Departmental Plan 2017-18

Compliance

The CRA aims to make it easier for taxpayers who want to comply with Canada's tax laws and more difficult for those who choose not to comply. By selecting the right intervention for the risk, we ensure taxpayers are supported in the most effective way for compliance. We use the least intrusive and most efficient approach to encourage taxpayers to comply with their tax obligations, while reserving enforcement interventions for those who do not intend to comply.

In recent years, the CRA's significant actions to deter, detect, and correct non-compliance have included: increasing focus on high-risk segments of the population; reinforcing strategic partnerships with key countries and organizations; developing business intelligence tools to maximize the use of available data; and enhancing risk-assessment capacity. We intend to build on the successes of these initiatives.

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There are 6 squares in this image and each square describes terms associated with Compliance efforts in the CRA.

The first square
Business Inteligence
the second square
International Co-operation
the third square
Improving Comliance
the fourth square
Tax evasion and aggressive tax planning
the fifth square
Filing Integrity
The sixth square
Collections

Business intelligence

The CRA's innovative use of research, analytics, and data mining plays an important role in our ongoing long-term compliance efforts. The Agency's business intelligence encompasses both big data to enhance predictive analytics (how we detect non-compliance) and behavioural economics to strengthen compliance. The application of advanced analytics allows for improved decision making and enhances the CRA's tactical and strategic business processes. The nature of our business environment means we are constantly developing innovative, flexible, and strategic approaches to support our activities in research, analytics, and data mining.

The CRA currently invests a great deal in its business intelligence infrastructure, and an additional $28 million has been earmarked to develop an even more robust infrastructure at the Agency over the next few years. This long-term investment will help the CRA to renew its business intelligence computing platform, tools, and processes to further strengthen our business intelligence foundation. The renewed business intelligence environment will improve the Agency's advanced research, trend analysis, and compliance-risk analysis. Adjustments to the platform, together with a research-and-development approach in a lab environment will allow experimentation and learning, while producing exceedingly faster outcomes. We will also implement a plan to meet the evolving need for CRA employees to use data for risk assessment and business development.

Research

In our ongoing effort to determine the most appropriate and effective intervention for a particular compliance risk, the CRA will conduct behavioural research and launch pilot projects to assess the impact of new or modified compliance treatments. We plan to further refine the use of behavioural economics and to develop experimental designs for projects to assess the impact of different treatments on similar groups of taxpayers. This research will, in turn, assist in the development of predictive models, which will allow the CRA to better focus resources to target material non-compliance with the most appropriate interventions, while maximizing outreach to taxpayers through education and assisted compliance treatments.

Why study the tax gap?

  • Research on particular components of the tax gap (for example, type of tax, stage of compliance continuum, subset of taxpayers) will enrich the CRA's analysis of various aspects of non-compliance and provide additional insight into the concrete work being done by CRA to combat non-compliance.
  • An examination of the international tax gap with a focus on offshore compliance issues from a Canadian perspective will identify data to assist the CRA in estimating the international tax gap overall.

Protecting Canada's revenue base and the fairness of our tax system includes understanding and addressing the tax gap. Broadly defined, the tax gap is the difference between the tax payable if all obligations were fully met in all instances, and the tax actually paid and collected. The CRA will continue to study the tax gap, collaborating with international counterparts, other organizations, academics, and other experts. Building on the two tax gap papers published in 2016, the CRA will publish a series of papers on other aspects of the tax gap.

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This image shows the Reserach continuum associated with the CRA's efforts to identyify and study the Tax Gap issue.

This mage reads left to right and shows the actions planned in 2017 to 2018, and 2018 to 2019 and 2019-2020.

Under each of the years noted in the horizontal graph, there is text describing the planned activities.

Under the 2017 to 2018 period. In all cases the information reads left to right and is meant to show activities undertaken earlier or later in the fiscal year. There are no months shown in the diagram, simply a horizontal view with arrows pointing downwards to each acivity.

