.
  • Audits are assigned based on the risk of non-compliance within the population of GST/HST registrants, many of these businesses may have both an e-commerce and a physical presence.
• Through Budget 2019, the Government has provided the CRA with investments in additional means of data gathering, data analysis, and risk assessment.
  • The CRA is targeting unreported income from the digital economy, including through cryptocurrency and financial technology transactions.
  • The CRA is working on compliance actions focused on high material fiscal impacts (high volume and commercial users), within the existing legislative fiscal framework.

Why aren’t compliance actions tracked separately?

Key messages:

• The CRA is unable to say with accuracy how many businesses fall under this area because registrants are not required to self-identify as e-commerce registrants.
• E-commerce transactions can be part of a regular audit as businesses may have a physical presence, as well as an e-commerce presence.
• The CRA has considered e-commerce transactions as a compliance risk since 2015 and they have been integrated within our risk assessment methodologies.
• Files are selected for various compliance actions based on the level of risk of non-compliance and the tax dollars at risk.
• Businesses who are identified as having a potential high risk of non-compliance are selected for audit.
• The CRA has developed mechanisms and procedures for tracking and monitoring audits of registrants engage in platform economy transactions. These mechanisms will be used to analyze and evaluate the results of these audits.
• The Agency is also exploring various alternatives for identifying taxpayers who are engaged in e-commerce transactions including the development of a self identification tax schedule.

Does CRA have the tools to address non-compliance in e-commerce?

Key messages:

• The CRA is responsible for the administration and enforcement of the GST/HST under the Excise Tax Act, and strives to ensure its compliance activities are effective in an ever-changing landscape.
• Since the Office of the Auditor General report on the Taxation of E-commerce, the CRA has completed its review of past compliance results informed by internal studies, engagement with internal and external stakeholders, as well as review what other tax jurisdictions have done to address tax challenges in this sector. As part of that review, compliance risks emerging from the platform economy and e-commerce were identified.
• In addition, the CRA is currently finalizing a dedicated compliance strategy to better detect and address non-compliance in the platform economy, which includes e-commerce, for income tax and GST/HST (status: approval process).
• This strategy will help the CRA gain insight between the e-commerce risks and other general audit risks, as well as to refine its compliance approach to address the needs of participants in the platform economy.

If pressed

• Currently, foreign suppliers that are not located in Canada and that provide digital products and services to Canadian customers are generally not required to register and collect GST/HST.
• A legislative change would be needed to require foreign suppliers to register for, collect and remit the GST/HST on digital products and services, which falls under the responsibility of the Department of Finance Canada.

Saskatchewan & Quebec are applying provincial sales tax to foreign digital companies - why can’t CRA?

Key messages:

• The CRA is responsible for the administration and enforcement of the GST/HST under the Excise Tax Act, and strives to ensure its compliance activities are effective in an ever-changing landscape.
• Under the current legislative rules, foreign companies that do not have a physical presence in Canada and that supply digital products and services to Canadian customers are generally not required to register for, as well as collect and remit the GST/HST because those supplies are considered to be made outside Canada.
• To impose such a requirement on foreign suppliers at the federal level would require a legislative change and is the responsibility of the Department of Finance Canada.

What are Canadians’ obligations related to digital purchases?

Key messages:

• For GST/HST purposes, foreign companies that do not have a physical presence in Canada and that supply digital products and services to Canadian customers are generally not required under current legislative rules to register for, as well as collect and remit GST/HST because those supplies are considered to be made outside Canada.
• In these circumstances, Canadian customers are generally required under current legislation to self-assess and remit the GST/HST on these supplies. Payments must be made when the amount is greater than $2. The tax is to be self-assessed using Form GST/HST 59.
• To impose a tax collection and remittance requirement on foreign suppliers would require a legislative change, which is a tax policy issue that falls within the area of responsibility of the Department of Finance.

How many people self-assess & remit taxes for Netflix annually?

Key messages:

• Taxpayers who self-assess and pay their taxes via Form GST/HST 59 are not required to specify the nature of the goods or services.
• As a result, CRA does not track statistics on a given good or service.

What is the CRA doing on compliance in the accommodation sharing sector?

