Printed and Published by Nova Scotia Hansard Reporting Services
Mr. Graham Steele (Chairman)
Mr. James DeWolfe (Vice-Chairman)
Mr. John Chataway
Mr. Gary Hines
Mr. Howard Epstein
Ms. Marilyn More
Mr. Daniel Graham
Mr. David Wilson (Glace Bay)
Ms. Diana Whalen
[Mr. Brooke Taylor replaced Mr. James DeWolfe.]
Ms. Mora Stevens
Legislative Committee Coordinator
Mr. Roy Salmon
Mr. Gordon Hebb
Chief Legislative Counsel
Canada Revenue Agency
Mr. Robert Russell
Assistant Commissioner, Atlantic Region
Ms. Marilyn Gaudet
Director of Programs, Atlantic Region
Mr. Don Gibson
Director, Halifax Tax Service Office
Mr. Derrick Smith
Advisor, Policy and Planning Branch
Federal Department of Justice
Mr. Martin Ward
Department of Finance
Mr. Bruce Hennebury
Executive Director, Fiscal and Economic Policy
Service Nova Scotia and Municipal Relations
Mr. Frank Moore
HALIFAX, WEDNESDAY, DECEMBER 8, 2004
STANDING COMMITTEE ON PUBLIC ACCOUNTS
Mr. Graham Steele
Mr. James DeWolfe
MR. CHAIRMAN: Good morning, ladies and gentlemen, I will call to order this meeting of the Public Accounts Committee. We are very pleased to have with us today representatives of the Canada Revenue Agency and also observing representatives from the provincial government as well. I would like to recognize Mr. Bob Russell, the Assistant Commissioner of the Atlantic Region. Mr. Russell, before you make your presentation, I would like to ask you to introduce the people you have with you today.
MR. ROBERT RUSSELL: Thank you very much, Mr. Chairman. We have two representatives with us from the Province of Nova Scotia, Mr. Bruce Hennebury and Mr. Frank Moore. I suspect you may know both of them but Mr. Hennebury is the Executive Director, Fiscal and Economic Policy, with the Nova Scotia Department of Finance and Mr. Moore is the Appeals Director and Senior Policy Advisor with Service Nova Scotia and Municipal Relations.
From the Canada Revenue Agency, I'm joined on my right by Don Gibson. Don is the Director of the Halifax Tax Services Office located down here on Hollis Street. It's the largest tax office in the Atlantic Region. On my left is Marilyn Gaudet. Again, some of you may know Marilyn from her previous history as a senior public servant in the Nova Scotia Government. She is our Director of Tax Programs in the regional office here in Halifax. On Don's right is Derrick Smith who is a Policy Advisor from our national headquarters in Ottawa and then behind me is Martin Ward, Counsel with Justice Canada who works with us on quite a lot of our work.
MR. CHAIRMAN: Thank you very much. I would now like to ask the members of the committee to introduce themselves, starting with the member for Halifax Chebucto.
[The committee members introduced themselves.]
MR. CHAIRMAN: Marilyn More, the member for Dartmouth South-Portland Valley, sends her regrets. She is ill this morning.
I would now like to call on Mr. Russell to make an opening presentation. Mr. Russell, you have up to 15 minutes.
MR. ROBERT RUSSELL: Thank you very much, Mr. Chairman. I have tried to cram in as much as I can and will work through it fairly quickly. There is a deck that we have provided to you and I'm not going to try to speak to that deck page by page. It has 50-some slides in it.
Thank you for your interest in the Canada Revenue Agency and for inviting us here to speak to you on the HST or other matters for which we are responsible. We are committed to being a very open organization and some of the documents we've tabled with you I hope will illustrate that. I do regret the delay in getting here today and we did feel it important that we be accompanied by our provincial representatives, Bruce and Frank. We wanted the provincial representatives to accompany us here because under the Comprehensive Integrated Tax Coordination Agreement, or what we call CITCA, the Nova Scotia Minister of Finance is responsible for the relationship with the federal government on the implementation of the HST. Our role is to collect the HST, which is imposed under the Excise Tax Act and we share information and performance data with our provincial partners.
So while the CRA, Canada Revenue Agency, is charged with collecting taxes, matters of HST tax policy, such as the tax base, the tax rate, exemptions, are the responsibility of the three provincial Ministers of Finance and the harmonized departments, and the federal Minister of Finance.
The package you have in front of you includes a deck that covers an array of our responsibilities and attempts to describe our relationship with the Province of Nova Scotia. We have also tabled, which was just released, the annual report prepared by our commissioner to the Province of Nova Scotia which has a great deal of detailed information on our performance in Nova Scotia and nationally.
We became an agency in 1999. The reason for that change from a department, the Department of National Revenue, to the agency, there were several but one of them was to strengthen our partnership with provinces and a second was to encourage us to operate in a more business-like fashion. We have a board of management. These are predominantly private sector people, most nominated by the provinces. The nominee from Nova Scotia is
Linda Ivany and she is currently the acting chairman of the board. We are one of the largest public sector organizations in the country and we have about 800 employees here in Nova Scotia. The largest groups of those employees work in providing information and service to clients in conducting audits and in various revenue collections activities.
Last fiscal year, we collected over $300 billion on behalf of the federal government, the provinces and territories. From what we collect, Nova Scotia receives about $2.8 billion in tax including provincial income taxes, HST and provincial corporate taxes. When a lot of people think of us, they forget that we are also responsible for a variety of credit, benefit and income redistribution programs and we distributed about $12 billion under these programs in the last fiscal year. Again, a lot of that information is in the annual report.
You have asked us here specifically about the HST which came into place in 1997 and, as you know, is applied at a rate of 15 per cent on a wide range of goods and services. One thing that many people don't realize, I will just point out, is that the monies received by Nova Scotia are not determined by the actual amount collected in Nova Scotia, they are determined by a sharing formula that is administered by the Departments of Finance. There are two committees set up under CITCA to oversee how we manage the HST. One is a policy committee of finance officials and the second is a tax administration liaison committee in which we participate with provincial counterparts.
Of course, our accountability to Nova Scotia goes well beyond HST. We do an annual report that details our results every year. Our minister and commissioner meet with provincial ministers and deputies. Nova Scotia is a province that, in many respects, is the model for co-operation that we like to speak about with other provinces. It was the first province to sign a service management framework agreement with us, the only province to include its Workers' Compensation Board as a signatory to that agreement. We've got quite a number of co-operative initiatives with Nova Scotia and I will just touch on a few of them very briefly. You may have questions later. We can come back to you.
We collect a very high percentage of the total revenues in Nova Scotia. I believe it is something over 80 per cent. The business registry in Nova Scotia is another first. Under that, businesses in Nova Scotia can register on-line 24 hours a day, 7 days a week. They can deal with multiple federal and provincial agencies; apply, pay for, renew scores of licences and permits, view and change business information. That, I think, is particularly important because in international surveys, Canada is repeatedly seen as a leader and often as the world leader in providing government services on-line to citizens and businesses and Nova Scotia is really at the forefront of that with this project. It is being emulated now in other parts of the country but no one is quite as advanced as Nova Scotia as yet.
We have a memorandum of understanding with the Department of Agriculture and Fisheries. Under that, we are trying to combine our joint regulatory frameworks to allow us to improve compliance. When we do our normal books and record exams in the course of
our audit work, we are empowered by the province to similarly look and see whether the books are adequate for the purposes of the Fisheries and Coastal Resources Act and if not, then the province can exercise its powers which can include suspension or cancellation of licences. So obviously what we are trying to do there is ensure that legitimate business people are not harmed by people who are trying to operate unfairly.
We work closely with Nova Scotia on underground economy issues. The province has been a member for several years of a national working group on the underground economy. The construction industry is an area where we have done a lot of work and Nova Scotia has participated. If you have been to home shows, you may have seen the Get it in Writing! literature that cautions consumers about purchasing home renovation services for cash and some of the problems they can get into if they do that.
I mentioned the WCB already. We process the remittances that employers make to the WCB in Nova Scotia. Again, currently it's the only board in Nova Scotia that affords that opportunity to its businesses. What happens there is, when an employer makes its regular payroll remittances to us for withheld income tax, EI, CPP, it does so at the same time and on the same form for the WCB. That also gives them access to our full range of payment options, including Internet and other electronic options that they wouldn't have otherwise.
Last year we processed about 180,000 payments for the WCB here in Nova Scotia.
We administered the taxpayer refund. I know you discussed that recently. Our role was to identify eligibility over a three-year period and we identified about 500,000 eligible Nova Scotians, and responded to inquiries. We handled about 43,000 telephone calls from Nova Scotians about the NSTR.
We have a refund set-off program where people who owe the province money do not receive refunds from us, but rather that money they owe, whether it's for fines or overpayments that they owe back to Community Services, or whatever, we take the refund and allocate it back to the province. There were about 10,000 of those last year for over $2 million.
We have an arrangement with the province on procurement so that if they are entering into contracts over $25,000, the contractor must be tax-compliant or the province will not issue the contract. We are working closely now with officials in the areas of tobacco and alcohol which are fairly heavily taxed, and where the province has some regulatory abilities, as well, to see if we can find ways to link our efforts in dealing with vendors of alcohol and tobacco.
I just want to take a minute on what we call our compliance continuum. If you've got the deck I gave you, on Page 37 there is a whole schematic there. What we are trying to do is go along the continuum from basic service, which is providing information on the assumption that people will comply voluntarily if they have the right information they need -
and most will - through to what we call assisted compliance, which involves some of our audit and checking work, and bringing to the attention that people may have made mistakes.
Finally, through to our enforcement side which includes our audit work, our investigations and prosecution activity. Underpinning that whole process at all stages is a dispute resolution process. Our system is a self-assessment-based system. Employers and Canadians are required to make self-assessment. Taking together what we are trying to do with that range of options from service right through to enforcement is to protect the integrity of the tax system and ensure that people pay what they are supposed to pay and no more.
We also have checks to identify people who are entitled to benefits who haven't claimed them. We call this beneficial adjustments. I can get you numbers - I don't have them at the tip of my tongue - but there are literally thousands of people and millions of dollars identified each year, I guess, that are happy surprises for people where they are owed money that they didn't realize.
So in conclusion, ensuring compliance with the tax system is a challenging task. We have 23 million taxpayers out there, 1.5 million businesses, a very complex legislation. We have very strong privacy laws that respect you, me and every other taxpayer in Canada, with respect to individual cases. We will not be in a position today to speak to any individual taxpayer file. Sometimes, actions that we are taking on any particular file may take quite a lot of time before they become visible or may never become visible, given the confidentiality restrictions in our legislation.