Analyze electronic fund transfers to and from high risk jurisdictions

Accumulate date from completed goods and services tax/harmonized sales tax (GST/HST) research audits and analyze data

Complete the review of forensics of informatics functions to enhance the CRA's ability to process digital evidence

Tax gap papers (ongoing)

Study dynamics in Community Volunteer Income Tax Program

Under the 2018 to 2019 period

Establish performance measures of risk assessment criteria for GST/HST models

Determine and apply appropriate risk-based treatments for particular off-shore transactions

Increase Business Intelligence and technical  capacities to identify wealthy individuals, tax scheme promoters, and tax evasion

Under the 2019 to 2020

Test GST/HST risk assessment criteria

Determine and apply appropriate risk-based treatments for particular offshore transactions

Risk assessment

The CRA assesses many types of risk to deter, detect, and address non-compliance. Our compliance risk-assessment methods are constantly evolving and improving. In addition to its own data, the CRA receives a wide variety of information from international parties to use for risk assessment. In the planning period, the Agency will seek additional sources of information and refine data-mining and risk-assessment models related, among others, to GST/HST registrants, employer accounts, third-party data, underground economic activity, and high-risk taxpayers.

By expanding capabilities in predictive analytics, the CRA will deliver more results Canadians expect, such as detecting and deterring tax avoidance and maximizing tax recovered. We will extend the scope of our business intelligence solutions by adopting big-data technologies to include more semi-structured and unstructured data.

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Image description

This image shows the Risk assessment continuum associated with the CRA's efforts to leverage business intelligence and data to improve compliance.

This mage reads left to right and shows the actions planned in 2017 to 2018, and 2018 to 2019 and 2019-2020.

Under each of the years noted in the horizontal graph, there is text describing the planned activities.

In all cases the information reads left to right and is meant to show activities undertaken earlier or later in the fiscal year. There are no months shown in the diagram, simply a horizontal view with arrows pointing downwards to each acivity.

Under the 2017 to 2018 period.

Update and modify risk assessment models and profiles. Integrate applied intelligence solution to aggressive goods and services tax/harmonized sales tax (GST/HST) planning

Identify risks among GST/HST registrants

Develop data mining models to support enhanced risk assessment of employer accounts

Gather information about non-compliance to inform risk-based strategies related to underground economic activity

Seek additional sources of third party data for risk assessment systems

Identify high-risk taxpayers using electronic fund transfer data

Under the 2018 to 2019 period

Automate entity management system to build on existing large business automated risk-assessment system

Integrate applied intelligence solution in GST/HST audit programs, model additional algorithms for aggressive GST/HST planning

Expand electronic filing for foreign reporting requirements

Automate matching electronic transfer data with existing CRA taxpayer data

Enhance tools to leverage contry by country reports and common reporting standards data

Under the 2019 to 2020 period

Fully implement applied intelligence solutions for GST/HST registrants

Develop additional algorithms to detect "carousel schemes" and significant non-compliance within the large business and multi-national enterprise populations and among wealthy individuals.

Outcomes analysis

The CRA analyzes the results of its research, risk assessment, and predictive analytics to assess their effectiveness and to inform future decisions. The CRA's strategic, systems-based approach increases the efficiency and effectiveness of our compliance programs by concentrating our resources over the long term on addressing non-compliance with the greatest materiality. This protects Canada's revenue base and the fairness of the tax system.

Planning highlights

The CRA will continue to use business intelligence to:

Expected results

Planned business intelligence improvements support the CRA's efforts to prevent the issuing of unwarranted goods and services tax/harmonized sales tax (GST/HST) refund and rebate claims and to address willful non-compliance and aggressive GST/HST schemes.

The acquisition of tools and technological expertise needed for complex investigations and audits will increase the exposure of sophisticated and well-organized schemes. The CRA anticipates updated risk-detection technology will:

The CRA's tax gap papers will provide more in-depth analysis of the methodological and practical considerations associated with tax gap estimation, and will further enhance our understanding of how this information could assist in administering Canada's tax system.

What is BEPS?

