Strategic Challenges and Priorities

Each year, as part of our ongoing work to safeguard the fairness and integrity of the tax system in Canada and to improve the delivery of tax services and benefit programs, we monitor the environment in which we operate with respect to social and technological trends; shifts in public expectations; attitudes and behaviours; economic conditions; and other factors influencing compliance and service. Trends in these areas can have significant implications for the Agency’s achievement of strategic outcomes in tax services and benefit programs, and can influence our resource and infrastructure requirements.

The issues of governance and accountability have become a preoccupation with Canadians as a result of several recent events involving federal institutions. Attention to good governance will remain a condition within our planning environment. In early 2005, a Parliamentary Committee will perform a Five Year Review of our founding legislation, the CCRA Act. Governance is expected to be a key element in this review. There are also several forums and instruments through which the Government has firmly committed itself to further enhance and promote accountability such as various inquiries, Auditor General reports, the larger role of the Comptroller General, and an increased focus on internal audit. These will focus public attention on government ethics, proper contracting procedures, and trust and integrity.

The Expenditure Management Review Committee of Cabinet is tasked with the reallocation of $12 billion over five years from department and agency budgets to higher government priorities. This review will challenge us to find further internal savings, re-focus our priorities, optimize revenue collection, and maintain our tax and benefit program integrity.

The government-wide desire for increased horizontal management of corporate functions across departments and agencies, and for more collaboration across government in providing service to Canadians, will present both opportunities and challenges for the Agency’s service delivery infrastructure.

The continued emphasis on improving relations with other levels of government and First Nations may accelerate partnership opportunities based on the Agency’s central role in collecting and dispersing both money and information.

As well, the renewed focus on Canada’s place in the world will elevate the importance of the CRA partnering in a global economy. Increasing globalization of trade and financial transactions poses further challenges to our compliance regime.

It is in this context that we focus on managing our primary challenges and opportunities in order to achieve our Corporate Business Plan for the next three years.

The Agency risk management process combines the results of monitoring the government-wide planning environment with the results of our ongoing assessment of agency risks and opportunities. These results are captured in our agency corporate risk inventory, which feeds the planning process.

In this planning cycle, the Agency has significantly strengthened its strategic planning and horizontal management processes. These changes not only improve our ability to identify key agency challenges, but also our ability to manage responses across the Agency to these challenges.

Our priorities for the 2005-2006 to 2007-2008 planning period mirror those in our last Corporate Business Plan, although they have been re-ordered to firmly establish tax integrity as our foremost priority. They also continue to reflect what are judged to be the greatest strategic challenges in our operating environment. Our strategic priorities are:

• Tax Integrity
• Service to Canadians
• Business Sustainability
• Trust and Integrity

Tax Integrity

The CRA’s most critical priority is, and has always been, to maintain integrity in the administration of the Canadian tax system and in the tax base. This in turn serves as a foundation for a healthy economy, a sustainable social infrastructure, and a strong democracy. Our strategy for achieving this priority is the rigorous and methodical ongoing assessment of compliance risks and the mitigation of those risks through continued refinements of programs, in conjunction with the development of new and innovative approaches.

Compliance with tax laws typically means registering when required to do so, filing returns on time, reporting complete and accurate information, and paying amounts when due.

No revenue administration has the resources to respond comprehensively to every area of risk. Over the coming decade, our success will be the product of identifying the greatest risks across the full spectrum of our program activities. We will achieve a new understanding of the drivers of compliant behaviour, build the strategies we need to employ to ensure that everyone pays their fair share of taxes according to the law, and improve both our performance results and our ability to measure them.

Our most recent assessment of our compliance activities, a comprehensive review conducted over the spring and summer of 2004, has provided us with a better understanding of the conditions being faced by modern tax administrations. This has led us to some important conclusions about how to build on our already solid levels of compliance using all available compliance instruments, including audit, service, and legislative/policy initiatives, in a focused and more integrated way.

