Corporate tax tactic cost federal coffers $90M: auditor

Corporations collecting interest of up to seven per cent on tax overpayments have cost the government more than $90 million over the past three years, federal Auditor General Sheila Fraser has found.

Corporations collecting interest of up to seven per cent on tax overpayments have cost the government more than $90 million over the past three years, the federal auditor general has found.

"The [Canada Revenue] Agency has a responsibility to ensure that it does not make large interest payments that could be avoided," Sheila Fraser said in the written text of remarks she made before releasing the findings in an audit report Tuesday.

She added that the Canada Revenue Agency has known since 1991 that certain corporations might be leaving large balances in their accounts with the agency to take advantage of interest rates between five and seven per cent. The interest rate charged to individual taxpayers for late payments is between seven and nine per cent.

Fraser's recent audit found that a small number of corporate taxpayers were keeping a total of $4 billion on deposit with the agency. While the agency has tried to refund as many of those balances as possible, it has had "limited success," according to the report.

Such deposits are allowed so that corporations that expect a reassessment can avoid paying interest on the additional amount if they're found to owe more.

However, Fraser said there was no evidence the companies making the overpayments were going to be reassessed.

Fraser looked at a number of other areas in her report, including financial management at the Department of National Defence and how Natural Resources Canada handles its payments to private companies contracted to implement its programs.

Gaps in government documentation: Fraser

Crown Corporations

The office of the auditor general also conducted audits of eight Crown corporations and reported notable problems with three of them, including:

  • Federal Bridge Corporation Limited (FBCL), which is responsible for three important bridges in the Montreal area and three international bridges in Ontario, has funding problems that affect its ability to maintain and repair bridges and facilities.
  • Via Rail Inc., does not own most of the tracks that it uses for its passenger rail services. It based its corporate plan on a scenario that assumed a positive outcome from negotiations with the owners of the rails even though the outcome was uncertain. It did not have any contingency plans. It also based the plan on optimistic revenue and ridership projections that the report said could "pose a significant challenge."
  • The Great Lakes Pilotage Authority does not have an effective way to determine whether key officers on vessels have the qualifications necessary to navigate areas of the Great Lakes where it is otherwise compulsory to pay for the use of a certified pilot from the authority.

The other Crown corporations audited were:

  • Canada Council for the Arts
  • Defence Construction Ltd.
  • International Development Research Centre
  • Park Downsview Park Inc.

However, she made special note of a general roadblock she encountered in the preparation of the reports — the government's practice of not keeping records of certain discussions called the "challenge process." The challenge process is a final oral analysis done before a policy recommendation goes to cabinet.

"Without it [the documentation], government cannot demonstrate due diligence," the report said. That, she said is "of growing concern to me."

Fraser said she encountered the problem while performing an audit on gender-based analysis.

The government has disagreed, saying documenting the discussions would divert resources away from providing the best and most relevant information for decision-makers.

DND lost $300M through underspending

Other findings of the report were that:

  • The Department of National Defence didn't know until the end of 2007-08 that it had not spent $300 million of its funding that couldn't be carried forward to the next fiscal year. The report also says that, in general, the department can't demonstrate that its financial management systems and practices allow for sound resource management, corporate planning and decision-making, especially in the medium or long term.
  • Natural Resources Canada paid $3.2 million to an organization involved in a serious conflict of interest that the department did not notice, even though the organization was insolvent and the payments were contrary to an agreement with the department. The case involved a consultant that developed a program involving payments to private companies and who also worked for an organization that received some of that funding. Fraser said the department must develop policies to prevent that sort of thing from happening again.
  • There are gaps in the fire safety measures taken in the 1,400 federal buildings that house 230,000 public servants across Canada. In addition, Public Works and Government Services Canada, which administers the buildings, isn't able to show that it consistently corrects high-priority problems with those buildings, the report says.
  • The federal government does not know how much intellectual property it owns, how well that is managed, or which of its projects will likely generate intellectual property. Despite a policy that requires the federal government to turn ownership of intellectual property from contracted activities to the contractor to increase the potential for commercialization, it retains ownership of the intellectual property in more than half those contracts.
  • Despite a 1995 government commitment to analyze how spending and policies affect men and women differently, many departments don't do it, and those that do rarely use it to design public policy.


  • The interest rate charged to individual taxpayers for late payments is between seven and nine per cent, not between five and seven per cent as originally reported.
    May 12, 2009 5:03 PM ET