(Base erosion and profit shifting)

The OECD defines BEPS as tax planning by multinational enterprises that exploits gaps in tax rules. These enterprises shift otherwise taxable profits to jurisdictions with low or no tax, even if little or no activity has actually taken place in these jurisdictions.

Because they pay little or no tax, multinational enterprises that artificially separate their taxable profits from where these profits arose:

  • erode the tax base by not paying their fair share of tax
  • negatively affect competition
  • distort investment decisions
  • reduce overall trust in the tax system

Canada is an international leader in addressing BEPS.

International co-operation

In support of our strategy to address international tax risks, the CRA continues to play a leadership role in collaborating with the growing global network of tax administrations and international bodies working together to fight international tax evasion and aggressive tax avoidance and to build capacity among developing country tax administrations.

Image of World with text Cracking Down on International Tax Evasion and Avoidance

A key element of the global tax evasion and tax avoidance strategy includes enhanced transparency. To this end, the CRA is preparing for the implementation of the Common Reporting Standard (CRS) to facilitate the automatic exchange of information. In June 2015, the CRA signed a multilateral administrative arrangement to prepare for effective, secure, and timely exchanges under the CRS. More than 100 jurisdictions, including Canada, are committed to implement the CRS with the first exchanges of information occurring in 2017 or 2018. The CRA is scheduled to begin information exchanges with respect to accounts held in 2017 by September 2018. Work is ongoing at the CRA to prepare for, and benefit from, the first exchanges of CRS information.

To further enhance transparency, Budget 2016 investments will allow Canada to also implement country-by-country (CbC) reporting, one of the recommendations of the OECD/G20 Base Erosion and Profit Shifting (BEPS) action plan. The objective of CbC reporting is to increase transparency on the global operations of certain multinational enterprises. CbC reporting includes information on these multinational enterprises' global allocation of income, economic activity, and tax paid. CbC Reports will be filed in the jurisdiction of tax residence of the ultimate parent entity of the multinational entity group, then shared between jurisdictions through automatic exchange of information pursuant to government-to-government agreements. The CRA will implement CbC reporting standards for improved transfer-pricing documentation in 2017.

In addition, the CRA Commissioner will continue to play a leadership role at the international level through his participation in the OECD Forum on Tax Administration (FTA). The FTA is a forum through which tax administrators from 46 countries can identify, discuss, and influence relevant global trends and develop new ideas to enhance tax administration around the world. FTA Commissioners have acknowledged that the new measures to enhance transparency will better position tax administrations to combat tax evasion and tax avoidance, in part, by encouraging greater voluntary compliance.

Key elements of the FTA work over this planning period include supporting the OECD/G20 international tax agenda (including BEPS implementation), strengthening global efforts to tackle cross border tax avoidance and evasion, and enhancing core tax administration (service and compliance) functions.

In this context, the CRA will continue to participate in the Joint International Taskforce on Shared Intelligence and Collaboration (JITSIC). Under the auspices of the FTA, JITSIC-participating countries operate under a legal  framework of bilateral and multilateral conventions and tax information exchange agreements to share experience, resources, and expertise to tackle common tax evasion and avoidance issues.

Furthermore, as a member of the FTA Bureau, the CRA Commissioner will lead efforts designed to support the international tax agenda, namely through his sponsorship of the Large Business and International Programme and Capacity Building Network.

In addition to continuing to build tax administration capacity in developing countries bilaterally and multilaterally, the Agency will also further the development of a global on-line Knowledge Sharing Platform. This Platform will connect tax officials and experts from advanced and less-advanced administrations to share practical information and tools on all aspects of tax administration.

Planning highlights

To foster international co-operation for detecting non-compliance, the CRA will:

Expected results

Improving compliance

The CRA's compliance activities seek to protect the integrity of Canada's self-assessment system by identifying and addressing those who do not accurately report income. Our compliance interventions follow an escalating approach, from influencing compliance to enforcing it. We seek to positively influence compliance attitudes by increasing taxpayers' understanding of their tax obligations through targeted outreach activities, client service, social marketing, communications, and education. To protect Canada's revenue base, we also conduct examinations, audits, and investigations at the domestic and international levels to ensure compliance with Canada's tax laws.

