Discussing Our Performance by Anticipated Result

We assess our performance for the Tax Services business line against 11 anticipated results as they relate to our expected outcome: Canadians pay their fair share of taxes and the tax base is protected .

Ratings are provided for each anticipated result. They show whether our performance met (green), mostly met (yellow), or did not meet (red) the results. We provide a separate rating on the quality of the information upon which we based the assessment. As with other business lines, we assess our performance against two themes: managing the compliance continuum and innovating for the future.

Highlights

We make considerable efforts to provide quality service and undertake outreach initiatives to promote participation in the tax system. Our efforts are supported by a strong legislative foundation, the co-operation of over 1.4 million employers that withhold and remit source deductions, and the collaboration of our federal, provincial, and territorial partners. Canadians exhibit a high degree of filing and remittance compliance. Currently, 95% of federal revenues are collected without any audit or collection activities. Our most recent available estimates suggest that the high levels of filing and remittance compliance reported in 2000-2001 were sustained ( Exhibit 6 and Exhibit 7 ).

While many Canadians have no legal obligation to file an income tax return because their income is below the filing threshold, some of these individuals file to claim social benefits, such as the Canada Child Tax Benefit and the GST/HST credit. We estimate that 91.9% of all Canadian individuals 18 years of age and older filed a timely individual income tax return for the 2000 tax year—a high level of compliance when one considers that not everyone is required to file. Remittance compliance among Canadian individuals was also high, with an estimated 90.3% of all taxable filers paying their reported income taxes on time during the 2000 tax year. Compared to our revised estimates for the prior year, these figures represent a 0.3 percentage point improvement in timely filing and a one percentage point improvement in remittance compliance.

Exhibit 6: Filing and Registration Rates

Exhibit 7: Percentage of Taxable Individuals and Corporations That Pay Reported Income Tax on Time

Filing and remittance compliance was also reasonably high among corporations during the 2001-2002 fiscal year ( Exhibit 6 and Exhibit 7 ). Of the estimated 1.42 million incorporated businesses in that year, slightly over a million (71.2%) filed a T2 return on time. This represents a decline in timely filing of 2.3 percentage points from our estimate for the 2000-2001 fiscal year. Although these figures indicate that a fair number of corporations do not file their T2 returns on time, many of these late filers are not taxable. Among those that are taxable, we estimate that 91.9% submitted a timely return during the 2001-2002 fiscal year. Most taxable corporate filers also pay their reported income taxes on time. We estimate that 91.4% made a timely remittance for the 2001-2002 fiscal year. These estimates for filing and remittance compliance among taxable corporations are essentially unchanged from our revised figures for the prior year.

We have recently been able to develop estimates of GST/HST program participation among Canadian businesses during 1999-2000 and 2000-2001 ( Exhibit 6 and Exhibit 7 ). Specifically, we estimate that 81.2% of all Canadian businesses residing outside Quebec were registered for the GST/HST in 2000-2001. (Businesses residing within Quebec register with the ministère du Revenu du Québec, which administers the GST on behalf of the CCRA.) This represents an increase in participation of 4.9 percentage points from the previous year, when an estimated 76.3% of Canadian businesses residing outside Quebec were registered. Our figures indicate a high degree of registration compliance, particularly when one considers that many businesses are not required to register for the GST/HST (for example, because their gross revenues are below the registration threshold). Nearly 90% of these registrants filed their GST/HST returns on time, compared to 89% the previous year. We are not yet able to estimate the degree of remittance compliance for the GST/HST, but we note that businesses (including those in Quebec) collected $62.2 billion in GST/HST on taxable sales of goods and services and remitted the net amount that was due from these collections to the CCRA.

Highlights

Timely response to legislative changes – A fundamental aspect of client service is to inform taxpayers in an effective and timely way of the implications of changes to the law, in a manner that is responsive to their needs. The 2001 tax year included the full implementation of Tax on Income (TONI). Building on our successful implementation of TONI in 2000, which was first introduced by five provinces, we implemented TONI for the remaining provinces and territories (except Quebec) in 2001 on time and with no significant problems.

Under TONI, the provinces and territories have the flexibility to define their own tax rates, which are based on taxable income rather than on a percentage of the basic federal tax amount; to add supplements to existing non-refundable tax credits; and to introduce any number of new non-refundable tax credits. The expansion of TONI to all provinces and territories (except Quebec) was a major undertaking.

Key challenges for TONI included:

• capturing more than 236 million additional data elements;

• developing and expanding the new TONI processing system while maintaining the existing “tax-on-tax” system to assess previous-year returns;

• making significant changes to manuals, guides, forms, schedules, tax tables, and payroll deduction formulas; and

• informing employers about TONI and training staff to respond to enquiries.