I would say that we take every inquiry, every lead, every complaint very seriously, follow up on them. Our people have contact every day with taxpayers. We are aware that when there are people who are abusing the tax system and playing unfairly, that that hurts us all. It hurts the economy, it hurts the business person affected, takes out jobs and investment. We are committed to working very hard at that and working with our provincial counterparts.
With that, Mr. Chairman, I will conclude my remarks and will try to answer as many of your questions as we can. Thank you.
MR. CHAIRMAN: Thank you very much. The first 20 minutes belong to the NDP caucus and in the unexpected absence of the vice-chairman, I will be leading off the questions from the Chair.
Let me say, first of all, that it is a pleasure to welcome you here and I thank you very much for the extensive information that you have provided to the committee this morning. What has not been such a pleasure is the odyssey that we have had to go through to get you here. We, as a committee, first wrote to your minister over a year ago, and it has taken us
over 12 months and a subpoena to get you to appear before this committee for a couple of hours. Once you are gone, we are not sure when, if ever, we will get you back.
I'm concerned about that because the Canada Revenue Agency collects a significant amount of money as the agent for the province. Just leaving aside all the other many interactions that your agency has with the provincial government, your agency collects more than $1 billion a year in HST, the province's share of the HST, from the people of Nova Scotia and you do that on our behalf. Yet, getting answers about the administration and enforcement of the HST has proven to be very difficult for those of us sitting in this Legislature.
So let me ask you, first of all, a general question. When we, as members of the Nova Scotia Legislature, want to get answers, real answers about the administration and enforcement of the HST, who is it that we should turn to?
MR. ROBERT RUSSELL: In the first instance, we would ask that you turn to the provincial officials with which we work and with which we make regular reporting. We have tabled quite a lot of information this morning.
We took a long time and I did, in my opening remarks, indicate that we regret the time that it took, because we haven't had this question before, astonishingly, perhaps, with respect to either HST, GST - well, not GST, but provincial corporate income taxes. So there were concerns that were raised around how we should appear, when we should appear, should it be a matter of public record or not. I do apologize for the delay it has taken. We are here willingly and we will try to answer every question you've got. If there are unanswered questions, we will endeavour to get you answers.
MR. CHAIRMAN: Okay, you said in the first instance we should go to our provincial Department of Finance but the problem is that our provincial Department of Finance won't answer our questions. They defer to your agency. For example, in a letter to this committee - which is in the background material that the committee has - dated December 5, 2003, the then Deputy Minister of Finance for Nova Scotia, Howard Windsor, says, " . . . we do not set the policies and procedures related to the collection of HST. Enquiries in respect of this should be directed to the CCRA."
So when we ask our provincial Department of Finance, they say, oh, no, it's not us who has the answers, go to CRA. But when we or any individual, or any reporter goes to your agency, we are basically told, no, we can't answer your question and we won't answer your question.
The reason that's given is confidentiality. I'm sure we can all understand that. I don't want you discussing my personal tax situation here in the Legislature and no taxpayer should have their individual circumstances discussed. We understand that, we accept that. But, in my view, this idea of confidentiality gets taken way too far, so that the only answers we seem to be able to get out of CRA are vague, high-level answers pitched at a very high level of abstraction. There has to be some kind of compromise where we get real answers to the real questions that we have.
The difficulty I have with this, of course, is that it leads to a lack of accountability. This cloak of confidentiality, or what I prefer to call secrecy, that surrounds CRA, really insulates it from any accountability, certainly, to this Legislature. My second general question is, to whom do you consider CRA to be accountable? Who has the right to get real answers to real questions?
MR. ROBERT RUSSELL: Okay, I'm going to try to deal with several of the sub-questions that you asked along the way, to answering to whom we are accountable. First of all, if you pose a question to the Nova Scotia Department of Finance, they may be able to answer that question based on the detailed information that we provide them. If they're not, and if they ask us for the answer, I'm quite certain that we would provide it.
You mentioned reporters and we answer a great many questions on a regular basis from reporters and provide a lot of information to them. Our annual report, of which you have a copy, is an extensive compilation of the work that we have done in Nova Scotia, across all of our programs, all of our business lines. It is quite detailed in the data that it provides.
Our annual report to Parliament, which we don't have copies for you now but we can get them if you want - we have a couple of them here today - not only identifies performance on a national basis but is quite candid in identifying areas where our performance is below our standards that we are trying to achieve. We have received positive comments from the Office of the Auditor General on our willingness, not only to tell good-news stories, but to say the bad stuff.
On accountability, under the Income Tax Act we're responsible to the Minister of National Revenue. Under the arrangements we have with provinces, our minister has relationships with provincial Ministers of Finance, predominantly and, in the case of the HST, it's federal legislation under the Excise Tax Act. The Comprehensive Integrated Tax Coordination Agreement draws relationships between us and the province through the Ministers of Finance for policy matters, and through us and Service Nova Scotia in this case, on administration matters.
We will try to answer every question you have, questions that do not relate to individual taxpayer files. I think we are quite open.
MR. CHAIRMAN: Let me turn to a couple of specific examples of the difficulties that we've had. The first example involves a gentleman by the name of Cal Lees and his wife, Charlotte, who own a convenience store on Highway No. 3 between Chester and Chester Basin. Mr. Lees is in the gallery today, it took him almost two hours over icy roads to get in here today but he said he wouldn't miss it for anything.
For a very considerable time - the better part of eight years as a matter of fact - Mr. Lees has tried to bring to the attention of the appropriate authorities that one of his competitors, which is situated on nearby Reserve land, is not charging HST to its off-Reserve customers. Mr. Lees has made no secret of the concern and it has been widely reported over the past several years in the local and provincial media.
The duty of on-Reserve stores to charge HST to off-Reserve customers has been conclusively established in our courts. In correspondence to this committee dated May 10, 2004, your minister says that the position of the CRA is, " . . . businesses on reserves in Nova Scotia are required to collect and remit the HST on sales to non-Indian purchasers." But beyond that, Mr. Lees has been unable to get any answers from your agency at all.
I would like to take this opportunity to ask some of the questions that Mr. Lees has been asking but hasn't been able to get answers to. The first one is, has the CRA received a directive from its minister or anyone else in the federal government that it should not enforce this particular aspect of HST collection?
MR. ROBERT RUSSELL: No.
MR. CHAIRMAN: Considering the CRA collects the HST on behalf of the province, has CRA received a directive from any unit of the provincial government asking them not to enforce this particular aspect of HST collection?
MR. ROBERT RUSSELL: No.
MR. CHAIRMAN: Does the CRA have an agreement with any Aboriginal government in Nova Scotia not to enforce this particular aspect of HST collection?
MR. ROBERT RUSSELL: Not that I'm aware, I believe the answer to that is no.
MR. CHAIRMAN: Is the CRA of the view that there is a legitimate doubt based in law about whether it has the right to enforce this particular aspect of HST collection?
MR. ROBERT RUSSELL: No, we believe that the case you referred to is clear that we should be enforcing the law and respecting the provisions of the Indian Act.
MR. CHAIRMAN: Is the CRA of the view that the manner in which the HST is collected is a matter that should be subject to some consultation or negotiation with Aboriginal governments?
MR. ROBERT RUSSELL: There is an interest in consultation with Aboriginal governments on taxation matters generally. Our minister has recently moved to establish a First Nations advisory committee, to work with the CRA on Aboriginal taxation matters. So, broadly, the answer is yes, we are interested in working with them.
MR. CHAIRMAN: So, broadly, the answer is yes, which, of course, is appropriate, which I fully support but in this particular instance we're talking about the charging of HST to off-Reserve customers. Is that a matter that is before the committee for consultation or negotiation?
MR. ROBERT RUSSELL: The matter of charging HST to off-Reserve customers is a matter that we are required under our legislation to enforce and we are undertaking our best efforts to do that.
MR. CHAIRMAN: To the knowledge of CRA, are there any on-Reserve stores in Nova Scotia that are not charging HST to off-Reserve customers?
MR. ROBERT RUSSELL: We have done audit work - and I'm not really going to talk about particular files - on Reserves and we have raised assessments.
MR. CHAIRMAN: Last Friday I went to visit Mr. Lees' store and his competitor and I purchased five taxable items at each one of those stores. At Mr. Lees' store I was charged the HST, which added up to almost $2, and at the Reserve store I was not charged HST. This is what Mr. Lees has been saying for eight years and the difficulty that Mr. Lees has is that nothing seems fundamentally to change, despite the fact that he has been raising it for eight years and the position that he has been putting forward for eight years has been upheld in the courts.
The difference on a purchase of slightly under $15 in each of the two stores was almost $2 and it's enough to make me understand why customers in that local area would prefer to go to one store rather than the other. So I wonder if you could explain what enforcement efforts is CRA making in this regard?
MR. ROBERT RUSSELL: I mentioned our continuum and CRA's approach to compliance is based on risk assessment. We look at areas of risk and try to identify where the highest areas of risk are and undertake our various assisted compliance and enforcement efforts in those areas. Both alcohol and tobacco are commodities that are fairly heavily taxed and they're areas that we pay quite a bit of attention to.
Any particular business that we believe may be not charging appropriately, whether they are on a Reserve or elsewhere, we will investigate and determine whether further follow-up action is required. We are very aware of the case you're speaking of, of course, because as you pointed out it has been public and it has been visible. I'm not in a position to talk specifically about what we may or may not have done with respect to any particular business.
MR. CHAIRMAN: No, and of course I'm not asking you to do that. I understand and accept, as we all do, that you can't address the circumstances of a particular taxpayer. However, I guess, one of the questions that Mr. Lees has had and which I'm sure this committee has is how broad the problem is. What I'm trying to illustrate is this problem that this committee has, generally, getting answers about the collection of HST because your agency is collecting over $1 billion a year on our behalf, which is fine. Way up here at the billion dollar level you're willing to answer any questions that we may have. (Interruption) I'll get to my question in a minute. Then there are particular individuals who may or may not be complying with the law. We understand that you can't talk about things on that level, but what we're looking for is something in between the high level billion dollar stuff and the individual taxpayer stuff.
What I'm really trying to get at, what Mr. Lees is trying to get at is, how broad a problem is this? If it's an individual store, why has nothing changed in eight years? If it's not an individual store then we don't have to worry about the confidentiality of a particular taxpayer. The problem here that I'm trying to address is the lack of accountability, the lack of answers that a citizen like Mr. Lees can get when he raises a legitimate question.
Abstracting from that particular store - which I don't want to know about because I don't have the right to ask about it, nor should you answer any questions about it - how big a problem do we have here in Nova Scotia with this particular type of business being non-compliant with the HST rules?
