Business Registration Evaluation Report

Final Report

Corporate Audit and Evaluation Branch
October 2012

Table of Contents

• Executive Summary
• 1. Introduction
• 2. Background
• 3. Evaluation Scope and Constraints
• 4. Methodologies
• 5. Evaluation Findings
  • 5.1 Efficiency and effectiveness of registration
  • 5.2 Coordination of business registration within the CRA
• 6. Conclusion
• 7. Recommendations
• 8. ABSB Management Response

Executive Summary

Introduction

In June 2011, the Canada Revenue Agency (CRA) Management Audit and Evaluation Committee approved the Business Registration Evaluation Framework. The framework identified two issues to be pursued as part of the evaluation study: (1) is business registration administered effectively and efficiently; and (2) is business registration adequately coordinated within the CRA?

Background

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. To date, 6 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.

The Business Number Division (BND), Business Returns Directorate (BRD), Assessment and Benefit Services Branch (ABSB) is functionally accountable for ensuring that businesses are accurately and efficiently registered. However, a number of other areas across the CRA have been delegated the authority to register business accounts as part of their operations in an effort to provide efficient and timely service.

In 2010-2011, a total of 339,647 new businesses were registered for 398,010 business accounts using various registration methods. Currently, there are just over 7.7 million accounts with a BN.

Methodology

Various methodologies were employed to address the evaluation issues including interviews of CRA staff and management, data analysis, examination of the practices of and interviews with other tax administrations, and literature reviews.

Findings and Conclusions

While the CRA efficiently processes applications, program costs vary significantly depending on the method of registration chosen.

Registration through the online option appears to be the most cost efficient and effective registration method.

There are inconsistencies in obtaining information and incomplete registration data can adversely affect risk assessment and other compliance activities.

Lastly, the CRA has not provided BRD with a comprehensive compliance and verification mandate with corresponding oversight responsibilities for business registration. Without clearly defined roles and responsibilities there are risks to the effective administration of the business registration process.

Recommendations

1. A committee should be struck to examine policies and procedures and any legislation in support of or implicated by BN registration to ensure the CRA is obtaining and has the authority to obtain information at the time of registration to assist it in carrying out its compliance efforts.
2. Whether by committee or through other means, an examination should be conducted of the current methods of registration to ensure that the CRA is offering the most cost efficient and effective methods that take full advantage of technology, existing data, and verification/validation processes.
3. The mandate, roles, responsibilities and resource base of the BND should be examined to ensure it has the means, accountability and authority to deliver a comprehensive and effective business registration program.

1. Introduction

The Management Audit and Evaluation Committee approved the framework for an evaluation of business registration in June 2011. The evaluation study focused on the issues of registration efficiency, effectiveness, and coordination within the Canada Revenue Agency (CRA). This report presents the findings, conclusions, and recommendations of the evaluation.

2. Background

2.1 What is a BN?

A business number (BN) is a nine digit number followed by a two letter four digit program account identifier.  For example, a business that wants to register with the CRA for a BN, one GST/HST account, and two payroll accounts would receive a BN and account identifiers as follows:

• Business Number:  123456789
• GST/HST program account:  123456789 RT 0001
• 1st payroll program account:  123456789 RP 0001
• 2nd payroll program account: 123456789 RP 0002

The 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.

To date, 6 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.

2.2 Program Description

Prior to the introduction of the BN, businesses were required to register with and obtain identifiers from a variety of different program areas within the CRA, i.e. payroll, goods and services tax/harmonized sales tax (GST/HST), import-export, and/or income tax. Since its implementation, businesses can register through multiple sources by a variety of means to obtain a BN for CRA purposes - by mail or fax, telephone, online through the CRA's website, or automatically if an entity is incorporated through a BN partner. These multiple options were introduced to make it easier and faster for businesses to register accounts with an expectation that it would maximize the number of businesses who would voluntarily register and assist in minimizing taxpayer burden.