Timely, accessible, and reliable services – We have various delivery modes, such as publications, electronic, on-line, and telephone services, that provide accessible and reliable information to help taxpayers understand their tax obligations. In addition to reviewing our performance in implementing legislative changes, we rely on indicators of the timeliness, accessibility, and reliability of CCRA client services to assess our performance in responding to the needs of our clients. We evaluate these indicators against benchmarks for client satisfaction and client accuracy, service standards and targets, and principles of fairness.

I. Client satisfaction and client accuracy

We obtain client feedback through surveys, focus tests, baseline studies, and stakeholder and partner advisory committees. Our 2001 Annual Survey indicates that Canadians remain generally satisfied with the CCRA's performance in the tax services area. The client satisfaction ratings this year are generally as high or higher than the benchmark values from the CCRA's 2000 Baseline Survey. Overall, 74% of respondents report that the CCRA is doing a good or a very good job in the area of income tax, significantly up from 71% the year before. Similarly, 80% of respondents now either mostly or strongly agree that information provided by the CCRA is clear and simple to understand–a substantial improvement from the 73% benchmark rating for 2000. Among the dimensions of client service, the highest rating this year is for the courteousness of our staff (89%), while the lowest rating is for the time it takes to get information or receive service (73%).

We also survey client satisfaction with registering and amending employee pension plans, retirement savings plans, retirement income funds, and similar registered plans. A November 2000 survey of registered plan consultants found that they were generally satisfied with the CCRA's telephone services, but had concerns about the turnaround times for written enquiries and initial reviews of amendments.

Another means by which we can assess our overall effectiveness in informing taxpayers and delivering service is by looking at how accurately taxpayers file their returns. The T1 Quality Evaluation Program measures taxpayer accuracy based on a sample of paper-filed individual income tax returns at the initial assessing stage (i.e., data entry, error correction, and high-risk containment). By analyzing errors that affect the amount of tax, we have found that client accuracy rates on paper returns have remained stable at reasonably high levels (over 92%) in recent years.

II. Service standards and Internal performance standards

The CCRA has established service standards for a number of its Tax Services operations (see Attachment 2: Service Standards in Tax Services ). These standards focus on timeliness, while our internal performance standards deal with timeliness, accessibility, and reliability. Of the 27 service standards for Tax Services, about half are for client service delivery and the rest are for processing returns and conducting review activities. Exhibit 8 displays our performance against our service standards. Although we did not meet all of our service standards, we met or mostly met 16 of the 27 standards (59.2%). However, not all of our service standards are of equal importance in terms of the volume of clients affected or the implications for delivering key services. When we weight each standard by a measure of its importance, our weighted index of the percentage of standards we met or mostly met was 64.8%. The 5.6 percentage point differential from our unweighted completion percentage reflects the fact that we met or mostly met some of our most important standards, including those for processing paper and electronic T1 returns, responding to client-requested adjustments, processing fairness requests, and processing applications for registered pension plans.

Exhibit 8: Performance Against Service Standards

On balance, we have made modest progress, improving our performance against five of our service standards. However, performance declined against four standards ( Exhibit 9 ). Beyond continuing to improve our overall performance against our existing service standards, we must also develop some new standards. In particular, we have not yet expanded the scope of our service standards to include all key modes of client service delivery, such as telephone enquiries and reviews of actuarial valuation reports on pension plan amendments. In addition, we need to broaden our service standards to go beyond timeliness and account for accuracy and reliability.

Exhibit 9: Service Standards Performance Changes from 2000-2001

Below, we report on our performance by key delivery mode against both our internal performance indicators and service standards.

Telephone enquiries – The telephone remains the most popular means by which clients receive service from the CCRA. In last year's report, we noted that we had substantially improved telephone accessibility overall, but that accessibility during periods of peak demand (the filing season) remained a concern. Service during these periods is particularly important, because Canadians are calling to get information they urgently need to complete their tax returns. To improve our handling of calls during peak periods, we aligned our scheduling this past year to better match the number of agents to the volume of calls. In addition, we offered extended calling periods to better meet the needs of our clients. This included, for the first time, offering Saturday hours to business clients during the T4 filing period and offering extended hours to individuals seven days a week over the entire peak filing period.