MR. ROBERT RUSSELL: You put in the context of the type of business and that's the way we do our research and track our compliance activities. We identify types of business using standard industrial codes, we identify corner stores, we identify gas stations, we identify sawmills, or engineering consulting firms, or whatever. As I mentioned already, we know that alcohol and tobacco, because they are heavily taxed, are a couple of commodities where we tend to find a higher non-compliance than in some others. We also know that there are certain industry sectors that are prone to cash sales: parts of the hospitality industry, auto repair, parts of the construction and home renovation industry. So our approach and our identification problems are based on industry sector and I think you'll find that our reports are not at the billion dollar level, in terms of the level of precision of information provided.
In the annual report that we've tabled this morning, we're right down to the number of audits that we've undertaken in small businesses, medium sized businesses, larger businesses, how much we've assessed. There is a lot of detailed information in there.
MR. CHAIRMAN: Mr. Lees has been unable to get any answers to his questions, and they're legitimate questions. Reporters are unable to get answers. I have here a column from a local newspaper dated January 13, 2004, in which the reporter complains that when he contacted CRA about this issue, he was not able to get any answers at all. We have been unable to get any answers at all. So the fundamental problem that I want to get at today is you're collecting $1 billion on our behalf, but we can't get any answers. Let me ask you one more time, if we want answers, real answers to real questions not vague, abstract answers to real questions, how do we go about getting the answers about the $1 billion you're collecting on our behalf?
MR. ROBERT RUSSELL: I don't think we're giving you vague answers, and I think that the detailed information in our annual reports that we make are quite specific about the kinds of activities that we undertake, where we concentrate our efforts, what the results of our enforcement actions are, how many people have been convicted, how much in fines and sentences have been levied. We are not able - we are bound by law - to speak to specific individual cases. Reporters have called looking for information about specific cases, and we are absolutely prevented from responding to that. I would repeat that I think we have been a very open and transparent agency in how we conduct our business. We have had positive comment from the Auditor General about the openness of our reporting.
MR. CHAIRMAN: From the federal Auditor General?
MR. ROBERT RUSSELL: That's correct.
MR. CHAIRMAN: Because our Auditor General doesn't have the right to look at your books either, and has to rely on the work of the federal Auditor General to do his work. In the couple of minutes left to me in this round, I just want to ask you a couple of short snappers. You mentioned the Taxpayer Refund Program, can you confirm for us the final bill to the province that's being submitted in respect to that program by CRA?
MR. ROBERT RUSSELL: The $1.6 million figure that you quoted is very close. I have the exact figure for the fiscal year ended in March 31, 2004, and most of the work was done by then. That was $1.55 million, and I could give it to the actual dollar if you want. We can get that later. There was some work that has carried over, but a small amount. I think we've received a couple of thousand extra telephone calls, and there have been some determinations, people who apply and either receive credit or don't receive credit are similarly, some of them, at the same time in having their income tax reassessed for other
reasons. They may have found that they are eligible for other credits that they had forgotten to claim, or we may have found that they had income that they should have declared that they didn't. That can change their eligibility.
MR. CHAIRMAN: What, in your opinion, were the biggest two or three problems in the administration of the Taxpayer Refund Program?
MR. ROBERT RUSSELL: For us, our probably only significant problem was the volume of telephone enquiries that we received in the first few days after the program came out. We completely overloaded our system and had to do quite a bit of switching of telephone calls to centres outside of Nova Scotia where we have a limited number of larger call centres across the country to be able to respond to enquiries. There was a huge spike in those enquiries in the first few days, particularly from Nova Scotians who did not receive the tax credit and were not happy about it. We had a lot of angry callers and a very high volume of them.
MR. CHAIRMAN: What, in your opinion, are the top two or three toughest enforcement issues you face with respect to the HST, and what's the dollar value associated with them?
MR. ROBERT RUSSELL: Probably our two biggest challenges in the HST, and I'm not sure I can put a dollar figure on it now but I know we've done some work nationally, one is improper registration, people who either don't register or who register and create fraudulent companies for the express purpose of committing fraud and claiming input tax credits to which they're not entitled. We've done a lot, particularly in the last couple of years, to strengthen our front-end review of the registration process, so that we know that registrants are who they say they are and are legitimate businesses. The second is the other piece of that - the improper claiming of input tax credits.
MR. CHAIRMAN: Thank you very much. That concludes our time. We'll move on to the Liberal caucus for the next 20 minutes.
The honourable member for Halifax Citadel.
MR. DANIEL GRAHAM: Thank you for coming, ladies and gentlemen. I would like to pick up on the subject that the chairman just left off on with respect to the Taxpayer Refund Program. You indicated a figure of $1.55 million in the cost of that program, and I think you may have attached a date to that, you mentioned March 31, 2004. Are you telling this committee that that was the estimated cost that was given at that time?
MR. ROBERT RUSSELL: No. That's the cost that we had incurred to that point, and that is reflected in our annual report for the fiscal year ended March 31st.
MR. GRAHAM: At what point did you know that the cost was $1.55 million, approximately?
MR. ROBERT RUSSELL: I'm not sure of the exact date. I can find that for you.
MR. GRAHAM: We've made this request from provincial Finance officials, and I'd ask that the same be provided from your end as well. Would you be able to provide to the chairman of this committee all correspondence, from beginning to end, in relation to the material discussions around the cost and the delivery associated with the Taxpayer Refund Program?
MR. ROBERT RUSSELL: I suspect we can provide that. My understanding is that the decision to move to three years required extra work on the eligibility determination side, and that in combination with - that's three years of eligibility determination for about 0.5 million taxpayers, and the telephone call volume that reflected the work we would do.
MR. GRAHAM: You don't happen to know when the first estimate was given of the cost for that program?
MR. ROBERT RUSSELL: No, but I'm certain we could find that.
MR. GRAHAM: I'm sure it will appear in the material that comes forward. I'd like to congratulate the chairman and also the member for Chester-St. Margaret's for their tenacity, and Mr. Lees for his tenacity, in asking what I think are absolutely legitimate questions about whether or not there is due diligence exercised on the part of the agency in collecting taxes in these circumstances. This is an issue that touches all Nova Scotians and indeed all Canadians.
I have before me Report 17 of the Standing Committee on Public Accounts for the Government of Canada. This is a report that deals with the losses of tax revenue due to fraud or wilful misrepresentation. At that time there was a call on the part of the federal Public Accounts Committee to have a more rigorous response to how much money we are losing as a result of tax fraud or misrepresentation. I would like to start, please, if you could, with the big picture. Could you provide to this committee an estimate of how much money is lost in revenue to both federal and provincial levels of government as a result of fraud or misrepresentation?
MR. ROBERT RUSSELL: There was a number, and I'd verify it for you, that I believe was in the Auditor General's report or a Public Accounts Committee report of about $65 million since the start of the HST Program in 1991. That represents about 0.13 per cent of revenues collected under the GST since then. It's an extremely large amount of money, but it's also a very small amount of money relative to the total size, and Canada's compliance
and collection capability with respect to GST compared to other countries' value-added taxes is very strong.
I guess I'd mention also now that about 90 per cent of HST registrants across the country file appropriately without any intervention. In Nova Scotia the figure is about 94.5 per cent, so the performance of Nova Scotia registrants is actually significantly better than the national average.
MR. GRAHAM: The question I asked at the outset wasn't just restricted to the HST, it was about tax fraud and misrepresentation generally.
MR. ROBERT RUSSELL: No, I don't have a number for you on total tax fraud. There are various estimates that are around. There are academics who have done work in that area. We follow that. What we know is that there is a large enough volume of tax fraud, tax avoidance, tax evasion occurring that we need to focus on it and focus our efforts in areas of highest risk. When I was talking earlier about risk assessment, we've tried to build some comprehensive risk assessment models that allow us to identify the areas of greatest tax risk, and I can speak to those if you'd like, at some length. Basically they are trying to ensure that we allocate the resources that we get from Parliament to the areas of highest risk.
MR. GRAHAM: I don't want you to comment at length about those, however, I do want to just open the door and find out what generally is in that door. My assumption is that you make an analysis according to industry sectors and, perhaps, according to geography and some other indicia, is that correct?
MR. ROBERT RUSSELL: That's right. Also, demographics. We do time series analyses, regression of neuro-network analyses. We have got about 40-plus variables and some 190 sub-models. The models that we use are decision-rule based. Every taxpayer return, every remittance that goes through our assessment systems is assessed against those computer rule tests. The ones that appear to be outliers, for whatever reason, they're anomalous, are referred for further compliance work.
MR. GRAHAM: Undoubtedly, you attach figures to what your analysis is. This isn't just sort of a general analysis. You're trying to determine what is the cost in various sectors and I imagine there is a reasonably specific breakdown according to the numbers that one might expect by demographics, by time, by sectors, et cetera.
MR. ROBERT RUSSELL: If by numbers you mean we have estimated, kind of, how much tax it is for that sector at that place, that time, no. Again, that would require, probably, a degree of research effort that we can't undertake right now. What we are trying to do is identify and rank the probable tax risk so that we can identify the ones that are more risky than others.
It's not important, perhaps, that we know the absolute amount of the higher risk in sector A over sector B over sector C, but if we know that sector A appears to have substantially more tax at risk then we will devote more resources to that.
MR. GRAHAM: I guess the reason I ask that is because this document that we received today, the Commissioner's Annual Report to the Government of Nova Scotia - unfortunately, I and at least one member of the other caucuses just saw that for the first time today - it doesn't contain any specific information. The deck that you provide today, or at least the comments from that deck - and I, again, just received this, this morning, I haven't had a chance to go through it in any detail - doesn't deal much with the specifics of the problem of delinquency. I may be wrong about this, I may be missing something.
Your appearance before the committee this morning, you knew, was to deal with the questions of delinquency and non-payment in Nova Scotia. I am just wondering, so far we haven't had much of an analysis or a comment from you or your agency on what's the nature of the problem? Where is it? Describe it for us, in Nova Scotia. Where is the problem, how big is it and how are we going to get at it?
MR. ROBERT RUSSELL: I recognize you have just received the annual report this morning. That's just been released to the province. It was a confidential document and we had to secure the approval to make it available to you this morning. So it's very fresh, within the last few days. The deck, we prepared specifically for you, for the appearance this morning, to try to help respond, perhaps, to some of the questions that you have.
There is quite a bit of information about delinquency and we talk about our non-filers and non-registrants program, the number of cases that we analyze, the number of cases that we find to be delinquent, the kinds of follow-up actions we take on them.
MR. GRAHAM: It's unfortunate that this document wasn't provided to us in advance of today's discussion because it's completely unreasonable to expect that we would be able to go through a lengthy document like this and provide any meaningful feedback. It's consistent with the themes that the chairman was touching on, with respect to a haziness in the response, at the very least. It's clear that there was a reluctance to appear before our committee in providing us with this kind of material in advance. With such short notice, it leaves me with some disappointment and some problems. Let me leave it at that.
MR. ROBERT RUSSELL: Okay, if I could just respond.