Key messages:

• The CRA realizes that new kinds of economic activity such as the sharing economy are becoming a bigger part of the economy.
• As some participants in the sharing economy may not follow the traditional small business practices, it is important to ensure that they are aware of and complying with their tax obligations, for example, registering for, collecting and remitting GST/HST, and declaring all of their income.
• If taxpayers earn more than $30,000 in gross revenue in a year from taxable products and services including short-term rentals, they are required to register for a GST/HST account and start collecting and remitting GST/HST to the CRA.
• The CRA is co-operating with industries, the provinces, and the territories to identify and address areas where the tax system and tax compliance might be affected.
• In an effort to promote voluntary compliance, the CRA has been collaborating with the accommodation sharing industry on an education campaign to remind their hosts of their tax obligations (income tax and GST/HST).
• This education campaign promotes the information already available on the CRA website.

Why doesn’t CRA have more resources dedicated to determining what businesses “should” register for GST collection and remittance?

Key messages:

• The CRA is committed to developing dedicated strategies to better detect and address non-compliance in e-commerce through compliance actions.
• Educating taxpayers of their responsibilities in emerging business models where they may not be aware of their tax obligations encourages compliance, which is consistent with the CRA’s compliance strategy.
• The CRA has taken appropriate first steps, within the existing legislation and in line with the level of tax dollars at risk, to address the risks of non-compliance in the e-commerce sector. The dedicated compliance strategy being developed will advise the Agency on allocation of resources to address the risk of non-compliance associated with the sector.
• The CRA will continue to monitor this sector and adjust its efforts as required.

If pressed

• It is important to note that the current legislation dictates who should be registering for a GST/HST account.

Why isn’t’ CRA leveraging third-party data for compliance activities?

Key messages:

• The scale of e-commerce is continuously growing. To reinforce its compliance efforts, the CRA uses third party data to identify taxpayers suspected of non-compliance and more specifically select files for audits.
• The CRA’s compliance initiatives rely on various legislative tools to address non-compliance. This includes the use of “Unnamed Person Requirements” (UPRs).
• The Agency has issued UPRs over the last few years and continues to use them to identify non-compliant taxpayers engaged in e-commerce transactions as part of its strategy to address non-compliance in e-commerce transactions.

What is the purpose of “test audits”?

Key messages:

• The first steps in the CRA’s compliance strategy is to promote voluntary compliance.
• This allows the CRA to focus its audit efforts on those who are intentionally non-compliant.
• Test audits are usually completed in a subject area that is new to the CRA.
• The purpose of these test audits is to advance agency knowledge and improve risk algorithms in a new subject area.

Is reducing the GST/HST tax gap part of CRA’s performance metrics?

Key messages:

• The tax gap is not formally part of the CRA’s performance metrics because the absolute value of the tax gap is influenced by factors outside the control of tax administration.
• The trend of the tax gap can be considered as one of many indicators of performance at a strategic level because the trend can be influenced by the tax administrator, in addition to other players.
• As there is currently only one measure of the GST/HST tax gap, a trend is not possible and so a GST/HST tax gap performance metric is not available at this time.
• While the CRA GST audit program greatly contributes to the effort to address the GST/HST tax gap, there are other areas of the CRA and indeed even other government departments and agencies that also impact the tax gap number.
• Sole accountability for the GST/HST tax gap does not therefore reside within a single federal organization.

How do the CRA’s efforts to address compliance in this area compare internationally?

Key messages:

• The CRA participates in an OECD Platform Economy Working Group:
  • The Working Group has distributed scoping questionnaires to determine how each tax administration is addressing this issue.
  • The results of the questionnaires and conference calls have reinforced the fact that tax administrations are experiencing the same challenges when it comes to the Platform Economy.
• Similar to other tax administrators, the CRA’s approach to promoting compliance has largely been focused on a mix of education, outreach, and nudge techniques to help registrants better understand their tax obligations and encourage them to correct any inaccuracies on their past returns and in their future filings.
• The CRA has made the platform economy (which includes the sharing economy) a focus in its Underground Economy Strategy 2018-2021, and has identified it as part of its Corporate Risk Profile.

What is the status of the detailed action plan on each of the two OAG recommendations?

