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- News Release 2002-049 - 

Statement of Assessed Mutual Fund Trust Provincial Capital Gains Refunds for the 1993 to 1996 Tax Years

on the results of applying specified auditing procedures to the Statement of Assessed Mutual Fund Trust Provincial Capital Gains Refunds for the 1993 to 1996 Tax Years

To the Minister of Finance of Canada

Consistent with my engagement letter to the Deputy Minister of Finance of Canada, I have performed the specified procedures set out in the Annex to this report in connection with the Statement of Assessed Mutual Fund Trust Provincial Capital Gains Refunds for the 1993 to 1996 Tax Years.

As a result of applying the specified procedures as set out in the Annex to this report, I:

1) Found no exceptions when performing Procedures 1 through 9,

2) Statistically determined and randomly selected 37 sample items when performing Procedure 10,

3) Obtained 31 of the 37 sample items, and for the other 6 sample items, verified that the Canada Customs and Revenue Agency’s (CCRA) inability to provide these sample items was consistent with the federal government’s data retention policies, when performing Procedure 11, and

4) Found the following exceptions, when performing Procedure 12 for the sample items obtained:

a) One instance of a capital gains refund recorded in one year in the Automated Assessment Control (AAC) System and in the subsequent year in the Automated Trust System (ATS). As the date of the Notice of Assessment is consistent with the ATS date, this exception has no impact on the Statement of Assessed Mutual Fund Trust Provincial Capital Gains Refunds for the 1993 to 1996 Tax Years,

b) One instance of a difference in the capital gains refund amounts recorded in the ATS and AAC systems. As the amount recorded in the ATS is in agreement with the Mutual Fund Trust return as assessed, there is no impact on the Statement of Assessed Mutual Fund Trust Provincial Capital Gains Refunds for the 1993 to 1996 Tax Years,

c) One sample item could not be found in the AAC system. As the amounts recorded in the ATS are in agreement with the Mutual Fund Trust return as assessed, there is no impact on the Statement of Assessed Mutual Fund Trust Provincial Capital Gains Refunds for the 1993 to 1996 Tax Years, and

d) Two instances of capital gains refunds posted to a general ledger account other than account 87. As this other account is classified as a federal account for provincial reporting purposes, there is no impact on the Statement of Assessed Mutual Fund Trust Provincial Capital Gains Refunds for the 1993 to 1996 Tax Years.

However, these specified procedures do not constitute an audit of and accordingly I do not express an opinion on the Statement of Assessed Mutual Fund Trust Provincial Capital Gains Refunds for the 1993 to 1996 Tax Years.

This report has been prepared for use solely in conjunction with an evaluation of the omission of provincial capital gains refunds earned by mutual fund trusts from the previously issued Statements of Income Taxes Payable to the Provinces and Territories for the 1993 to 1996 tax years.

Sheila Fraser FCA
Auditor General of Canada

Ottawa, Canada
May 31, 2002

Annex to the Accountant’s Report

Specified auditing procedures in connection with the Statement of Assessed Mutual Fund Trust Provincial Capital Gains Refunds for the 1993 to 1996 Tax Years

Note: Appended to this Annex is a flowchart illustrating the following specified auditing procedures. The flowchart has been linked to these specified auditing procedures.

A) To perform tests of the completeness and accuracy of the Statement of Assessed Mutual Fund Trust Provincial Capital Gains Refunds for the 1993 to 1996 Tax Years

1) Obtain from the Canada Customs and Revenue Agency (CCRA) the following:

a) Statement of Assessed Mutual Fund Trust Provincial Capital Gains Refunds for the 1993 to 1996 Tax Years (“the Statement”), together with the notes thereto;

b) For each tax year from 1993 to 1996, the CCRA Tax General Ledger final balance of Account 87 to which, according to CCRA, all assessed mutual fund trust capital gains refunds, both federal and provincial, were posted; and

c) A report of specified data extracted from CCRA’s Automated Trust System^[1] (ATS), including details of provincial and federal capital gains refunds, by tax year, for the 1993 to 1996 tax years (Report of Specified Data Extracted from the ATS).

2) Obtain the following data files retained from prior years’ Office of the Auditor General audit work related to the Statement of Income Taxes Payable to the Provinces and Territories:

a) Data files containing, among other things, detailed assessment transactions for mutual fund trusts from the Automated Assessment Control^[2] (AAC) system (available for 1995 and subsequent tax years only); and

b) Data files containing the summary posting transactions recorded within the Tax General Ledger resulting from, among other things, the detailed assessment transactions recorded in the AAC system (available for 1995 and subsequent tax years only).

3) Agree mutual fund trust provincial capital gains refunds amounts reported on “the Statement” to corresponding amounts on the Report of Specified Data Extracted from the ATS.

4) Check all additions and cross-additions, and any other calculations, on both “the Statement” and the Report of Specified Data Extracted from the ATS.

5) For each of the 1995 and 1996 tax years, compare the sum of federal and provincial mutual fund capital gains refunds on the Report of Specified Data Extracted from the ATS to the sum of relevant Account 87 postings recorded in the AAC data files (available for 1995 and subsequent years only) and ensure that any differences are less than 2.5%.

6) For each of the 1995 and 1996 tax years, agree the sum of the Account 87 postings in the AAC data files to the sum of the relevant Tax General Ledger Account 87 summary posting transactions in the Tax General Ledger data files.

7) For each of the 1995 and 1996 tax years, agree the sum of all Account 87 summary posting transactions in the Tax General Ledger data files to the Account 87 balances provided by CCRA in Procedure 1b) above.

