Tax evasion and aggressive tax avoidance know no borders
Tightening the net on those who break or bend tax laws
Canada has one of the highest voluntary tax compliance rates in the world, but there’s still a small minority choosing not to pay what they owe.
The Canada Revenue Agency (CRA) is committed to ensuring that people and businesses pay their fair share of taxes, and is also making it more difficult to avoid paying taxes. The CRA’s compliance activities are vital to protect the integrity of our self-assessment tax system.
When an individual or business intentionally doesn’t comply with Canada’s tax laws with actions such as falsifying records and claims, hiding income, or inflating expenses, it’s tax evasion. Aggressive tax avoidance, on the other hand, occurs when actions are taken to get around the intent of the law.
Tax evasion and aggressive tax avoidance deprive our country of important revenues that help fund essential programs and services such as health care, childcare, education and infrastructure.
New and better approaches are helping the CRA see more data and find more of those not paying their fair share.
Stopping tax cheating: Better data, better approaches, better results
Canadians expect the CRA to protect the integrity of the tax system. Thanks to recent investments from the past three federal budgets, the CRA is using better tools and better approaches, which are leading to better results to improve the integrity and fairness of our tax system.
These tools help the CRA collect and improve the analysis of valuable information and allows the CRA to work smarter and more effectively to ensure all Canadians follow the rules.
A large array of compliance tools such as enhanced information sharing and collaboration with international and domestic partners, help the CRA identify high risk cases for audit and investigate cases of tax evasion. Some of these new tools and collaborative efforts that lead to better data and approaches are described below.
Better data and approaches
Access to international Electronic Funds Transfers (EFTs)
Since January 2015, the CRA has been automatically accessing all international Electronic Funds Transfers (EFTs) of more than $10,000 entering or leaving the country. As of March 31, 2018, teams have analyzed more than 187,000 EFTs amounting to more than $177 billion, related to eight jurisdictions or financial institutions of concern. Reviewing these transfers helps identify transactions on which taxes should potentially have been paid, and better risk-assess individuals and businesses.
Automatic exchange of offshore banking information
The CRA is also gaining easier access to information on Canadians’ overseas bank accounts. Canada made a commitment to the Organisation for Economic Co-operation and Development (OECD) and the Global Forum on Transparency and Exchange of Information for Tax Purposes (Global Forum) partners to participate in the Common Reporting Standard (CRS), as part of a global effort to increase transparency. With the implementation of the CRS, Canada and more than 100 other countries will be exchanging financial account information. This information will help the CRA connect the dots and match up data to identify instances where Canadians hide money in offshore accounts to avoid paying taxes.
Through the OECD’s Forum on Tax Administration (FTA), 50 countries work together to share best practices and emerging trends, deal with international risks, improve compliance and the overall delivery of tax administration. The CRA’s Commissioner is currently a Vice Chair of the FTA and CRA officials contribute through several of its working groups. The CRA also sponsors the Large Business and International Programme of the OECD.
Canada continues to be a member of the expanded Joint International Taskforce on Shared Intelligence and Collaboration (JITSIC). This network of 38 countries works closely and actively with other tax administrations to coordinate tax compliance activities across the spectrum of international tax risks. This expertise has allowed the CRA to participate and lead JITSIC expert working groups, including the development of a strategy to identify and stop promoters of abusive tax schemes.
Coordination of criminal investigations: Joint Chiefs of Global Tax Enforcement (J5)
Canada has joined Australia, the Netherlands, the United Kingdom and the United States in the Joint Chiefs of Global Tax Enforcement (J5) group. The J5 will share criminal investigations strategies, intelligence and conduct joint operations in the fight against those who commit, promote and enable international tax crimes, money laundering and cybercrimes.
Multinational enterprises disclosing worldwide financials
Canada is one of more than 60 nations taking part in the Country-by-Country Reporting program. This collaborative approach allows countries to share revenue and profit information on their large multinational enterprises. It helps the CRA better risk assess whether these companies are paying the right amount of tax in each country. The first exchanges of information were in summer 2018.
Since 1988, the CRA has been invoking the General Anti-Avoidance Rule (GAAR) when a taxpayer attempts to circumvent or exploit the intent of Canada’s tax rules and avoid paying their fair share. The GAAR has been applied to more than 1,100 files since the program began as a remedy to aggressive tax avoidance. The number of taxpayers reassessed considerably exceeds that number, because many arrangements involved multiple partners, related parties, or groups of investors who have participated in avoidance schemes. Using the GAAR enables the CRA to impose tax in cases where people are trying to exploit loopholes in the tax laws.