Key messages:

Recommendation 1 update

• The CRA has completed its review of past compliance results which included an internal studies, engagement with field auditors and managers to gain insight into regional local risk areas and review of what other tax jurisdictions have done to address tax challenges in this sector. As part of that review, identified compliance risks emerging from the platform economy and e-commerce were identified.
• The CRA is also finalizing a dedicated compliance strategy to better detect and address non-compliance in the platform economy, which includes e-commerce, for income tax and GST/HST (status: approval process).
• This strategy will help the CRA gain insight between the e-commerce risks and other general audit risks, as well as to refine its compliance approach to address the needs of participants in the platform economy.
• The CRA will also expand its compliance actions by better leveraging third party data to identify and address non-compliance.

Recommendation 2 update

• The CRA has completed an analysis of its tracking and monitoring methodology with respect to the compliance activities it conducts to manage the risk of non-compliance in e-commerce.
• New tracking and monitoring mechanisms being created as a result of this analysis will ensure the CRA can report on the compliance risks identified within the e-commerce.
• Not withstanding that currently, Agency IT resources are restricted to Covid-19 emergency relief measures, results will also be leveraged to determine whether additional changes CRA business systems are required.
• The CRA is therefore on track to meet both of its commitments in response to the Office of the Auditor General.

PACP Committee Information

PACP Member Profiles

Chairperson

Kelly Block (CPC)

Key Issues raised in the House of Commons:

• Nil for the CRA.

Written Questions:

• Nil for the CRA.

Correspondence:

• N/A

Vice-Chairs

Lloyd Longfield (Lib.)

Key Issues raised in the House of Commons:

• Nil for the CRA.

Written Questions:

• Nil for the CRA.

Correspondence:

• Compliance Individual.
• Appeals Individual.

Maxime Blanchette-Joncas (BQ)

Key Issues raised in the House of Commons:

• Nil for the CRA.

Written Questions:

Q-184² — October 23, 2020 — Mr. Blanchette-Joncas (Rimouski- Neigette—Témiscouata—Les Basques) — With regard to the erosion of multiple government services in the Quebec administrative region of the Lower St. Lawrence over the past 25 years: (a) how many and which departments and agencies, in full detail, have reduced or increased their staffing in the abovementioned region; (b) what is the exact number of public service jobs involved; (c) what specific impact studies were completed as part of the decision-making process that led to these staffing reductions; (d) what performance assessments and analyses were conducted as part of this process in each of these departments and agencies; (e) exactly how much in overall payroll did the transferred or abolished jobs amount to; (f) what were the full costs incurred by the government to relocate public servants and their families; and (g) what socio-economic analyses did the government conduct before the various decisions to abolish or relocate these jobs, including the list of the various findings of the public consultations on these issues?

Reply being prepared by FAB and HRB.

Correspondence:

• Nil for the CRA.

Members

Luc Berthold (CPC)

Key Issues raised in the House of Commons:

• Nil for the CRA.

Written Questions:

• Nil for the CRA.

Correspondence:

• N/A.

Kody Blois (Lib.)

Key Issues raised in the House of Commons:

• Taxation.
• Corporate income tax.

Written Questions:

• Nil for the CRA.

Correspondence:

• Nil for the CRA.

Greg Fergus (Lib) (Parliamentary Secretary)

Key Issues raised in the House of Commons:

• Income tax
• Tax relief

Written Questions:

• Nil for the CRA.

Correspondence:

• Nil for the CRA.

Matthew Green (NDP) (National Revenue Critic)

Key Issues:

• Income tax

Written Questions:

• Nil for the CRA

Correspondence:

• Nil for the CRA

Philip Lawrence (CPC) (National Revenue Critic)

Key Issues:

• Canada Revenue Agency
• Audits on Small Business owners.
• Canada Emergency Wage Subsidy

Written Questions:

Q-32² — September 23, 2020 — Mr. Lawrence (Northumberland-Peterborough South) — With regard to the Canada Revenue Agency’s approach to workspace-in-the-home expense deductions in relation to the COVID-19 pandemic’s stay-at-home guidelines: are individuals who had to use areas of their homes not normally used for work, such as dining or living rooms, as a temporary office during the pandemic entitled to the deductions, and, if so, how should individuals calculate which portions of their mortgage, rent, or other expenses are deductible?