A number of areas have the authority to register business accounts across the CRA, however the Business Number Division (BND), Business Returns Directorate (BRD), Assessment and Benefit Services Branch (ABSB) is functionally accountable for ensuring that businesses are accurately and efficiently registered.

In 2010-2011, a total of 339,647 businesses were registered for 398,010 business accounts using various registration methods. At the end of 2010-2011 the CRA reported that there were 5.8 million businessesFootnote 1 registered with the CRA representing 7.7 million business accounts.

Approximately 15% of total registrations were processed by Business Number Services (BNS) sections within the seven Tax Centres (TCs) across the country. The BNS units are responsible for registering businesses that apply by mail and fax and are identified in the Canada GazetteFootnote 2. ABSB has functional authority for the BNS units.  Almost 18% of total registrations were processed through the Business Registration Online (BRO) portal available on the CRA website. BRO is tailor-made for small and medium-sized businesses that do not have complex registration requirements.

Telephone registrations are processed by agents located in 4 Business Enquiries Call Centres across the country and account for just over 30% of registrations. Roughly 3% of new registrations are processed at local Tax Service Offices (TSOs). And, about 1% of businesses are registered by the Non-Filer/Non-Registrant programs in local TSOs and through the Registration Identification Project (RIP) operating out of the Summerside TC. These registration functions fall within the responsibility of the Taxpayer Services and Debt Management Branch (TSDMB).

Finally, just under 31% of BN registrants are automatically provided with a corporate BN account upon incorporation with federal and provincial partners. Industry Canada and the partner provinces provide the CRA with information obtained at the point of incorporation pursuant to the terms and conditions of a number of Memoranda of Understanding. The CRA agreed to accept this information in order to facilitate registration of corporate accounts.

Figure 1 provides a breakdown of the total number of accounts registered in 2010-2011 by the various methods of registration.

Figure 1

Business Accounts Registered in 2010-2011 by Method of Registration

Source: CAEB BN data analysisFootnote 3

2.3 Legislative authority

There is no legislation that governs BN registration; nothing that stipulates how information should be provided or what standardized information is required. Depending on the source from which registration is being sought (i.e. a provincial government, Industry Canada or the CRA) registration requirements differ from source to source.

Of the various Acts that the CRA is responsible for administering, BN is referenced in the Income Tax Act (ITA) and Excise Tax Act (ETA).

Section 248(1) of the ITA defines business number as the number (other than the social insurance number) used by the Minister to identify:

• a corporation or partnership, or
• any other association or taxpayer that carries on a business or is required by this Act to deduct or withhold an amount from an amount paid or credited or deemed to be paid or credited under this Act and of which the Minister has notified the corporation, partnership, association or taxpayer.

Section 240(1) of the ETA requires every person who makes a taxable supply in Canada to register for the purposes of the act and Section 241(1) allows the Minister to register any person applying and assign a registration number.

2.4 Registration and compliance

Business registration is one of the CRA's four compliance pillars. The sole purpose of business registration as it relates to tax administration is to obtain information that supports compliance activities. It provides the CRA with the opportunity to obtain the necessary information to ensure that businesses are appropriately notified of obligations, are sent forms and reminders, and to address compliance issues as they arise. Business registration is not only the entry point to CRA programs but, as shown in Figure 2, BN information is at the core of all subsequent assessing, accounting, and compliance activities.

Figure 2

Impact of BN InformationFootnote 4

Source: Modified graphic from the BNS Training Manual

Businesses requesting a BN from the CRA are asked to provide certain information regardless of business lineFootnote 5 or business typeFootnote 6 or business registration methodFootnote 7. The nature of the requested information is predominantly tombstone type information (e.g. name, address, phone number and proof of identification in the form of a social insurance number (SIN) of the owner, partners, corporate directors or officers) as well as information about the business including a description of the major business activity.

