[Recorded by Electronic Apparatus]
Wednesday, November 6, 1996
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[Translation]
The Chairman: Good afternoon everyone. The Standing Committee on Public Accounts is meeting pursuant to Standing Order 108(3)(d) to resume consideration of Chapter 11 of the May 7, 1996 Report of the Auditor General.
I would just like to remind you that we had a briefing session in June, we had a first meeting on this topic on June 12, and we decided to meet one more time, that is today.
With no further delay, I would ask the witnesses to introduce themselves, starting with you, Mr. Minto.
[English]
Mr. Shahid Minto (Assistant Auditor General, Office of the Auditor General of Canada): Thank you, Mr. Chairman.
My colleague, Mr. Barry Elkin, and I are very pleased to be back before this committee today to discuss chapter 11.
Sir, you'll recall that on 12 June, when we met last time, we tabled an opening statement. It is not my intention to go back and reread the whole opening statement. I would just like to draw your attention to a couple highlights from it.
Part of the discussion in that opening statement deals with the difference between tax evasion and tax avoidance. I'm not going to go back to that today.
Revenue Canada's program to combat tax avoidance is part of its overall audit program. In 1995-96 the department expects its 130 tax specialists, who are spread over the country, to produce an additional $365 million from tax avoidance reassessments and interest. The department expects the number will go to $500 million in future years. Tax avoidance specialists produce about $2.6 million each annually in reassessments.
Our audit focused on the tools available to these tax avoidance specialists, and I'm just going to go through a couple of the concerns we had.
The primary tool available to the tax avoidance specialist is the tax legislation. We noted that for a number of reasons there are delays in amending the legislation. The role of Revenue Canada is to highlight areas that need changes in the tax legislation and bring them to the attention of Finance. We recommended that Revenue Canada should consult with the Department of Finance and examine ways to make the required legislative changes sooner.
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The second tool available to the tax avoidance specialist is the general anti-avoidance rule. Our concern here is that when the committee makes its decisions, it does not normally provide the reasons for its decisions. We also note that Revenue Canada has not provided feedback to its specialists on the magnitude of the decisions, the impact of the decisions and the reasons surrounding them. We are recommending that tax avoidance specialists be provided better information on these decisions.
A similar observation was made under appeals. We note that frequently assessments are going to the appeal process. At that time they're sometimes changed or varied, and sometimes settlements are made, but the reasons for this are not fed back into the system. As a quality control measure, the auditors, the legal specialists and the other people who had a say in the previous assessment should at least be given some feedback as to what has happened. This would strengthen the process.
We had a concern about the lack of consistency in the audit of large corporations. We found that different offices were operating under different premises and under not different rules - the rules were fairly consistent - but different operating rules. We noted, for example, that in Toronto, where many large corporations are located, tax auditors made only one referral to tax avoidance specialists.
The other area of concern we had was the abuse of tax shelters. Our concern here is on two levels.
First, there are so many abuses of tax shelters. I understand the department audited about 325 of them and found the majority of them to be abuses. These abuses of tax shelters put a huge demand on the workload of the department, both in the tax avoidance area and in appeals.
The second issue we raised with you - and it's important to raise it again - is that the Canadian law does not contain a penalty for promoting an abuse of a tax shelter. As a result, promoters of abuse of tax shelters bear virtually no risks. You have to prove tax fraud before you can take them to court. I think a total of only about five have been charged so far.
In the U.S., unlike in Canada, promoters of abuse of tax shelters are charged and there are provisions in the law. We think that is an area for this committee perhaps to discuss with the department.
In closing, combating tax avoidance is essential to promoting public trust and confidence in the fairness and integrity of the income tax system. If left unchallenged, tax avoidance will have an effect on attitudes towards voluntary compliance.
We hope our recommendations, along with the views of this committee, will further strengthen the tax avoidance program at Revenue Canada.
Thank you.
[Translation]
The Chairman: I would like to welcome Mr. Barry Lacombe, Assistant Deputy Minister, Verification, Enforcement and Compliance Research Branch. Before you begin, could you please ask the two colleagues accompanying you to introduce themselves?
[English]
Mr. Barry Lacombe (Assistant Deputy Minister, Verification, Enforcement and Compliance Research Branch, Department of National Revenue): Thank you very much, Mr. Chairman.
With me today are Mr. Bob Beith, who's the assistant deputy minister of the appeals branch in Revenue Canada, and Mr. Ed Gauthier, who's the director general of the audit directorate within Revenue Canada.
Mr. Chairman, we too are very pleased at this opportunity to meet with you again to discuss in greater detail the issue of tax avoidance and the initiatives and steps the department takes to deal with tax avoidance.
As Mr. Minto said, we won't take very much time to draw the distinction between tax avoidance and tax evasion. The two terms do get confused in everyday speech, but they represent two quite distinct problems. We dealt with this in our earlier opening statement, as did representatives of the Auditor General.
I would like to pick up on a few issues that were raised the last time we met. One of these is the underground economy, on which there were a series of questions that we addressed at that meeting. I'd like to take this opportunity to outline for you the activities we have under way to address the underground economy.
First, we spend a lot of time fostering public education and understanding of the consequences of operating in the underground economy, both from the point of view of people acting as consumers and from the point of view of people acting as participants.
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Secondly, we work very closely with industry, professional, and business associations across the country. We have worked with the Canadian Home Builders' Association, the Canadian Construction Association, the Canadian Automobile Dealers Association, and the Canadian Jewellers Association. We have worked with them all so we could have the benefit of their ideas and their approach to how we can better address the underground economic activity.
Third, we spend a lot of time working with our provincial colleagues. We have arrangements in place with all provinces. These arrangements allow us not only to share information but to share our audit strategies, our audit training, our audit techniques. It also enables us to coordinate our work with that of provinces so together we're getting the biggest bang for the resources that are available.
We've enhanced our efforts to identify non-filers of income tax returns and non-registrants for GST purposes. We've significantly increased our audits in the areas where we think there are high degrees of non-compliance related to the underground economy: home building, construction, home renovation, auto sales and repairs, hospitality, and other service sectors.
We have found the arrangements we've put in place, working in partnership with industry associations, have helped us very much in making sure our activities are well targeted. For example, the partnership we had with the Canadian Construction Association, the Canadian Home Builders' Association, and the construction unions gave rise to the contract reporting payment system. This we think helps the department better identify areas of non-compliance, and doing this in cooperation with industry will ensure we achieve the best results possible.
Let me also say that as a result of our efforts directed to the underground economy we've been conducting community visits. The purpose of these visits is to survey service, let people know what their tax obligations are, and check compliance at the same time. We have done this in close to a hundred communities across the country and it has been well received by the communities. Overall, our efforts have resulted in $1.4 billion in additional tax assessed, of which $300 million is for the provinces. We have identified about 500,000 non-filers for income tax purposes.