As shown in Exhibit 10 , our strategy appears to have worked. Specifically, we were able to improve telephone caller accessibility during the 2002 peak filing season by eight percentage points for individuals (from 84% to 92%) and by two percentage points for businesses (from 93% to 95%), relative to the 2001 season. Over the entire 2001-2002 fiscal year, 93% of all individual callers and 92% of all business callers were successful in getting into the queue to speak with an agent, well within our target of 90% to 95%. This means that most callers were able to reach the queue for service. It does not mean that they were successful on their first attempt. We no longer monitor the number of attempts made by callers as a performance measure. We believe that this statistic has become less meaningful with the advent of new technologies, such as automatic redial services.

Exhibit 10: Telephone Caller Accessibility Overall and During Peak Filing Season

In terms of the timeliness of our service delivery, we answered 72% of all general enquiries and 75% of all business enquiries that entered the queue within two minutes. This was slightly below our 2000-2001 performance (75% and 79%, respectively), and also below our target of 80%. Building on our experience from this past filing season, we will continue to refine our scheduling of agents to match call demand on a year-round basis, with a view to improving both the timeliness and accessibility of our telephone enquiry services.

Further, our overall strategy is to reduce the need for clients to speak to an agent. We do this by providing better and more accessible information, including electronic service delivery tools, increasing our emphasis on outreach activities, refining our interactive voice response systems, and improving our publications. The decline in the number of callers ( Exhibit 11 ) may be in part due to the expiration of certain one-time government initiatives in place in 2000-2001, or it may indicate that our alternative electronic services are helping to reduce our clients' need to call. We will monitor trends over the next several years to better understand how these alternative services affect our call volumes.

Exhibit 11: Year-over-Year Change in Number of Unique Callers

We have a quality assurance process in place for our general and business telephone enquiries. Throughout the year, an independent firm conducts surveys to provide an impartial assessment of the quality, including accuracy and reliability, of our technical responses, and the courtesy and professionalism of our agents. These results give us an indication of performance levels and are used primarily for quality improvement and training purposes. We continually evaluate the results and adjust our training, tools, and techniques to ensure that our agents provide accurate information to clients. To facilitate the year-over-year comparison of the accuracy of responses to technical enquiries, a baseline index of 100 was established for our general enquiries line in 1996-1997 and for our business enquiries line the following year. Compared to these baseline values, the accuracy index for general enquiries stood at 136.6 in 2001-2002, and the accuracy index for business enquiries stood at 138.3. This represents an increase of 3.3 points in our accuracy measure for general enquiries (from 133.3 to 136.6) and an increase of 1.6 points for business enquiries (from 136.7 to 138.3) from the 2000-2001 values.

Electronic assistance – Ultimately, our goal is to reduce the volume of telephone callers by offering our clients the help they need through more cost-efficient service delivery channels, such as on-line forms of assistance. Overall, last year, the number of tax-related hits (requests for pages) on our Web site almost doubled, to 32 million. During the peak tax season in 2002, we received an average of 4.7 million hits per month compared to 3.5 million the previous year. This may be an indication that our electronic information services are having the desired effect of reducing the need for our clients to call. Users can download nearly all CCRA forms and publications from our Web site. For clients seeking either general or account-specific information, the site also contains an on-line version of our Tax Information Phone Service (T.I.P.S.), which is accessible 24 hours a day, 7 days a week. An on-line interactive information service is also available at all times for individuals who want to find information about a variety of income tax topics using a question and answer format. For business clients, an on-line version of our telephone business information service (BIS) is available to provide basic tax information related to operating a business.

Forms and publications – The CCRA provides more than 900 tax-related publications (forms and guides) to individuals, businesses, and agents of the Crown. Each year, these publications undergo rigorous and highly structured, time-sensitive review processes to ensure that all legislative changes are accurately incorporated in a clear and easy-to-understand format, and in time to meet our critical target for bulk mailing in early January. Our 2001 Annual Survey indicates that 69% of taxpayers (67% last year) agreed that our guides and materials are clear and simple to understand.

Walk-in service – In 2001-2002, we provided assistance over the counter to 2.2 million taxpayers. We have begun work on developing a reliable measurement of performance against our service standard of providing walk-in assistance within 20 minutes (except during peak periods). In the interim, a sample review of nine tax services offices that have automated equipment to monitor wait times indicates that the average wait is less than 10 minutes in these offices. Client service rating cards also help us to assess our walk-in service performance—85% of clients who completed the cards in 2001-2002 indicated that their wait time was under 20 minutes, roughly the same percentage as in 2000-2001.

To help identify risk relating to transfer pricing issues, we have enhanced our information exchanges with other countries and integrated information on foreign reporting requirements into our risk assessment systems.