During the planning period, in addition to efforts to combat the underground economy, the CRA will focus on enhanced compliance measures related to tax evasion and aggressive tax avoidance, filing integrity in high-risk sectors, and increasing the collection of tax debts. This focus over the planning cycle will increase the CRA's ability to find those who evade or aggressively avoid taxes and ensure they pay their fair share of tax.

Tax evasion and aggressive tax avoidance

Tax evasion and aggressive tax avoidance by individuals and businesses cost governments and taxpayers, reducing the fairness and integrity of the tax system. Detecting and addressing tax evasion and aggressive tax avoidance is a Government of Canada priority. Significant investments from Budget 2016 will allow it to hire additional auditors and specialists, increase verification activities, and improve the quality of investigative work targeting non-compliance risks both domestically and internationally. The CRA plans to implement strategies addressing aggressive tax avoidance and tax evasion among large and multinational businesses and wealthy individuals, particularly those operating offshore.

Globe with flags of different countries

The CRA is committed to combatting the abusive use of offshore jurisdictions and protecting the integrity of the Canadian tax system. International tax evasion and aggressive tax avoidance are complex global issues. Information from the Offshore Tax Informant Program, international electronic funds transfers, and exchanges with treaty partners help the Agency detect offshore non-compliance. Enhancements to our teams and tools will improve our analysis of relevant information and identification of Canadians who may have used accounts to hide or conceal money offshore. We will undertake projects to ensure full coverage of the segment of the population engaging in offshore transactions. This is a shift to a more concentrated risk assessment of this entire taxpayer segment.

Large businesses

Approximately 1,200 corporate groups make up the large business population in Canada. These groups include parent companies and their subsidiaries, which can make up a total of 25,000 to 26,000 legal entities. Over the next three years, the CRA will increase our capacity to conduct audits and reassessments within the large business sector. The Agency will allocate resources to various regions based on the compliance risks identified through our preliminary analysis. Over five years, the CRA will create 16 new large business audit teams to detect and correct non-compliance among the largest and most complex taxfilers, to ensure profits are not shifted offshore and Canada receives any taxes owed.

Multinational enterprises

The CRA will also add new tax professionals to our already robust team to assist in auditing high-risk multinational corporations and unravelling complex international and aggressive tax avoidance transactions. Technical experts, including lawyers, accountants, valuation specialists, economists, and industry sector specialists, will be deployed to strengthen technical expertise and provide assistance to auditors when required. All intelligence gathered and assessing positions developed by these teams will be fed back into the CRA's risk-assessing systems to inform future plans. The CRA recognizes the importance of tax certainty for large business competitiveness and for overall economic growth. Through the adoption of more industry and sector approaches to audit combined with the additional technical capacity for our senior auditors, the Agency aims to increase its commercial awareness and enhance the efficiency and effectiveness of audit actions for large business.

Wealthy individuals

Some wealthy individuals and related parties use private corporations or complex schemes to inappropriately reduce or defer tax. This includes involvement in complex offshore structures and transactions. The CRA is expanding the scope of the wealthy population segment and its related party initiative through new risk assessment strategies and additional audit teams.

Aggressive GST/HST planning

There are 3.5 million GST/HST registrants in Canada. The CRA receives two million refund and rebate claims totalling about $60 billion annually. Some of these claims are false, and some people knowingly and aggressively avoid paying GST/HST. The CRA will deploy additional audit resources to prevent the issuance of unwarranted GST/HST refund and rebate claims and to address willful non-compliance and aggressive GST/HST schemes.

Tax scheme promoters

Promoters, acting individually or through a network of sales agents, market and sell schemes which, ultimately, contravene Canadian tax law and, unfortunately, result in taxpayers losing money. Budget 2016 provided funding to the CRA to allow the Agency to increase its audit efforts on promoters of tax schemes. To protect individuals and the tax base, the CRA plans to enhance a Promoter Centre of Expertise and deploy additional specialized audit teams to detect abusive tax schemes earlier, effectively addressing the supply of these arrangements before they are widely sold.