Let me shift gears a bit and turn to the matter of international tax compliance, because this too is an area of high priority for us. In this area we have taken measures to tighten the laws, including the changes to the foreign accrual property income rules, and introduced new reporting requirements. We have increased significantly our verification and enforcement actions, including our audit activities. We've strengthened cooperation with treaty partners and we're pursuing, in international forums, issues such as bank secrecy, which are of concern to us but which are also of concern to many other countries.
About tax shelters, we audit all individuals involved in abusive tax shelters and all abusive tax shelters, as Mr. Minto has indicated. But we also operate on the legislative front. New at-risk rules have been introduced to prevent taxpayers from deducting losses greater than the funds they put at risk. The base for calculating the alternative minimum tax has been extended, affecting the benefits associated with a tax shelter. Our efforts to reduce tax shelter sales include a communications strategy cautioning investors to examine the business elements of the shelter in addition to the possible tax advantages. As well, we encourage coverage of court decisions which provide further cautionary measures for potential buyers of tax shelters.
Again, we think some of our measures are paying off. Tax shelter sales have decreased from about $2.4 billion in 1994 to $1.9 billion in 1995. About $1.4 billion of those sales was in film tax shelters in 1995, and as you know, they have been replaced with the new film tax credit. We think we're making good progress here.
About large corporations and tax avoidance, clearly we share many of the issues and concerns that have been raised by the Auditor General. That's why we were pleased to see the Auditor General note our new approach to large business audit. We believe the sooner we're in auditing the larger corporations....
I might add, we audit 100% of the large, complex corporations - that is, those with sales over $200 million or gross revenues over $200 million per year. We feel if we're auditing them in current time, it's going to give us a much better insight into tax avoidance schemes as they are developing. That is why we're moving in those directions.
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Similarly, we recognize that in auditing large corporations we must have expertise available for our large corporate auditors. We're moving to a team audit approach, where every team will have international expertise, tax avoidance expertise, expertise in scientific research and experimental development and the like.
For the audits of other files, we basically rely on our tax avoidance auditors to provide advice and guidance and to help train all our other auditors so they can identify tax avoidance schemes. That applies to our 3,000 business auditors across the country.
In closing, Mr. Chairman, as I've said, we're very pleased to be here and we'll do our best to answer any questions you might have.
Let me conclude by saying that I know certain questions were addressed last time. We're in the process of getting back to you with those questions, and the response should be received by the committee members within the week.
Thank you very much, Mr. Chairman.
[Translation]
The Chairman: Thank you, Mr. Lacombe.
Mr. de Savoye, ten minutes.
Mr. de Savoye (Portneuf): I heard Mr. Minto raise a number of concerns on what I would be tempted to call communication problems within the Department. The rules themselves have not yet been amended, which makes a stricter application of the Act difficult.
The general anti-avoidance rules have not necessarily been clearly announced within the Department, rulings are not available when they are needed, and the outcomes of appeal are not necessarily known. In summary, there is a management and communication problem within the Department.
What measures have you taken since the Auditor General brought these issues to your attention? What measures do you expect to take? And how long do you think it will take for all of these measures to be operating in order to bring the efficiency of your troops up to an acceptable level?
[English]
Mr. Lacombe: First of all, we've strengthened our training, and we're continually looking at our training for all our auditors, but most importantly for any of our specialist areas. That's one step we've taken.
Second, we now issue quarterly reports on the results of all the GAAR committee activities to all our tax avoidance auditors within the department.
Third, we're now getting our tax avoidance auditors together on a more regular basis. In fact, as recently as a week and a half ago, they were all together in Rigaud for a week, where we ran through a number of issues. We're doing this with more frequency and greater regularity.
In the case of appeals, my colleague, Mr. Beith, and I have put in place measures so that anything that happens at appeals - not just things that relate to tax avoidance - gets fed back to audit. I agree totally with your point and the point made by the Auditor General. It provides a good measure of quality. So we basically feed it back to make sure that we're interpreting the law properly within our audit community and that where we have problems we're putting appropriate corrective matters in place.
Let me tell you two other things we're doing in general. We have introduced an audit quality program. We go into each tax service office across the country, choose a random selection of files, review those files to make sure they were properly audited, talk to the taxpayers, talk to the taxpayer community and the professional community and get a read on how well we're doing the job.
That is a regular program. We've been doing it over the last year. We meet quarterly or semi-annually with the tax professionals in a given community. In addition, we now bring the case file officers to the GAAR committee when their cases are being considered. We believe - and I think it's the thrust of your point - that if our people our going to learn, the best way to learn is when it involves their case. They have to understand the decisions that are made by the GAAR committee, so we now bring those case file officers to the GAAR committee. We've taken a number of steps. This is something that's very high on our agenda.
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I should also tell you, Mr. de Savoye, that we had a task force take a look at communications. Like you, we think this is absolutely essential. It was a task force representing all levels within our audit community, including the unions. They came forward with recommendations to improve communication, and we're implementing all of those recommendations.
So we've taken a number of steps. You can never communicate too much. We want to be ever vigilant to make sure we keep the level of communications high and our people as well trained as they can possibly be.
[Translation]
Mr. de Savoye: Mr. Minto, do you feel that what has just been said answers your concerns?
[English]
Mr. Minto: Mr. Chairman, I think the member raised a very important issue, and that was the issue of communications. That was a real problem. Things were happening and decisions were being taken, but no feedback was being provided. Yes, quality control was our concern. This was a snapshot we took when we tabled this report in May 1996.
I'm very encouraged by what I've heard Mr. Lacombe say. Almost all of the things he said are constructive and point in the right direction. Some things have happened, I think some things are being contemplated, and some things are underway.
Sir, it sounds good so far, but we will do our normal follow-up audit in two years and report back to you.
[Translation]
Mr. de Savoye: Thank you, Mr. Minto.
Mr. Lacombe, the Auditor General's Office also pointed out that some promoters, I would say a large number or the majority of promoters, are providing abusive tax shelters. Of course, under the Act, you can reject claims made by people who have used these tax shelters. However, if I have understood the Act correctly, it is not easy to reach the promoters. If consumers were involved, they would have recourse. But in this case, it is investors. Do you not think that the Act should provide you with the powers you need to go to the source? Do you not also believe that it would be better if those promoters were obliged, from the outset, to have their project approved, which would prevent some investors from being caught in this situation? How do you think this problem can be resolved, Mr. Lacombe?
[English]
Mr. Lacombe: Let me respond in the following way, Mr. de Savoye. In terms of the suggestion the Auditor General made about having a penalty for promoters who abuse tax shelters, we are certainly very supportive. We are in discussions with our colleagues in the Department of Finance on that issue. We feel that is a weakness, that it is needed, and we're very supportive of that recommendation by the Auditor General.