Signed reply sent to PCO on November 3, 2020

Correspondence:

• N/A

Francesco Sorbara (Lib.) (Parliamentary Secretary)

Key Issues:

• Tax relief.

Written Questions:

• Nil for the CRA

Correspondence:

• Collections Individual.
• Income tax regulations

Len Webber (CPC)

Key Issues:

• C-210 – An Act to amend the Canada Revenue Agency Act (organ and tissue donors).
• Income Tax Returns

Written Questions:

• Nil for the CRA

Correspondence:

• N/A

Jean Yip (Lib.)

Key Issues:

• Nil for the CRA

Written Questions:

• Nil for the CRA

Correspondence:

• Tax Free Savings Account.
• Interest penalties Individual.

Associate Member

Luc Desilets (BQ) (National Revenue Critic)

Key Issues:

• Canada Emergency Wage Subsidy.

Written Questions:

• Nil for the CRA

Correspondence:

• N/A

Relevant Committee Meeting Recap

PACP Committee Hearing Recap (May 9, 2019)

Parliamentary Affairs monitored the House of Commons Public Accounts (PACP) Committee meeting held on May 9, 2019. The committee met with the Office of the Auditor General (OAG) as part of their study of ‘Spring 2019 Reports of the Auditor General of Canada’. The meeting focused on all of the Spring 2019 Reports of the Auditor General of Canada and the Special Examination Reports, including Report 3 (Taxation of E-Commerce).

While the plurality of the discussion related to Report 1 (Call Centres) and Report 5 (Equipping Officers of the Royal Canadian Mounted Police), there were key references to Report 3 and CRA.

CPC PACP Member Pat Kelly expressed his concern that CBSA was not more vigorously ensuring courier companies were remitting the required taxes on low-value shipments, reflecting that their ‘choosing to ignore’ such was ‘troubling’.

Mr. Pat Kelly (Calgary Rocky Ridge, CPC):
I'd like to talk about the e-commerce report, and I'll start by asking about taxes received on imported low-value shipments sent by courier. I think there's quite a bit to unpack under that point. There are two problems here. The agency is relying on the good faith of courier companies to declare and remit sales taxes that they collected from consumers. Then it goes on to say that the agency had indications the courier companies did not declare full taxes owing to the government and officials did nothing to resolve the issue. I think it's always troubling to Canadians when a department or agency knows they are not doing something. They've identified a problem and are seemingly choosing to ignore a problem. That's troubling. Furthermore, the other piece of low-value shipments by courier is that the GST and HST seem chaotic. So I'd like either Monsieur Ricard or Monsieur Le Goff to walk us through the GST and HST. If a package comes to Ontario with a final destination in Manitoba, lands in an HST province going to one with a separate provincial sales tax, what gets collected, what gets remitted, if anything?

Mr. Philippe Le Goff (Principal, Office of the Auditor General):
When a package is ordered by a citizen living in Manitoba, for example, which has a PST, if the package crosses the border in Manitoba, the GST and the PST will be collected. If the same package is coming to Canada, going to Manitoba but crossing into Ontario, the GST will be collected, not the PST, because there's an agreement between the province and the federal government that only the GST will be collected. Those agreements, in most cases, are very old, and were put in place before the growth of e-commerce, when people were not ordering online. If the package is coming through a province with HST, so Ontario and going to an Ontario customer, the GST is collected, and there's a formula to calculate the HST, the provincial part, that will go to the province. It's called the revenue allocation framework. It's very technical. I will not go there, but this is basically the picture of the situation.

Mr. Pat Kelly:
Based on your findings, how much confidence should Canadians have that this is being done correctly? You identified problems in accounting between provinces, or between border services and provinces, if I understood correctly.

Mr. Philippe Le Goff:
If we have doubts on the accuracy of the taxes collected, we have concerns about the money that is remitted to provinces.

Mr. Pat Kelly:
Collected by border services but possibly not remitted to provinces.

Mr. Philippe Le Goff:
Yes, so we don't know if it is withheld by the couriers—we don't necessarily have evidence of that—or if it is not even collected.