Filing enforcement – The CCRA uses a variety of data sources to identify non-filers of tax returns and GST non-registrants. We continue to balance our efforts between known and unknown non-filers and non-registrants. Risk scoring models are employed to guide our allocation of compliance and enforcement resources to cases of known non-filers and non-registrants, and strategic analyses by industry sector are used to identify new cases for enforcement action. The Contract Payment Reporting Initiative has resulted in enhanced compliance activity and continues to contribute positively to the CCRA's goals. Renewed efforts in obtaining corporate returns, along with improved assessment tracking, have contributed to a 16.5% increase in the combined number of new registrants and returns achieved through our enforcement efforts (647,170 in 2001-2002, compared to 555,739 in 2000-2001). The fiscal impact of our non-filer and non-registrant enforcement efforts amounted to $1.37 billion in 2001-2002 ( Exhibit 25 ).

Exhibit 25: Non-filers/Non-registrants – Number of Returns and Registrations

Highlights

While the CCRA's mandate is to administer federal legislation related to tax, trade, and border protection, including the Income Tax Act, Excise Act, and Excise Tax Act, we play an important consultative role in the development of legislation ( Exhibit 26 ). We work with the departments of Finance and Justice to ensure that proper legislative authority exists to realize Parliament's social and fiscal policies and to enable us to promote voluntary compliance.

Exhibit 26: Legislative Policy Development

The scope and variety of legislative issues addressed and resolved in any given year is very much dictated by the priorities of the enacting departments and by the nature of legislative changes. Our work involves the ongoing assessment of the effectiveness of our legislative framework, to ensure that it remains responsive to new and emerging issues that affect compliance.

We continue to reassess the full range of our administrative policies and practices to ensure they are responding to emerging issues and trends. The CCRA's Policy and International Committee reviews new policy guidelines before they are implemented, and policy direction may be validated with client groups. During 2001-2002, we began or continued to work on a review of Indian Settlement Remission Orders, the Aboriginal Strategy, Web publications for Status Indians, and the Forum for Strategic Management Knowledge Exchange (FSMKE) Web site project.

In 2001-2002, we participated in several new legislative initiatives that led to recommendations for changes. This involved participating in the drafting of tobacco tax measures, the air travellers' security charge, and budget measures with respect to apprentice vehicle mechanics' tools, adult basic education tuition assistance, the education tax credit, transfer of assets of managed woodlots, charitable donations of publicly traded securities, GST/HST credit responsiveness, qualified limited partnerships, temporary construction work camps, and deferral of corporation tax instalments for small businesses, among other measures. In addition, we centralized technical applications, industry specialists, and valuation services to ensure proper co-ordination of and consistency in these services.

The CCRA was a key participant in the Government's response to the events of September 11 by helping to draft and subsequently execute our new-found responsibilities under the Charities Registration (Security Information) Act. This provides us with the legal framework to use and protect classified information that may tie an organization to terrorist groups.

In 2001-2002, improvements were also made to the Canada Pension Plan Regulations and the Insurable Earnings and Collection of Premiums Regulations to facilitate their administration and obviate the need for annual amendments. Also during 2001-2002, we developed and implemented significant new or enhanced policies in three key areas. In addition, the Income Tax Regulations were amended to update and clarify source deduction rules and to update the list of qualified foreign universities. We also continue to work with the department of Finance on a number of technical amendments to the Income Tax Act and the Excise Tax Act, to be included in future technical bills.

Given the nature of this ongoing workload, no attempt has been made in the past to systematically capture any relevant data. However, we are looking into the feasibility of developing a system for tracking the legislative issues we raise with the departments of Finance and Justice or that are addressed through legislation.

Highlights

To properly manage the compliance continuum, it is essential to have a range of programs tailored to the needs of specific client groups. To resolve root problems, these programs must be based on a sound understanding of the issues affecting different clients and the reasons underlying their behaviour.

To ensure responsible enforcement, we have mechanisms that promote transparency in what we do and that inform our clients of the breadth of our activities. Depending on the nature of the issue, the appropriate compliance program may involve education, outreach, service, review, enforcement, or a combination of these elements. Exhibit 29 provides a high-level overview of the key compliance issues the CCRA must address within each program area and the primary compliance activities it undertakes to manage them. Our compliance programs are under continual development to address the changing areas of risk that we identify. Below we highlight some of our key programs to address specific client needs.