More generally, in terms of whether you should give tax shelters an advance ruling or a prior approval, this is the real concern: virtually all prospectuses look excellent or look very good. The difficulty is the reality, and you only know the reality after the fact. You have to actually go in and see if someone did what the prospectus said they would do. If you did give someone a green light on the basis of a prospectus, and if they were doing something other than what was outlined in the prospectus, you might find yourself in a more difficult situation. Someone would say you had approved it, so it must be fine.
The real answer to this is that you have to take a look at the reality. If you gave prior approval, you would not be looking at the reality. You would only be looking at a prospectus. As we all know, prospectuses can be quite misleading and may not always reflect what's actually undertaken by the tax shelter.
[Translation]
Mr. de Savoye: Mr. Lacombe, I believe that the majority of tax shelters are in fact abusive. However, the intent of Parliament, in allowing these tax shelters, was to encourage investments in key sectors of the economy. I think it is rather obvious, however, that this goal has not been met and has even been misused.
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Are tax shelters really giving the results that we hoped for? Should we not eliminate them and replace them by something that would be more productive in terms of the outcome? Could you give us your opinion?
[English]
Mr. Lacombe: I think, Mr. de Savoye, the government and our colleagues in Finance have taken a number of actions related to tax shelters that would indicate that where they are not effective in achieving these objectives, the tax shelter shouldn't be used.
Earlier I referred to the changes in the film tax shelter. It was replaced by a film tax credit - more targeted, more pointed. The same issue was behind the announcement in the last budget on joint exploration corporations. Those kinds of things are being closed. Where they're found to be ineffective, the government and Finance have taken appropriate action, it seems to me.
The area you will always find a little bit of difficulty with on tax shelters is valuation issues; i.e., someone says an asset or a piece of software or something else has a very high value. You will always have those valuation issues.
The current approach, where we or Finance identify that the tax shelter is ineffective, move to close the tax shelter, and if the government wants to provide assistance, provides it in a different fashion.... But given our tax law and the possibility of writing off assets over a short period of time, there will always be valuation problems.
That is why we have a set of valuation experts within the department who can go in and value whether in fact the asset that's being sold is being sold at the fair market value.
So my answer, Mr. de Savoye, is kind of a mix of answers. Yes, where it's found that these are ineffective, the government has acted. But we will still have fast write-offs given the tax laws, and we will still have people trying to sell assets overvalued. We will still have valuation problems, and we will still have to go in and reassess because the valuations are too high.
[Translation]
Mr. de Savoye: Thank you.
[English]
The Chairman: Mr. Silye, ten minutes.
Mr. Silye (Calgary Centre): Thank you, Mr. Chairman.
I'd like to continue the questioning with Mr. Lacombe.
Under the heading of ``Underground economy'', one of the focuses you have is ``increased audits in the construction, home building, home renovations, auto sales and repairs, hospitality and other service sectors.''
I understand that this year you have asked industry to cooperate by voluntarily reporting which subtrades they use in, for instance, the construction industry. I have received a lot of complaints from people and I think it's because of the confusion and the lack of communication or understanding on their part and mine. Is this going to become compulsory in 1997?
Mr. Lacombe: Let me tell you exactly what we're doing on this one, Mr. Silye. Our initiative on this was supported by the Canadian Construction Association and the Canadian Home Builders' Association. We made it voluntary, working with the industry associations and the unions.
We wanted to do two things. First, we wanted to get a reasonable response rate on a voluntary basis. Second - and we said this to the industry associations and the unions - we then, once they were in, wanted to do an analysis, and we wanted to demonstrate that this information was useful. If indeed it turns out that this information does what we think it will do, then we would proceed.
So there are really two keys here, Mr. Silye. The first is whether we will or won't get a high rate of return voluntarily, and such that people still have time to return the subcontractor reporting information to us.
Second, before we would move forward, we said to the industry associations that if we got a reasonable rate of response and we could do an analysis on it, we would share that analysis with them to demonstrate that this information would do what we thought it would do. Believe me, if it didn't, we like anyone else wouldn't want to have a reporting requirement that doesn't make sense.
Mr. Silye: As well, on page 2 of your submission you indicate that ``As part of our efforts in dealing with the underground economy we have been conducting community visits to raise the visibility of the Department...''. I'd like to know how much you have raised the visibility of your customs officers in the port of Akwesasne.
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Mr. Lacombe: Mr. Silye, we do have in place the anti-smuggling initiative. We have, as you know, the special joint force in Cornwall. Our number of seizures is up -
Mr. Silye: In Akwesasne? In Cornwall?
Mr. Lacombe: - coming out of Akwesasne and Cornwall for tobacco, liquor and the like.
Mr. Silye: Jewellery?
Mr. Lacombe: There has been some jewellery. We have strengthened our activities in that area.
Mr. Silye: Who's responsible for the border crossing there? It's on the reserve.
Mr. Lacombe: There is a customs port there. That is the responsibility of Canada Customs.
Mr. Silye: So the RCMP can't go on there?
Mr. Lacombe: Between border points - and this is an important point - it is the responsibility of the RCMP.
Mr. Silye: Are those officers allowed to go there and have a presence there?
Mr. Lacombe: Yes. The RCMP is part of that joint forces operation with Canada Customs, the Ontario Provincial Police and the like.
Mr. Silye: Okay.
Under international tax compliance, you are going to increase verification and enforcement actions. You're going to require next year that individuals who have foreign assets must declare any assets in excess of $100,000.
We've fixed up the assets that are leaving the country with the issue of the trust and what we went through a couple of weeks ago. This is another example of more regulation. Are you concerned that people are going to start thinking that big brother is looking over their shoulders, wanting to know everything about them, when the purpose of the income tax form is to report your income? Even if your assets are outside the country and you're a Canadian citizen, you report your world income less any taxes you may have paid in that country or jurisdiction, if you have a treaty with that country. If not, you just pay it all here. Those rules apply.
Why are you making people report their assets? That's one step too far. That's digging your nose into people's lives too far. It's an invasion of privacy, especially at that threshold of $100,000.
Mr. Lacombe: Let me make two points. First, the reason we're doing this is to ensure the fairness and integrity of the tax system, so everyone is paying his or her fair share.
Mr. Silye: The people who are cheating are wealthy, they're not the people who are making $50,000 to $100,000.
Mr. Lacombe: Let me continue.
So that's why we're doing this. In terms of the specific format of the reporting requirements, draft reporting requirements came out. Over the past two months there has been a series of consultations with various groups, led by our colleagues in the Department of Finance. I'm sure the kinds of concerns you have raised will come out of those consultations, and we'll see what the Department of Finance intends to do with them.
I do think the principle is an important one because there is the potential for a lot of use of tax havens or whatever, and you're dealing with countries, as you pointed out, we don't have tax treaties with that have bank secrecy laws, and it's awfully difficult for us.
