Canada Revenue Agency (CRA)

1. Canada Revenue Agency (CRA) Compliance Approaches to the Self-Employment Sector with a Focus on the use of Automated Data Bases

2. 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

3. 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

4. 2004 CRA Compliance Review –Key Issues • Aggressive tax planning • Underground economy* • GST fraud • Revenue collections & non-filers* * Important issues for self-employed sector

5. DATA • CRA SOURCES • OTHER FEDERAL SOURCES • PROVINCIAL SOURCES • EXTERNAL SOURCES • LEADS • EXPERTISE • TECHNICAL EXPERTS • ADVISORY COMMITTEES

6. 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.

7. 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

8. Risk Assessment Systems(cont’d) • 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

13. 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

15. 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., WCB’s)

16. 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

17. 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

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

19. 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.)

20. Challenges ( cont’d) • 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.)