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Minister of National Revenue releases fifth report in the tax gap series

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OTTAWA, June 18, 2019 /CNW/ - The Government of Canada committed in 2016 to calculate the tax gap, fully recognizing that it would help it better target its compliance activities and ensure a tax system that is fair to all Canadians. Today, the Honourable Diane Lebouthillier, Minister of National Revenue, announced the release of the fifth report in the tax gap series. Canada is part of a select group of countries that estimate their tax gaps, including the United Kingdom, the United States, and Australia.

This fifth report focuses on the corporate income tax gap, estimated to be between $9.4 and $11.4 billion for tax year 2014 before accounting for audit results. However, the Canada Revenue Agency's (CRA) efforts to address corporate non-compliance are expected to reduce this gap by between 55% and 66% to between $3.3 and $5.3 billion in 2014.

The Government knows that CRA's compliance efforts are instrumental in reducing the tax gap, and has made historic investments of over $1 billion to do its work. Most recently, Budget 2019 committed $150.8 million over five years to hire additional auditors, build technical expertise in sectors of emerging risk, create a new data quality examination team, and extend programs aimed at combatting offshore tax non-compliance. These investments are helping the CRA crack down on tax evasion and aggressive tax avoidance.

The CRA intends to build on this series of tax gap reports by producing studies on other areas of non-compliance and updating its tax gap estimates on a three-year cycle.

Quotes

"Our Government is committed to cracking down on tax evasion and aggressive tax avoidance, in Canada and offshore. Today, the government is delivering on its commitment to calculate the tax gap. This information will help the CRA evaluate its approaches and better target compliance actions to ensure a tax system that is fair and equitable for all Canadians."

-The Honourable Diane Lebouthillier, Minister of National Revenue

Quick Facts

  • The tax gap is the difference between the taxes that would be paid if all obligations were fully met in all instances, and the tax actually paid and collected.
  • This report is part of a series of reports: a conceptual study (June 2016), a report on the goods and services tax/ harmonized sales tax (GST/HST) (June 2016), a report on the domestic personal income tax (June 2017), and a report on the international personal income tax (June 2018). Tax year 2014 was examined in all five reports.
  • The CRA has shared the data requested by the Parliamentary Budget Officer (PBO) to support his analysis of the tax gap, while ensuring that the confidential information of Canadians remains protected.
  • The CRA consulted other tax administrations, government departments, and experts to refine the methodologies used in the report, and will continue to engage with them on methodology and research moving forward.

Associated Links

Tax Gap and Compliance Results for the Federal
Corporate Income Tax System

Canada Revenue Agency

Backgrounder

The Canada Revenue Agency (CRA) has published a series of studies on Canada's tax gap. The tax gap is the difference between the taxes that would be paid if all obligations were fully met in all instances, and the tax actually paid and collected. A dedicated unit was established at the CRA to examine different parts of the gap and to date, the CRA has published five studies:

  1. Tax Gap in Canada: A Conceptual Study (June 2016)
  2. Estimating and Analyzing the Tax Gap Related to the Goods and Services Tax / Harmonized Sales Tax (June 2016)
  3. Tax Assured and Tax Gap for the Federal Personal Income Tax System (June 2017)
  4. International Tax Gap and Compliance Results for the Federal Personal Income Tax System (June 2018)
  5. Tax Gap and Compliance Results for the Federal Corporate Income Tax System (June 2019)

The CRA has followed through on its commitment to estimate the tax gap and to publish these estimates. It will continue to engage with external experts and stakeholders to ensure Canadians are informed about tax compliance.

Tax Gap and Compliance Results for the Federal Corporate Income Tax System (June 2019)

The CRA's fifth report in the tax gap series focuses on corporate income tax. This report builds on the work already completed in the first four reports on the tax gap.

Key highlights of the latest study include:

  • Tax gap: Before accounting for results from audits, the overall federal corporate income tax gap is estimated to be between $9.4 and $11.4 billion in tax year 2014. This includes the tax gap for incorporated small and medium enterprises (SMEs), which is estimated to be between $2.7 billion and $3.5 billion, and the tax gap for large corporations, which is estimated to be between $6.7 billion and $7.9 billion.
    • The CRA's compliance efforts are instrumental in reducing the corporate tax gap. The corporate income tax gap, after considering audit results, is expected to be reduced by between 55% and 66% to between $3.3 billion and $5.3 billion in tax year 2014.
  • Tax gap methodology: Given the complexity of tax gap estimation and data availability, multiple methodologies are required to adequately measure Canada's corporate income tax gap. The CRA consulted other tax administrations, government departments, and experts to refine the methodologies used in the report, and will continue to engage with them on methodology and research moving forward.
    • For SMEs, the CRA used a random sample, which was representative of the population as a whole, to estimate the tax gap.
    • For large corporations, two statistical methodologies were applied to risk-based audit results to determine lower-bound and upper-bound estimates of the tax gap. Further details on these methodologies are contained in the report.
  • The CRA uses analytical tools to risk-assess 100% of large business corporate tax returns on a yearly basis, improving its ability to identify high-risk transactions and decide which taxpayers to audit each year.
  • The CRA intends to build on this research by producing reports on other areas of non-compliance and updating its tax gap estimates on a three-year cycle.

Cracking down on tax evasion and aggressive tax avoidance

Budget 2016, 2017 and 2018 investments in better tools, alongside enhanced information sharing with international partners, are helping the CRA crack down on corporate tax evasion and aggressive tax avoidance. Budget 2019 investments will allow the CRA to fund new initiatives and extend existing programs.

We automatically access and review international electronic funds transfers over $10,000 entering or leaving the country. This represents over 1 million transactions each month. Reviewing these transfers helps us identify transactions on which taxes should potentially have been paid, and better risk-assess individuals and businesses.

We use analytical tools to risk-assess 100% of large business corporate tax returns on a yearly basis, improving our ability to identify high risk transactions. This helps us decide which taxpayers to audit each year.

Canada is one of over 70 jurisdictions sharing Country-by-Country (CbC) reports. CbC reports provide automatic access to information about multinational corporations' activities in every country they operate in, giving us a deeper understanding of the operations of these large companies. The first exchanges of information in the CbC initiative took place in June 2018. By fulfilling our commitment to our partners to share information, we are making it more difficult for corporations to shift their profits offshore to avoid paying their fair share of tax.

We also gained easier access to information on Canadians' overseas bank accounts, having undertaken our first exchanges under the Common Reporting Standard (CRS) in the fall of 2018. With the implementation of the CRS, Canada and over 100 other jurisdictions have begun exchanging financial account information. This information will help us connect the dots and identify instances where taxpayers have not complied with Canadian tax laws.

The CRA has reviewed and limited access to the Voluntary Disclosures Program. Since March 1, 2018, taxpayers who intentionally avoided their tax obligations are no longer able to benefit from the same level of relief as taxpayers who apply for relief to correct an unintentional error.

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SOURCE Canada Revenue Agency

View original content: http://www.newswire.ca/en/releases/archive/June2019/18/c9222.html

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