Canada Revenue Agency (CRA)

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Canada Revenue Agency (CRA)

• Compliance Approaches to the
• Self-Employment Sector with a Focus on the use of
  Automated Data Bases

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Introduction

• The CRA is the principal revenue collector for
  the Government of Canada
• Canadian tax system based on self-assessment and
  voluntary compliance
• Risk-management approaches are central to all CRA
  tax compliance program administration
• CRA makes extensive use of electronic data bases
  to assess and manage risk
• Format of presentation - programs overview, then
  a focus on how we use data

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Managing the Compliance Continuum
 

 
   
Facilitating Voluntary Compliance
Assisted Compliance
Enforcement
 
 
Appeals
Low Risk
High Risk
Provision of information efficient processing
of high volume business where risk is low
Enforcement where risk is high
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2004 CRA Compliance Review Key Issues

• Aggressive tax planning
• Underground economy
• GST fraud
• Revenue collections non-filers
• Important issues for self-employed sector

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• DATA
• CRA SOURCES
• OTHER FEDERAL SOURCES
• PROVINCIAL SOURCES
• EXTERNAL SOURCES
• LEADS

• EXPERTISE
• TECHNICAL EXPERTS
• ADVISORY COMMITTEES

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Risk Assessment

• Macro level
• Related to compliance activities associated with
  registering, filing, reporting remitting
• Over 40 macro indicators
• Case by case
• Registration and fraud prevention
• Non-filing, non-registering
• Return processing prior to issuing refunds.
• Post processing audit.
• Remitting and collections.

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Risk Assessment Systems

• Rule-Based Knowledge Systems
• Non-compliance models based on expert human logic
• Iterative approach validation
• 190 models
• Statistical Methods Data Mining
• Neural nets, classification trees
• Software distinguishes compliance patterns from
  given sets of data
• Hundreds of characteristics can be analyzed
  simultaneously

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Risk Assessment Systems(contd)

• Taxpayers segmentation
• by type ( individual, self-employed, corporation)
• by size /complexity
• by issue ( tax avoidance, underground
  economy,electronic commerce, criminal/ fraud)
• by behavior/ compliance history

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CRA Approach to the Self-Employment Sector

• Growth in self-employment
• Certain sectors have high self-employment
• Self-employed at higher risk to avoid taxes
• Rulings program to determine employment status
  and applicable social benefits
• Mix of standard CRA approaches and some special
  initiatives

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Registration

• Individuals- Social Insurance Number (SIN)
• Businesses- Business Number (BN)
• SIN and BN are at the centre of all data based
  risk management by the CRA
• Strict privacy laws govern information sharing
  but good examples of mutual benefits from
  cooperation with third parties (e.g., WCBs)

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Filing Assessing

• T1 and T2 assessing systems
• Confidence validities
• Processing review
• Matching program ( T4, T4A)
• Special projects (CPRI, etc)
• Non-filers program
• Non-registrant program

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Auditing

• Random audits for statistical purposes
• Risk-based file selection
• SME and UE programs
• Income tax and GST audits
• Trust examination program
• Voluntary disclosures
• Special projects

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Debt Collection

• Remittances processes
• National call centre
• National pools
• Tax services offices
• Closer linkages with audit, UE and special
  projects

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Challenges for the Future

• Develop tailored compliance solutions based on an
  integrated view of taxpayers ( e.g
  self-employed)
• Relationship with taxpayers must reflect their
  compliance record, across all CRA programs ( and
  partners programs), and also link associated
  entities (A owns B, owns C, etc.)

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Challenges ( contd)

• Allocating resources based on compliance
  priorities, program segment and geographic
  coverage.
• Financing investments to support the strategies
  (inventory control, program/results monitoring,
  audit selection, etc.)