Business registration information is uploaded to the majority of the CRA's operational data systems. The information assists CRA compliance efforts such as risk assessment of tax non‑compliance, identifying compliance workloads within various branches and facilitating the work of auditors, collectors, and investigators. Ensuring that business registration information is both complete and accurate is crucial to the success of these tax compliance activities - the single purpose of business registration for tax administration is to facilitate compliance with tax obligations.

3. Evaluation Scope and Constraints

The scope of this evaluation was limited to an examination of registration processing for CRA business accounts. The focus does not extend to the CRA's relationship with external partners.  Based on consultations and research conducted in preparation of the evaluation framework, the Program Evaluation Division (PED) identified two issues as follows.

Issue 1: Is business registration administered effectively and efficiently?

To answer this issue our examination included an assessment of the completeness and, to the extent possible, accuracy of registration information, as well as a review of the validation and authentication processes. We also explored the effect registration data quality may have on downstream compliance activities. And, we conducted a review of the efficiency of registration processes across all responsible areas within the CRA.

Issue 2: Is business registration adequately coordinated within the CRA?

To answer this issue we examined the extent to which roles and responsibilities governing registration were clear and appropriately assigned and whether collaboration is resulting in enhancements to business registration processes. We also assessed the extent to which collaboration exists both across all parties, within the CRA, responsible for registration processes and between registration processing units and the users of the registration information.

Constraints

Although we identified accuracy as one of the attributes of program effectiveness, we were unable, except in very limited circumstances, to examine the accuracy of registration data due to time constraints.

4. Methodologies

The following data collection and analysis methodologies were used in the conduct of this evaluation:

• Document and File Review – A review of files and documentation associated with the administration and management of the program was conducted.
• Literature Review – A review of literature related to registration processes and registration vis-à-vis compliance was conducted.
• Data Analysis – Program data was analyzed to assess the completeness and, where possible, accuracy of registration data and the efficiency of the registration process. Five years of BN data was extracted from the BN system (fiscal year 2006-2007 to fiscal year 2010-2011) provided by the BND for analytical purposes.
• Interviews (internal) – 25 individual and group interviews were carried out with over 150 CRA staff and management in both headquarters and the regions.
• Interviews with other Tax Administrations – Telephone conference calls were conducted with representatives of the Australian Taxation Office (ATO), New Zealand Inland Revenue Department (IRD), and the United Kingdom Her Majesty's Revenue and Customs (HMRC).

5. Evaluation Findings

5.1 Efficiency and effectiveness of registration

Registrations are processed in a timely manner, however, costs vary depending on the method of registration.

Telephone registrations represent the majority of all CRA processed registrations accounting for approximately 44% of registered accounts. CRA data indicates that roughly 5% of the 3.5 million business enquiries received in 2010-2011 were to register or open an account. Using the average of 6.3 minutes and a cost of $8.14 per enquiryFootnote 8, the CRA resource cost to process 120,000 telephone requests for registration is approximately $1 million.

BNS processed applications (e.g. mail and fax) account for 22% of CRA registered accounts in 2010-2011.  Based on an average of 8 minutes to process an application for registration at a cost of $4.20, the annual cost to process 60,740 accounts is just over $255,000.

The bulk of the 70,542 accounts registered in 2010-2011 using BRO (26% of CRA registered accounts) bear negligible incremental costs to the CRA as most of the information is verified and processed using system logic and requires little human intervention. Overall, this is the most efficient method of registration.

In almost all cases, businesses seeking registration through BRO or by way of telephone receive a business number immediately upon completing the process. Applications received by fax or mail exceed the CRA's service standard of 95% of registrations processed in 10 days (in 2011-2012, 98% of registrations were processed within 10 days).

There are inconsistencies in obtaining information and differing information requirements for the purpose of registration.