I. Large corporation audit initiatives

Large corporations often face complex and highly technical compliance issues. Typically, these corporations earn gross revenues in excess of $250 million, involve many controlled companies and foreign affiliates, and engage in transactions that require highly complex interpretations of the law. Because of the complexity, the technical nature, and the size of the compliance risks in this client group, our goal is to audit each large corporation over a two-year cycle, following a detailed risk assessment. As shown in Exhibit 27 , audits were completed on 477 large corporations (54.2%) in 2001-2002. The total fiscal impact of these audits was over $2 billion, reflecting an average assessment of $4.2 million per audit. This represents over 30% of the total revenue assessments from all of our compliance programs combined.

Exhibit 27: Large Corporation Audit Coverage and Fiscal Impact in 2001-2002

An issue of growing concern in recent years is the practice of tax avoidance among some large corporations. While it is every taxpayer's right to arrange his or her affairs to pay the least amount of tax the law allows, the term "tax avoidance" refers to arrangements that are contrary to the law and that circumvent its purpose. The large file initiative in the Tax Avoidance Program was introduced in 1998-1999 to increase the coverage of tax avoidance issues in large file cases. To identify and address these issues, a team approach is used involving auditors who specialize in avoidance activities. These avoidance specialists participate in both the planning and the examination stages of the audit. Of the 320 large-file audit cases assigned during 2001-2002, 188 (58.8%) related to potential tax avoidance, compared to only 93 cases in 1998-1999. With the additional funding provided through Resource Review for compliance activities, we plan to further increase coverage under this program to deter abusive avoidance, to protect the revenue base, and to promote fairness.

Given the size and scope of large file audits, large corporations have a need for greater certainty about their ultimate tax liabilities. To address this need and promote compliance, audit protocols have been developed. These protocols form a mutually agreeable framework for the company and the CCRA. They establish guidelines for the audit process to help ensure co-operation, openness, and flexibility. Currently, 206 large file cases are under protocol, compared to 180 cases in 2000-2001. This represents a take-up rate of approximately 30% of all large corporations (including subsidiaries). A survey in the spring of 2000 validated the utility of audit protocols and identified a number of improvements.

II. International tax compliance initiatives

In response to the continuing pressures of rapid growth in foreign trade and electronic commerce, international tax compliance issues have become more prominent in recent years.

A key compliance issue in international transactions is the price that should be reported for cross-border transactions between a corporation and its foreign affiliates. To promote compliance and reduce the burden associated with reporting such transactions, the CCRA has an Advance Pricing Arrangement (APA) Program. Under this program, the CCRA provides advance confirmation of the appropriate transfer pricing methodology to be used for cross-border, non-arm's length transactions. This provides participating corporations with greater certainty about the valuation of such transactions for tax purposes. Although the CCRA has been successful in recent years in completing 30 APAs, program take-up has been below our target of 80. To promote and raise awareness of the APA program, in 2001-2002 the CCRA embarked on an extensive outreach program with such organizations as the International Fiscal Association, the Financial Executives Institute, the Organization for Economic Co-operation and Development, and the Canadian Tax Foundation.

Another important compliance area involves the level of awareness of non-residents and prospective immigrants about their tax obligations and entitlements. During 2001-2002, 10 training sessions hosted by non-profit organizations were held to promote a better understanding of Canadian tax rules and requirements. In addition, statistics show that China has had the highest number of emigrants to Canada in recent years. To better address the needs of Chinese immigrants, our "Newcomer Brochure" has recently been published in Chinese (in traditional and simplified scripts).

Due to the increased level of foreign trade and electronic commerce, we have initiated strategic partnerships with tax treaty countries to manage and promote international tax compliance, protecting Canada's tax base and sharing common problems and best practices. Over 100 countries and organizations attended a major international e-commerce conference hosted by the CCRA on behalf of five international tax organizations. Two standing committees, e-compliance and e-service, resulted from this forum. The CCRA will be acting as chair and secretariat for an interim period.

Given that every taxpayer (depending on his or her financial circumstances) has the opportunity to conduct foreign trade, it is critical that taxpayers comply with international tax laws so that high-risk activities such as the creation of tax havens are reduced or eliminated. This can only be accomplished through our strategic alliances in the international tax community. We participate in international fora such as the Organization for Economic Co-operation and Development (OECD), the Pacific Association of Tax Administrators (PATA), the Seven Country Tax Haven Group, and the Centro Interamericano de Administraciones Tributarias (CIAT).

We also participate in several of the OECD's subgroups, such as:

• the Forum on Harmful Tax Practices, whose mandate is to develop and implement a co-ordinated international response to unfair tax practices;

• the OECD Working Party 6, Taxation of Multinational Enterprises, which focuses on tax issues related to multinational enterprises with a concentration on transfer pricing; and

• the OECD Working Party 8, Tax Avoidance and Evasion, which examines compliance issues relating to fiscal degradation and tax competition, controlled foreign companies, bank secrecy, exchange of information, and collection assistance.