Mr. Silye: Fair enough, but if you're having a problem...and you know, out on the west coast they're talking about the astronaut problem out there. You know what the problem is and you know who's creating the problem. Why not zero in on solving the problem with those people rather than punishing all law-abiding Canadians, like myself, who may have some assets out there?
I'd declare my world income if I had any, in any given year, by selling something. Why go after people who have $150,000 worth? You're using an excuse. You could solve that problem in other ways. But as you say, that's a debate for later.
I submit to you that our income tax system is convoluted, complex and complicated. The reason so many people don't understand the rules is because of the language. I would like you to look up some day the definition of ``superficial loss'' under the Income Tax Act and tell me what it means in layman's language. You can take your time doing it, because you'll have to get about three interpretations. You'll never figure it out. You have to refer back to so many subsections, clauses, subparagraphs and paragraphs it's just useless.
So you do 325 audits and they're all abusive on tax shelters. That's ridiculous. Today's tax shelters were last year's tax incentives. The government of the day wanted people to invest in those areas. The legislatures and the people responsible in the Department of Finance and Revenue Canada who write the rules should have made them clear enough so people can follow them.
They're not clear. So you go in there and argue. Sure, a lot of it's evaluation. I agree you can't quite solve that, and you have to have opinions. But why not have clearer rules? Why not have better rules? Make it in simple language instead of this legalese whereby you have to have all those experts you were talking about, these wonderfully trained experts, in international tax and tax avoidance. Specialists work together on auditing techniques, they go out, and one auditor can generate $2.6 million.
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That's dumb. We're fighting each other. The private sector is fighting the tax department. You're looking at each other as adversaries rather than defending the integrity and encouraging people to comply and pay. So why not concentrate on simplifying the tax system rather than making it more overbearing, more intrusive and more alienating?
Mr. Lacombe: The last time we were here, Mr. Silye, I think Mr. Gravelle drew attention to the size of the Income Tax Act in 1971 and the size of it today for you to consider the exponential growth of it.
Mr. Silye: That's what's wrong.
Mr. Lacombe: Exactly. So we believe simplification is a desirable objective.
Mr. Silye: Do you just solve it by adding a hundred ways and means motions to the Income Tax Act just on the GST alone?
Mr. Lacombe: The difficulty with moving toward simplification is always in the balancing of various interests of one type or another. Simplification is one of those things that appears to be difficult to achieve.
We try as best as we can to simplify. We've done this in our forms in a number of ways. God knows there are probably a lot more we can do, but we've tried in a number of ways to simplify our forms.
I like your point about making it clear and educating people in the integrity of the system. Those are all things we try to do by trying to make it as simple as possible.
Mr. Silye: If I ever come back here as a member of a government, I will help you clear up the tax system. That's my promise.
Mr. Lacombe: Here's the only thing I perhaps could do, though. I could probably get one of my colleagues to answer your question on the technical definitions, but I won't.
Mr. Silye: If somebody has the Income Tax Act, it might be nice just to read it into the record. It is really funny. I wonder if somebody has that section, the definition of a superficial loss. I use that in speeches, and people just sit there.
The Chairman: Thank you, Mr. Silye.
[Translation]
We will now move on to Mr. Bélair.
Mr. Bélair (Cochrane - Superior): In the briefing notes that the Library of Parliament provided us with, I read the section on recovery, which is mainly the responsibility of 150 auditors who are currently working for you.
What greatly surprised me was that you will be going from 150 to 950 auditors. During 1995-96, recovery amounted to $365 million and you were saying that with 800 more auditors, you will recover $465 million.
How can you explain this enormous difference? How can you explain that in multiplying your auditing capacity by five, you will only be recovering an additional 50% of what you were recovering before?
[English]
Mr. Lacombe: I'm not sure, Mr. Bélair, if I fully understand your question.
Mr. Bélair: I'll say it in English.
At the moment, you have 150 auditors, and they are recouping $365 million.
Mr. Lacombe: That's correct.
Mr. Bélair: By 1998-99, you will have 950 of them.
Mr. Lacombe: No, 950 is wrong. We're going from about 150 to 169 tax avoidance auditors.
Mr. Bélair: I'm simply adding 150 plus 800 according to -
Mr. Lacombe: Oh, I see. I can now answer your question.
Mr. Bélair: There will be 800 more auditors for an extra $100 million.
Mr. Lacombe: Exactly.
Mr. Bélair: How do you explain the difference?
Mr. Lacombe: Okay. Basically, what goes on is that we have to have a balanced audit program. So one of the areas that is also of equal concern to us is the underground economy.
Mr. Bélair: That was my second question.
Mr. Lacombe: Exactly. Those 800 auditors to which you refer are auditors who are going to be doing audit work related to the underground economy. In terms of dollar recovery per auditor, they do not recover as much per auditor as a tax avoidance auditor would. But we want to ensure there's a fair level of compliance.
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You have to be careful when you take a look at dollar recovery per auditor, because the more work we do on the underground economy, the more we see secondary, tertiary and quaternary effects that show up in higher levels of compliance than would otherwise be the case.
Mr. Bélair: They're more afraid they'll get caught, so therefore they pay.
Mr. Lacombe: Exactly right. So as for the 800 and the extra $100 million, that involves auditors related to the underground economy. The 150 we have are tax avoidance specialists. We have about a similar number in the international area returning about $500 million a year. So there's a range of activities we need to put in place to have a balanced program.
Mr. Bélair: As for my second question, you dealt with it partially. In 1991, when the Conservatives passed the law regulating the GST, it was projected then to have revenues of $24 billion.
I just asked the researcher, and she tells me in 1994-95 it was $16.7 billion, while in 1995-96 it was 16.3 billion. This is a huge discrepancy. This is where your 800 extra auditors come into the picture.
But it says here that you're projecting to recover only $100 million. What about the other $8 billion that was supposed to come into our coffers?
Mr. Lacombe: I'm not in a position to comment on the estimate of the $24 billion that may have been estimated.
Mr. Bélair: I'm sure it's a number you have dealt with in the past.
Mr. Lacombe: Just let me make the following points. All those auditors will be doing audits of GST or income tax in those ranges. We make sure they're doing the appropriate kinds of activities, and we target them to those areas that I defined earlier.
Just let me make another point related to GST revenues. If you charted GST revenues and retail sales from 1991 onwards, you would find that they track quite closely. If you charted net GST revenues and gross personal expenditures in the economy, they chart quite nicely.
We're always looking for where the problems might be. We've got work under way to take a look at input tax credits, which are another potential source. That's part of our regular GST audit workload and audit program.
So we have a number of these measures in place. What I find difficult is that I'm not sure of the basis upon which the initial $24-billion figure was made.