There is no legislation governing the use of or which stipulates what information is required to be provided in order to obtain a BN. Depending on the source from which registration is sought (i.e. a provincial government, Industry Canada, or the CRA) registration information requirements differ from source to source and vary depending on circumstances.

The CRA's application for a BN form (RC1), requests all applicants to provide a Social Insurance Number (SIN) for the owner, partner(s), corporate director(s) or officer(s) of the business.  The SIN is a universal identifier used to access many government programs and is required to be presented under specific circumstances. Those circumstances are dictated by legislation.  The CRA uses the SIN as a means to authenticate the identity of applicants.

PROTECTED

Partner organizations obtain information relevant to the administration of their own programs and assign BNs that are exclusive to those programs. Businesses incorporated by provincial or federal partners are also automatically registered for a corporate income tax BN based on the information provided to partner organizations forwarded to the CRA under MOU agreements. PROTECTED.

Of the 191,770 businesses registered for CRA corporate tax accounts, 64% (122,109) were automatically assigned corporate BNs as a result of their incorporation by provincial or federal partners. These registered accounts would not have a SIN or a major business activity description.

Overall, for fiscal year 2010-2011, 43% of registered accounts had no SIN, 39% lacked a major business activity description, 20% had no owner identification and 24% had no contact phone number.  See Figure 3 for a breakdown of missing information by registration method.

Figure 3

Missing Information at Initial Point of Registration by Registration Method (2010-2011)

Percentage of Registration Totals

The presentation of the percentage of missing information under external partner requests in Figure 3 should not be seen as a criticism of CRA partners. This information is not requested by partners. The ABSB indicates that they review these accounts within 30 days of registration and attempt to obtain the missing information (see section 5.2). Although data was not available to indicate the extent to which the 2010/11 missing information was obtained as a result of post-registration review, ABSB provided data to indicate that, for all registered businesses in the system (4.8 million), the overall percentage of missing information was as follows:

• 1.44% of businesses have no owner name;
• 24% of businesses have at least one owner with no SIN; and
• 16% of businesses have no major business activity indicated.

Online registrations result in the most complete information being obtained.

As indicated above, businesses can register through a variety of methods and depending on the method chosen, information requirements and completeness of fields varies considerably.  However, applicants seeking registration through the CRA BRO portal must provide all requested information in order to be eligible for a BN. Mandatory information includes SIN and major business activity description. In addition, BRO applicants that are sole proprietors must have filed an income tax return in order to be eligible for a BN.

Rates of non-compliance within the small and medium enterprises (SMEs) population demonstrate a need for complete and accurate data.

CRA data shows that small and medium enterprises (SMEs), representing 99% of the BN population, have higher levels of non-compliance than individual tax filers and, depending on the nature or type of business, compliance risks vary significantly across sectors. As CRA data reveals, SMEs are a high risk group for non-compliance because there is generally no third party data against which their reported information can be comparedFootnote 9.

The Compliance Programs Branch (CPB) publishes a Compliance Monitoring Report that provides the compliance results of the main taxpayer segments (individuals, unincorporated businesses, corporations, GST/HST registrants and employers). CPB uses a series of compliance indicators to determine compliance rates for each population segment, covering all relevant compliance requirements including filing, reporting, and payment.

Reporting non-compliance indicators under the Core Audit Program (CAP)Footnote 10 indicate a reporting non-compliance rate as high as 25% for corporate and 30% for GST/HST accountsFootnote 11. These same groups have a late filing non-compliance rate of 28% and 44% respectively. And, although the report is silent on payment non-compliance rates for GST/HST registrants, just under 34% of corporate accounts fail to pay on time.

PROTECTED

Incomplete registration data can adversely affect risk assessment and other compliance activities.

The singular purpose for registering businesses for tax purposes is to support subsequent compliance activities (voluntary, enhanced, and enforced).

