Canada Revenue Agency Annual Report to Parliament 2013-2014
Collections and returns compliance
The collections and returns compliance programs identify, address, and prevent non-compliance to help resolve tax debt quickly. The CRA takes a progressive approach to compliance and debt collection, beginning with education and outreach activities to remind taxpayers of their compliance obligations. We work with individuals and businesses who have outstanding tax returns or remittances, or who owe money, to help them meet their tax obligations and pay their outstanding debt. When needed, we take action to address non-compliance by using a range of activities designed to enforce compliance with Canada's tax laws for registering, filing, withholding, and paying debt.
|Collections and returns compliance||Financial resources
|Trust accounts – Compliance||17%|
|Accounts receivable – Tax and government programs||64%|
|Automated operations and call centre||6%|
Trust accounts – Compliance
|Trust accounts – Compliance||Financial resources
The CRA is responsible for ensuring the integrity of Canada's source deductions system, overseeing the income tax deducted from the paycheques of millions of Canadians each year to fund federal, provincial, and territorial government programs and infrastructure. We also oversee the income tax deducted and amounts held in trust for employees' contributions to their Canada Pension Plan (CPP) and employment insurance (EI) accounts. The collection of personal income tax revenue through source deductions is the most significant source of government revenues. In 2013-2014 alone, the CRA collected $245 billion through source deductions.
Construction company fined $200,000 for inaccurately recording overtime pay
February 2014 — In 2008 and 2009, a northern Ontario construction company recorded $1,242,357 worth of overtime pay as non-taxable allowances. It compensated employees for the overtime by paying directly for personal expenses or by issuing separate cheques not included on the payroll. Using this approach, the company avoided withholding and remitting the required income tax, Canada Pension Plan contributions, and employment insurance premiums. The company pleaded guilty to tax evasion and was fined $200,000. It was also reassessed for failure to withhold and remit CPP contributions and EI premiums on the overtime paid in the form of non-taxable allowances from January 1, 2008, to December 31, 2009.
Some employees were affected because the overtime pay was not recorded as income on their T4 slips. Employees who under-reported their taxable income for the 2008 and 2009 tax years have also been reassessed for additional federal taxes.
The CRA recognizes the importance of working with employers to ensure they accurately deduct and remit the right amounts when preparing employee payrolls, and remit the employer's portion of CPP contributions and EI premiums. Our role includes helping to educate employers, support compliance, and prevent errors by making information readily available through our website, webinars, and our call centre.
Businesses registered for the GST/HST are responsible for collecting and remitting the appropriate amounts to the CRA, based on the taxable supplies of the goods and services they provide. The GST/HST is a significant source of government revenue, and the CRA is vigilant in making sure GST/HST registrants file when required and remit on time.
The CRA uses a variety of processes to help taxpayers comply. They include an automated reminder service that sends a series of calls to new employers and GST/HST registrants to remind them of their filing obligations, and automated reminder letters and telephone calls to establish filing arrangements. This enables the CRA and taxpayers to resolve issues early to reduce the number of cases requiring follow-up action or prosecution.
When such early intervention methods fail, and GST/HST or source deductions non-compliance is identified or suspected, the CRA takes corrective action including examining employer books and records to make sure the correct amounts are being deducted and remitted. Using this approach, in 2013-2014 the CRA identified $958.6 million in source deductions non-compliance.
- We performed over 493,000 payroll account reviews.
- We resolved over 330,000 GST/HST files through our GST/HST delinquent filer program.
- We completed 865 employer compliance audits.
- We identified $1.9 billion in non-compliance including source deductions.
|Non-filer/non-registrant compliance||Financial resources
Non-filers are defined as individuals, corporations, or trusts that do not file tax returns despite a legal obligation to do so. Non-registrants are business entities that do not register for the GST/HST when required.
Some of the ways we identify non-compliance in this area include using automated systems to match information slips and corporate business numbers against submitted tax returns, and following up on informant leads from various sources. We also investigate sectors where we suspect underground economic activities exist. Some of our accomplishments in 2013-2014 included:
- leveraging business intelligence to influence enhancements to program strategies
- regionalizing inventories
- strengthening internal controls for workload management
Once we identify non-filers and GST/HST non-registrants, we take a measured approach to promote or enforce compliance. We use letters, telephone calls, and in-person contact in an effort to get outstanding returns. When these actions do not bring the taxpayer into compliance with their filing obligations, we may decide it is necessary to prosecute the taxpayer for not filing their tax returns.