Mr. Bélair: Services were not taxed with the old FST, and then they were. So right there, that was a huge increase. The old FST was approximately $18.5 billion. Then, with services, it was estimated to go up to $24 billion. I'm not really satisfied with the answer you gave me.
Now that we have been talking about harmonizing the GST, one of the solutions proposed was to start collecting at the source again. I don't want you to give an opinion here. I'm just going ask you a very simple question. Technically, would it be more simple for you to collect it at the manufacturer level again?
Mr. Lacombe: It's hard to give you a purely technical answer to that. Anything that would be simpler and have fewer number of people from whom to collect would obviously make it easier, but you still have the problem with input tax credits. It's nice to be able, as you're worried about input tax credits, to track the relationship between gross GST revenues and the input tax credits that someone gets.
Mr. Bélair: It existed before with a much smaller bureaucracy than what we have now.
Mr. Lacombe: But there were no input tax credits. Remember that. The old manufacturers sales tax had a number of distorting effects. So as soon as you get into the input tax credit, which is a good thing to do, it seems to me, then you end up wanting to see that relationship between the amount paid by a given company and the input tax credit they get. You want to know that there's some kind of relationship there. Believe me, if some company is always receiving input tax credit, bells go off in our heads, asking what's going on here?
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[Translation]
Mr. Bélair: I have one last question that I would like to put to Mr. Minto. From the Auditor General's point of view, would it not be simpler to collect GST at the source, in other words at the level of the manufacturer? I am speaking in terms of technique. I am not asking you to give me an opinion.
[English]
Mr. Minto: Mr. Chairman, this isn't a question of tax policy rather than.... From the auditing side, it's obvious that when you look at the numbers for this year, while the gross GST revenues are higher than the previous year, there is a $4 million drop in the net GST revenue. That's in spite of the fact that there are now so many more tax collectors in the system than under the old system and there are so many more taxpayers.
Our position has always been that the tax policy is decided by the Department of Finance and Parliament, and we will audit whatever is decided.
Mr. Bélair: You would not render your work more simple? That's my question.
Mr. Minto: Simplification is the issue, sir, if I can just talk on that.
Every time you create an exception you add to complexity because everybody who's around that little exception tries to fit into it. So I think that is the fundamental thing. No matter what system you went to, do you want exceptions, do you want a flat rate, or do you want something that covers everybody?
[Translation]
The Chairman: Before we begin our round of five-minute questions, I would like to put a quick question to Mr. Lacombe. In your answers to Mr. de Savoye, you were talking about abusive tax shelters.
Mr. Bélair: A point of order. Traditionally, the Chairman only puts his questions after his colleagues have finished putting theirs. As we only have an hour and half, one of my colleagues will probably not have time to put a question because the next round will be for Mr. de Savoy, Mr. Silye...
The Chairman: Mr. Bélair, welcome to your first meeting with the Public Accounts Committee. This is the only committee chaired by the official Opposition and it is not going to be muzzled. To date, this committee has worked well and no one has raised a problem about the Chairman putting questions. You will see that my questions are neither useless nor offensive. They're not about dirty jokes nor are they about hockey. My questions are always very relevant.
Mr. Bélair: I can only notice that you are in favour of the status quo.
The Chairman: I will therefore put my question.
As far as the status quo goes, in terms of the rules of this committee, you are absolutely right, Mr. Bélair. We won't talk about our political allegiances. Everyone here knows that I am a sovereignist. Mr. Paradis won't be converting me to federalism and I don't believe I could convince him to convert either.
Mr. Paradis: You are right about the second part, Mr. Chairman.
The Chairman: My question was the following.
[English]
Mr. Finlay (Oxford): Monsieur le président, may I ask a question. The status quo is fine, if we understand the status quo. I am here for another member. There are four of us here, and two over there. We represent, I understand, roughly the proportion in the House. Is the status quo that the official opposition has ten minutes, the third party has ten minutes, and we have ten minutes? I want to know, because that's not the way most committees operate.
[Translation]
The Chairman: It is truly unfortunate that we have to go over the list of the Public Accounts Committee's rules every time a new member comes to a meeting. But if you want me to do it, I will explain everything.
Go and sit on the Finance Committee and you will see how Mr. Jim Peterson, the Chairman and a member of your party, behaved, especially on the issue of family trusts. He was very firm and he did not deprive himself of putting any questions nor to give the Auditor General a rough time with his questions.
As Chairman of this committee, if I have a question, I will not interrupt my colleagues, I will put it between two speakers. I never, however, abuse my right as Chairman to ask questions.
.1630
Now, I have a question. As Chairman of this committee, my time does not count in the ten minutes that are given to the official Opposition. That is how the status quo has operated from the beginning in this committee. As you know, we work in the following way: the official Opposition has ten minutes, the third party has ten minutes, the Liberal Party has ten minutes, then five, five, and five, and then any colleagues who register with the clerk can put their questions and will have five minutes to do so. They are free to question as they wish. There can be six Liberals who will put questions one after another if they register. That is how the status quo was worked in this committee.
Mr. Paradis (Brome - Missisquoi): On the same issue, Mr. Chairman, I would like to say that you invented a new status quo recently. I will explain.
I've been a member of this committee since I was elected, and I can tell you that your predecessor was not in the habit of acting this way; that is, he did not ask questions. I would like to point out, Mr. Chairman, with all due respect, that you started putting questions. The problem is not that you ask questions, which I don't mind, but rather that some of my colleagues are concerned about the time being allotted to questions.
This committee has still not succeeded in adopting its rules of procedure, and I would humbly suggest, Mr. Chairman, that that be the subject of debate within our subcommittee. It would also be an interesting topic to discuss when we prepare the rules for our committee.
The purpose of my remarks was to provide some clarification regarding the status quo. Mr. Chairman, as a member of this committee, I have realized over the past while that you intervene much more frequently than did your predecessor, who did not ask questions.
I would therefore suggest, Mr. Chairman, that our clerk put this topic on the agenda for our meeting on the rules of procedure for this committee.
Mr. de Savoye: Mr. Chairman, I would also like to say something about this. I have sat on the committees of Justice, Health, Official Languages, Industry and Canadian Heritage, and in all these committees the Chairman puts a question when he has one to put.
In some committees, I have seen much more talkative chairmen than others, but in all these committees I have seen chairmen put questions and I'm not at all surprised that the Chairman of this committee would act in a fashion similar to that of other chairmen of the committees I have sat on.
Mr. Paradis: That doesn't necessarily mean it's right elsewhere.
The Chairman: Mr. Silye.
[English]
Mr. Silye: I'd like to make a suggestion on this. My intervention would follow this logic.
I do not object to the chairman asking questions of witnesses. We're all the same committee. We're supposed to be after the same goals and objectives, but maybe from a different perspective. That's why it's good to have a number, and from different parties.
