CMHC's demand for tax information inappropriate
The president of a consulting firm complained that Canada Mortgage and Housing Corporation (CMHC) had asked for an excessive amount of personal information from sole proprietors and partnerships as proponents in a Request for Proposal (RFP) process. If the lead proponent turned out to be a sole proprietor, that individual was required to provide, among other things, copies of his/her income tax returns for the last three years and a statement of net worth.
I discussed the RFP process with CMHC in depth. It was adamant that it was necessary to obtain financial information from a lead proponent when there was a high degree of risk associated with procurement and that it must ask for detailed information from a sole proprietor just as it did with any other type of business. It argued that, for a sole proprietor, unlike for a corporation, there was little comprehensive financial information that could be used to conduct an accurate risk assessment and that the information it was requesting was the best and most accurate it could get.
I agreed that the financial viability of a lead proponent had to be assessed to minimize the organization's exposure in high-risk cases. However, I did not understand how this objective was achieved by assessing income tax information for a three-year period. An individual may have had substantial revenue over three years but income tax information would not reveal how the individual disposed of that revenue. A proprietor may have had three difficult years but could still support the financial strains of a contract. An individual may also have substantial assets in property or non-interest bearing investments that are simply not reflected in income tax documents.
Section 4 of the Privacy Act provides that personal information collected by a Government institution must relate directly to an operating program or activity of the institution. Because I did not believe that income tax information was of material assistance in helping CMHC to assess the quality of a sole proprietor's RFP proposal, I could not conclude that CMHC's request for that information met the requirements of section 4. As a result of my investigation, CMHC has amended its procurement policy and has discontinued the practice of requesting income tax returns and statements of net worth from sole proprietors.
It is unacceptable to me that Canadian citizens should have to provide copies of their personal income tax returns to do business with the Government. Under the Income Tax Act, individuals must divulge a vast amount of personal information when completing their income tax returns, including a good deal of personal information about family members. The income tax process is extraordinarily intrusive and the use of personal information collected for income tax purposes must, in my view, be strictly confined to purposes that are regulated. At a time when Canadians are increasingly concerned about the erosion of their personal privacy, I find it untenable that an income tax return can be demanded from an individual for a purpose other than that required by law. Canadians should never be required to compromise a fundamental right in order to do business with the Government.
Ultimately, CMHC agreed with my finding and halted the practice. Although my investigation focused on CMHC practices, I was aware that other federal Government departments and agencies followed similar practices. I therefore wrote to the Deputy Minister for Public Works and Government Services Canada, and to the Secretary of the Treasury Board and the Comptroller General of Canada, seeking their assistance to ensure that this practice is discontinued throughout the federal Government. The Treasury Board agreed with my view. It indicated that the practice was not Government policy and that the matter would be raised with other departments and agencies. I have also been informed by Public Works and Government Services that it will discontinue the practice.
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