MR. GRAHAM: Sure.
MR. ROBERT RUSSELL: I would repeat that the document has just become available. We would invite you to look at it. We thought it would be better to give it to you this morning than have it available and not provide it. The deck, we didn't finish until yesterday, if you want to know the truth, in getting ready what we thought might be some of the kinds of issues and interests that you would be interested in. We had discussions with the chairman and we had tried to discern some of the kinds of things that would be of interest
to you. Our annual reports, on the other hand, to Parliament have been public documents and widely available, and similarly, contain a lot of information.
MR. GRAHAM: We still haven't gotten to this hour, to the nature and a description from you, in your oral testimony to the committee today of, what's the nature of the problem in Nova Scotia? Where does it exist and how are we going to get at it? Can you give us a general description of where we are and how we're going to solve it?
MR. ROBERT RUSSELL: I'm not sure there is a problem or the problem. What we have is a very diverse array of taxpayers, individuals, corporate, small businesses, big businesses, a widely varying tax compliance situation as you move from sector to sector. We have high rates of compliance in some sectors and other sectors where the rates of compliance are lower. I've mentioned some of those sectors already: cash sales areas; hospitality; the fishing industry; the construction industry; automotive repair. These are some of the areas that we know are prone to higher rates of non-compliance.
We know that in dealing with large businesses that both sides, ourselves with very experienced and professional auditors, and the business community with very experienced and seasoned accounting advisers are going to test the limits. We do regular and detailed audit work on all of our large files and in the benefits area as well, we have some non-compliance that we have to follow up on there. There's no single problem, it's a complex business and there are many problems we're trying to address.
MR. GRAHAM: Let me finish my questions by asking a rather square question. What is the estimated dollar value of lost HST revenue in the Province of Nova Scotia? Assuming that you have that information for our Public Accounts Committee, can you provide us with information that shows us how you have arrived at that figure?
MR. ROBERT RUSSELL: I don't have a figure for you. We have identified already that there are areas of non-compliance and sectors that we should work on. We use - and I mentioned earlier some of the risk assessment work - a lot statistical techniques to try to identify what the volume of tax at risk is. We would, for example, in respect of HST, conduct analyses of retail sales and compare those to HST collected.
The underground economy is a significant component of lost HST. By definition it is underground and not visible. There are some very smart contractors out there and business people who are deliberately avoiding paying the HST. We don't know exactly how many are there, there are lots of estimates and I haven't seen estimates on a provincial basis. Some of the estimates nationally are in the $10 million range, by various academics.
As I said before, we believe that it's not so important that we know exactly what that amount is, and economists tell us we probably can't, but rather that we ensure that with the resources we have, we try to focus on the elements of highest risk and try to deter the non-compliance.
MR. GRAHAM: I will turn it over to my colleague but it strikes me that the size of the problem is an important question, whether it's a $2 million or a $20 million question, or something even larger in Nova Scotia, it is absolutely vital for Nova Scotia taxpayers to know.
MR. CHAIRMAN: There is slightly over six minutes.
The honourable member for Halifax Clayton Park.
MS. WHALEN: I wanted to go directly to one sector where there is a lot of illegal or underground activity and that would be the fisheries sector.
Throughout the province we have, arguably, the best fisheries in Canada. Certainly, the tri-county area of the province is very lucrative and very prolific. In the lobster fishery alone, I had an article that referred to this from two years ago saying it was about a $300 million industry for lobster alone, and yet, only $200 million is sort of above board. So we're talking a third of those sales, and possibly more - perhaps you have a better handle on it - but just to use those figures, maybe a third of the industry that's going through an underground economy.
I have had the opportunity to speak to a number of people from those areas and legitimate business people are very bothered, very similarly to the case that we were talking about with the First Nations and the HST not being collected for off-reserve. It very much harms the confidence and faith that people have in the system when you're playing above board and paying your taxes.
I would like to explore with you a little bit about what's being done for the illegal fisheries, how you're approaching it? My understanding, from talking to our Fisheries Critic, was that several years ago a task force was formed and as far as the people in that area, they don't see evidence of what's happening and how this is being addressed.
MR. ROBERT RUSSELL: It is being addressed, it's the largest single area of resources that we have devoted in our underground economy work, the fishing sector. We have done a relatively large number of audits, books and records examinations, I think about 100 in that sector in the last year. We were approached by the Seafood Producers Association on behalf of buyers and they were very concerned, as you point out, that legitimate buyers operating above ground were having difficulty buying catch. It's a challenging sector to work in, some of the people that are operating on a cash basis are using intermediaries, nobody is
keeping records. Having said that, we have a number of investigations underway, we have had some prosecutions, we have had some convictions and we are continuing to devote a lot of resources to that problem.
MS. WHALEN: Can you give me an idea of how many convictions, how many prosecutions, just to give more confidence to the fact that action is being taken?
MR. ROBERT RUSSELL: I might have something on that. I was reviewing some of this last night, whether I have an actual note on that or not. Don, do you know that right off? (Interruption)
MS. WHALEN: There's also a question, too, about the size of the fines and if you have any information on that I'd like to know. One case I saw there was a $25,000 fine but that's really not very much of a punitive measure when the dollars we're talking about are huge.
MR. ROBERT RUSSELL: Actually, I do have something here. We've had a little over 30 convictions - this is our underground economy convictions - and this would include two areas predominantly, mostly fishing and the other is auto sales, what we call car flipping. About $4 million in fines and five prison terms.
MS. WHALEN: On those fines is $25,000 the general range that we'd find for the fines?
MR. ROBERT RUSSELL: I'm not sure. We can provide some analysis on that.
MS. WHALEN: I would like, if we could, to get a complete list of the action that has been taken to date.
MR. ROBERT RUSSELL: That's certainly possible. We do issue press releases whenever we have successful convictions, to make people aware that we're out there auditing and doing this work to try to encourage compliance, and deter non-compliance.
MS. WHALEN: You mentioned about the rate of compliance overall in Nova Scotia being good but in this industry it would appear to be quite poor. Can you give any idea of the rate of compliance in the fisheries industry?
MR. ROBERT RUSSELL: Again, there are those estimates, they're not estimates that we created. We know that it's very large and we're not sure what the exact number is.
MS. WHALEN: You mean compliance is good?
MR. ROBERT RUSSELL: No, we know that there is a lot of cash activity in the seafood sector and that's why we're concentrating the resources that we are.
MS. WHALEN: In those fishing areas the people say it's very obvious to them where people are enjoying extra money, perhaps they're living a lifestyle that's above the amount they would be filing for. Can you tell me how many people you've dedicated to this audit of the fishing industry, because 100 audits isn't that much and in the same newspaper article I have said that there were 970 licensed fishermen just in one area, LFA 34 off Digby and Yarmouth.
MR. ROBERT RUSSELL: We always have to balance the volume of our audit activity that we need to address compliance risk with the expectations of Canadians that we're not inappropriately pestering them. So we need to balance how much audit activity we undertake; 100 audits in a particular sector is quite a lot of activity. We probably did about 1,000 audits in the corporate sector. Don, can you speak to the size of the audit team working in UE? Mr. Chairman, this is Don Gibson, Director of the Halifax TSO.
MR. CHAIRMAN: Mr. Gibson.
MR. DON GIBSON: I don't have any definite figures but it's my understanding that in our office we have three audits teams that are working in the underground economy, specifically in the lobster fishery area. So that would be a total of 24 auditors, plus three managers and that's on the audit side alone. We also have a number of people in our Revenue Collections Division, as a matter of fact, we have a specific team dedicated to trying to collect assessments and taxes from fishermen, as well as several investigators. I would expect we have in the neighbourhood of four or five of our fraud investigators working on the fishery sector.
MS. WHALEN: For the 100 audits that were conducted just in this sector, can you indicate in how many you found fraudulent activity?
MR. GIBSON: I don't have that figure here but we certainly could get that figure for you. The figure I could give to you would be the number that have proceeded to the courts and have been prosecuted. We could give you the number on that, certainly.
MS. WHALEN: From the 100, okay. Could I ask one final question?
MR. CHAIRMAN: Sure, as long as it's brief.
MS. WHALEN: I just wanted to say of the 100 audits that were conducted would it be fair to say that a significant number had some illegal activity, some tax evasion?
MR. GIBSON: It would be fair to say that a significant number of 100 audits were non-compliant with the legislation. It becomes a little more difficult when we go beyond that to actually make the determination of whether or not that compliance is fraudulent and that's when we have to get involved with the Department of Justice and our lawyers and so on. It certainly would be, I think, a fair number for sure. Whether or not I could say a significant number, that's hard to tell.
MR. CHAIRMAN: In the course of that questioning the witnesses made some commitments to provide documents. I would just like to ask you to provide them to the clerk of committees who will then distribute them to all members of the committee. We will now turn to the Progressive Conservative caucus.
The honourable member for Colchester-Musquodoboit Valley.
MR. BROOKE TAYLOR: I should say off the top that I'm substituting for Vice-Chairman, Jim DeWolfe. Jim had a minor medical procedure and is unable to be in today but he's convalescing and doing well, I'm sure much to the delight of the committee. I thank our guests, too, for coming in this morning. As much as I would like to bring up the $2 billion gun registry boondoggle and the sponsorship scandal and things of that nature, I will try to stay focused with some other concerns relative to (Interruptions) Well, I can understand why the Liberals wouldn't want me to bring it up, Mr. Chairman, and I'm sure you can, too.
I'll have to say right off the top that my office frequently - probably to our guests - because of its location receives complaints alleging that some businesses on First Nations land in Nova Scotia are not collecting the appropriate taxes from non-First Nations people. I know that was raised earlier but I wonder if our guests could tell us how many businesses on First Nations land have been charged in the last few years for breaking laws regarding HST collection and remittance?
MR. ROBERT RUSSELL: I'm not sure of the answer to that question. I know that we have conducted a number of audits, I don't know if we have laid charges or not. Don was explaining a moment ago that there's a determination you make when you come in and find non-compliance, doing audit work, as to whether the non-compliance is the result of deliberate fraud and therefore criminal activity and we would turn it over to our investigators and seek prosecution, or whether they have made an error that they should not have made and they're late in payment and you're going to issue a penalty associated with the taxes owing but a civil penalty. Don, do you know whether we have laid any charges?
MR. CHAIRMAN: Mr. Gibson.
MR. GIBSON: I'm not aware that we have prosecuted any businesses that exist on Reserves, I'm not aware of that. We may have but I'm not aware that we have. I could certainly check into that information.
MR. CHAIRMAN: Mr. Russell.