B) To perform tests of the completeness of the ATS Data used to prepare “the Statement”

8) Obtain from the Canada Customs and Revenue Agency (CCRA), a data file of all mutual fund trust provincial capital gains refunds, by tax year (1993-1996), from CCRA’s Automated Trust System (ATS provincial capital gains refunds data file)

9) Using the ATS provincial capital gains refunds data file obtained in Procedure 8 above, compute all provincial capital gains refunds totals by province, compare them to equivalent amounts on the Report of Specified Data Extracted from the ATS obtained in Procedure 1c) above, and ensure that any differences are in total less than 0.2%.

C) To perform tests of the accuracy of the ATS Data used to prepare “the Statement”

10) Using the ATS provincial capital gains refunds data file, randomly select a statistically determined sample of provincial capital gains refunds and print out all relevant sample details.

11) For each sample item:

a) Obtain from the Canada Customs and Revenue Agency (CCRA) the specifically identified mutual fund trust (T3) returns and related tax form (T184 - Capital Gains Refund for a Mutual Fund Trust) as randomly selected by the Office of the Auditor General in Procedure 10 above, or

b) where CCRA is unable to provide the specifically identified mutual fund trust (T3) returns and related tax form (T184 - Capital Gains Refund for a Mutual Fund Trust) as selected by the Office of the Auditor General in Procedure 10 above, verify that CCRA’s inability to provide this documentation is consistent with relevant federal government retention of data policies.

12) For each sample item provided:

a) Agree all relevant details from the sample printout to the assessed T3 return and / or T184;

b) Ensure all relevant amounts on the assessed T184 have been correctly carried forward from the appropriate schedule or return or in the case of carryforward amounts from prior years agreed to CCRA’s ATS database enquiry system, verify that all calculations on the assessed T184 are done correctly, and agree the resulting total capital gains refund to line 89 (Capital Gains Refund) of the assessed T3 return;

c) For each of the 1995 and 1996 tax year sample items, to ensure the sample item amount is also contained in the AAC data file, extract capital gains refund amounts posted to Account 87 in the AAC data file and agree these amounts to line 89 of the assessed T3 return;

d) To ensure consistency with amounts shown within CCRA’s ATS database enquiry system, agree the provincial capital gains refund amount and province as shown on the sample printout to equivalent information within CCRA’s ATS database enquiry system.

D) To complete the work

13) Summarize the results of the above procedures and prepare the appropriate Accountant’s Report.

Specified Auditing Procedures in connection with the Statement of Assessed Mutual Fund Trust Provincial Capital Gains Refunds for the 1993 to 1996 Tax Years

Statement of Assessed Mutual Fund Trust Provincial Capital Gains Refunds For the 1993 to 1996 Tax Years

The accompanying notes form an integral part of this statement

Approved by:

Commissioner
Canada Customs and Revenue Agency

Notes to the Statement of Assessed Mutual Fund Trust Provincial Capital Gains Refunds for the 1993 to 1996 Tax Years

1. Tax collection agreements

The Federal-Provincial Fiscal Arrangements Act empowers the federal Minister of Finance to conclude, with the approval of the Governor in Council, tax collection agreements with provinces and territories that impose individual and corporation taxes. The tax collection agreements into which the Minister has entered provide, subject to certain restrictions, that the Government of Canada, as agent of the provinces and territories, will assess, on their behalf, the taxes imposed under their provincial and territorial acts and remit amounts in respect thereof in accordance with the agreements.

2. Statement of Income Taxes Payable to the Provinces and Territories

Upon the closing of a tax year, a Statement of Income Taxes Payable to the Provinces and Territories is prepared by the Department of Finance using assessed tax information from the Federal / Provincial Tax Sharing Statements prepared by the Canada Customs and Revenue Agency (CCRA). Due to the omission of amounts representing the provincial portion of capital gains refunds earned by mutual fund trusts from the Federal / Provincial Tax Sharing Statements, these omitted amounts have also not been included in previously issued Statements of Income Taxes Payable to the Provinces and Territories.

3. Summary of significant accounting policies

(a) Statement content

This statement reflects the provincial portions of assessed Mutual Fund Trust Capital Gains Refunds not previously included in the Statement of Income Taxes Payable to the Provinces and Territories for the 1993 to 1996 tax years prepared on a basis generally consistent with that used in the Statement of Income Taxes Payable to the Provinces and Territories.

The amounts shown for a given tax year represent amounts assessed in the immediately following calendar year regardless of the tax year involved. However, the 1993 tax year amounts do not include amounts relating to 1992 and prior tax years.

(b) Assessment criteria

Under the provisions of the tax collection agreements, the provinces and territories accept as final and binding all assessments, decisions and other steps made or taken by the Minister of National Revenue and officials of the Canada Customs and

Revenue Agency under the provincial and territorial acts in pursuance of these agreements.

The Canadian Income Tax System is a self-assessment system where Canadians are expected to understand the tax laws and comply with them. When assessing a taxpayer’s return, the Canada Customs and Revenue Agency uses certain provisions of the Income Tax Act and Regulations as well as other internally developed criteria which are generally less exacting than the Income Tax Act and Regulations.

Notes

1. The Automated Trust System is the CCRA system used, starting with the 1993 Tax Year, to process trust returns. Beginning in March 2002, this system is now also used to record accounting entries relating to the assessment of most trust returns.  [Return]

The AAC system is the CCRA system used to record revenues from manually processed returns and adjustments to CCRA’s general ledger systems. Until March 2002, all trust return revenues were posted through the AAC system. Beginning in March 2002, only those trust assessments which cannot be posted from the ATS system, are posted through the AAC system.  [Return]

- News Release 2002-049 -