OTTAWA–Some of Canada's largest corporations may be using the government as a high-yield investment account by deliberately overpaying on their annual tax returns to collect favourable interest rates, the federal auditor general says.

In each of the last three years, top businesses have realized a $30-million windfall by paying a total of $4 billion into accounts managed by the Canada Revenue Agency that cover them in the event their tax returns are reassessed.

The accounts have paid an interest rate of between 5 and 7 per cent since 2006. The rate is considerably more favourable than that offered by the banks, but Canadian tax dollars account for 2 per cent of that interest.

Auditor General Sheila Fraser said it appears corporations were well aware of the favourable treatment they were getting with their federal accounts, though it is difficult to prove a company has set out to bilk taxpayers.

"No one asked the corporations or tried to determine what the motivation was but I think we can probably arrive at that conclusion," she told reporters. "The agency did try to return the money to them and they declined."

Fraser even joked that there could be an influx of chief financial officers looking to stash money in Ottawa in the wake of her report.

"I'm not sure in this economic time that a lot of corporations have a lot of cash to deposit with the Canada Revenue Agency, but there are obviously some and the agency has to manage this."

The Canada Revenue Agency, which collects federal tax dollars, has suspected that corporations were aware of their higher interest rates since at least 1991 but has done nothing to safeguard the federal treasury. CRA officials trying to return the advance payments to firms are powerless if the company opts to leave the account open.

Fraser suggested the Canada Revenue Agency is more focused on collecting tax dollars than returning overpayments to companies. But the government needs a forceful policy to bring to an end a problem that has existed for almost two decades and likely cost taxpayers hundreds of millions of dollars, she said.

"The agency has a responsibility to ensure that it does not make large interest payments that could be avoided. It has recognized for years that certain corporations might be leaving large balances in their accounts to take advantage of favourable interest rates."

Between 2005 and 2008 the same 50 corporations accounted for two-thirds of the $4 billion in overpayments, the audit found.

OTHER HIGHLIGHTS

The auditor general's report touched on a number of other departments, including the National Defence, Natural Resources and a limited number of Crown corporations. Among the findings:

- Natural Resources Canada hired a consultant, Peter Middleton, to help it award millions of dollars to organizations working on energy efficiency projects. The department knew that Middleton was working for three of the companies that received $3.2 million in federal funding. In one case, he was president of the Canadian Energy Efficiency Alliance-Transport when it received federal funding.

"NRCan knew of these circumstances and permitted the conflict of interest to occur," the audit reported.

- Fisheries and Oceans Canada and Environment Canada have little information on the state of fish habitat across the country and are not doing enough to prevent the deposit of harmful chemicals, waste and other substances into waters that contain fish.

- Environment Canada is not complying with the Kyoto Protocol Implementation Act, can't track actual emission reductions for each of the measures it has put in place and hasn't factored future uncertainties such as an economic downturn into its projections.

The law was passed with the support of opposition parties in 2007. The Conservative government long ago abandoned any hope of meeting its Kyoto targets by reducing Canada's greenhouse gases to 6% below 1990 levels by 2012, and warned that trying to do so would lead to economic ruin.

- Federal departments are failing to assess the impact on women of policies and legislation, despite a 1995 commitment.

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- The Crown corporation that manages federal bridges is so short of cash that key bridges in the Montreal area could become safety risks.

- Sloppy monitoring of "intellectual property" produced by departments – patents, copyrights and industrial designs – is undermining potential commercial returns.

With files from The Canadian Press

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