The Organization for Economic Co-operation and Development (OECD) in its March 2011 report titled “Tax Administration in OECD and Selected Non-OECD Countries: Comparative Information Series (2010)” commented that:

“Comprehensive systems of taxpayer registration and numbering are a critical feature of the tax administration arrangements in most countries, underpinning all return filing, collection, assessment and verification activities.”

“For some revenue bodies, registration involves the maintenance of basic taxpayer identifying information (e.g. for individuals—full name and address, date of birth and for businesses—full name, business and postal addresses) using a citizen or business identification number that is used generally across government and which, for tax administration purposes, permits the routine identification of taxpayers for a range of administrative functions (e.g. issue of notices, detection of non-filers and follow-up enforcement actions).”

The CRA has finite resources to address compliance issues and must, therefore, use intelligence and risk assessment in directing its compliance activities. Risk assessment and intelligence processes are dependent on information – information gathered by the CRA that must be, to the extent possible, complete, accurate, and relevant.

We interviewed a cross section of compliance staff Footnote 12 in both the field and in headquarters and examined risk scoring and intelligence processes to better understand how registration data plays a role in subsequent compliance activities.  Compliance staff unanimously indicated that complete and accurate registration information is essential to their work. Lack of or incorrect PROTECTED.

Lack of or incorrect “major business activity” can detrimentally affect risk scoring or sector analysis used in identifying compliance trends.

The CRA captures major business activity at the point of registration and subsequently sends this information to Statistics Canada. Statistics Canada then determines the appropriate North American Industry Classification System (NAICS) codeFootnote 13 to assign. CRA then uses these codes to assist compliance programs. The CPB reports that it is able to provide statistically valid compliance levels across industry sectors using the (NAICS) code with its new Research Audit Program (RAP). The CPB reports that the CRA will benefit from the RAP by having:

• a statistically valid rationale for ranking sectors by compliance and directing resources to address the top non-compliant industries;
• the data required to continue validating and refining the CRA's risk assessment models;
• increased accuracy of regional non-compliance estimates;
• the ability to monitor compliance trends over time; and
• additional intelligence that will help in selecting the appropriate compliance instruments for addressing specific compliance issues.Footnote 14

Statistics Canada identified Footnote 15 that over half (55%) of the 400,000 businesses registered by the CRA in 2008 did not have a sufficient business description to allow for the assignment of a NAICS code. Statistics Canada further identified that of the 5 million businesses registered with the CRA, 13.2% had an incorrect NAICS code, ranging from 3.5% within the health care and social assistance sectors to 33.5% within the management of companies and enterprises sector.

These errors would likely have an impact on the accuracy of sector analysis and consequently on the accuracy of audit selectionFootnote 16. Our analysis shows that 39% of businesses registered in 2010-2011 have no major business activity description.

ABSB management has indicated that, in recent years, the CRA has worked with both Statistics Canada and with Finance Canada on a number of initiatives designed to improve the data quality of NAICS codes, including the establishment of a NAICS Code Working Group with Finance Canada.

Australia's administration of its single business number.

Australia adopted a single business number (ABN) with the enactment of The New Tax System (Australian Business Number) Act 1999. The main objective of the Act is:

(1) … to make it easier for businesses to conduct their dealings with the Australian Government. This is done by establishing a system for registering businesses and issuing them with unique identifying numbers so that they can identify themselves reliably:

(a) in all their dealings with the Australian Government; and

(b) for all other Commonwealth purposes.

(2) Without limiting paragraph (1)(b), the main object of this Act includes allowing businesses to identify themselves reliably for the purposes of taxation laws.

Registration and number issuance is administered by the Australia Business Register (ABR), an independent body that reports to the Commissioner of the Australia Tax Office.

The legislation requires that standardized information is collected at the point of registration. The ABR must register an applicant if satisfied that the applicant:

• is entitled to have an ABN or is likely to be entitled to have an ABN by the date specified in his/her application (a test for eligibility);
• has established his/her identity (a test for existence); and
• is not already registered in the ABR (a test for duplication).

