Canada's Original Think Tank

Second reading of Bill S-243, An Act to amend the Canada Revenue Agency Act (reporting on unpaid income tax)

Second reading of Bill S-243, An Act to amend the Canada Revenue Agency Act (reporting on unpaid income tax)

Second reading of Bill S-243, An Act to amend the Canada Revenue Agency Act (reporting on unpaid income tax)

Hon. Percy E. Downe:

Colleagues, I’d like to say a few words about a bill I introduced last week, Bill S-243, An Act to amend the Canada Revenue Agency Act (reporting on unpaid income tax). Let me highlight some of my earlier remarks.

The purpose of this bill is to amend the Canada Revenue Agency Act to require the Canada Revenue Agency to report on all convictions for tax evasion, including a separate report listing all convictions for overseas tax evasion and an annual report to Parliament. As well, it would require the Minister of National Revenue to report to Parliament yearly on the tax gap, the difference between what taxes should have been collected and what was actually collected.

The bill would also require the CRA to provide the Parliamentary Budget Officer with the data it has collected on the tax gap, as well as any additional data the PBO considers relevant to the PBO’s own independent analysis of the tax gap. The reason the tax gap is important, colleagues, is that it’s not a silver bullet — it’s difficult to estimate — but a host of other countries around the world do it. I will outline the reason they do it in the next few comments I make.

The United Kingdom just published a report on their tax gap for the most recent year in October of this year. They indicate they do it because it provides a foundation; thinking about the tax gap helps the department to understand how non-compliance occurs and how the causes can be addressed. It provides important information that helps them understand their long-term performance.

The United States, of course, estimates their tax gap, as do a number of states individually, including California and others. The United States government considers:

An understanding of the Tax Gap and its components allows the legislative and executive branches of government to make better decisions about tax policy and the allocation of resources for tax administration.

In Sweden, as well as giving a general picture of how well the tax agency has succeeded in its task of determining the correct tax, the tax gap map may also help to improve the agency’s risk management. More detailed knowledge of the form of the tax gap and the driving forces conducive to cooperation with the tax system will help make them better placed to use their resources where they have the greatest effort and impact on the tax gap.

The Organisation for Economic Co-operation and Development says that with respect to the tax gap, the governments’ tax administrators and others have sought to gauge the extent of revenue leakage from countries’ tax systems to better understand the impact of revenue bodies’ compliance improvement activities.

In Australia:

Tax gap estimates are also important for us to better understand levels of compliance and risk in the tax and superannuation systems, to inform our resource allocation, and to assess the effectiveness of our work over time.

The problem in Canada quite simply, colleagues, is that five years ago, when I first wrote the Parliamentary Budget Officer — Kevin Page at the time — because of all these other countries analyzing the tax gap, he said he could do it and make it public so that we would be like those other countries and know the size of the problem. The Canada Revenue Agency has refused to cooperate.

A year and a half ago I introduced a similar bill. I didn’t proceed with it because we were very close to a deal with the CRA; we thought we were. That did not happen. There are continuing roadblocks and excuses as to why they can’t do it, even though all these other countries are doing it and their citizens are informed about the size of the tax gap.

In my bill, the reason that I require and ask the Canada Revenue Agency to send the information on their tax gap analysis to the Parliamentary Budget Officer is that quite simply, given their recent track record, Canadians can’t trust them. It’s a strong statement, but we saw last week the Auditor General report that the Canada Revenue Agency was telling Canadians that 90 per cent of their phone calls were answered in two minutes. That is simply wrong. It was 34 per cent. The reason they got to 90 per cent is that they hung up on most of the calls or they sent them to automatic voice messaging.

In the last two weeks they had the government repeating the line that they received $1 billion in additional funds, which is true, but they tried to leave the impression that they were spending the $1 billion to fight tax evasion, when in fiscal year 2016-17, in answer to a question I asked in the Senate, we find out they spent less than $40 million last year, even though they tried to leave the impression that they spent the entire $1 billion. They do have the $1 billion, but it’s over the next five years.

