CRA review is mostly positive

In May, the Office of the Auditor General of Canada (OAG) released its 2014 spring report, which included, among various audit areas, an assessment of how the CRA manages its ATP detection program.

The report appears to confirm that the CRA is succeeding in fulfilling its mandate to identify and prevent non-compliance, a key focus of the federal government in recent years.

“The CRA has to protect the tax base,” says Marc Vanasse, a partner in the tax services group in the Montreal office of Toronto-based PricewaterhouseCoopers LLP. “[The CRA] has to be shown as a fair administrator, it has to uphold the government’s policy [of combating non-compliance] and it has to make sure that people pay their fair share of taxes.”

In recent years, the federal government has provided the CRA with more tools to boost its ability to fight ATP, including resources and staff, tougher penalties for non-compliance and new mandatory reporting regimes for taxpayers.

“When the auditor general reports that the CRA isn’t bad at detecting non-compliance,” Vanasse says, “that’s partly because the CRA has all this information now that it didn’t have [previously].”

The report identifies what the OAG believes to be key gaps in the CRA’s ATP detection program, and made three recommendations to address these issues.

The first recommendation is that the CRA should continue to test its national risk assessment model, the approach the agency has been using since the 2010-11 fiscal year to identify large-business taxpayers that represent a higher risk for non-compliance. The OAG study found that although the CRA has begun evaluating the model’s effectiveness, that work has not been completed.

That the report recommends further evaluation of the model should not come as a surprise, says Mitch Stein, assistant professor of managerial accounting and control with the Ivey School of Business at the University of Western Ontario in London, Ont.

“It’s still a bit early in this risk-based planning approach,” he says. “The CRA needs to assess it a little bit more and figure out how to make it work better. That certainly is a challenge for the CRA, but I think it’s moving in the right direction.”

The second recommendation is that the CRA should monitor the training of its ATP auditors to make sure they’re progressing properly, and thus identify any training gaps.

The third recommendation is that the CRA re-evaluate how it currently measures the performance of its ATP detection program, with the aim of developing stronger measures to reflect the program’s success more accurately.

In response to the report, the CRA has accepted all the recommendations made by the OAG, and says that it would be acting on them to improve the administrative aspects of the ATP detection program.

As part of the OAG’s spring report, that department also examined how the Department of Finance Canada analyzes and handles requests for legislative changes from the CRA to address ATP issues.

However, the OAG couldn’t make a full assessment because Finance Canada denied the OAG’s request for information that would confirm if Finance Canada has followed its own stated processes in reviewing requests.

Finance Canada stated that the requested information constituted a Cabinet confidence that is beyond of the scope of the OAG’s entitlement to access.

“Finance [Canada] probably was reluctant to disclose that information,” Vanasse says. “It wouldn’t want the taxpaying community to know the entire shopping list of [requested] legislative changes [under consideration].”

Although the OAG has made no further attempts to obtain this information, says Ghislain Desjardins, media relations manager with the OAG, the department “has begun conversations with the Privy Council’s Office regarding the OAG’s access to certain types of information so that this issue does not affect future OAG audits.”

Despite the lack of full access to information, and based on other information that Finance Canada did provide to the OAG, the spring report concluded that most of the CRA’s recent priority requests for legislative changes have been addressed.

For example, the report indicated, the use of so-called “RRSP strips” – a complex strategy involving the withdrawal of funds from RRSPs without the appropriate payment of taxes – had first been identified by the CRA as potentially abusive as far back as the late 1990s.

In 2009, the CRA submitted a business case to Finance Canada regarding RRSP strips, informing the feds of the magnitude of the issue. In 2011, proposed legislation in the federal budget put a stop to the use of that strategy.

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