The ABR clearly states on its website that “if a high level of confidence cannot be obtained about an entity's identity from the data supplied, then authentication and therefore issuing of an ABN will be denied'.  This is largely because the ABR believes that it has responsibility to ensure the integrity of information in its registry in order to maintain the credibility of the registrar.

As a means to control consistency, registration for an ABN is limited to two service channels i.e. either online or in writing by completing a prescribed form. The ABR encourages the use of online registration and has successfully transitioned most applicants to the online registration portal – approximately 90% of registrations are processed online.

The Act does not prescribe how the Registrar is to maintain the ABR; it does, however, require registrants to keep their details accurate and current. The legislation states registrants must notify the Registrar within 28 days where information that they have previously provided is no longer correct. Not to comply with this requirement is an offence under s.8C of the Taxation Administration Act 1953, which could lead to the registrant being subject to prosecution and penalties.

Figure 4

Australian Business Number Registration Process

Source:  Australian National Audit Office - Administration of Australian Business Number Registrations - Australian Taxation Office, June 2003

5.2 Coordination of business registration within the CRA

As the custodian of the BN, the BND has taken measures to assess and improve data quality and to ensure the completeness of registration data.

BND has recognized that incomplete registration data is problematic to the conduct of CRA compliance efforts and has taken steps in conjunction with CPB to assess the impact. A pilot, centred in the Southern Interior of British Columbia, commenced in November 2011 to determine the extent to which incomplete registration data impacts audit selection and audit resultsFootnote 17.  At the time of the evaluation the results were not yet known.

A Business Number Review team was established in Whitby, Ontario in 2010 with the primary purpose of contacting all new and existing business owners or legal entity authorized representatives to validate/update all BN identification information such as:

• owner's information (name, phone number, SIN);
• business address (physical, mailing and books and records);
• major business activity; and
• operating/trading name.

Additionally, a GST/HST enhanced registration review program (GERR) has been operating out of the St. John's and Winnipeg TCs since 2000 with a mandate to review all new GST/HST registrations for missing or incomplete information and also, based on criteria provided by CPB and NF/NR, refer accounts for further investigation.

Although these initiatives will attempt to gather incomplete information post registration it runs contrary to one of the original objectives of the BN which was to obtain all necessary information once at the time of registration. Additionally, post registration functions designed to obtain missing or incorrect information that could have been obtained at the time of registration adds additional program costs.

There is evidence of collaboration between BND and other areas responsible for registration and between BRD and users of the information.

We reviewed agendas and minutes of meetings between BRD and areas responsible for activities relating to registration and/or compliance issues. These meetings dealt with issues ranging from identity theft, validity of GST/HST registrants, enhancement of post registration review of GST/HST registrants, deregistration, and impact of incomplete registration information. The minutes of meetings reviewed indicate a strong awareness of the compliance impact of business registration and a commitment to improving registration processes.

Similarly, we reviewed agendas and minutes of meetings, e-mails, and communiqués between BND and other areas within the CRA responsible for registration. Again, there appears to be a high level of communication between all relevant areas responsible for registration.

BND has become the de facto business registrar without a full and complete mandate.

Canada's tax system is based on “self-assessment”, and in this regard the CRA appears to place the onus on applicants to determine whether they ought to be registered. Registration is a processing function relying largely on the applicant to make a self-informed determination. The evaluation found that the CRA processes application information and provides a registration number with little upfront risk assessment or compliance scrutiny.

Program managers within the BND have acknowledged that their registration mandate was originally established to be a processing function (reflected in the mandate of the Business Number Operations Section), designed to process applications and issue BNs based on information provided.  The role and responsibility of the BND was not envisioned to encompass a more robust compliance role (i.e. interpretation of legislation, determination of eligibility based on interpretation of legislation and verification of information vis à vis compliance implications).

