CRITERIA FOR ORIENTING EXAMINATION ON THE BASIS OF TAXPAYER BEHAVIOR CIAT General Assembly, Santo Domingo, Dominican Republic, April 20-23, 2009

2 2 Canadian Tax System Context  Canada collects taxes through a self-assessment system that depends on the voluntary compliance of its citizens.  The Canada Revenue Agency (CRA) provides the same self-assessment measures, tools and information to all taxpayers.  However, we strive to focus our control activities on the areas of highest risk to the tax base.

3 1.We explore Canadians’ attitudes and awareness. 2.We identify areas of noncompliance. 3.We develop, monitor and assess our compliance approach. 4.Lastly, we leverage our approach through our compliance communication strategy, our voluntary disclosures and our taxpayer redress programs. An Overview of Our Risk Assessment Approach

4 Our Definition of Compliance  CRA’s definition of compliance: Registering when required; Filing returns on time; Reporting complete and accurate information to determine tax liability; and Paying all amounts owing when due.  All areas within the tax administration must be aware of this definition and how their activities relate to it.  Similarly, the public must be aware of what is expected of them.

5  CRA uses two representative surveys that explore attitudes towards tax compliance and our tax administration: CROP 3SC Monitor CRA Annual Survey Exploring Taxpayer Attitudes

6 The CROP 3SC Monitor  The Canadian population can be divided into three main segments with respect to their attitudes towards tax compliance: “Compliers” (57%) ; “Contingent Non-Compliers” (35%); and “Non-Compliers” (8%). %2002%2003%2005 CompliersAltruistic Compliers3033 Deferent Compliers Contingent Non- Compliers Pseudo Compliers11 12 Situational Non-Compliers Potential Non-Compliers11108 Non- Compliers Rebels878

7 The CRA Annual Survey Canadian opinions about income tax cheating

8  Pre-assessment reviews The Confidence Validity Program  Post-assessment reviews Compliance Measurement, Profiling and Assessment System (COMPASS) Matching programs – the T1 Matching Program Random audit programs – the Core Audit Program  Identified risk is used to direct additional examinations and enforcement actions. Case-level Risk Identification

9  The Compliance Review is developed with input from program branches and regions across the CRA.  Four risk criteria are used to rank each compliance issue according to the estimated impact on the Canadian tax base: The public profile of the issue and its impact on the self-assessment system; The financial impact of the issue; Scope (how many taxpayers could be involved); and The risk trend of the issue. Prioritizing Risks: The CRA Compliance Review

10  The 2004 review identified four compliance priorities from among the 30 issues identified: Aggressive Tax Planning; GST/HST High-Risk Compliance; The Underground Economy; and Non-filers/ Non-registrants/collections.  A second review is currently underway. Prioritizing Risks: The CRA Compliance Review (continued)

11 Our Behaviour-Based Compliance Approach  Generally, citizens are only subject to greater scrutiny by the CRA when there is an indication of non-compliance. RECOURSE

12  CRA considers both case-level and strategic research and risk assessment findings.  Results help us develop custom-made strategies for taxpayer segments with similar compliance characteristics. Our Behaviour-Based Compliance Approach (continued)

13  For Compliant taxpayers, we make it as easy as possible to comply.  For Contingent Non-Compliers, or those who are thinking about cheating, we inform them about the risks associated with cheating. Where possible, we also try and take away their opportunities for cheating.  However the behaviour of Non-Compliant taxpayers must be addressed through swift and firm enforcement action. Our Behaviour-Based Compliance Approach (continued)

14  Compliance Communications Strategy  Voluntary Disclosures  Recourse programs Leveraging Our Compliance Activities

15 Conclusions  We apply the same self-assessment rules and measures to all taxpayers.  However, we focus our examination and enforcement actions on the greatest risks to our tax base.  Compliance research and risk assessment techniques help us prioritize risks and select the most effective tools to maintain and promote voluntary compliance.