Mr. Pat Kelly:
I see these as two or maybe three separate problems. First of all, is the courier even collecting the tax? Second, is the courier remitting the tax to Canada Border Services Agency? Third, is border services remitting the provincial portion of the tax, and at each step of the way, is the correct amount of tax, based on the final destination of the package, being collected?

Mr. Philippe Le Goff:
Correct.

Mr. Pat Kelly:
Am I correct in understanding your report, that there are concerns about all three of these and whether they are actually being done correctly?

Mr. Sylvain Ricard (Interim Auditor General of Canada, Office of the Auditor General):
What Mr. Le Goff is referring to is in the auditor's report. We refer to the fact... we noted there was not enough audit work done by CBSA. We give some illustrations. I'll just use one. They've done some audit work where the declared value of the package was $800,000. When they opened the package—it was a sample—the value was not $800,000. It was $13.5 million. If you are just not doing enough work, you will not catch the amount of tax that is not being paid. If you don't know and don't do enough for the GST, the same issue, driven by the value of the package, applies to the provinces as well

Mr. Pat Kelly:
Well, in that one example, depending on the province—that one example that you just mentioned would be in Ontario—that would be almost $1.7 million in uncollected taxes on that transaction alone. In fact, that would be 1% of the total identified shortcoming of $160-some-odd million in one transaction. How confident are we that $169 million in lost revenue is an accurate figure, that it's not in fact substantially higher than that?

Mr. Sylvain Ricard:
Recognizing that I'm kind of repeating myself, that's the message we conveyed to the agency.

Mr. Pat Kelly:
We're here to amplify messages, so go ahead.

Mr. Sylvain Ricard:
They need to do more audit work to have assurance that the values declared for the packages are accurate, and accordingly, that the taxes are aligned to the real value of the packages. They need to do more audit work to get that assurance themselves.

Liberal PACP Member René Arseneault asked for further explanation of the OAG’s findings that CRA had limited means to assess and collect taxes as relates to e-commerce.

Mr. René Arseneault:
… I'm moving on to a different report, the one on e-commerce taxes. I don't remember who said it earlier — perhaps it was Mr. Le Goff —, but it appears that the Canada Revenue Agency does not have all the necessary legislative means to collect taxes. At least, that's what I thought I heard. Moreover, when it does have those means, it doesn't or can't do all the work needed to collect those taxes. What do you mean by that?

Mr. Sylvain Ricard:
It has to do with two things, basically. We'll start with cases where the CRA has the legislative means, but doesn't do enough audit work.

Mr. René Arseneault:
You only have one minute.

Mr. Sylvain Ricard:
I will be short, then. In the case of taxable goods for which the CRA should conduct audits, we noted that it didn't do enough. In other cases, it simply didn't have the legislative means to collect taxes, including when goods are not taxable. In the report, we also refer to the possibility of encouraging foreign organizations and businesses to follow a simplified process to register with the CRA and to voluntarily pay taxes, as they already do in certain provinces and countries. It so happens that these tools and legislative means don't exist in Canada, so the CRA can't act.

Mr. René Arseneault:
The CRA has no authority in those cases.

Mr. Sylvain Ricard:
It doesn't have the authority to act.

Mr. René Arseneault:
If you had suggestions to make about that, what would you recommend?

Mr. Sylvain Ricard:
We have no suggestion to make, because it's a political decision that is up to the government. It's not for us to set those regulations.

Mr. René Arseneault:
Yesterday, I saw Mr. Le Goff on the RDI network. In 2017, the government missed out on 169 million dollars worth of revenue. The number sounds scary, but I was surprised that it wasn't higher given the scope of e-commerce these past 5 to 10 years. I know this wasn't part of your audit, but is it possible to compare that amount to the one that the government collected for e-commerce activities conducted by businesses on Canadian soil?

Mr. Philippe Le Goff:
I don't have this information, but we could obtain it and send it to the committee.

CPC PACP Member Pat Kelly pointed to Report 3’s finding that only 524 Canadians submitted GST/HST forms for purchases made from foreign vendors in 2017–18, comparing it to the likely tens of millions of e-commerce purchases made by Canadians. Kelly remarked this is a clear indication that Canadians are oblivious to the requirement to submit such forms (and let alone know how to do so); OAG officials agreed that Canadians did not fill out the forms for ‘millions’ of such transactions, but that CRA officials expressed to them that they were “pleased” that such forms were not filled in greater numbers because CRA “could not handle the volume if they did” (Kelly expressed surprise that CRA officials would make such a statement).