MR. ROBERT RUSSELL: Just to come back to that, our systems are not built to allow us to track businesses and various interventions, whether it's an audit, collections work or whatever, by Aboriginal or by white Nova Scotians, or men or women, they're based on industry codes and things like that. Our systems are not built that way. This one would be a small number in any case so we could check it manually but if you asked other questions about how we deal with particular groups, we don't build those systems and it would probably be against the Charter of Rights for us to do it that way.
MR. TAYLOR: Am I to believe that our guests have come here this morning and they can't tell committee members whether or not a First Nation has been charged in the last few years for breaking the laws, relative to - I'll be more specific - HST collection and remittance. You're saying here that you don't know?
MR. ROBERT RUSSELL: No, what I'm saying is that in the case of the question you have asked, we can probably - because it's a relatively small number of files that you actually undertake prosecutions - go back and manually look at those. If you ask me other kinds of questions about our volume of activities with respect to Aboriginal businesses, in this case, we wouldn't be able to do that because our systems don't identify a particular business as an Aboriginal business, they identify it as a grocery store or as a sawmill.
MR. TAYLOR: Mr. Chairman, I don't know what you think but I am trying to be very general. I'm not mentioning any specific First Nations Reserve, et cetera. We do get complaints, especially in my area, alleging - and I want to make that very clear, there have been allegations, much as was exampled earlier - about the sale of tires, for example, the sale of tobacco. Just by the very fact that you don't seem to have an answer, and perhaps your justification for not having an answer has some merit, that doesn't make it any easier when we're trying to determine at this Public Accounts Committee whether or not there's actually ever been anybody charged for such an infraction. I have no confidence in the type of response I'm receiving here this morning that, in fact, anybody has. I don't know.
MR. ROBERT RUSSELL: Well, I've already . . .
MR. TAYLOR: And I'm saying generally.
MR. ROBERT RUSSELL: I've already said that we can certainly find the answer to that question by reviewing the prosecutions that have been undertaken, because it's a fairly small number and can be done manually. But if you ask me the question more broadly about how many audits have you done or how many collections initiatives have you undertaken with respect to Aboriginal businesses, what I'm explaining to you is that I couldn't answer
that because our systems are not built to give me that information, the same way if you asked me how many Protestant or Roman Catholic or Black or white businesses. We don't track our clients that way.
MR. TAYLOR: I can certainly see some warrant in that. I know my honourable colleague has a number of questions here that he would like to focus on, and there's only a small amount of time, so I'll yield to my colleague, the member for Chester-St. Margaret's.
MR. CHAIRMAN: The honourable member for Chester-St. Margaret's.
MR. JOHN CHATAWAY: Mr. Chairman, I very much appreciate this opportunity to ask some questions. Right off we'd certainly welcome you, Mr. Russell and your colleagues, to come into this Legislature and to start talking about some concerns that I have heard and I think most of the MLAs in Nova Scotia have heard. Basically, I think we'd all agree, at least on the surface, that when government works together, we accomplish far more, never mind what level of government, we are the provincial government, you people are working for the federal government, we can solve things. I think one of the greatest concerns is HST. It may not be the biggest volume to the provincial Treasury, not by any stretch of the imagination, but it is very visible by all people in Nova Scotia.
Right off the bat, HST - if we don't collect it and it is not collected, oh well, I'll have some more information in a minute, that undermines anybody. Well, why not, why should I pay it, somebody else down the road didn't pay it. We have to do things fairly. I think everybody on this committee and certainly in the Party I represent, with taxes, everybody says, oh, we shouldn't have taxes, and everybody would agree, but of course we have to have taxes, and everybody is knowledgeable about that.
But it has to be a fair tax to everybody. Basically, of course, by a fair tax it means it's lower for everybody, because if, all of a sudden, you have this person, that person and this other person over there, they're exempt, they're exempt, they're exempt, then the taxes that have to be collected have to go up. From what I understand, of course, you collect HST. Is there anybody exempt from HST?
MR. ROBERT RUSSELL: There are two categories under the tax of products. There is what we call zero-rated and exempt products. If you're talking about individuals who have exemptions, then Aboriginals who purchase products on reserve, Status Indians, have rights under the Indian Act, and they are not subject to taxation.
MR. CHATAWAY: If I were a clerk - in that store, how would I identify myself to make sure that I had that exemption, if that exemption was for me?
MR. ROBERT RUSSELL: With a Status Indian card, probably would be the best way.
MR. CHATAWAY: I think the chairman mentioned - I've done the very same thing he's done, and I think many people on the South Shore have done that, basically we did not pay HST. In fact, there's living proof. Basically, I told him, I'm a non-Native, well, they collect it anyway. I think people are getting pretty fed up. It's been at least five, maybe eight years, you've done investigations, you can't be specific about various investigations, and we're talking about investigations about HST. Are there any businesses in Nova Scotia that refuse to collect HST?
MR. ROBERT RUSSELL: There certainly have been businesses that have either refused, have not collected what they should have collected and not remitted. There are a variety of things that businesses may undertake that are contraventions of the Excise Tax Act. The purpose of our compliance work is to identify that, to go in, to raise an assessment for the amount of taxes they owe, that we believe that they owe, and then undertake our best efforts to collect that tax.
MR. CHATAWAY: So if some business comes up and says, okay, I'm not paying the HST, what do you do then?
MR. ROBERT RUSSELL: Well, it would be very unusual for a business to come to us voluntarily to tell us that they're non-compliant.
MR. CHATAWAY: Well, when they're not paying HST, what do you do?
MR. ROBERT RUSSELL: If a company is not collecting HST that they're supposed to collect, they're still liable for having collected it and remitted it. For example, when you go to a shopping centre and they have Midnight Madness and it says no tax today, obviously, as you know, there still is tax and they still have an obligation to pay the tax. What we would do is we would go in and we would examine books and records, and if the books and records were inadequate, we would use other means to make a best estimate of what their sales volume was and the amount of tax they owed, and we would issue an assessment to them to pay that tax and there would probably be associated penalties and interest. Then we would make our best efforts to collect that amount of money.
MR. CHATAWAY: As well it should be. I think most people in Nova Scotia are fair-minded people, and they don't mind doing it, but they like to know that a complaint will be investigated. Of course this is from December 10, 2003, Deborah Robinson, the Acadia Band that has control of the Reserve in Gold River. She was asked by a reporter about collecting HST, and she's been quoted in the paper that mostly Reserves are just sort of ignoring that - collecting GST - because it's their position it doesn't apply to them.
This is not applied to Aboriginal people with an Aboriginal card, this is only for Nova Scotians who normally should pay it, and in every other location they would have to pay it. This is pretty well a year ago, December 10, 2003, and now we're at December 8, 2004. This
has been going on, it's unfortunate. This should get resolved; I think it was brought out that it should be dealt with.
MR. ROBERT RUSSELL: Mr. Chataway, I would just refer to comments that I made in my opening remarks, and that is that we may have undertaken various activities, we may have raised assessments, we may be pursuing collections activities on any particular file, that one or any other one, that you wouldn't know about, it wouldn't be visible, and we couldn't speak about it.
MR. CHATAWAY: Well, let's hope it has happened. I think it would be the simplest thing, too. I've had the honour of living in that area all my working life, and I've taught many people. If you're Aboriginal, it doesn't matter what nationality they were originally, they really want to - the people down in the Gold River Reserve - do their very best, and they're doing a good job with what they can. They're fair-minded people, and they're very intelligent people. My goodness, one of them was the most brilliant kid I've taught.
They should be taught how to do it. The machines that collect HST all over Nova Scotia, there's a whole bunch of them around, why not say, you should go and get this cash register, et cetera, that identifies, individually, on HST. It would seem to be very wise to do that because I know you are very knowledgeable but the average person has to realize that yes, of course, they collect whatever is due. Then if there is a fight they can argue with that.
In past cases, how long has it taken for the CRA to investigate somebody? There have been various cases here. How long is the normal length of an investigation? Everything is different, but on average. You have done it in the past, how long does it usually come to a resolution of a conflict when somebody is not paying HST, et cetera?
MR. ROBERT RUSSELL: There really is no rule. Some of them are resolved very quickly. With some people all you have to do is pick up the phone and say you owe us money and the cheque is in the mail; others, we pursue for years.
MR. CHATAWAY: So there's no average per se?
MR. ROBERT RUSSELL: Well, you could probably calculate one but it wouldn't really mean anything, it wouldn't be instructive in terms of what the impact might be on any other particular case.
MR. CHATAWAY: I'm sure you're collecting taxes, indeed 80 per cent of all taxes paid by Nova Scotians, you collect it, income tax and all of that stuff. We're just talking specifically a very small amount compared to all that. You have a policing role, of course, to make sure that compliance is made to the law. I understand you have an obligation to protect the confidentiality of investigations. What level of accountability or transparency is
there so that those who have lodged a complaint know that their concerns are being addressed?
MR. ROBERT RUSSELL: Let me take it at two levels. If you call me and complain that Mr. Steele is non-compliant in some way, I have no obligation to tell you whether I've done anything in following up on that. But at a much higher level, that's the purpose of all the reporting that we do on the performance of our agency, on how we spend the money that Canadians vote in Parliament for us to use on how many audits we undertake and what kinds of audits, how much collection work we do, what the outstanding cash receivables are with respect to tax owed. We have an obligation to report on our performance.
Globally, we have particular requirements to report with respect to individual provinces. In business sectors we do a lot of work with particular sectors, they are interested in knowing how we're doing and we're interested in getting co-operation and working from them.
I made reference to the cash economy and the home renovation and construction sector, that's a problem, we know there's an issue there. We have worked with them and jointly funded, sort of a social marketing campaign, brochures, appearances at home shows and trade shows and things like that, to let consumers know that if they get their rec room finished for cash and someone hurts themselves while they're doing it, they could be liable, or someone does a poor job, they have no recourse. We're trying to work on those kinds of partnerships.
MR. CHATAWAY: I appreciate that. I hate to give wisdom to people who are experts but I tell you, specifically, with HST, it has gone on for years and years in my area but I don't think it's unique to that area by any stretch of the imagination that you have to settle it, period. It can be settled. You mentioned when the chairman mentioned it that you people are responsible for it, at least according to this. Get the thing resolved; otherwise, it's undermining the whole system.
MR. ROBERT RUSSELL: I come back to points I made earlier that the compliance rate in the system in Canada is very high by international comparisons and Nova Scotia's compliance rate is high in Canada. Generally, we are doing fairly well. Have we got problems? Sure, we have problems, every tax administration has problems; lots of people don't want to pay taxes, or any more than they have to. Our obligation is to devote resources and work hard at those, and I think we're trying to do that.
MR. CHATAWAY: Are there any other factors that make your job difficult, like some people getting up and saying, no, we shouldn't be doing this? You do numerous audits and stuff like that so if you get a complaint from somebody or you notice something that
doesn't seem - all of the businesses in this area are doing it this way and this business over there, we should maybe investigate that. Are there any factors that would make that investigation difficult?
