Anticipated Result: Tax debt is resolved on a timely basis and is within targeted levels

The vast majority of reported income taxes are paid on time by individuals and businesses (see remittance compliance in Exhibit 6 ). Overall, less than 6% of all assessed taxes and excise duties become accounts receivable 1 each year. Debt collection is intended to help ensure that all taxpayers pay their required share so that the Government of Canada can address its priorities, including Canada's social benefits and economic programs.

It is a significant challenge to manage tax debt. Multiple factors, such as the state of the Canadian economy, influence the trends in our intake of accounts receivable. The CCRA is obligated to collect all monies owed to the Crown and is mandated by law to have a business/client relationship with all taxpayers. As tax administrators, the CCRA can neither mitigate accounts receivable by choosing to do business only with those who represent a good financial risk, nor can we automatically write-off bad debts, except in cases of bankruptcy. We believe it is necessary to highlight this so that readers can appreciate how we address accounts receivable.

In 1999-2000, our internal estimates of year-over-year trends in the growth of accounts receivable projected that gross receivables would climb to almost $24 billion at levels of resources available at that time. We estimated that, with additional resources, we could slow this growth (Figure 10). A request for additional funding was made to the Government of Canada in 2000-2001 and was accepted.

Figure 10 Projected Growth in Accounts Receivable

With additional funding from the Government of Canada beginning 2000-2001, we focused our accounts receivable strategy on four key objectives: increased risk identification; keeping the pace of resolving accounts— either through collection or write-off of accounts that are uncollectible, and other adjustments—in line with intake of new debt; meeting our cash collection commitment to the Government of Canada; and reducing the age of accounts receivable.

We implemented additional innovations this past year to improve workload allocation, streamline procedures, and put a stronger focus on program delivery. Overall, our results for 2003-2004 indicate that the level of tax debt at $17.4 billion is within our targeted range. This amount does not include $5.3 billion in assessed amounts under dispute, against which we are precluded by law from taking active collection measures. Despite this, we did not stabilize the ratio of accounts receivable to gross cash receipts as expected; indeed, this ratio continued to grow, from 5.31% in 2002-2003 to 5.54% in 2003-2004.

As part of our risk-based approach, we have focused on the payment of outstanding balances very soon after the assessment of amounts owing. Since it is well established that the potential for recovery deteriorates quickly with the age of delinquency, we direct newly assessed, low risk accounts to our National Collections Call Centre, a centralized debt management centre that utilizes modern technology to focus on timely resolution of routine amounts outstanding. In 2003-2004, our National Collections Call Centre resolved almost 600,000 accounts totalling an estimated $1.5 billion, an increase of almost 6% over the previous year.

The roll-out of the T1 National Pool in 2003-2004 resulted in the resolution of 103,000 accounts and the collection of over $547 million. After the national launch of the T1 National Pool Project, the initiative was used as a model for a GST National Pool pilot project.

When combined, the results from the T1 National Pool and the remaining collections agents in our TSOs accounted for cash collections in 2003-2004 of approximately $9.4 billion. This total exceeded our $8.38 billion cash commitment to the Government of Canada by more than a billion dollars. In addition, our cost to resolve $1,000 in receivables fell to below $17 in 2003-2004, further increasing the efficiency of our collection activities compared to the previous four fiscal years.

In 2003-2004, accounts resolved (cash collected plus approximately $1.5 billion in write-offs and other adjustments) at the TSOs, including collections by the T1 National Pool, totalled about $10.9 billion. In spite of sustained high cash collections, the gap increased in 2003-2004 between total intake and the total dollar value of accounts resolved (Figure 11).

Figure 11 Tax Services Offices – Intake and Accounts Resolved

Note: Intake and accounts resolved relate to TSO collections activity (including collections by the T1 National Pool).

Our focus on newer accounts receivable had an impact on our ability to resolve accounts over 5 years of age. Although we had committed to the Government of Canada to reduce this share in 2003-2004 to approximately 15%, the share of receivables over 5 years of age increased slightly to 19% – $2.5 billion (Figure 12), up a percentage point from last year. To address this performance issue, the CCRA intends to invest additional resources in 2004-2005 to resolve older accounts receivable.

Figure 12 Tax Services Offices – Aging of Account Receivable

Note: TSO inventory excludes accounts handled by the National Collections Call Centre.

The results from the Collections Call Centre and the T1 National Pool have begun to reduce the dollar value of the share of accounts receivable that have been owing for less than one year that were referred to our Tax Services Offices (TSOs) for resolution (Figure 12). We anticipate that this strategy will begin to pay further dividends by helping to reduce the age of accounts receivable in two ways: TSO agents can concentrate more on older inventory, and fewer dollars will remain outstanding past the one-year mark.

To increase the CCRA's recovery of tax debt during taxpayer bankruptcy proceedings and to decrease the use of tax-driven strategic bankruptcies, we began to implement a number of recommendations in 2003-2004 from our National Insolvency Strategy. Our pilot project is showing positive results, including a decrease in inventory for accounts under one year.

We will continue to transform our collections processes and implement program strategies in 2004-2005 to manage the level of tax debt. We intend to build on the successes of the National Collections Call Centre and the T1 National Pool, utilizing existing resources and technology for future accounts receivable initiatives.

1 The Government of Canada's accounting policy is to report on a full accrual basis. Under the accrual basis of accounting, the CCRA Financial Statements indicate a total of $55.5 billion in receivables. Of this amount, approximately $32.8 billion is attributable to the recording of accrued receivables which relate to the current fiscal year but which are not payable until the next fiscal year. The vast majority of these amounts are paid when they become due and require no collection action. The remainder of the $22.7 billion consists of $5.3 billion in amounts in dispute and $17.4 billion in undisputed arrears (accounts receivable). We assess our performance in managing our accounts receivable program, as discussed under this anticipated result, on actual assessments that are under collection status ($17.4 billion). Notes 2 and 4 of the CCRA's Financial Statements Administered Activities provide further explanation of amounts receivable on an accrual basis. All numbers reported in this section include receivables relating to Customs.

Date modified:

2004-10-28