The BND is limited in its enforcement of policy and procedures and in providing direction to the various disparate areas that undertake business registration. With direct responsibility over only 15% of all business registrations processed yearly and with no legislative support, BND is limited to providing general direction on registration requirements and/or accepting incomplete registration data to be addressed post registration.

BND, over time, became the de facto business registrar without full authority or a complete mandate that encompasses all aspects of registration processing and compliance.

6. Conclusion

Voluntary compliance and self-assessment, which form the basis of the CRA tax administration, is facilitated by assisting businesses in complying with their registration requirements with limited administrative burden, through easily accessible means at little cost. The premise on which the BN is based is to obtain necessary information once that could be used often by the CRA and other participating levels of government. The sole purpose of business registration as it relates to tax administration is to obtain information that supports compliance activities.  By not obtaining complete data there is a risk that the integrity of the system may be compromised and subsequent compliance activities jeopardized.

The CRA efficiently processes applications either by providing BNs upon the completion of the application process or by processing applications within 10 days of being provided with a paper application. Program costs vary significantly depending on the method of registration chosen, ranging from $1 million per annum for telephone registrations to virtually no human resource costs associated with BRO.

The CRA continues to invest in electronic technology including its newest e-services initiatives. BRO is the only means of registration that forces the applicant to provide all requested information and lends itself to being the most reliable method of registration in terms of ensuring completeness. The system currently validates identities based on SIN and offers a reject feature based on filing history of sole proprietors.

There are costs and compliance risks associated with providing many different registration options.

Lastly, BRD has not been provided with a comprehensive compliance and verification mandate with corresponding oversight responsibilities for business registration. Without clearly defined roles and responsibilities there are risks to the effective administration of the business registration process.

There are potential lessons learned from the Australia experience. The ABR provides only two registration options for the ABN with an emphasis on online registration. It also requires standardized information (supported by legislation) to be provided in support of business applications. Registration responsibilities and corresponding authority falls exclusively to the ABR. Failure to provide sufficient information to determine eligibility and identity will result in failure to register.

7. Recommendations

1. A committee should be struck to examine policies and procedures and any legislation in support of or implicated by BN registration to ensure the CRA is obtaining and has the authority to obtain information at the time of registration to assist it in carrying out its compliance efforts.
2. Whether by committee or through other means, an examination should be conducted of the current methods of registration to ensure that the CRA is offering the most cost efficient and effective methods that take full advantage of technology, existing data, and verification/validation processes.
3. The mandate, roles, responsibilities and resource base of the BND should be examined to ensure it has the means, accountability and authority to deliver a comprehensive and effective business registration program.

8. ABSB Management Response

The following management response and action plan has been prepared by ABSB. Information contained in the response has not been validated by CAEB.

Management Response

The Assessment and Benefit Services Branch (ABSB) appreciates that Program Evaluation secured approval for the focused scope of the evaluation and as an independent and objective organization they have a professional obligation to present the evidence they see as most relevant to report.

Action Plans

Recommendation 1:

To fully appreciate the recommendations put forward by program evaluation and the ABSB action plans, one needs to consider certain elements relating to business registration that provide important context:

CRA programs rely on voluntary compliance to yield the vast majority of the $377B in annual revenue.  This means quality service like providing BNs quickly and without undue burden is critical to advancing CRA's mandate.

Controls are also required to balance the risk of non-compliance. Business registration has a key data integrity control that is applied after the initial issuance of the BN. This is similar to CRA’s approach to assessing personal income tax returns or its audit programs. Our post issuance validation checks greatly enhance data integrity through an investment of $8M annually and more than 100 FTEs; the report does not focus on these data integrity efforts or that they have been subject to continuous expansion and improvement since a 2008 evaluation of GST-HST compliance.