In some of the other committees I have been on - and this is just a suggestion that might continue the spirit of cooperation here - we go 10-10-10 and 5-5-5. If then there are some questions, if then there is an issue that this committee has failed to recognize, has failed to bring to the attention of public accounts - and you as the chairman are the judge of that, because you see what's being touched - then at that point I think maybe you could always allow yourself that time to have your intervention and ask your questions as well.
Maybe that's the concern. Initially, if you take 10 minutes and 10 minutes, because you're from the same party you're getting 20 minutes. We get 10 minutes and they get 10 minutes. It's like one party is getting 50% of the time.
I think that's the concern, but I do not object to you asking questions.
[Translation]
The Chairman: I'm first going to speak to the issue of status quo. I cannot talk about the status quo that existed before I came here. At that time, I was on the Transport Committee and the Chairman of the Transport Committee, whom I knew, Stan Keyes, was not at all worried about putting questions frequently. Mr. Hubbard could confirm that; he was my colleague on the Transport Committee.
.1635
In any case, I would like you to know that I will not wait for everyone to finish speaking before I intervene. I will continue to ask questions when I think it is necessary. As Chairman, I am not here only to give you the floor. I also want to actively participate in this committee.
Mr. Paradis, you spoke about my immediate predecessor. I would like to say that when I accepted the chairmanship of this committee, I pointed out that I was not the Member for La Prairie, that I did not have the same personality and that there was no question of comparing me to him or him to me. I would like to point out to my colleagues that when I consulted the minutes, I noted that Senator Jean-Robert Gauthier, who has been a Chairman of this Public Accounts Committee, intervened extremely frequently. Are you going to act high and mighty now that it is a member of the Bloc? No.
An hon. Member: That has nothing to do with it.
[English]
Mr. Finlay: I didn't mean to set you off on anything or suggest you weren't doing the job properly at all.
I haven't been on all the committees that Mr. de Savoye has. I've been on environment and I've been on aboriginal affairs, and the chairman does ask questions when the members are finished. Sometimes he might interject if it's important. I have no objection to that.
My concern is that you are from, as you say, La Prairie and I am from Oxford. I want to represent my people, and there are just as many of my people as your people. But I am not going to be able to, because I am getting one quarter of the time, if there are only four of us here - and it's up to us to have people here. I'm getting one quarter of the time my colleagues are getting. That's my point.
I am simply serving for Mr. Grose today. I've found it most interesting. I've been wanting to come to this committee for a long time.
Mr. Chairman, you don't have to do anything about my concern, but I think I have the right to at least inform you of it. There are other committees that operate differently from having 10-minute rounds and then 5-minute rounds, and we might know that.
[Translation]
The Chairman: I would like to suggest that we move on, because we still have questions to put before the votes. I will now ask my brief question.
In paragraph 11.70, the Auditor General states:
- Revenue Canada should consider recommending to Finance an additional penalty for
promoting abusive tax shelters.
[English]
Mr. Lacombe: Mr. Chairman, I can't give you an explicit time. All I can tell you is we're in discussions with the Department of Finance, and we fully support this particular recommendation. We think this is something that would help in dealing with tax shelters. We're very supportive of this and we're doing as much as we can with our colleagues in the Department of Finance to see this move ahead as quickly as possible.
[Translation]
The Chairman: Mr. de Savoye, five minutes.
Mr. de Savoye: I am almost embarrassed to have talked about your communication problems earlier, Mr. Lacombe. As you can see, this is something that a number of organizations have in common.
Let us turn now to the subject of interests. The Auditor General says that the interest to taxpayers who are late with their payment are likely to be cancelled and therefore do not appear in the accounting records. Consequently, you probably do not know the total amount of interests you have foregone. In addition, you can probably not break down your costs for interest revenue losses according to types of offence, types of taxpayer or categories of contribution or taxation. Do you agree with the Auditor General's analysis? If so, what are you doing to correct this situation?
.1640
[English]
Mr. Lacombe: We have made, as I think our colleagues from the Office of the Auditor General know, a number of changes in the application of the fairness rules. That interest is now cancelled. We are putting in place systems that will track that. As we move down, we also want to include the interest that is waived, for precisely the reasons you have cited.
We do want to be able to track this and know what the implications are, as the Auditor General says, of the application of the fairness legislation. We're building our system so we will be able to do that.
Mr. de Savoye: When is the delivery date?
Mr. Lacombe: The delivery date for interest that is cancelled is.... It's in place now. For interest that's waived, that would probably be a year away, just because of the time to get systems built and the general pressures of building various systems at the same time.
[Translation]
Mr. de Savoye: When can we expect to have a breakdown of your interest revenue losses and the source of these losses?
[English]
Mr. Lacombe: If the system is up now, I would say...and I think we agree we would report this in our performance reports to Parliament. So I would say this will become a feature of our performance report to Parliament. It will probably track the number of cases and the amount of interest that would have been cancelled and in future, once we have the systems corrected, the interest cancelled and waived.
[Translation]
Mr. de Savoye: Do you think you write off this interest more readily for large taxpayers than for small taxpayers? Is there a certain bias?
[English]
Mr. Lacombe: My guess is that there would be no bias, because the rules under the fairness legislation are the rules we apply under really three keys. First, they are acts of God: fires or storms or hurricanes or whatever that have prevented someone from fulfilling their tax obligations. The second would be errors by the department; that is, where we may have given incorrect advice inadvertently to some taxpayer. The third would be the financial circumstances of the individual, because obviously we would like to collect the debt but collections are a very sensitive area.
I don't think there would be any of those biases. To my knowledge we haven't done those kinds of studies, but we do know these criteria are followed and we did have an internal audit done of the application of the fairness legislation and I think in virtually all cases one of those three conditions was met.
So we haven't really looked at it in the way you are suggesting, Mr. de Savoye.
[Translation]
Mr. de Savoye: Do you have any idea at this time of the total amount of interest you forego?
[English]
Mr. Lacombe: I can't give you that number. We can go back and see if we can put together some estimate. As long as you would recognize it for being an estimate, we might see if we could put together some estimate of that. But I don't have that number and I wouldn't like to hazard a guess, sitting right here. It's one of those things we could follow up on.
[Translation]
The Chairman: Mr. Silye is passing. Mr. Paradis, five minutes.
Mr. Paradis: First of all, I would like to know about interdepartmental communications as regards to Revenue Canada. We know that the underground economy is very active. I have already mentioned at a number of committee meetings that I regularly visit all the municipalities in my riding, and that I often see people who bought something the month before with cash, so that there would be no invoice.
This is a serious problem, and I would like to know what is going on amongst the various departments. Are there people receiving unemployment insurance benefits, social security, or workman's compensation payments who are earning undeclared income. Is there any cross-checking done by the departments? We have to understand that the underground economy is costing the government a lot of money. It loses twice, in fact. Once for the GST and the second time for the income tax. Is there any cross-checking done between departments, in both the federal and provincial governments?