- We received over 667,000 income tax and information returns as a result of our actions to prompt compliance by non-filers.
- We identified $3.3 billion in non-compliance in the non-filer segment.
Accounts receivable – Tax and government programs
|Accounts receivable – Tax and government programs||Financial resources
Non-filer fined $15,000 for not filing tax returns
Brampton, Ontario, February 4, 2014 – The Canada Revenue Agency announced today that a Brampton, Ontario, man has been fined $15,000 after pleading guilty to 15 counts of failing to file personal and corporate income tax returns. The fines were imposed by the Ontario Court of Justice in Brampton. The man was given 12 months to pay the fine, and all returns have since been filed.
The CRA made several requests for the missing returns before serving the Brampton man with formal notices demanding that he file them. Charges were laid when he did not comply.
In addition to the fines imposed by the courts, individuals or corporations convicted of not filing tax returns are still obligated to file the tax returns and pay the full amount of taxes owing, plus interest, as well as any civil penalties that the CRA may assess.
Effectively resolving outstanding tax debt is a critical element in protecting Canada's tax base and ensuring governments have the revenues needed to support social programs and address priorities. In 2013-2014, the CRA resolved $46 billion in outstanding tax debt on behalf of federal, provincial, territorial, and First Nations governments.
DID YOU KNOW?
More than 92% of individuals file and pay their taxes on time without CRA intervention
This past year, over 92% of individuals paid their taxes on time and without intervention. The CRA focuses on addressing the remaining segment of the population that is non-compliant, and uses a variety of interventions ranging from automated reminders or phone calls from agents to various enforcement actions conducted by our tax services offices.
Along with collecting tax debts, the CRA also undertakes various activities to promote the integrity of the tax system and maintain a healthy tax portfolio. These activities include insolvency-related actions, investigations leading to legal action to protect the tax amounts owing, managing the aged inventory, and ensuring accounts are properly written off when the accounts are not collectable.
In 2013-2014, some of our major undertakings included:
- putting more collections information online, based on consultations with stakeholder groups; for example, we added specific topics of interest to third parties, such as requirements to pay (garnishees);
- implementing new processes and technology to better reallocate accounts from potential collection officer action to lower-risk and more efficient strategies, such as letters and phone calls;
- applying analytics expertise to improve call campaigns such as instalment remitters;
- piloting new approaches to leverage the capacity of senior collection officers on high- risk accounts across broader geographic zones; and
- assuming responsibility for recovering overpayments for additional employment and social development Canada benefit programs, including developing required policies and procedures
The CRA launched new projects to address payment non-compliance in the very high-risk collections area of repeat offenders. Our goal is to identify and modify the future behaviour of taxpayers, specifically those who are strategically organizing their business affairs to avoid collections actions or are unwilling to correct their non-compliance.
The CRA is also continuing efforts to identify and address specific complex workloads such as international accounts and tax avoidance schemes. We have begun to establish centres of expertise to deal with the challenges unique to these files.
At the end of 2013-2014, the CRA's collections activities exceeded targets for a number of reasons which included continued improvements to collection processes and the effective management of aged accounts to address the legislation on the collections limitation period. To ensure tax debts are resolved before the limitation period expires, the CRA is developing an automated system to manage the limitation periods for all tax debts. At the end of the reporting period, the total undisputed taxes, interest, and penalties was $33.6 billion.
We resolved $46 billion in outstanding tax debt
- The CRA resolved $46 billion in outstanding tax debt.
- The CRA recovered $609 million of the outstanding debt portfolio for Employment and Social Development Canada.
Similar to other tax administrations, the CRA collects, produces, and stores vast amounts of data. New technologies and faster processing are helping us to more effectively access, integrate, and analyze this data, resulting in better business intelligence about taxpayer behaviour.
Equipped with this knowledge, we are in a stronger position to positively influence taxpayer behaviour. This, in turn, supports our compliance and collections efforts, from placing a well-timed phone call, to offering a reminder, to selecting files for examination when non-compliance is suspected. Examples of our initiatives include:
- Using data analysis to predict which instalment remitters were likely to make payments enabled us to better target follow-up phone calls, resulting in $31 million in additional negotiated payment arrangements.