PROTECTED. Also, the CRA does not collect or issue the North American Industrial Classification Standard code, instead the Agency provides information to Statistics Canada who, in their role as owners of the NAICS, then provides the correct code to CRA. The Agency's use of the NAICS is subject to explicit controls from Statistics Canada and the consequence of incorrect coding can have significant repercussions on economic forecasts.

The evaluation focuses on one aspect of the BN's compliance role, providing data to support risk assessment; however, there are other important compliance contributions provided by the BN including: referrals to the non-filer program that generate $5M a year in tax revenue, enabling refund allocations that automatically pay down $1.6B in debt each year, and data matching by provincial partners which has produced more than $100M in revenue for the Workplace and Safety Insurance Board alone.

Finally, the key conclusion of the report is that incomplete data might impact the CRA's ability to risk assess business taxpayers.  Taking social insurance number data as an example, this broad statement only applies to the GST-HST revenue line (annual revenue of $30B) but does not impact payroll deductions ($204B annually), corporate income tax ($46B annually), or Other Levies ($10B), because the audit programs for these revenue lines do not rely on SIN data.

ABSB will form an executive level committee by December 2012 that will pursue potential enhancements to registration policies and procedures, and any additional legislative proposals in addition to those already in development.   Aspects relating to the timing of data validation will be held out of scope until the results of recommendation two are finalized.  A report on the work of this Committee will be presented to the Policy Committee by June 2013.

Recommendation 2:

ABSB will examine the costs and benefits to the current registration approach in comparison to options that would obtain and validate more information at the time of registration.  The results of this analysis and any proposed changes will be documented in the Problem Opportunity Proposal template established by Resource Management Directorate, and a copy of this report will be provided to the Commissioner of the CRA by March 31, 2013.

Recommendation 3:

ABSB will consult with branches on appropriate mandates, roles and responsibilities and submit a report with recommendations to the Policy Committee by September 2013.

Footnote 1 The true number of active businesses may be less. Statistics Canada estimates indicate that the number of active businesses is 57% of this number of businesses registered with the CRA.  CRA does not actively deregister accounts.

Footnote 2 BNS no longer registers businesses using the Canada Gazette.

Footnote 3 Other includes non-filer/non-reg registered accounts, registrations based on returns filed, along with other administrative registrations.

Footnote 4 Legend: SR&ED - Scientific Research and Experimental Development; T1 - Individual Income Tax; T2 - Corporate Income Tax; T3 - Trust Income; T5 - Investment Income

Footnote 5 GST/HST, Payroll, Corporate tax, Import/Export

Footnote 6 Corporation, Individual, Partnership, Trust

Footnote 7 Telephone, Fax, Mail, Business Registration Online

Footnote 8 TSDMB Business Enquiries Telephone Enquiry Data – 2010-2011

Footnote 9 ITD Global Conference on Taxation of Small and Medium Enterprises SME Audit and Verification Strategies and Techniques Based on Risk Detection and Risk Selection

Footnote 10 An annual random audit program that rotates between SME business lines since 1999, are also used for producing reliable reporting non-compliance estimates for the small and medium

Footnote 11 Refers to reporting non-compliance greater than $1,000

Footnote 12 50 TSO auditors, collectors and investigators and 15 senior staff with HQ compliance related programs (audit, collections, research)

Footnote 13 Statistics Canada, in conjunction with statistical agencies in the United States and Mexico, has created a common industry classification called the NAICS.

Footnote 14 Canada Revenue Agency, Tax Compliance Digest Issue 8, Spring 2011

Footnote 15 Statistics Canada - The implementation of tools to support the data quality of the Business Register at Statistics Canada,  Mario Ménard, November 2008

Footnote 16 ITD Global Conference on Taxation of Small and Medium Enterprises - SME Audit and Verification Strategies and Techniques Based on Risk Detection and Risk Selection - Jim Gauvreau, Director General, Small and Medium Enterprises Directorate, Compliance Programs Branch

Footnote 17 Tax Centre Clean-up of Business Number in support of Compliance Programs – June 2011