They talked about their international large business investigative branch. I found out, again through another written question, that it was really a reorganization. And when asked specifically, the CRA confirmed that this reorganization did not necessitate an increase or transfer of resources. So that’s another claim that they’re working on.

They also have a track record that causes concern. They spent $288,000 on sponsored content. In February and March, I picked up the National Post one day and there was a glowing article about how hard the revenue agency was working but nothing about what they weren’t doing. It was the most positive article I read about the CRA. At the bottom in very fine print it indicated it was prepared by an outside company and purchased to look like a newspaper article. They did the same thing in La Presse. As I said, they spent over $288,000. So if they can’t earn good press, they simply buy it.

Then we have the more serious problem with the CRA, which is their lack of creativity. They formed in 2013 and announced in the budget an offshore tax information program, a reward for information about major cases of international tax non-compliance. Tremendous program. The informants would receive up to 15 per cent of the money recovered over $100,000. This was a very good program. CRA took great credit for it in 2013. Then we find out it’s an exact duplication of a program that has been in the United States for 100 years, with one major difference: The Americans get up to 30 per cent. If you turned somebody in, a corporation or an individual, you would get up to 30 per cent in reward. We even did that on the cheap in Canada when the CRA tried to reproduce the program.

More recently we heard — and Senator Harder was going to check whether this was corrected — that with the Canada Child Tax Benefit, a wonderful social program introduced by the government, the CRA requires that all applications — and I’m talking about people who are in abusive relationships and may have had to go to shelters with their children, predominantly women — require that unless a couple has been separated for more than 90 days, both parents have to sign the application for the benefits.

Now, imagine you’ve left an abusive relationship and you have to go back to that abusive partner to get them to sign the form before you can get the child benefit. Hopefully that has been corrected, but it speaks to the mindset of the Canada Revenue Agency that they would do that in the first place. I brought this to their attention in the spring, and we hope it has been corrected.

We’ve all heard about the Disability Tax Credit. The CRA quite correctly — again, there’s always partial truth in what they say — said there’s been no change in the policy, which is correct. The difference, of course, according to the diabetes association, is that there’s been a change in the technology. The assisting policy was you had to have more than 14 hours of treatment a week. With the new technology, that speeds it up; we don’t need 14 hours.

But as a result, 80 to 90 per cent of the claims are being approved. Before this year, the new technology, they were not being approved. Again, it’s part of the sensitivity that the department lacks when they are dealing with Canadians.

And then, of course, the reason we need the PBO to do more and the reason we need the CRA to table convictions in Parliament is because they simply won’t tell us. You go on the CRA website and there are all kinds of convictions for domestic tax evasion where the department does an outstanding job. If you try to cheat on taxes in Canada, your chances of being caught are extremely high. Your chances of being charged, convicted, going to jail, having your name posted on the CRA website are equally high.

But the record on overseas tax evasion is the reverse. The last time I checked, there wasn’t one name there. Then we have the track record. With Liechtenstein in 2008, one employee stole a list of all the clients. The Government of Germany purchased that list, shared it with all the other countries and gave it to Canada. There were 106 Canadians with accounts in that bank with over $100 million.

As you know, it’s not illegal to have an account overseas. It is, however, illegal not to announce the proceeds from those accounts. The CRA investigated that $100 million account for years and determined that $22 million in taxes were owing. So this is one bank, Liechtenstein, $100 million,$22 million owing. It gives you an indication of the size of the problem we’re facing and how much money we are losing.

Of that $22 million identified, the last time I checked in 2013 they had collected $8 million. But what the $22 million tells me is that some of these people, unfortunately, were trying to avoid paying taxes in Canada. Why were they treated differently than domestic tax evaders? Why was nobody charged or convicted? Because the CRA didn’t charge anyone.