MR. ROBERT RUSSELL: I'm not sure I follow the question exactly there. There are a great many factors that make our work challenging, related to the nature of the clients we're dealing with, related to the complexity of the legislation. We have a large workforce, we had a labour disruption recently, there's a whole bunch of things that can make like challenging.
MR. CHATAWAY: My last question, obviously - 30 seconds at the most - do you have spot checks on various businesses to make sure business compliance is good in Nova Scotia?
MR. ROBERT RUSSELL: We have a whole variety of checks, we don't call them spot checks per se, but as I mentioned earlier, every remittance and every return that comes into us is assessed through computer assessing systems, and those are designed to pick out problems. A simple example is, if it's an individual tax return, and maybe it's a property owner and we know from correlating where they live by postal code that houses in that area cost $1 million and they're declaring income of $10,000, that maybe there's something worth investigating. There is a variety of data that we use to try to identify anomalous situations that require us to go and do some homework. The reason may be that their uncle bought the house for them, that's fine.
MR. CHAIRMAN: Thank you. That concludes that round of questioning. We will start the second round which will be 11 minutes per caucus.
The honourable member for Halifax Chebucto.
MR. EPSTEIN: Mr. Russell, I don't think I've seen the commissioner's annual report in previous years. You said that this particular volume had just been released. Were previous volumes issued and made public?
MR. ROBERT RUSSELL: Previous volumes have certainly been issued to the province. I guess I might ask my colleague, Mr. Hennebury, if he's aware whether they have been made publicly available by the province.
MR. CHAIRMAN: Mr. Hennebury.
MR. BRUCE HENNEBURY: I'm not aware that any have been released publicly, nor have we been asked.
MR. EPSTEIN: That clarifies it for me because I think, really, this is the first I, and probably other members of the committee, have ever seen any of these documents, and we're very happy to have them.
MR. CHAIRMAN: Mr. Russell.
MR. ROBERT RUSSELL: I might add that clearly, it wouldn't have data at the level of Nova Scotia but there is a tremendous amount of data in our annual reports to Parliament. I think, for many of the kinds of questions the committee is asking here today, you would find that useful and certainly, those have been readily available.
MR. EPSTEIN: Do you know if this particular Nova Scotia document will be made public in future, that is the commissioner's annual reports focused on Nova Scotia?
MR. ROBERT RUSSELL: Our reports under our legislation are required to be made to the provincial ministers and it's our accountability to the provincial minister. It is then up to the provincial ministers right across the country what they decide to do with them. We did seek permission this morning to table the document.
MR. EPSTEIN: So that's something to take up with our provincial minister, that's just fine, thank you, and we will. I'm wondering if we can actually move to something that would give us still a better grasp of what the size of the underground economy is in our province. We can start with national figures, if you like, and perhaps extrapolate because I still don't think we've nailed this down.
I thought I heard you say earlier that you just didn't know but I know you have someone from your policy division here. It may be that they have read it so I'll just tell you what it is I think I know about this and where my information comes from, and see if you have different information. It seems to me that this is not unstudied, that, in fact, there have been a number of national studies that I'm aware of, various papers have been generated, including one by Statistics Canada, including one, I think, by Revenue Canada as well, that this has also been studied - as you said earlier - by a number of academics.
The most recent study I'm aware of is David Giles', he's a University of Victoria economist, he has done a study of this, it seems to be his area of specialization. He suggests that in terms of the underground economy, it could represent as much as 16 per cent of gross domestic product. From this he suggests that there's probably a tax gap of about 14 per cent,
and this is a big number. Given that in Nova Scotia we have about $950 million, almost $1 billion worth of HST, it's clear to see that something in the order of 14 per cent or 15 per cent is $150 million of forgone tax just on the HST. So this is potentially a lot of money here, although when I looked at the positions taken, at least a few years ago, in published papers by Stats Can and by Revenue Canada, they were saying that the numbers might be somewhere between 3 per cent and 7 per cent.
I guess what I gather from this is that although nobody can say they know for sure, the range of estimates at the low end seems to be around 2 per cent to 3 per cent; at the higher end, I've seen studies as well that suggest that it might be 20 per cent. Now are those the kinds of numbers we're looking at or should I be thinking about some other kinds of numbers? Are there any other studies we should be looking at that you're aware of?
MR. ROBERT RUSSELL: I think you've done your homework and I think that those are the kinds of studies that are around. There are also estimates that have been done in other G-8 countries and we work closely with other tax administrations. The same kinds of problems tend to be prevalent in developed economies, generally. The Australians are working with, I think, an estimate of somewhere around 4 per cent, 4.5 per cent.
Whatever the number is, if you apply it to the total tax base collected, it's quite a lot of money. So for us, it's - I know I'm repeating myself - not so important that we determine exactly how much it is because what we have to do is collect it. If we can't collect it it's only of academic interest - I shouldn't say only of academic interest - it's a big driver, we have a fairly significant underground economy initiative in the agency. Some years back we added over 1,000 auditors to focus on underground economy activity across the country as a specific response to the concern so that's a big proportion of our audit workforce.
I know I'm repeating myself but we think we need to identify the parts of the industry sectors that are the most probable to be non-compliant and be operating underground, and then devote resources to them. Ms. Whalen mentioned lobsters, construction, others, we're working on it.
MR. EPSTEIN: Some of us are academics but I assure you we take a very practical interest in this question. An additional $20 million to $100 million of extra revenues in Nova Scotia would make a great deal of difference in terms of what we're able to do here.
Could I just ask you briefly to jump ahead about the extra auditors focused on the underground economy. Has it been your experience that they are cost-effective, that is that they bring in more in tax returns than it costs in order to maintain them, in terms of their salaries and associated supports?
MR. ROBERT RUSSELL: Yes, and we've been before the federal Treasury Board several times to plead our case around the need for additional resources to address tax issues. The last time we received additional resources we also were required to make undertakings about the revenue generation that would result from that. It tends to be a ratio of somewhere around 7 to 1, so it's a very positive ratio.
MR. EPSTEIN: Very cost-effective, in fact.
MR. ROBERT RUSSELL: But as you deal with the underground economy it's much more difficult than it is in audit work, generally. Some of the files are big and some of the lobster files that we talked about earlier are, in fact, quite large. Some of the other files are fairly small recoveries for the amount of work that you must undertake to get them. A large number of people doing a bit of moonlighting and repairing houses, it's difficult to track, it's very expensive so the return on our investment there would be lower. We think it's important, nevertheless, to work in those areas because the integrity of the tax system is dependent on Canadians believing that it's fair.
MR. EPSTEIN: Mr. Russell, we're still trying, I think, to get an idea of what ought to be the targeted types of activity or sectors of the economy. In reading your annual report I see - and you've mentioned here orally today - that construction is high on the list, the hospitality industry - that is restaurants, taverns and bars - is on the list, you've specifically mentioned fisheries. Your report does not mention another kind of cash business which is drug trafficking. My understanding, from reading RCMP reports, is that they estimate that up to 50 per cent of the underground economy in Canada could be drug trafficking. Is there a reason why drug trafficking is not listed as part of the Nova Scotia report?
MR. ROBERT RUSSELL: Well, we don't consider that as one of our underground economy programs per se, where we deal with that is in our Special Enforcement Program. We work closely with the RCMP, and we are able to - usually there are no books and records when you're dealing with the criminal element - estimate income, raise assessments and issue orders to pay taxes owing. That's a part of the approach that the RCMP takes to dealing with crime.
MR. EPSTEIN: As between construction, fisheries and the hospitality industry, can you give us an estimate, in Nova Scotia, as to how forgone HST might be divided proportionally, or are there other sectors or types of activity that you can add to that that might give us an idea as to how this splits up? Which are the higher and which are the lower amounts?
MR. ROBERT RUSSELL: No, I can't really give you an estimate that breaks it down. We haven't done the economic work to do that. It would be very difficult to do, again, by virtue of the fact that the people are underground and they're deliberately trying not to be visible. There are other sectors as well. The personal services area is another, a whole variety of personal services. There's a dramatic increase in the last 10 years or more in self-employment. There's an increase in consulting work, a lot of that's being conducted on the Internet. So there are risks associated with changing ways that people make money, and they're less visible. If someone has retired and gone home and started to do consulting work out of their basement and sells their product over the Internet to someone somewhere else, it's very difficult. So, we're doing a lot of work. Anything that's a cash business or anything that's an individual personal service can be a potential underground economy activity.
MR. EPSTEIN: Are there ways in which you can estimate how these different sectors might possibly be a portion of the forgone HST revenues?
MR. ROBERT RUSSELL: I'm sure there might be. As I said, at the level of all those sub-sectors in Nova Scotia, we haven't undertaken that economic analysis.
MR. EPSTEIN: Let me make a point to you. There's been a particular focus here today from some members on the question of the collection of HST inside the Aboriginal community, and it focused on some grocery stores. I have to say that my estimates are that this is small change, that this is really tiny. Because, clearly, there are very few of these stores and if in fact there is any even remotely sizable avoidance of HST, it might be in terms of gas stations. I have to say that I spent all Summer on the Select Committee of the Legislature on Petroleum Product Pricing. We had no complaints about Aboriginal gas stations.
I did a calculation of what might be in the 13 existing Aboriginal-owned gas stations in Nova Scotia, the missed HST, and it's pretty darn small, even if you assume that they sold every last litre of gas to non-Aboriginals and didn't charge the HST, which doesn't seem to be the case. Of what must be something like $50 million, $100 million, $150 million, $200 million of forgone HST in Nova Scotia, it's probably no more than $1 million or $2 million.
MR. CHAIRMAN: Thank you very much.
MR. ROBERT RUSSELL: Mr. Chairman, if I could just have 30 seconds.
MR. CHAIRMAN: A brief answer, because the member didn't really ask a question.
MR. ROBERT RUSSELL: The point I was going to make was that the choice we have to make is whether to invest in economists to research what the amounts are or to invest in auditors and collectors to go and try to recover where we believe the highest risks are. To this point we've made the latter choice.
MR. CHAIRMAN: Before I recognize the Liberal caucus, I can't help making an editorial comment that it's not about the amount of money, it's about the effect on the competitors around them. I recognize the Liberal caucus for the next 11 minutes.
The honourable member for Glace Bay.
MR. DAVID WILSON (Glace Bay): Mr. Russell, welcome, and to other members of your group, welcome to this committee. The very mention, sometimes, of the Canada Revenue Agency would strike terror, I guess, in the hearts of most Nova Scotians, if they were sitting with them. I feel quite comfortable myself, at this point in time. I think you're doing a wonderful job as a matter of fact, let's leave it at that, personally.