While we will continue to administer our core compliance activities such as the audit of individuals, businesses, trusts, charities, and registered plans, we will give greater focus to four areas:

• Aggressive tax planning
• Underground economy
• GST/HST fraud
• Non-filers/non-registrants and collections

Aggressive Tax Planning

Aggressive tax planning is a challenge confronting all developed countries. In Canada, it involves transactions, arrangements or events that are normally fully disclosed but undertaken to achieve a tax result that is not supportable within specific anti-avoidance provisions or the overall scheme of the Income Tax Act, Excise Tax Act, or Income Tax Conventions. Typically, the transactions, arrangements or events lack economic substance and commercial reality and would not have materialized except for the tax result sought. The transactions, arrangements or events result in: sheltering income and capital gains that should be reported; creating or inflating tax deductions and losses, including capital losses, that would not otherwise exist; misusing treaty provisions; or accessing tax incentives, credits and exemptions in an offensive manner.

Aggressive tax planning undermines the integrity of tax laws and the tax base. We will increase early detection and analysis of abusive tax avoidance, enhance our risk assessment and audit programs, increase public awareness of unacceptable arrangements, increase our capability to deal with challenging areas by recommending legislative amendments, and continue international co-operation with tax treaty partners.

Underground Economy

The underground economy is generally defined as non-criminal business activity that is unreported or under-reported for tax purposes. It may include failure to register or to file returns and/or failure to report all or part of business income. Such activity is present in many industry sectors, primarily where cash is prevalent and where there is an absence of third party reporting or deductions at source. Prime examples are construction and home renovations, hospitality, taxi, automotive repairs and sales, tourism, and clothing textiles.

The underground economy undermines the public perception of the fairness and integrity of tax laws, and has a major impact on compliant businesses because of their loss of competitiveness. Our underground strategy focuses on increasing our research, evaluating the effectiveness of instruments being used to combat the underground economy, more effectively directing our enforcement efforts to those who participate in it, broadening the engagement of stakeholders, and leveraging the impact of our enforcement activities by underscoring the risk and consequences of detection.

GST/HST Fraud

An important element of a value-added tax, like the Goods and Services Tax/Harmonized Sales Tax (GST/HST), is the provision for input tax credits that allow businesses to receive credit, or even refunds, for the amount of GST/HST they pay. While the administration of any tax carries a risk of fraud, it is internationally recognized that this direct payout feature means value-added taxes inherently carry an even higher risk.

Millions of daily transactions, and extremely large numbers of registrants requesting refunds, make it very difficult to detect problematic situations within acceptable timeframes. The compliance approach to this issue will be multi-faceted, including a review of some key aspects of the GST/HST legislative and policy framework.

Non-Filers/Non-Registrants and Collections

The CRA faces the challenge of addressing compliance in respect of the filing of returns, as such filing is the essential first step in compliance. Various initiatives are being pursued, such as obtaining third party information and performing data matching that will permit the effective detection and assessing of those who fail to file their tax returns.

The CRA is also experiencing sustained growth in accounts receivable for all of the taxes it administers. Various avenues need to be pursued to curb this growth and reduce the value of accounts receivable. These include improving the integration of our activities at the client level, more effective risk profiling, enhancements to the Collections Call Centre, and a variety of initiatives – outlined in the next chapter – to reduce the level of older accounts.

Service to Canadians

The service agenda is a top priority of the Government of Canada in its pursuit of better governance and in response to the public’s desire for more personal service that cuts through jurisdictional overlaps.

The CRA is front and centre in this service agenda not only because of our extensive public contact and our past leadership on service innovation and automation but because, for us, enhancing service is a critical strategy for achieving our tax compliance and benefit delivery objectives. A large part of our success in building a suite of services and citizen-focused service standards for Canadians has been our extensive program of consultation in designing, developing, and evaluating service offerings. In addition, as an agency we have increasingly recognized the importance of partnerships with other departments, provinces, territories, and First Nations as a prime means to deliver better service at lower cost.

Canadians have embraced our service modernization initiatives and are clearly supportive of enhancements that make service faster, provide easier access to information, and cut through bureaucratic and jurisdictional red tape. Reducing the complexity and cost of dealings with government is particularly relevant to the business community, where every cost element is a factor in competitiveness.

Over the past decade, we have introduced simple fast filing through initiatives such as EFILE, NETFILE, and TELEFILE, with the result that almost half of all T1 individual returns were filed electronically in 2004. In addition, businesses have been engaged in electronic filing, with 64% of T4 slips and 95% of T5 slips filed electronically, and corporate Internet filing was successfully introduced two years ago. We have provided taxpayers with easy, fast, and secure access to information, largely through the most heavily used government Web site, with over 25 million clients served last year. Finally, we have used tax information to identify and simplify eligibility for seniors benefits: 64,000 additional low income seniors are now receiving the Guaranteed Income Supplement as a result of the CRA using tax information to identify those who were eligible but not applying for benefits.