Mr. Pat Kelly:
On e-commerce, there was the finding that Canadians submitted only 524 GST/HST forms for purchases made from foreign and domestic vendors. Given that there would be millions or tens of millions of transactions—I'm not sure what the total number of transactions would be—524 is such a low number. One wonders who these 524 people are, who even knew that was something you had to do? I don't think very many Canadians are aware of the extent to which the onus is on them to declare. Monsieur Le Goff, would you care to comment on that finding?

Mr. Philippe Le Goff:
I think you are right. There are millions of transactions and I think the CRA is pleased that no more than 524 people took the time to fill in the form that is available online.
You can fill out the form and send it—

Mr. Pat Kelly:
I want to stop you. You think they are pleased that nobody—

Mr. Philippe Le Goff:
We have been told by the CRA that they could not handle the volume.

Mr. Pat Kelly:
They are pleased that Canadians are not complying, because they don't want to do the work—

Mr. Philippe Le Goff:
They don't have the capacity.

Mr. Pat Kelly:
—and have people to actually.... Well, all right, that's—

The Chair:
It's good for the consumer.

Mr. Pat Kelly:
I wonder who these 524 people are, who actually did submit the forms, out of the millions and millions of transactions. Perhaps the CRA employees are the only people who know that this is something they're required to do. What's the answer to this? If this is dealing with the law as it is currently constituted, should we have a CRA that's overwhelmed with millions and millions of GST or HST forms? Is there another answer here?

Mr. Sylvain Ricard:
Consider the cost-benefit side of it. I think the example in the report is $2 a month for an individual. They write a cheque for $2, put that in an envelope and put a stamp on it. The CRA receives it, opens it, processes it, registers it and deposits it. It's probably going to end up costing way more than $2, both for the taxpayer and the CRA. Again, that's their mandate. That's their reality. It's not for us to say how to best approach that, and to judge. As was mentioned, it's a requirement.

Mr. Pat Kelly:
Surely there must be a policy change here, to not be in a position where tens of millions of transactions are not being done correctly.

Liberal PACP Member Randeep Sarai asked for clarification where the majority of e-commerce of transaction occur (large companies like Amazon and eBay, or small companies).

Mr. Randeep Sarai (Surrey Centre, Lib.):
Would you say that these transactions are with the bigger suppliers, such as Amazon, iTunes or eBay, or is it with smaller courier and other online businesses, where you buy something, and it gets sent to you?

Mr. Philippe Le Goff:
We looked at the courier low-value shipment program, which currently has 14 participating companies, including FedEx, UPS, DHL and others. This is all that we looked at.

Mr. Randeep Sarai:
Would this be the responsibility of the courier, according to our current CRA Act, or would it be the responsibility of the vendor to collect those taxes? I'm just wondering, so we know where to go looking for—

Mr. Philippe Le Goff:
Under the program, it is the responsibility of the courier to collect the tax.

Mr. Randeep Sarai:
You're saying that these couriers were not collecting the tax, in the majority of cases.

Mr. Philippe Le Goff:
No, what we say is that CBSA is unable to validate if the amount of tax collected and remitted to CBSA is accurate.

Mr. Randeep Sarai:
What other jurisdictions, globally, are well versed on e-commerce tax collecting—the Scandinavian countries, or the U.S.? Which would be a good standard? It seems very onerous. I know people who, originally, if they made software, thought it was best to do it through iTunes, because it's able to collect all the different jurisdictional taxes for you. What jurisdictions are doing a good job of collecting and simplifying it so it's not what Mr. Ricard said, where you're collecting $2, buying a stamp and sending a cheque? Is there something that would be automatic? You plug in, it's going from this country or province to province, and it automatically calculates everything for you. Are there jurisdictions we could look at as the gold standard?

Mr. Philippe Le Goff:
I could not provide you with the name of a country. I know that at the World Customs Organization, guidelines are currently put together. Countries are working together to address this worldwide problem.