THIRD REPORT
Pursuant to Standing Order 108(3)(d), your Committee has studied Chapter 1 of the Auditor General's May 1996 Report (Other Audit Observations -- Revenue Canada). The Committee held meetings on this subject with representatives from the Departments of Finance, Revenue Canada and the Office of the Auditor General on May 16 and October 2, 1996.
Introduction
The Standing Committee on Public Accounts thanks the Auditor General for his report and for his willingness to appear before the Committee on several occasions. In particular, the Committee would like to thank the Auditor General for bringing to our attention the issue of Taxable Canadian Property and the decision that was made in December, 1991.
The Committee acknowledges the important work of the Auditor General and expresses appreciation for the productive relationship between the Auditor General and the Committee. The Committee also wishes to thank those who took the time to answer the Committee's questions with regard to Chapter 1 of the May 1996 Auditor General's Report.
The issues raised in Chapter 1 of the May 1996 Auditor General's report concerning the taxation of emigrants were referred to both the Standing Committee on Finance and the Standing Committee on Public Accounts. The Standing Committee on Finance heard from a wide range of witnesses and examined the issues relating both to the process and to the policy related to tax rulings given in 1985 and 1991. The Standing Committee on Finance issued its report in September 1996, with a series of recommendations affecting both the advance rulings process and the policy of the taxation of emigrants.
The Minister of Finance tabled a Notice of Ways and Means Motion on October 2, 1996 which implemented the policy recommendations put forward by the Standing Committee on Finance and tightened Canada's already strict rules for taxpayer migration. The Committee is pleased that the Auditor General expressed satisfaction with the Government's response to the issues raised in his report.
The Standing Committee on Public Accounts notes the Auditor General's remarks with regard to the statement by the Minister of Finance on October 2, 1996:
- If I may add my own views on this. I must say that we saw the Minister of Finance's announcement for
the first time this afternoon, just before the start of this hearing, so my comments are preliminary
comments, and I will need a little more time to review the technical details.
With that qualification, I would nevertheless say that at first glance the response appears to be a fairly thorough response to the concerns that we have raised, and I am pleased by the seriousness with which our concerns have been taken.
It seems as though the changes proposed would definitely clarify the legislation and it also seems that the changes proposed go in the direction that I thought was the basic intent of the law, of the Income Tax Act and of Parliament. In fact, very quickly, I noted some of the technical changes very similar to some of the comments we made during testimony to the Finance Committee. I think from what I've seen so far, the changes seem to respond to the concerns that we've expressed before now.
For its part, the Standing Committee on Public Accounts heard from many of the same witnesses who appeared before the Standing Committee on Finance concerning the 1985 and 1991 rulings. From this testimony, there are several issues that the Standing Committee on Public Accounts would like to highlight in this report.
Documentation:
The Committee is concerned about the lack of documentation of the December 23, 1991 meetings held by officials to discuss this ruling. The Committee believes that rulings outlining the interpretation of tax policy should be well documented, consistent and transparent.
The Committee is pleased that, in May 1996, when the Minister of National Revenue was made aware of this problem she acted immediately to ensure that all tax policy interpretations are properly documented.
Granting of an advance tax ruling:
The Committee also examined whether the advance ruling in 1991 should have been given at all. The Committee notes that in determining whether to give the rulings, Revenue Canada was confronted with ambiguous legislation. The Auditor General, in confirming that the legislation was ambiguous, stated before this Committee: "This observation highlights significant ambiguities in the Income Tax Act relating to the concept of taxable Canadian property."
Faced with the ambiguous legislation, Revenue Canada consulted with both the Department of Finance and the Department of Justice. Given that Revenue Canada received advice that a positive ruling would be in accordance with both a proper interpretation of the law and its policy, the Committee believes that Revenue Canada was correct in issuing the advance tax ruling.
Integrity of officials involved:
In its investigation of this issue, the Committee found no evidence to doubt the integrity of the officials involved in making this advance ruling. The Committee also notes that the Auditor General said in his testimony to the Committee that:
- In the dealings that we've had with Revenue Canada, and particularly since I've been Auditor General
we've had a lot of dealings with Revenue Canada, I have never had the occasion or the need to ever
question the integrity of the senior officials at Revenue Canada.
Recommendations:
- 1. The Committee recommends that the substantive conclusions of the Standing
Committee on Finance as outlined in the appendix of the Third Report of the Standing
Committee on Finance be adopted.
2. The Committee believes that the lack of a system to ensure consistency of rulings, the lack of documentation and the failure to publish rulings were problems which existed at the time that the 1985 and 1991 advance tax rulings were given. However, the Committee notes that changes in the advance rulings process have since been made to address both the concerns of the Auditor General and the recommendations of the Standing Committee on Finance.
The Committee recommends that the Minister of National Revenue ensure that the reforms made to the advance rulings process continue in the future to fully adhere to the goals of transparency, consistency and better documentation.
3. The Committee recommends that following the Minister of National Revenue's announcement that in future all tax policy interpretations be properly documented, that the Minister of National Revenue table the procedure which must now be followed in documenting important decisions.
The dissenting opinions of the Bloc Québécois and the Reform Party, as well as the supplementary opinion of Denis Paradis, are appended to this Report.
Pursuant to Standing Order 109, the Committee requests the Government to table a comprehensive response to this Report.
A copy of the relevant Minutes of Proceedings (Issue No. 2 which includes this Report) is tabled.
Respectfully submitted,
MICHEL GUIMOND
Chair