Wednesday, May 13, 2009

The Canada Revenue Agency - best investment in town!

The best investment going? Revenue Canada
Companies refuse tax refunds as they earn better-than-market rates on overpayments
From Wednesday's Globe and Mail
May 13, 2009
OTTAWA — It's perhaps the unlikeliest place to park your money but Canada Revenue Agency has turned out to be just the ticket for dozens of companies that, recently at least, have been earning better-than-market rates on tax overpayments.
Corporations have balked when the taxman tried to refund the money, refusing to part with what seemed like a short-term investment sweet spot - at least until Auditor-General Sheila Fraser blew the whistle yesterday, saying Ottawa is now on the hook for $90-million in "unnecessary interest costs."
In her latest quarterly report, Ms. Fraser revealed yesterday that Canada Revenue Agency has run up this bill over three years by paying premium interest rates on what her office said were unnecessary amounts of corporate tax overpayments.
The tax collector has tried to return these overpayments "with limited success" to companies that are not identified in the audit.
About 50 firms account for two-thirds of the $4-billion in overpayments on deposit - and it was their accounts that were audited.
Ms. Fraser suggested these companies are intentionally balking at refunds of the money because they are earning premium interest rates. For instance, the Canada Revenue Agency noted its overpayment interest rate for December, 2008, was 5 per cent, but the average 90-day treasury-bill rate that month was just over 1 per cent.
Today the overpayment rate is 3 per cent while the average 90-day T-bill rate in May is less than 0.2 per cent.
Ms. Fraser's spring, 2009, report also revealed that the Department of National Defence, which regularly complains about a lack of resources, had to forfeit more than $300-million in funding last year because it miscounted its cash on hand.
Ms. Fraser's office said it believes Canada Revenue Agency is not required by law to retain tax overpayments if it determines they are not needed to cover a potential reassessment.
The Auditor-General herself joked that news of this premium overpayment rate might prompt other companies to start filing extra sums.
"I sort of wonder if the report today will perhaps generate an influx of cash into the Canada Revenue Agency."
But Revenue Minister Jean-Pierre Blackburn said yesterday the government will find a way to close the loophole identified by Ms. Fraser.
"I don't think the revenue agency's objective is to give higher interest rates than what you would expect to see in, say, a financial institution," he said. "I've certainly asked people in my ministry to do what it takes to fix this because it's like there's a hole in the law that allows people to profit from this situation by finding higher interest rates than they would normally obtain."
The Auditor-General also criticized National Defence for poor financial management of its $19-billion annual budget and its $33-billion in equipment and inventories.
She noted that despite the military's requests for more money, it lost track of how much unspent cash it had on hand for the fiscal year 2007-08. The department reported a surplus of $268-million in unspent funds at the March 31 year-end but later said this had risen to more than $500-million. Rules prevent Defence from carrying forward more than $200-million so the department lost access to the remaining $300-million.
This money is now "permanently unavailable to the department to meet its ongoing requirements," the audit said.
"This is a serious consequence for a department that stated a need for additional funds to fulfill its mandate."
The $300-million would buy about seven or eight of Alenia North America's C-27J fixed-wing aircraft to help fill a burning need for new search and rescue planes - not including maintenance costs.
"It's astounding they don't have management capability to figure out how much money they have," NDP defence critic Jack Harris said.
A contractor who helped develop a climate-change plan under the Liberal government later signed a multimillion-dollar deal to manage the program, according to the latest Auditor-General's report.
Natural Resources Canada signed a $6.9-million contract with a firm headed by Peter Middleton, a former public servant with the federal government, to work on a program aimed at encouraging the use of vehicles that run on natural gas. However, auditors found that the department awarded the contract even though officials knew Mr. Middleton had worked as a paid consultant to draft the very program on which he would be working.
"We found a serious conflict of interest," Ms. Fraser said.
Mr. Middleton's response is not included in the report and he declined comment yesterday.
Bill Curry and Steven Chase


Post a Comment

<< Home