As we move ahead, a prime motivator will be to continue to take a leadership role in providing electronic service excellence and meeting the challenge of increasing demands on our systems infrastructure. We must continue to understand and anticipate the ways in which Canadians want to interact with government and the implications for our programs.

Maintaining and enhancing the quality of service we provide to our federal and provincial partners will be paramount in this planning period. For our considerable portfolio of tax collection and service agreements, and any new partnerships, we will ensure a structured, collaborative approach toward planning, monitoring, and being accountable for outcomes.

We will also continue to provide services on behalf of some First Nations who have the responsibility of delivering tax and social programs, and to consult with Aboriginal representatives to improve and broaden our services. As First Nations administrations continue to evolve, we will be there to offer more services and support in a cost-efficient and effective manner. We will be working with the Assembly of First Nations through a new First Nations Advisory Committee, as a forum to identify First Nations’ needs and expectations as they relate to tax and benefit programs administered by the CRA, and to propose ways to address them. .

Business Sustainability

Resolving existing program integrity challenges and financing new program opportunities must be placed in the context of the broader government commitment to reallocating existing resources and directing new resources to priority areas. For the CRA this also means demonstrating that any new funding would be more than offset by increased revenue and by expected future year savings.

The CRA is facing a number of challenges over the planning period to sustain the integrity of existing core activities and to afford a number of promising opportunities to enhance service to individuals and businesses, to lower overall costs of government, and to target specific compliance risks.

We have been successful in recent years in implementing productivity improvements and in realigning the Agency’s budget from lower to higher-priority programs. These re-allocation opportunities have enabled the Agency to both manage the increasing volume and complexity of tax transactions and facilitate the introduction of service enhancements.

The Agency will remain aggressive in its identification of internal re-allocation opportunities so that we can meet our obligations to the Government’s re-allocation initiative and at least partially fund new internal requirements and priorities.

Trust and Integrity

Not only are trust and integrity issues of importance to Canadians and the Government of Canada, but fair treatment, trust, and integrity are principles underlying the CRA’s approach to tax and benefit administration.

We plan to consolidate the gains brought by our unique structure to establish new benchmarks for administrative excellence. The CRA’s Board of Management, in conjunction with federal central agencies, has placed a new emphasis on transparent management processes and a focus on the close and prudent stewardship of public funds. We plan to work to further improve our accountability mechanisms both to Parliament, through our Minister, and to provincial, territorial, and other partners through service agreements.

We especially recognize that our existing and new systems must respect Canadians’ expectations regarding the treatment of confidential information holdings. With this in mind, we are continuing to partner within the federal community to build durable and effective solutions for the secure transmission of financial and other sensitive information. To reinforce the confidentiality of taxpayer information, an assessment of Section 241 of the Income Tax Act is expected during the planning period.

To summarize, our key strategies for supporting trust and integrity continue to be:

• an increased focus on the security of people, information, technology, and facilities;
• continued attention to ethics and conduct, and the CRA values of professionalism, respect, integrity, and co-operation;
• meeting our fiduciary responsibilities to ensure the CRA is run fairly and efficiently;
• respecting policies on disclosure of information, conflict of interest, care and use of government property, and hospitality; and
• continuing to enhance sound governance such as Board of Management oversight.

Conclusion

The environment in which we operate demands that we identify issues at the earliest possible moment, and speedily execute strategies to address these issues.

Our knowledgeable and experienced employees continue to use sophisticated risk management tools and methodologies to address ongoing operational and strategic risks to the CRA’s program activities. Continued effort will be applied to increase our knowledge of risks from both inside and outside the Agency and to ensure that the management of these risks is integrated into our planning, decision-making, and reporting processes.

We believe this Summary of the Corporate Business Plan 2005-2006 to 2007-2008 lays a solid foundation for the next three years. It builds on the service orientation and institutional modernization that characterized our first five years, and is closely aligned with the Government of Canada agenda for fiscal stability, service excellence, and federal-provincial relations. Our success will depend mostly on two factors: implementing a significant shift in priority toward the strategic outcome of tax integrity across the Agency, and achieving productivity gains to enable reallocations to priority areas and enhanced partnerships, without compromising the overall quality of compliance or service to Canadians.

Date modified:

2005-03-24