.1645
[English]
Mr. Lacombe: Let me respond, Mr. Paradis, by saying, yes, we have good working relationships with our colleagues in a number of federal departments: the human resources development department, as you've mentioned; CMHC, which is another interesting one for us, because they have renovation assistance and also some building permit information and some subcontractor information; Statistics Canada; Citizenship and Immigration; etc. We have contacts at and work with a range of departments at the federal level.
At the provincial level, again, it's the same kind of thing. We work with the ministries of transportation, the ministries of municipal affairs and the ministries of finance, obviously. We work with a range of them.
At the municipal level we make use of building permit information and other such information that might exist.
What we have to try to do is be as creative and analytic as possible in trying to get matching done so we can determine whether in fact taxes that should have been paid are not being paid. We have a number of these arrangements in place.
[Translation]
Mr. Paradis: How much would the Quebec Department estimate they lose in GST and income tax revenue because of the underground economy, particularly as regards all the so-called personal professional services such as construction and so on? Do you have any idea of that?
[English]
Mr. Lacombe: Basically we rely upon work that's been done by Statistics Canada. They have probably done the most detailed study by sector of where they think there is underground economic activity. If the committee likes, we can provide the committee with a copy of that study done by Statistics Canada. They tend to be a little more expert than we are in making these kinds of estimates.
I also note that MRQ, in the case of Quebec, has some information as well. I believe that is also principally driven by the Statistics Canada analysis.
I don't think there will be any surprises, Mr. Paradis, when you look at the results of these studies. Number one on the list is construction home building, and then come the hospitality sector, auto sales and repairs, jewellery - the areas we have targeted.
What does differ between them is perhaps, if I can use this distinction, pure underground economic activity versus some kind of smuggling or criminal activity. For example, in something like jewellery there's probably more smuggling than there is what you and I might call pure underground economic activity.
But yes, we have all those studies and we use those studies to help us target our work and make sure we're hitting the right targets.
[Translation]
Mr. Paradis: When your auditors study cases, very few of them are sent to the tax avoidance section. For example, the Auditor General's report mentioned that there was only one case in the Toronto office. Is there a system within your department for legal stratagems and income tax stratagems that enable your auditors to report this information so that you can analyze the overall impact of all these activities?
[English]
Mr. Lacombe: Within the department we have a number of tracking systems. We track all our audit activity. We identify the issues that are at play.
We can take a look at this on an industry sector basis. We have industry sector specialists for each industry sector. We take a look at our audit results across regions. Are we hitting the same problems in all regions across the country, or is it something limited to one region? We do all this kind of analysis on our audit results because we like to know what's happening.
Ultimately we would just as soon not have to go out and audit. Sometimes, as Mr. Silye was alluding to earlier, if we find the tax law is very complex and no one understands it, the solution might be to get the law clear, rather than to keep sending people out auditing and finding the same issue. Or it may be just educating people about the way in which the law should work. We do all of this, and this is why we do this kind of analysis. We keep pretty close tabs on our resources.
.1650
In the case of the Toronto example and the one referral on tax avoidance, we didn't like that very much either, but we did go to the office and we do track now. With the new approach to large business audit, this is unlikely to happen. Mr. Gauthier sent out a directive to all the offices, and we do the audit quality initiative I referred to earlier.
There is a fair bit of turnaround in our people. In some sense, our tax avoidance auditors develop a lot of skills. They are one of the main pools from which we draw our large-case file managers.
When we talked to them in Toronto, essentially they told us the large-case file managers in Toronto knew about tax avoidance, because that was basically where they had all come up and they felt quite comfortable dealing with tax avoidance issues themselves. That's going to happen. You're going to have these differences.
A large-case file manager is dealing with the largest corporations and the most complex issues, and they do tend to be drawn from our tax avoidance auditors or our international auditors, as may be the case. That could happen. But we do track this very carefully.
The Chairman: Mr. Finlay, you have five minutes.
Mr. Finlay: Thank you, Mr. Chairman.
On page 11-9, the graph in item or 11.17 shows a very high amount by auditor in the year 1993-94, and it has since dropped off. I'm sure there's some explanation for that. I didn't find one in the text, but maybe you can give me one.
Mr. Lacombe: The only thing I would say is you have to be very careful when looking at year-over-year changes in these. It depends on the nature of the cases. Some auditor could be doing a case that for one reason or another has a large reassessment and another a different reassessment.
This number is affected by the mix between what we might be doing on tax shelters - for example, again in that Toronto example, the Toronto area was dealing with a significant number of tax shelters - versus major other forms of tax avoidance. You have to be very careful.
What I think is more important is this. You're quite right: we probably should try to make sure we have clear explanations as to why these things are happening. My guess in this case is it was a result of the change in the mix of cases between tax shelters and other forms of tax avoidance.
Mr. Finlay: Thank you very much.
On the next page, what it says under 11.18 bothers me, that already affected taxpayers have found a way to subvert the intent of the new legislation with respect to deferred income and the year end.
Since I was involved a little with that, with the finance department and tobacco farmers in my riding, I'm bothered by that result. I thought I was being helpful. Maybe we've opened a Pandora's box.
You say Revenue Canada is aware of the nature of the scheme. It's now October. This report is from May. Has anything been done? Is there any legislation that might curtail that?
Mr. Lacombe: The legislation itself contains provisions that we think will prevent this from happening, and those provisions are such that people can't minimize the deductions from income. In fact the legislation says you have to take the maximum amount of various forms of deduction.
In addition to that, in light of this concern and just to make sure the law is working the way we'd like to see it work, we will be monitoring this. If anything comes up, we will definitely be bringing it to the attention of our colleagues in Finance. But we think the law, the way it's drafted now, does provide sufficient safeguards so this should not happen.
Mr. Finlay: Do the people from the Auditor General's office have any comments?
Mr. Barry Elkin (Principal, Audit Operations, Office of the Auditor General of Canada): Our concern is how the legislation is ultimately going to be used. When we looked at it, it was questionable. Certain professionals were looking at ways to beat the legislation, if I can call it that. Revenue is aware of it and they're monitoring the situation.
Mr. Finlay: Mr. Chairman, I want to thank you for asking your question, because it's one that I certainly wanted to ask. That is, how are they getting along with the justice department in making it a misdemeanour, a crime, or whatever it has to be made, for people who spend their time trying to get around the tax system? Our citizens will pay taxes if they think they are fair, and they won't otherwise.
.1655
I want to ask about 11.73. I note the Auditor General has indicated in 11.76 that Revenue Canada should clarify what constitutes undue hardship. As a taxpayer who inadvertently was getting two independent deductions I found I owed a great deal of money at the end of the year, which I repaid as quickly as I could, and I didn't know I could perhaps have made a request for a hardship waiver.