The advent of e-commerce has led to the need for enhanced international tax compliance. We are dedicated to improving electronic services to non-resident taxpayers. In 2001-2002 a pre-targeted group of non-resident taxpayers could change their address and phone number on-line using a pre-supplied access code.

III. Underground economy initiatives

The CCRA's underground economy initiative provides a balanced approach to addressing unreported income within the small business community. In a continuing effort to increase our visibility and promote compliance among businesses, we conducted 92 community visits, resulting in contacts with 9,853 businesses during 2001-2002. In addition, under a new visibility effort, we made 84 wharf visits throughout Atlantic Canada to meet with fishers to explain their rights and obligations with respect to taxes.

As part of our underground economy strategy, the CCRA has a Contract Payment Reporting Initiative that uses T4A information slips issued to federal government contractors and subcontractors to identify businesses that fail either to file a tax return or to fully report the income they have earned.

Another compliance area that has been targeted for significant enforcement activity in recent years involves the movement of assets, such as automobiles, through First Nations reserves in an illegal effort to bypass taxation of these products when they are sold in the mainstream economy. During 2001-2002, 129 audits were performed relating to such schemes, resulting in $26.8 million in assessments.

IV. Fraud investigations

Our Criminal Investigations Program prepares the most flagrant cases of non-compliance for criminal prosecution, seeking both to punish offenders and to deter future cases of fraud and evasion. During 2001-2002, 351 customs and tax investigations involving 458 persons were referred to the Department of Justice for prosecution, an increase of 12% over the number of cases referred during 2000-2001. During the year, prosecutions were finalized on 307 persons, leading to 26 incarcerations, 17 community-service sentences, and $14.5 million in fines. Customs Investigations also contributed by investigating 494 non-prosecution cases, which resulted in $49.6 million in customs civil assessments.

The Special Enforcement Program (SEP) undertakes enforcement activities related to suspected organized crime. An important element of these operations is participation in the RCMP's Integrated Proceeds of Crime Program to forfeit illicit and/or unreported wealth accumulated through criminal activities. Through its enforcement of tax laws and other legislation administered by the CCRA, the SEP has been very successful in dealing with proceeds-of-crime issues in areas where traditional law enforcement has been difficult. In 2001-2002, 686 audits were conducted under the SEP, yielding $63.5 million in assessments. This represents an increase over 2000-2001, when 624 audits yielded $48.8 million in assessments.

V. Overall effectiveness of compliance programs

Compliance-related programs help to ensure the integrity of the tax system. One indicator of their effectiveness is the amount of tax revenue that they generate. The overall fiscal impact of our programs (Fig. 8-1) was approximately $6.5 billion, exceeding our commitment to the Government of Canada of $6.2 billion by 4.8%. We estimate that approximately 16% of the $6.5 billion will be subject to appeals and another 6% will be uncollectable, for a net fiscal impact of about $5 billion. These results reflect the implementation of additional Resource Review funding discussed under Anticipated Result 9. Our compliance measurement framework, identified in section The Road Ahead , will provide the foundation for a more comprehensive analysis of the effectiveness of our various compliance programs.

Exhibit 28: Tax Compliance Activities – 2001-2002 Federal and Provincial Taxes – Total Fiscal Impact of $6.5 billion

In addition to the above, we assessed $410 million through the protective-assessments audit program and $27 million through the employer-compliance audit program.

VI. Delivery of key tax credits

We have also been working to improve the delivery of certain key tax credits. The Scientific Research and Experimental Development (SR&ED) Program is the largest federally supported incentive program for industrial research and development in Canada. Each year under this program, we process approximately 11,000 claims and handle credits of about $1.5 billion. Both our Headquarters and tax services offices have been reorganized to enhance the consistency and predictability of program delivery.

Our Preclaim Project Review (PCPR) and Account Executive services reflect our commitment to be more responsive to the needs and priorities of Canadian businesses making claims for SR&ED tax incentives, and to assist companies in obtaining the maximum benefits to which they are entitled. The PCPR service provides an up-front review and a preliminary opinion on the eligibility of projects for SR&ED tax incentives. To assist businesses with planning and investment decisions, the service is available before SR&ED tax incentives are claimed, and can even be provided before projects are started. We completed over 700 PCPRs in 2001-2002 and had approximately 250 more in progress at the end of the year. The Account Executive Service provides a central point of contact and guidance for SR&ED claimants and maintains program continuity from one year to the next. By the end of 2001-2002, approximately 760 companies were taking advantage of the Account Executive Service.