- Using data analysis to identify accounts that would "self-resolve" allowed us to focus our collections efforts on higher risk accounts, ultimately limiting the growth in tax debt.
- Using data analysis to predict the assessed value of unfiled T1 returns, enabling us to better select T1 non-filer workload for follow-up action, and resulting in additional positive assessments totalling $127 million.
- Having successfully used a "nudge" approach with our automated dialler strategy, we began to establish pilots using a "nudge" approach for collections.
Expanded Use of Business Intelligence
In 2013-2014, the CRA continued to maximize the use of business intelligence tools to predict cases where CRA intervention might influence payment and filing compliance.
By using technology and business intelligence, the CRA was able to make strategic and operational decisions so that taxpayer files could be directed to the most appropriate collection or compliance strategy, such as the Debt Management Call Centre, the Accounts Receivable National Inventory, or directly to a tax service office for intervention. Data mining models allowed the call centre to receive taxpayer files that might be settled by an automated phone call or a call from a call centre agent, whereas the more complex and higher-risk files were directed to a tax service office for more aggressive action.
The CRA also identified population segments, including new employers and GST/HST registrants and individual quarterly instalment remitters, that would benefit from receiving an automated reminder of their filing obligations and due dates.
We implemented a predictive data mining model which enabled us to predict taxpayers' likelihood to pay and guided our campaigns to improve payment compliance by calling taxpayers with outstanding balances. Our business intelligence work is helping our efforts to support filing compliance when addressing the underground economy in high-risk sectors.
|Expected results||Performance indicators||Targets/
|Tax debt and government programs debt is resolved on a timely basis and is within targeted levels||Percentage of dollar value of tax and government programs accounts receivable resolved in the fiscal year, compared to forecast||100%||122%4|
|Expected results||Performance indicators||Targets/
|Ensure compliance with filing and remitting requirements as they relate to the Income Tax Act, the Canada Pension Plan, the Employment Insurance Act, and the Excise Tax Act||Dollar value of assessments related to Employer, GST/HST and Part XIII related compliance activities
||$1.8 billion||$2 billion|
|Expected results||Performance indicators||Targets/
|Ensure compliance of individuals, corporations, and trusts with filing and registration requirements as they relate to the Income Tax Act, the Excise Tax Act, and other legislation||Dollar value of returns obtained and estimated assessments related to GST/HST non-registration activities and non-filer activities for individuals, trusts and corporations resolved at the TC/TSO level||$2.45 billion||$3.3 billion|
|Expected results||Performance indicators||Targets/
|Tax debts are collected and resolved, for the federal, provincial, and territorial governments, on a timely basis and within targeted levels||Percentage of dollar value of tax accounts receivable intake (dollars) resolved in the year of intake||60%
|Percentage of TSO tax accounts receivable aged inventory (>5 years) compared to closing TSO inventory
|Percentage of accounts receivable dollars resolved (production) in the fiscal year compared to the dollar value of accounts receivable received (intake) in the fiscal year||90%||95%|
Government program debts are collected and resolved, for the federal, provincial, and territorial governments, and are within targeted levels
|Percentage of dollar value of government program accounts receivable resolved in the fiscal year compared to forecast||100%||
Footnote 1: Includes automated operations and call centre sub-program (the activities of this sub-program ceased during 2013-2014):
– planned spending ($31,640,994) and actual spending ($31,358,153)
Footnote 2: The figure represents the actual spending for the CRA on a modified cash basis, based on Parliamentary appropriations used. See pages 108-109 for an explanation of how actual spending relates to results in the CRA Financial Statements – Agency Activities.
Footnote 3: Increase primarily due to in-year allocations aimed at enhancing program results, legal services expenditures transferred from the appeals program during the 2013-2014 fiscal year, and payments associated with severance, benefits and vacation credits.
Footnote 4: The actual total of tax debt and government programs debt resolved by our tax services offices and by our Government Programs in 2013-2014 was $21.3 billion — 22% higher than the original forecast of $17.4 billion.
Footnote 5: The actual total of government program debts resolved in 2013-2014 was $609.2 million — 2% higher than the original forecast of $596 million.
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