The CRA has the authority to apply third-party penalties against tax preparers, promoters, and other third parties who make misrepresentations about tax matters, which could result in other persons making false statements or omissions on their tax returns. The CRA is committed to conducting fair and impartial reviews and strictly controlling the application of penalties.

Meanwhile, the provision of legal counsel specifically dedicated to offer advice at the investigation stage of tax evasion cases will enhance the quality of promoter cases referred for prosecution. To maintain the integrity of the tax system, deter intentional non-compliance, and warn Canadians of potential fraud schemes, the CRA will publicize successful prosecutions and investigation actions more widely. Publicizing the consequences of engaging and promoting these schemes underscores the fact tax evasion and fraud are criminal offences and offenders will be pursued and prosecuted.

Underground economy

Individuals or businesses deliberately under‐reporting or failing to report income or sales to avoid paying taxes undermine the fairness and integrity of the tax system and the competitiveness of law‐abiding businesses. The CRA is committed to reducing the social acceptability of, and participation in, the underground economy. During the planning period, our specialist teams will enhance their focus on those who do not file their returns. These teams will also conduct comprehensive audits of businesses using software to hide sales, as well as audits of businesses in high-risk sectors.

Planning highlights

To improve compliance and address tax evasion and aggressive tax avoidance, the CRA will:

Expected results

Filing integrity

To fully comply with Canada's tax laws, taxpayers must file their returns on time, pay their tax debts on time and, when required, register to collect GST/HST or other levies and remit amounts deducted at source to the CRA. Over the planning period, the CRA will extend certain enhanced compliance initiatives to enforce registration and complete validations and reviews of withholding, remitting, reporting, and filing obligations for individuals and businesses.

Individual reporting

During the off-season of the Individual Income Tax (T1) Program, the CRA will address new instances of non-compliance and promote ongoing voluntary compliance by increasing our focus on the early detection of unwarranted refunds. This will permit us to identify more individual non-compliance trends and concerted non-compliance tactics. It will also better protect those who are vulnerable within the tax-filing population. We will do more assessment reviews, conduct screening, issue contact letters, and process responses, assessments, and reassessments. Where warranted, cases of suspected tax evasion will be investigated and referred for prosecution.

Business reporting

To target known or suspected non-compliance, the CRA will increase our verification activities to strategically review corporate (T2) and GST/HST returns. Matching information across CRA business lines ensures we identify the highest risk returns. These reviews are aimed at improving compliance with reporting obligations, increasing corporation assessing and GST/HST post-assessing, enhancing federal reporting to the provinces and territories, and increasing taxpayer awareness of how to properly report deductions and credits.

SR&ED claims

The Scientific Research and Experimental Development (SR&ED) Program is the largest single source of federal government support for industrial research and development in Canada. The CRA is committed to administering the program with fiscal integrity. Accordingly, the CRA will implement a number of initiatives to further enhance consistency in the treatment of claims and ensure a robust claim-review process.

Disclosures and tips

We encourage taxpayers who have not filed or reported, or who realize their previous tax filings are inaccurate, to voluntarily disclose this to the CRA. Those who do not voluntarily disclose non-compliance may be subject to audit or investigation, which can result in significant penalties, fines, or imprisonment. As approximately 80% of voluntary disclosures are filed on behalf of taxpayers by third-party authorized representatives, the CRA plans to promote the electronic filing of disclosures to the tax professional community, making it easier for the taxpayers they represent to put their tax affairs in order.

The CRA also encourages the public to come forward and provide information leading us to detect a violation of tax legislation. Leads can be communicated to the CRA by phone, mail, fax, in person, and electronically. They can be submitted anonymously and are all confidential. In the planning period, the CRA plans to modernize how it screens and assesses leads information.