In 2009, a year later, an employee in a bank in Switzerland, seeing what happened in Liechtenstein where the employee who stole the list received a lot of money from the Government of Germany, stole a list. This time, this one bank in Liechtenstein had 1,785 Canadians with accounts. Now, this information fell into the hands of the Government of France. To show you how proactive our government is, our officials from CRA met with the French officials sometime between January 4, 2010 and January 9, 2010. They knew France had the information. Canada and France have an agreement to share tax information.

At the meeting — this is the document I obtained from access to information — Mr. Éric Woerth, French Minister for Budget, Public Accounts, Public Service and State Reformat the time, acknowledged that Canadians were on a list now in possession of France “of named individuals with investment in a Swiss bank.” He invited our government to make a formal request for the names of those Canadian individuals. Just think about that for a moment. We had to be asked to ask for the names. That’s how proactive our revenue agency is in overseas tax evasion. We never did find out how much money was in those accounts because we made such a commotion over Liechtenstein, the CRA simply wouldn’t tell us. We found out since then that nobody ever got charged. Not one of those 1,785 Canadians got charged.

So those are the reasons, colleagues, it’s important that the CRA not be left to their own devices and that we have some supervision of what they are doing over there. The best place to do that is with the Parliamentary Budget Officer, who can get the raw data from the CRA. He has a legal opinion that he can get it. CRA has a corresponding legal opinion. I’m urging the Parliamentary Budget Officer to go to court under his mandate. We met a couple of weeks ago on this very topic. We’ll see what develops. But the purpose of this bill — and for the Parliamentary Budget Officer, if he eventually goes to court — and the whole purpose exercise is for the CRA to be more transparent and open.

There are many hard-working, conscientious employees at CRA. But it must be very discouraging to have a management team that operates the way I just disclosed, that they got caught in a few things.

Senator Harder is here, and I know he had an outstanding, impeccable reputation when he worked in the Government of Canada for leading various departments. But I don’t think any department he ever led would have the understanding that they could act the way the CRA is acting.

This is serious, but you also need to have a little fun. Last week, when I announced my bill, I put out a press release to 20 or 30 journalists who follow this overseas tax evasion. It wasn’t a wide distribution. In the afternoon, my office received a phone call. Somebody was wondering if the press release and the bill were publicly posted. My office staff said, “No, are you a reporter?” No, they were not a reporter. Strange; there was a bit of a pause. My office assistant said, “So you’re just an interested citizen?” “Yes, just an interested citizen. Here is my email. Can you send it to me?” “Sure.”

So my staff member was smart enough to Google the person’s name and found out, lo and behold, not only were they an interested citizen, they worked at the CRA. Had they told us that, we would have sent them the bill.

Here is the fun part. We sent it to their CRA account and not their personal account. So they did get it eventually.

But that attitude goes through the department. That’s the problem with the CRA. That’s a problem that never would have happened — and I see Senator Dean, who had an equally impeccable reputation with the Ontario government. Leadership comes from the top. There is something wrong at the CRA that the employees of the department think they can act this way, they can buy fake news stories, that they cannot tell Canadians what the tax gap is. They refuse to be transparent.

This bill, as I said earlier, is not a silver bullet, but it would help move them down the road to be more transparent and open. Canadians would then understand the size of the problem, the resources we need and what we can do to collect the money.

The Conference Board of Canada, a very well respected think tank, produced a report in February of this year where they estimated — it’s a guesstimate because we don’t have information from the CRA — that the tax gap in Canada is up to $47 billion. Colleagues, if we had collected half of that, we would have no deficit. Taxes could be lowered and programs could be funded. It is a significant amount of money. The root problem, of course, is it’s grossly unfair. Those of us who are playing by the rules, paying our taxes, are being deceived by other Canadians who are skipping the system, hiding the money overseas.

I’ll conclude with this thought, colleagues; I hope I can get your support on the bill.

I always ask when people who hide their money overseas, if they or a member of their family become ill, I wonder if they get their medical care in Panama or the Caymans, or do they return to Canada to take advantage of our medicare, but they don’t want to pay for it. Thank you, colleagues.