Joint CCRA-industry committees continue to work together to address SR&ED issues and develop appropriate guidelines for the SR&ED program. Partnerships are being built and extended with 12 major industry sectors, and seminars and workshops are being conducted to ensure that CCRA staff and industry representatives have a common understanding of guidelines and policies.

As illustrated in Attachment 2: Service Standards in Tax Services , we currently have four service standards in place for SR&ED delivery. Although we made significant strides in improving the timeliness of our delivery in 2001-2002, our performance did not meet our delivery standards.

Like the SR&ED tax credit, the film tax credit is aimed at promoting Canadian growth and job creation, in this case, through film and television production. The CCRA administers related provincial tax credits for British Columbia. We have established film services units, as well as an industry-represented advisory committee, to oversee program delivery and help manage compliance risks. We currently have two service standards in place for film tax credit delivery. Largely as a result of increased program take-up and a higher level of audit coverage, our performance has declined since 2000-2001 and is well below our service delivery standards.

Exhibit 29: Overview of Compliance Program Activities

Highlights

To encourage voluntary compliance and maintain the confidence of Canadians that the tax system is equitable, we need to maintain an adequate level of audit coverage within each of our major tax programs. Following an independent review of the CCRA's compliance resources and the declining trend in audit coverage rates, we received additional funding from the Government of Canada to invest over $750 million in our compliance programs over the 2001-2002 to 2005-2006 period.

Although we were successful in hiring close to 900 additional officers by the end of 2001-2002, we were unable to fully meet our FTE target for compliance staff. Largely, as a result, our overall expenditure on compliance programs was below the budgeted amount for this year. One of the key commitments for the additional funding is to increase audit coverage rates over a five-year period. Although we are unable to precisely measure our audit coverage rates, our best available estimates indicate that we were successful in meeting our 2001-2002 target coverage rate for T2 large file cases, and we nearly met our target for T2 basic files ( Exhibit 30 ). However, our audit coverage of small and medium business, individual, and GST/HST accounts was below target ( Exhibit 31 ).

Exhibit 30: Estimated Audit Coverage Rates: Large Corporations

Overall, we completed approximately the same number of audits in 2001-2002 as in the previous year, while increasing the number of referrals to the Department of Justice for prosecutions. Although training and mentoring our new employees has temporarily decreased the productivity of our more experienced audit staff, our investment in human resources places us in a good position to meet our audit coverage targets for the coming fiscal years. Even though we were not able to meet all of our audit coverage targets for 2001-2002, the fiscal impact of our compliance programs exceeded our commitment to the Government of Canada of $6.2 billion, due to a substantial increase in assessments from our non-filer/non-registrant program. The actual fiscal impact for the year was $6.5 billion. This performance was broadly in line with our projection that our compliance programs would generate nearly $10 in additional assessments for every additional dollar invested.

Exhibit 31: Estimated Audit Coverage Rates: Small and Medium Business and GST/HST Files

Highlights

The Tax Services business line currently employs about 27,600 full-time equivalents (FTEs), representing 60% of the CCRA's workforce. With additional funding from the resource review, our immediate challenge is to attract the workforce we need to carry out our compliance mandate. Across all functions in Tax Services, the number of FTEs remained virtually constant. In 2001-2002, much of our recruitment effort was focused on compliance. Although we experienced some delays in hiring auditors for a number of different reasons, including accommodation and security clearance issues following September 11, by the end of the fiscal year, we met our targets for hiring approximately 900 additional auditors. The late hiring resulted in only a marginal effect on our FTE count for this year.

Over the next few years, with a move towards electronic service delivery, through our Future Directions initiative, and the increasingly dynamic global environment in which we operate, the mix of skills in our workforce will have to change and adapt across all our service delivery lines.

Exhibit 32: Trend in FTEs: Authorities and Actual

To keep pace with the ever-changing internal and external environment (such as legislative amendments, globalization and e-commerce), we invest in training and learning for our existing employees. This will require even more attention over the coming years. A large number of senior staff who are reaching retirement age will have to be replaced, and their accumulated skills and knowledge will need to be transferred to their successors. Our Annual Survey indicates that 85% of Canadians who have had contact with Tax Services agree that the staff are knowledgeable and competent.

Examining the results of demographic analyses and human resources forecasts helps us set our recruitment and retention strategies. We undertake this work annually, as it is the cornerstone for planning our training and development programs—identifying shortfalls; guiding recruitment, training, and development; and identifying career opportunities in a proactive manner.