Better Results: The CRA at work for you
Focusing resources on the highest risk files means the CRA is tightening the net on those high net-worth individuals, promoters, corporations and entities who try to avoid paying their fair share of taxes.
This work is beginning to have an impact and the CRA is delivering results for Canadians. More importantly, a foundation is being laid that will provide continued improved results down the road.
One of the ways the CRA measures its results is through “fiscal impact” which consists of gross federal and provincial taxes assessed, tax refunds reduced, interest and penalties, and the present value of future federal tax assessable arising from compliance actions. It excludes the impact of appeals reversals and uncollectible amounts.
The CRA’s audit programs identified a total of $13.6 billion in fiscal impact during 2017-2018, an increase of more than $1 billion from the previous year.
This included $7.9 billion that was identified through the CRA's international, large business and offshore audit teams including $2.9 billion relating to aggressive tax planning and abusive tax avoidance.
- The CRA risk assesses 100% of large business corporate tax returns each year
- The CRA is conducting more than 1,100 taxpayer audits with offshore links
- With respect to the Panama Papers specifically, more than 155 audits have been identified
- Specialist audit teams consisting of 250 auditors are responsible for scrutinizing the tax affairs of high income earners and more than 800 high net worth taxpayers and their related entities
The CRA has increased the number of actions aimed at promoters of abusive or illegal tax schemes by:
- increasing audits of such promoters
- improving information gathering
- conducting criminal investigations where warranted; and
- communicating more efficiently and effectively with taxpayers
In 2017-2018, these actions resulted in the assessment of roughly $48 million in third-party civil penalties against tax professionals and promoters of abusive schemes.
Risk-based audits, more impact
The CRA continues to use tools such as enhanced business intelligence and advanced data analysis, which has improved the risk-assessment of individuals and businesses. This allows the CRA to focus our audit resources in the areas of highest risk and helps us to deliver improved results to Canadians.
Tax crimes continue to evolve in their level of sophistication and complexity. The CRA continues to adapt and use new techniques and methods to detect and deter criminal non-compliance and protect Canada’s tax base.
Criminal investigations undertaken by law enforcement bodies, including the CRA, are quite complex and often require years to complete.
Many factors may impact the duration of criminal investigations:
- number of individuals involved
- availability of information or evidence
- degree of cooperation by witnesses or the accused
- various legal tools that may need to be employed to gather sufficient evidence
- need to get information abroad
Learn more about the CRA's criminal investigation process.
Tax evasion can cost you
Tax evasion is a crime. Tax evaders face prosecution in court, including fines and/or jail time. The CRA's tools and compliance strategies help catch tax evaders and identify those who promote tax evasion schemes. To learn more, go to Tax Evasion. There are consequences.
The CRA’s commitment to transparency includes publishing conviction and pre-conviction news releases. To stay current on the CRA’s enforcement actions, you can subscribe to the CRA’s Enforcement notifications service. You will receive email notifications about CRA enforcement activities, which may include information on convictions and in some instances, the execution of searches and the laying of criminal charges.
With better tools, better approaches and better data, the CRA is able to identify individuals involved in tax evasion, both domestically and internationally, and ensure they face the consequences.
- 27 taxpayers convicted of tax evasion involving more than $45 million in unpaid taxes which resulted in more than $3.1 million in fines
- 14 taxpayers sentenced to prison totalling 40.7 years
- 269 cases referred for criminal investigation
- 172 search warrants executed
- 52 files resulted in criminal charges
- At the close of fiscal 2017-2018, the CRA had 50 ongoing criminal investigations related to offshore financial structures
You can help the CRA
You can be eligible to be paid when you tell the CRA about offshore tax avoidance by using the Offshore Tax Informant Program (OTIP). Having paid informants has already proven successful with more than 370 taxpayers identified for offshore non-compliance audits. As of March 31, 2018, the CRA has identified more than $33 million in additional federal taxes and penalties as a result of the Program. If you are aware of deliberate international tax avoidance, let the CRA know.
You can reduce the impact of previous errors in your own tax returns. Under the Voluntary Disclosures Program (VDP) taxpayers can correct errors in their tax affairs. Recent changes make it tougher for those who intentionally avoid their tax obligations to benefit from the VDP, while maintaining the program for Canadians looking to correct tax filing mistakes.
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