I also find it interesting that it says if the requesting taxpayer can provide reasonable evidence that tax deductions from his or her income at source exceed the taxes that will be required at year-end...I don't know why he shouldn't be like everyone else and pay the tax and get a refund if he can prove it at the end of the year. I don't understand this. It seems to me there's a double standard here somehow, unless I'm not understanding it. That may be true too.
It also says, in 11.74, that tax shelter promoters encourage investors to request hardship waivers, and it says they do that when they make the investment, when they make the purchase, because then the only way you don't accept a hardship waiver for tax shelter losses...it will be rejected only when the shelter is being audited. It seems to me you have yourself in a catch-22. If they have a hardship waiver and you say, oh, we can't audit that, they are going to get away with it for a year at least, and who knows how much further.
Do you have any comment on this?
Mr. Lacombe: Let me try to deal with the principle and then with what we're going to do here.
The principle, of course, is that under any source deduction system people should come as close to paying only the tax they're going to owe at the end of the day as possible. That's the principle behind source deductions. That's what is applied here.
Now, when someone seeks to reduce the taxes paid over the course of the year, say through source deductions, we do a cursory look at the tax shelter and whether it's appropriate. What we want to do is take a look at it, as it's suggested here by the Auditor General, and ask whether there are things we should be doing. So this is something we will take a look at and whether we should effect changes in it. That's roughly what it is.
But the basic principle is one where if people at the end of the year owe only so much tax, you don't want them to feel they have overpaid $20,000 or $10,000 to get that back. We look for a kind of equality or equilibrium between what someone really should pay us through the course of the year and what they will ultimately owe us at the end of the year.
Mr. Finlay: But you're dealing with a very select group, who tend to be abusing the system.
Mr. Lacombe: Yes.
[Translation]
The Chairman: You have five minutes, Mr. Paradis.
Mr. Paradis: You mentioned that we had a meeting yesterday on what is known as improving service quality. I'd like to make two comments about the simplification of these services.
Mr. Silye was mentioning earlier that in some respects it might be a good idea to simplify things. Could your department come up with new regulatory ways of simplifying deductions, for example?
Let me give you an example. In its last budget the Quebec government announced a program similar to one in place in France. It is a service employment paycheque to be used by individuals who hire people to work in their homes. So the individual opens an account at the Royal Bank and informs the department of the bank account number. The individual is given a special cheque book for paying for the personal professional services in question. The individual gives the account number to the Department of Revenue and deposits an extra 15% in this checking account every month. The Department automatically deducts this amount to cover wage-related costs.
This is one approach, and I'm sure there are others that are just as simple. Could you think of some regulations that would make it easier for people to comply with the Act?
.1700
I have a second question about simplification. At the beginning of the week, I chaired a task force on science and technology in Montreal. We met with all sorts of people who work in that field. They complained about the red tape involved in all the deductions for the research and development sector.
The message we heard at the beginning of this week in Boucherville was very clear. What could the Department of Revenue do to simplify things for people who incur R&D costs and to ensure that six months or one year later, they won't still be wondering whether or not the deduction will be allowed?
[English]
Mr. Lacombe: Mr. Paradis, let me start with the science and technology question first. We think there are three or four things that are key to the good administration of that program. Clearly, the first one is as much certainty as it's possible to provide to someone using the program.
The second is the timeliness of payment. Particularly for smaller companies, cashflow is exceedingly important. We have to make sure that we can meet that need for timeliness.
The third is consistency. We have to make sure that we're applying the program in a consistent fashion. In that regard, we have an advisory committee drawn from people in the science and technology area from right across the country. We meet with them regularly, and we're working with them to improve the way in which this program is administered.
We think the work we're doing with them is going to lead to a change in administration that will increase certainty, which is, as you point out quite correctly.... Someone does the work and a year or two years later someone comes in and says, sorry, that work wasn't eligible. Someone's already invested in it and they have a lot riding on it and so on.
We think the changes we're going to make will increase certainty, improve the timeliness of payment and improve consistency. That is exactly what we're working on with our advisory committee and they are very supportive of what we're trying to do.
Let me also say that a recent study done by Industry Canada found that the cost for administration of the scientific research and experimental development program by Revenue Canada represented 0.7% of 1% of the value of the input tax credits received, and this was about three to four times lower than the costs firms would incur if they went with a normal grant program. By and large, the costs of administration are quite low.
There are concerns with smaller claimants. There the costs move up to a higher proportion of the grant or the input tax credit received and that's another reason why we want to make those changes that I referred to earlier.
In terms of simplification, again, let me just kick this one off. We as a department have a lot of advisory groups. We have an advisory committee, large business, small business, the elderly - a number of them. We're always looking for ways to do things better, and let me tell you about some of the things we have on our plate. We have the business number, which we think will make it much easier for business. It's only one number and they don't have to fill out the form. It will be used generally within the federal system and we're working with the provinces to make it much simpler to use it there.
Another things is electronic data interchange and electronic funds transfer. We're big on that, perhaps not in quite the way the French revenue administration has structured it, but we'll follow up on it and see exactly how they've done it. We're very into electronic funds transfer. This is going to be helped immensely by the consolidation of accounts we're doing. There will be one account instead of an account for GST, an account for income tax, an account for source deductions, etc. There will be only one account.
In the audit area, as I've said, we've consolidated the teams and coordinated audits for all of the large corporations so you don't have one international audit, one audit for tax avoidance and so on. It's coordinated. When we're doing audits of small and medium-sized corporations, again, we've now coordinated and consolidated those audits. There is one audit. If someone's going to do an income tax audit, they're going to take a look at the GST. We're out there consulting now with the business community, the professional community, the small business community and the large business community on ways in which we can improve our GST audit program.
.1705
This goes on all the time. In the customs area, there is CANPASS, the smart border. In all areas there is better risk management and assessment. There is a lot of this. We're trying to do this as much as we can from a tax administration viewpoint.
We've simplified forms. The minister announced form simplification during small business week. That was developed in conjunction with small business. It makes it much easier for them to file now. In scientific research and experimental development, or SR and ED, we've worked out an arrangement whereby StatsCan will use our information on SR and ED rather than asking for the information on their own. That will mean significant savings for small businesses.
We've been doing a lot of this. We always appreciate learning what's going on in other countries and will follow up on it, because we think anything we can do in this area helps compliance immeasurably.
[Translation]
The Chairman: I have no other names on my list. Would any member care to ask any other questions? Personally, I have no further questions. I can tell you that I wouldn't have waited until the end of the meeting to ask them.
Gentlemen, I would like to thank you for appearing before the Public Accounts Committee. Working with people is interesting, because we do not always agree on everything. My mother always told me to keep my temper in public. I would have liked colleagues to raise this issue in camera. But that is how it goes: that's life, that's politics. Thank you.
The meeting is adjourned.