I find it amazing that I'm here today, and my friends in the NDP have not mentioned the subject of home heating oil and the HST. That's almost amazing. This is a campaign that they have launched, and you have the Canada Revenue Agency here, and you're responsible for the HST. So I guess I'll help out the NDP today, and I'll ask you the questions about home heating oil. If indeed this were to happen, what does it take to remove the HST from home heating oil?
MR. ROBERT RUSSELL: When I was speaking earlier and I talked about the structure of the committees that are responsible to administer the HST, we have this tax policy committee and matters related to the tax base, the definition of what gets taxed and what might be exempt or zero-rated, those fall within the responsibilities of the Ministers of Finance. Essentially, if it was to continue as a harmonized tax, all three provinces and the federal government, those Ministers of Finance would all have to agree that they would make that change.
MR. DAVID WILSON (Glace Bay): So that would have to be, because of the three provinces being involved, an agreement. Nova Scotia can't do it on its own.
MR. ROBERT RUSSELL: The way the agreement is written, all parties would have to agree if it was to continue as a harmonized tax. The significance of a harmonized tax is that then we administer it free of charge for the province.
MR. DAVID WILSON (Glace Bay): So let's say . . .
MR. ROBERT RUSSELL: We can undertake and do undertake special things, like the Nova Scotia tax refund, if a province wants to pay for it.
MR. DAVID WILSON (Glace Bay): Let's say hypothetically - and let's underline hypothetical here - that there would be an NDP Government in Nova Scotia, and they went to the Canada Revenue Agency and the Finance Department and said, we're removing the HST from heating oil in Nova Scotia, can that be done under the existing agreement without the agreement of the other two provinces?
MR. ROBERT RUSSELL: I'm going to ask my colleague, Mr. Hennebury from the province, to respond to that question, because the division of responsibility between us and our federal Finance counterparts is they're responsible for tax policy, to determine what's going to be done, and then we have to administer it, get on and do it. Tax policy changes are not in our area of responsibility.
MR. CHAIRMAN: Mr. Hennebury.
MR. HENNEBURY: Of course I can answer your question in terms of CITCA; I'm not prepared to discuss, today, the tax policy issues around it. I can tell you that under the terms of CITCA, the HST, as Bob mentioned in his opening remarks, is actually a federal tax, and there is a revenue-sharing agreement with the three provinces. Under the terms of CITCA, any changes to the tax base would have to require unanimous agreement of all three parties and the federal government before they could be made. So the answer to your question, can Nova Scotia change the HST base to either exempt or zero-rate home heating fuel by itself, the answer is no. We would need the agreement of the other participating parties and CITCA.
MR. DAVID WILSON (Glace Bay): Which in this case would be New Brunswick and Newfoundland, as well as the federal government.
MR. HENNEBURY: Correct.
MR. DAVID WILSON (Glace Bay): Okay, so we know it's impossible. The other day I was surfing the Net and my computer froze when it came across the NDP site, so I was forced to read the material that was there. When I was reading it, it also said, among the many promises that were there - including that they're going to remove the HST from home heating oil, and they admittedly said that when they did that it would take at least 18 months to do that, but you're telling me it can't be done without the other two provinces and the federal government - that they're going to restore monitoring and enforcement to tackle HST fraud. I don't know if you've seen that site, Mr. Russell, if you saw that comment. Does the Canada Revenue Agency not already have programs that deal with monitoring and enforcement of HST fraud?
MR. ROBERT RUSSELL: Yes, we do. As I mentioned earlier in response to a question about what were some of the biggest challenges with HST administration, I mentioned the identification of registrants as proper business people with legitimate business intentions as one element, and then the second, dealing with GST/HST fraud and fraudulent refund claims. We believe that those are problems, and we have devoted considerable resources and made a number of changes over the last few years to strengthen those areas.
MR. DAVID WILSON (Glace Bay): So that was never cancelled at any time, the enforcement and monitoring of HST fraud? It was never stopped for a moment or for a period of time, it's been on an ongoing basis since what, the beginning of taxes?
MR. ROBERT RUSSELL: Well, it has, but I think it's fair to say that we have strengthened our capacity to deal with it as we have gotten more experience with - the GST was our first value-added tax experience in Canada. Many other countries in the world have had it for a long time. With any new system, probably, you discover things that need to be improved as you go along. We have made, as I just said, many changes to strengthen our capacity to deal with non-compliance.
MR. DAVID WILSON (Glace Bay): I'm certainly not any kind of an accountant, or anything to do with monetary issues - I'm pretty bad at it actually, as a matter of fact - but I do know that when you deal with things like a tax rebate, I would think your everyday Nova Scotian would say, I don't know exactly what that entails and what is involved in making a tax rebate come about but I do know what it is when I get a cheque in the mail that is for $155, whatever the case may be, that's money in the hand, so to speak, you know, and it looks pretty good.
So in simple terms here, you know what I'm perhaps talking about, previous to the $155 cheques being issued - and we now know that it cost over $1 million (Interruption) $1.6 million to send those cheques out - did anyone ever come to your agency and say, look, if we change the tax structure here and gave that rebate by changing the tax structure, we wouldn't have to spend any money to send out cheques or whatever. Did anyone ever come to you from the Government of Nova Scotia to suggest that to you, prior to those cheques being issued?
MR. ROBERT RUSSELL: I'm just going to go back to something I said a little earlier in terms of the division of responsibility. If they wanted to change the tax system, it's a tax policy step so they wouldn't have come to us anyway. They would have had to go to the Department of Finance. We will administer what we are asked to do by law but they wouldn't ask us to change the law.
MR. DAVID WILSON (Glace Bay): You weren't asked to do anything other than . . .
MR. ROBERT RUSSELL: No, but they shouldn't have asked us anyway and anyone who was considering it would know not to ask us.
MR. DAVID WILSON (Glace Bay): But I'm sure, you know, among many discussions that would take place between the Department of Finance and Canada Revenue Agency, it may have come up over a cup of coffee here or there. You are not aware of any talk concerning those sort of changes at the time?
MR. ROBERT RUSSELL: Well, I'm not but that doesn't really mean anything. My job has nothing to do with changing tax policy.
MR. DAVID WILSON (Glace Bay): I'm not asking you to be political. I'll take care of that, Mr. Russell, you don't have to worry about that. Again, I wanted to make the point that indeed it cost over $1 million to have those cheques sent out.
MR. ROBERT RUSSELL: But that is in the context of whenever we do something special for a province, the Child Tax Benefit in Nova Scotia, for example, is completely harmonized with the federal Child Tax Benefit so we don't charge anything to administer
that. If something is not harmonized with our programs, we do charge for that. I mentioned the set-off program. We charge something to Nova Scotia for administering the set-off program, but the benefit they receive is a lot more than we charge.
We don't have any mandate from Parliament to undertake services for free so we have developed costing models when we are asked to undertake new things that are different and special for a particular province, costing models to ensure that we charge, in this case Nova Scotia, what it costs us, including the overhead associated with it. If we have people doing that work, they have to have computers and someone has to pay them and all that so we have models that we believe fairly identify what the costs are for us to do a particular program. We estimated the number of calls we would get and we were pretty close.
MR. DAVID WILSON (Glace Bay): Mr. Chairman, can I pass it over to my colleague, is there time remaining?
MR. CHAIRMAN: Certainly, there's slightly under two minutes.
The honourable member for Halifax Clayton Park.
MS. WHALEN: Mr. Chairman, I wanted to just pick up on a couple of comments that you had made in the previous questioning about whether or not Nova Scotia could opt out of any particular aspect of the current agreement, for example, designating certain products that would be HST exempt. In that, you said that the program is administered free of charge provided all three provinces have exactly the same requirements, I guess, that they agree to everything so it is done in a harmonized way across the board. If the Province of Nova Scotia wanted to take HST off home heating fuel or any other essential items, would we then be opting out of the HST agreement and having a separate agreement with the federal government?
MR. ROBERT RUSSELL: I'm not sure what the legalities would be required to do that and we have no requests at this point to do it so I'm not aware we have done any investigation. I might ask Mr. Hennebury if he wanted to respond at all to that?
MR. CHAIRMAN: Mr. Hennebury.
MR. HENNEBURY: Just to follow up on the question that was asked previously, if we wanted to change the base in Nova Scotia . . .
MS. WHALEN: Even one item.
MR. HENNEBURY: . . . even one item, we could not do it under the current agreement.
MS. WHALEN: Okay, very good. Could I ask if we did take out one item, would there be an extra cost associated with the administration then for Nova Scotia and could you put a figure on how much it might cost? It's been clear that anything that costs extra or deviates from the other provinces is an extra cost.
MR. CHAIRMAN: Mr. Russell or Mr. Hennebury, which one is better?
MR. ROBERT RUSSELL: I was just going to say I can't give you an answer on whether there would be or what it would be because we haven't been asked and haven't looked at it. We do that centrally in Ottawa to make sure that we do it consistently for all provinces so it's not an area that I've worked in directly myself.
MR. CHAIRMAN: Mr. Hennebury, do you have an answer to that?
MR. HENNEBURY: I would like to add one thing if I could and that is that your question precludes that we could, in fact, do that and we can't in fact do that. We could not change the base for one particular item under the current agreement.
MR. CHAIRMAN: I understand the member for Halifax Chebucto has a point of order and I sure hope it's a point of order.
MR. EPSTEIN: Thank you. It has nothing to do with this HST controversy at all, I assure you, Mr. Chairman, and my colleagues, but I was concerned that we might not have had a completely accurate answer from the witness. I understood some of the questioning from my colleague, the member for Glace Bay, to focus on the enforcement services division and my understanding is that was disbanded, but were we told differently?
MR. CHAIRMAN: That's certainly not a point of order. It's certainly a very interesting question but it will have to be resolved in a different way. We'll move on to the Progressive Conservative caucus.
The honourable member for Colchester-Musquodoboit Valley.
MR. TAYLOR: I will say at the outset that irrespective of the outcome relative to an audit - and I'm speaking from personal experience - it's generally an unpleasant undertaking that both parties engage in. I will say that in the case of my business, we were treated very friendly but quite firmly and like I said, the outcome was certainly to our satisfaction. Having said that, it's a very long process and I suppose, depending upon the business, that's to be expected, as well.
I'm disappointed - and it is related, Mr. Chairman - that this morning you and your guests made it clear, Mr. Russell, that you don't know whether there have been charges laid relative to businesses operating on First Nations land, and I find that to be a general question
so I'll give you that. Perhaps you can tell us what assurances are in place today that any delay, on your part, in investigating and prosecuting business owners who decide not to collect HST on their goods and service, won't drive out businesses who respect the law? They patiently collect the HST on their goods and services, they follow the letter of the law, but many of them complain that they feel that the playing field is un-level, the time of these audits are very time-consuming.