A key concern is how to retain staff in specialized areas where we compete with the private sector for highly trained staff. We have a variety of effective recruitment initiatives to attract highly qualified, knowledgeable, and professional individuals. Examples of these include the Auditor Recruitment and Apprenticeship Program, the Internal Recruitment Auditor Apprenticeship Program, and participation in the Economist and Statistician Recruitment and Development Program.

Creating an environment that fosters continuous learning, staff development, and job satisfaction is vital to keeping knowledgeable and competent staff. In order to identify and respond to staff learning needs, competency profiles are being developed for all positions, and individual learning plans are in place for most of our employees. With the development of competency profiles, the learning plans will be tailored to address the needs of staff vis-à-vis the competency profile of their position and their career plans.

In addition to internal training initiatives, in some areas such as audit, we partner with academic organizations, foreign administrations, and other internationally recognized training providers to attain key expertise in areas such as computer search and evidence recovery, fraud awareness, sophisticated computer-assisted audit techniques, and auditing electronic commerce. We also provide specialized training on international tax matters such as foreign accrual property income, offshore trusts, non-resident tax, transfer pricing, and tax treaties.

According to a report from the Canadian Federation of Independent Business, CCRA auditors received favourable marks from business owners who have had their firms audited since we became an agency. The auditors' level of courtesy received the highest marks, with 48% of business owners rating this trait as good, 39% as acceptable, and only 12% as poor. The overall professionalism of auditors followed closely behind, with 86% of business owners citing this as either good or acceptable.

Highlights

During the past decade, the CCRA has made much progress in electronic service delivery. This has put us at the forefront of the Government On-Line (GOL) initiative, which will have key programs and services on-line by 2005. The CCRA is uniquely positioned to advance the GOL initiative, not only because of our innovative efforts at electronic service delivery, but by virtue of the fact that we deal with the majority of Canadians and Canadian businesses on a regular basis. For many Canadians, the CCRA is the “face” of the federal government.

Extensive consultations with client groups through our Future Directions initiative have confirmed that we are on the right track in using electronic service delivery as the driving force behind our ongoing business transformation for improved service and efficiency. We have continued to aggressively expand the range of electronic service options we offer, and a substantial share of our clients are taking advantage of these services. Our on-line services are driven by five key principles: they are client-driven; convenient, accessible, and bilingual; faster; respectful of privacy and security; and represent a choice of service options.

Besides the Internet, we have continued to explore the use of telephony technology, with innovations such as allowing business clients to file nil payroll reports and GST/HST returns over the telephone. Other changes to business practices include permitting individual clients to pre-authorize the debiting of their accounts for instalment or arrears payments. Projects to re-engineer or replace legacy systems, such as the redesign of the GST/HST system using the standardized accounting platform, the Other Levies Project, and T1 Matching Redesign, are proceeding as planned.

Good progress has been made in implementing some 2001-2002 to 2003-2004 Corporate Business Plan initiatives, as well as initiatives identified in the Road Ahead section of our last Annual Report, including electronic service options. Under our Future Directions initiative, we made solid progress in developing an integrated service vision across agency business lines.

We have begun to formulate a clear vision based on the compliance continuum for the future direction of our tax services, and to transform our business processes and approaches to respond to the priorities of our clients. It is our intention to co-operate with other agencies in bundling congruent services, while respecting privacy legislation. We have consulted with clients and staff and are using their views to confirm and adjust our strategies. Throughout the process, we will ensure that our employees have the right tools, training, and learning they need to fulfill their roles and contribute to our success as an organization. This will help ensure that we continue to provide the best possible suite of services for our clients, while making wise management and investment decisions.

We have continued our pursuit of continuous program improvement aimed at enhancing the service we provide. For example, we moved towards becoming a more modern and efficient service provider through our role in the Excise Act Review. This is a joint effort with the Department of Finance to review and overhaul federal tax provisions for alcohol and tobacco products under the Excise Act and Excise Tax Act. The proposed Excise Act, 2001 aims to replace the old and outdated administrative and enforcement structure for alcohol and tobacco products with a modern regime reflecting current practices.

The CCRA plays a leading role in the Cabinet-supported Voluntary Sector Initiative (VSI) and chairs the Joint Regulatory Table of the VSI. The efforts of this group resulted in the Prime Minister's signing an accord, in 2001-2002, recognizing the importance of the new relationship between the federal government and the voluntary sector. As well, we have made significant progress in establishing a new direction for the Scientific Research and Experimental Development (SR&ED) Program. The Minister's Conference on Scientific Research and Experimental Development was held in May 2001. In Large Business Audit, we have also undertaken to initiate a number of working groups to examine the way we do business, and to make improvements to program design.

Date modified:

2002-11-07