Planning highlights

To enhance filing integrity and deliver on Budget 2016 commitments, the CRA will:

Expected results

Collections

The success of the CRA's work in combatting aggressive tax avoidance, the underground economy, and tax evasion, together with the growth of Canada's tax base, has contributed to tax debt growth.The CRA will manage tax-debt growth by further developing services for taxpayers who want to resolve their debt, enhancing our strategies to better assess risk, and assigning cases for the intervention most appropriate to the risk. We will also increase resources to address cases which have been risk-scored and not resolved after automated collection efforts. A portion of these resources will focus on debts raised through our reporting-compliance actions on underground economy, aggressive international tax avoidance, offshore, and tax evasion files.The Agency will complement these efforts by encouraging earlier payment of outstanding tax liabilities and working with those who cannot pay the full amount when it is due.

The CRA Service Renewal initiative is one of the largest transformations to the way we structure and deliver our collections and verification program activities in many years. More specifically, the CRA is evolving its program delivery footprint in the regions to meet the challenges and opportunities for taxpayer compliance and service delivery over the coming years. This evolution will set the course for us to adapt to rising service expectations, advances in technology, demographic changes, and globalization. An initiative such as this one also recognizes the ongoing government inspired goal to be even more efficient and productive with the investment being made in us.

Planning highlights

To increase the capacity to collect tax debts, the CRA will:

Expected results

Tax

Budgetary financial (in dollars)
Human resources (full-time equivalents)

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This image depicts two columns that provide the budgetary financial (in dollars) and human resources (full-time equivalents) numbers that are forecast for the CRA's tax programs over the 2017 to 2020 planning period. The column on the left, under the image of a dollar sign, provides the following information from top to bottom:

Planned 2017-18 (Footnote 1)
2,737,078,407

Planned 2018-19 (Footnote 1)
2,748,402,606

Planned 2019-20 (Footnote 1)
2,755,219,080

Main Estimates 2017-18
2,737,078,407

The column on the right, under the image of an abstract representation of a person, provides the following information from top to bottom:

Planned FTEs 2017-18 (Footnote 2)
30,104

Planned FTEs 2018-19 (Footnote 2)
29,934

Planned FTEs 2019-20 (Footnote 2)
30,109

Tax

Planned results

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This image depicts three columns that provide information on the CRA's planned results under the Agency's tax programs. There is also a fourth column on the far left of the page which provides the following statement summarising the goals of the CRA's tax administration: Canadians comply with tax obligations, non-compliance is addressed, and Canadians have
access to appropriate mechanisms for resolving disputes.

Reading from left to right, the three planned results columns are titled, respectively, Indicator, Target, and Actual Result.

Reading from left to right, top to bottom, the three columns provide the following information below each title:

Percentage of filers who have filed a tax return by their due date (by March 31, 2018) (Footnote 1 ) 90% 2013-14: 92%
2014-15: 93%
2015-16: 94%

Percentage of known businesses registered for GST/HST (by March 31, 2018) 90% 2013-14: 94.5%
2014-15: 94.6%
2015-16: 94%

Percentage of reported taxes (including instalments) and source deductions that are 90% 2013-14: 90.4%
paid on time (by March 31, 2018) 2014-15: 89.9%
2015-16: 89.9%

Percentage of external service standards targets that are met or mostly met (by March 31, 2018) 90% 2013-14: 92%
2014-15: 94.1%
2015-16: 91.5

Public Perception Index: score compared to baseline (by March 31, 2018) Maintain or increase N/A (Footnote 2 )

Percentage of total volume of improved correspondence (i.e. changes to structure, design,language 90% N/A (Footnote 2)
and format) (by March 31, 2018)

Percentage of services available online (by March 31, 2018) 77% N/A (Footnote 2)

Number of Community Volunteer Income Tax Program returns completed (by March 31, 2018) 800,000 2013-14: 606,128
2014-15: 633,468
2015-16: 749,963

Complete an online consultation open to charities and the public (by March 31, 2018) March 2018 N/A (Footnote 2)

Incremental revenue resulting from Budget 2016 investments (by March 31, 2021) 2.6B over 5 years N/A (Footnote 2)

Incremental debt collected (resolved) resulting from Budget 2016 investments (by March 31, 2021) 7.4B over 5 years N/A (Footnote 2)

Information on the CRA's Program Inventory is available in the TBS InfoBasev.

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