What assurances are you going to give the legitimate - if you will - businesses in this province that you will force unfair competition to the side and deal with it in an appropriate and timely manner? What steps have been taken recently to give these solid Nova Scotia businesses confidence?
MR. ROBERT RUSSELL: You kind of asked me two questions there, the first had to do with the audit process. Really quick on that, our auditors are trained to be polite but firm, as you described it. We try to do our audit work as quickly as we can and there are a variety of things that can cause an audit to take a fairly long period of time; oftentimes there's additional information required, sometimes people are willing to provide it quickly, sometimes they're not. So there's a whole variety of reasons that can make an audit go a long time. Then it may be appealed, or objected to, so there's a process that can be quick or slow.
In terms of assurances, as I said earlier, we know that the integrity of the tax system and the confidence of Canadians in our tax system depends on ensuring the highest degree of compliance in the system that we can possibly assure. We're seen internationally as a country that has one of the strongest - if not the strongest - compliance in our tax system in the world. We are inundated annually with delegations from across the world looking at how we do things. We're not good at everything and there are sectors we could do better in.
The assurance, I guess, we try to give Canadians is that we will focus on the areas of highest risk, we will publicize our efforts when they're completed and we can make them public. Whenever we do prosecutions and cases get to court we make that visible to the public so that we can demonstrate that we're doing things.
I know it took us a long time to come here but we go out and speak to rotary clubs and chambers of commerce and things like that, when we're invited, to talk about how we do things and why we do things. If people call and want to come in and speak to us and understand something, or an industry sector, or whatever, we're more than happy to go and do that.
MR. CHAIRMAN: The honourable member for Chester-St. Margaret's.
MR. CHATAWAY: I have three questions and I'll ask them. I think this should be emphasized, but time is short, how does one go about submitting a complaint regarding a business that is suspected to be not collecting tax from their customers?
MR. ROBERT RUSSELL: You can phone us, write us, write to the minister. We get lots of complaints or tips from members of the public and we take those under consideration. Dealing with tips or complaints is a part of our risk assessment process but, as I said earlier, we're not going to call you back and tell you what we did about it. If it's a broad complaint like the seafood producers saying the lobster industry is out of control, we will talk to them about our broad strategy and what we're doing.
MR. CHATAWAY: On the second question I would just like your reaction. Are you aware of any public comments or statements by business owners who run businesses on First Nations lands, that would suggest that they believe that they are not legally required to collect and remit federal and provincial taxes on goods and services sold to non-First Nations Canadians? I just read one here, of course, this has been around for a year and that's public. I'll make a copy if you wish.
MR. ROBERT RUSSELL: No, you just made one there. The Pictou Googoo case was a case that went all the way to the Supreme Court around that issue, so clearly it's an issue that has been in contention. There are Aboriginal leaders who believe that their privileges go beyond what we believe they are, based on that court decision. Our minister has recently established the First Nations tax advisory committee to work with First Nations on these kinds of issues.
In some parts of the country we are working with bands to establish First Nations taxes, which allow them to collect and keep the HST for everybody they charge it to. They get a benefit because they get to keep the money and the community surrounding gets a benefit because the playing field is level then. There are a variety of things we're trying to do.
MR. CHATAWAY: It's sort of a critical pass on that, so when will that be made public or when will it come to a conclusion?
MR. ROBERT RUSSELL: I can't give you a date on that. The committee has been established and the minister will be meeting with them. The First Nations taxes that are in place in Canada, on various Reserves, are public information, people can find out about those. They are predominantly in the west and in the north to this point.
MR. CHATAWAY: My last question is, we were talking earlier about various areas where you are not collecting the proper taxes and you have to investigate them and things like this. I asked you to come up with an estimate. Usually you get an investigation, you do
this and in the past you didn't want to publicly say, some are long, some are short; I guess you inferred that.
MR. ROBERT RUSSELL: I did say that.
MR. CHATAWAY: Specifically, is there any legislation that would require repeat offenders to help you people out? Some people are not collecting HST and they do it again and again. Is there any legislation you would feel would help your cause to collect that HST?
MR. ROBERT RUSSELL: Our penalties already provide for graduated penalties and for penalties for each offence. So repeat offenders, in fact, incur higher penalties.
MR. CHATAWAY: Is there any further legislation that you feel would help your cause out?
MR. ROBERT RUSSELL: Again, you're trying to draw me into tax policy, and that's not our area of expertise.
MR. CHATAWAY: Just to do the job, is there any legislation you feel . . .
MR. ROBERT RUSSELL: Legislation comes from policy, so I'm not going to speculate on what legislative changes might be made.
MR. CHATAWAY: To speed your job, or to make an effective job, you feel that the policy-makers say you should do this, that's a provincial thing, but basically you don't want any legislation to speed up the process in that regard?
MR. ROBERT RUSSELL: Our process is limited not so much by legislation at this point as the dynamics of that interaction with the taxpayers.
MR. CHAIRMAN: Back to the member for Colchester-Musquodoboit Valley, with slightly under two minutes remaining.
MR. TAYLOR: Mr. Chairman, I just had a question regarding some of the types of complaints, generally of course, that the agency would receive to precipitate an investigation. Can they be as minor as this and as big as that? Where and when? I'm sure you can't respond to every allegation, but could you give us an idea, generally, what actually precipitates . . .
MR. ROBERT RUSSELL: I gave you the example already from the fishery, with the seafood producers and the seafood buyers. When there was a fair bit of activity involving flipping and false exports of automobiles to claim input tax credits fraudulently, we got a fair bit of intervention from the Automobile Dealers Association, and we responded to them. So those are kind of at one end, where you have organized business sectors that are being
affected by a problem, and we'll work happily with them. Oftentimes the association can play a role in helping us achieve the compliance as well. We also get ex-spouses who are mad at their former wife or husband who is operating underground, and they decide to tell us. We get a whole array of tips.
MR. TAYLOR: But you can't follow up . . .
MR. ROBERT RUSSELL: Actually we will examine everything that we get, and then determine what level of response is appropriate. We have this risk assessment process, it starts with a computerized piece, but local knowledge, auditor knowledge, tips, all of those things are factored into our audit selection process.
MR. CHAIRMAN: I just had one detail question for Mr. Gibson. The Halifax Tax Service Office, what's the geographic area that that covers?
MR. GIBSON: Generally speaking the geographic area for the Halifax Tax Service Office is mainland Nova Scotia, but we also run several programs that cover all of Nova Scotia or all of the Atlantic Region. The programs that go beyond mainland Nova Scotia would be our investigations program, the fraud investigation. That covers all of Nova Scotia. Some programs that cover Atlantic Canada would be our appeals program, we run the Appeals Division for all of Atlantic Canada, as well as a program called SR&ED, which is our Scientific Research and Experimental Development Program. We do that on behalf of the whole region. The main programs that we have are audit programs, client service programs and our collections programs which would be for mainland Nova Scotia.
MR. CHAIRMAN: At this point, we have come to the end of the question-and-answer part of our session. I would now like to offer to Mr. Russell the opportunity to make a concluding statement of up to five minutes.
MR. ROBERT RUSSELL: Mr. Chairman, you've heard enough from me today, so I think I can do it in less than five minutes. Tax administration is a central responsibility of every government. We take it very seriously, and we try to do a very professional job. In the five years since we've become an agency, we've made a lot of changes in how we do the business and how we report on the business. The reports that we've provided and made reference to this morning would not have been available previously and are more detailed than are required of departments.
We're proud of the work that we do here with Nova Scotia, as I mentioned earlier. I went through all those co-operative arrangements we have with Nova Scotia. We don't have as many arrangements like that with other provinces, so we appreciate the co-operation we get from them, and that helps us a lot in our compliance work. We've talked a lot about risk assessment, so I won't go through it at length again. We rely not only on our own assessments and auditor knowledge and local tips and things like that, but also we're
continually trying to benchmark ourselves against our G-8 counterparts. Some of the issues we're dealing with in addressing tax non-compliance are international in scope, and we have collaborative arrangements with the U.S., with the U.K., with Japan, with Australia to deal with particularly larger companies and high-wealth individuals.
The Auditor General devotes somewhere between 20 per cent and 25 per cent, I think, of her total resources to working on us because we are such a large part of the Public Service and I guess we think that does keep us on our toes.
We appreciate your interest. I hope we have been able to respond to your questions this morning. I know I haven't been able to respond to some of them but there is a reason for that and I think you understand that. I do regret the delay in getting here and I apologized for that and I meant it. We are not trying to hide behind a rock and, as individual members, if you have questions within the bounds of what we can talk about, we would be happy to respond to those. As I mentioned earlier, we willingly do a lot of outreach to service clubs, to communities, to business associations about our business. So with those remarks, Mr. Chairman, thank you very much.
MR. CHAIRMAN: Thank you very much. On behalf of the committee, I would like to thank you and your colleagues from Canada Revenue Agency who appeared today and I would also like to thank our colleagues from the provincial government who have been here as well. The clerk of committees will be in touch with you about the documents that you have committed to produce for the committee.
I would like to draw to the attention of the members of the committee that next week's session is tentative, a tentative in camera briefing from the Auditor General on the tabling of his annual report. That session will go ahead only if the report is, in fact, ready to be tabled. So I wonder if I could call on the Auditor General to inform the committee briefly on what the chances are that that will happen on or before next Wednesday.
MR. ROY SALMON: I would say that they are slightly better than tentative. We had a commitment from the printer yesterday afternoon that they were on schedule and they were still intending to deliver the appropriate number of copies of the report to my office Monday, December 13th. We expect that to happen and so we expect to go ahead on December 15th.
MR. CHAIRMAN: Thank you very much. As soon as we have confirmation from the Auditor General's office, the committee members will be informed about whether the meeting is going ahead or not. The first meeting in January is our public session with the Auditor General on his 2004 annual report and that is currently scheduled for Wednesday, January 12th, just so members can put that on their calendar.
Before we adjourn, I think there is something the member for Halifax Chebucto wishes to say.
MR. EPSTEIN: Yes, a small procedural point, Mr. Chairman. I wonder if the committee could agree to have a letter sent to our Minister of Finance on behalf of the committee requesting that in the future The Commissioner's Annual Report to the Government of Nova Scotia, the document that we saw here today for the first time, be made public on an ongoing basis.
MR. CHAIRMAN: We will take that as a motion. Is there any discussion? If there is no discussion, I will call for the question. Would all those in favour of the motion please say Aye. Contrary minded, Nay.
The motion is carried.
A letter will go under my signature on behalf of the committee, as suggested.
Is there any other business from members requiring the attention of the full committee before we adjourn? If not, a motion to adjourn. Would all those in favour of the motion please say Aye. Contrary minded, Nay.
The motion is carried.
This meeting of the Public Accounts Committee is adjourned.
[The committee adjourned at 10:59 a.m.]