Issue

Combatting tax evasion, aggressive tax avoidance, tax fraud, and other financial crimes is important for the protection of Canada's tax base. The Canada Revenue Agency's (CRA) compliance efforts ensure that taxpayers maintain their confidence and trust in the Canadian tax system by fairly administering Canada's tax laws.

Critics of Canada's tax regime continue to identify issues, including a concern that regular taxpayers are subject to aggressive enforcement by the CRA, while sophisticated taxpayers use legal and accounting manoeuvers to avoid or evade taxes. While such criticisms have lessened, recent attention to the Pandora Papers could prompt related comments from the public. Work remains to effectively communicate the CRA's approach to compliance.

Things to consider

• Tax evasion is illegal and deprives Canadians and governments of public funds, which are essential to supporting critical infrastructure projects and important social programs and services like health care, child care, and education.
• The CRA's compliance efforts are done in partnership with other departments. They focus on several key areas including strengthening legislation with the Department of Finance (FIN), investing in our people and our tools, ensuring international collaboration as part of the global tax system, increasing our litigation resources through the Department of Justice Canada (DOJC), and taking a risk-based approach to placing resources where they are most needed.
• The rapidly changing business environment due to technological advancements and the digitalization of the economy has resulted in the need for the CRA to develop systems and approaches to adapt quickly to emerging risks that are jeopardizing the revenue base. The CRA has been investing in business intelligence, advanced analytics, artificial intelligence, and related technologies and infrastructure to better identify high risk cases.
• Wealthy taxpayers often have complex tax arrangements resulting in lengthy and time consuming information gathering processes during the course of CRA audits. Not only is the CRA pursuing complex cases, we are working diligently with our partners in the FIN and the DOJC to seek to close what might be perceived as loopholes that advisors and tax scheme promoters exploit to enable taxpayers to skirt their responsibilities and avoid paying their fair share of tax.
• Tax gap levels are not exclusively under the control of the Government of Canada, and though the gap can be reduced through the Government of Canada's efforts, it is unlikely to be fully eliminated given such factors as fluctuations in the state of the economy. The expansion of CRA compliance programs will yield positive fiscal results, however, external circumstances, such as the economic impacts of the pandemic also affect tax non-compliance and the tax gap.
• On October 3, 2021, the International Consortium of Investigative Journalists (ICIJ) announced the largest data leak of confidential offshore data known as the "Pandora Papers". The leak contained almost 12 million files from 14 offshore service providers, with more than 90 countries and territories impacted; individuals include current and former world leaders, politicians, and public figures. Many of the identified service providers are located in or use entities in offshore jurisdictions; potentially concealing income and/or hiding assets to avoid paying taxes. At this time, the ICIJ has not released the full data set and it will only be available later this year.

Next Steps

• The CRA continues to participate in ongoing global discussions lead by the Organisation of Economic Cooperation and Development (OECD) focused on a two-pronged model for taxing large multinational enterprises.

  Additional information: Global Tax on Large Multinationals

• There are well established stakeholder groups representing both sophisticated taxpayers and groups concerned with tax avoidance and evasion. The CRA will continue to engage these groups.
• The CRA collaborates extensively with international partners and plays a leadership role in a number of areas of the OECD's Forum on Tax Administration (FTA), including the CRA's Commissioner's role as the Chair of the FTA and sponsorship of the Large Business and International Program.
• The CRA is a member of the Joint International Taskforce on Shared Intelligence and Collaboration (JITSIC). JITSIC brings together 42 tax administrations that have committed to working in a strategic and collaborative way to deal with international tax avoidance and tax evasion. As with previous leaks, the CRA will work with JITSIC members to pool resources, and when possible, share information to rapidly develop a more accurate picture of potential implications for Canada.

Key messages

• Canada has one of the highest voluntary tax compliance rates in the world, but there is still a small minority choosing not to pay their fair share.
• 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.
• The Government is committed to protecting the integrity of the Canadian tax system by combating tax evasion and aggressive tax avoidance on all levels in Canada and abroad, including tightening the net on sophisticated taxpayers who try to avoid paying their fair share of taxes and disrupting tax intermediaries who facilitate it.
• As a result of investments of over $ billion, the CRA increased its ability to identify and target aggressive tax planning, and as of March 2021, these investments have already identified over $5 billion in additional gross federal tax revenues.
• The Government of Canada is committed to investigating suspected tax evasion and tax fraud, and where appropriate, refers cases to the Public Prosecution Service of Canada for criminal prosecution.
• International tax evasion and tax avoidance is a global problem that requires global solutions. Data leaks like the Pandora Papers provide useful insights, and the CRA intends to analyze the data very carefully once it becomes available, and review anyone who appears to have not met their tax obligations. Canada is part of one of the most extensive tax treaty networks in the world; we participate in over 96 tax treaties and 24 international tax information exchange agreements. These exchanges and networks allow for better tax transparency and international co-operation.
• At this time, the CRA is unable to review potential Canadians listed in the Pandora Papers as the list has not yet been released nor can we provide a timeline of when we will be able to share an update. While data leaks provide useful insights, a great deal of effort will be necessary over the coming weeks and months to establish the reliability of the data as well as the degree of tax non-compliance from a Canadian perspective. The CRA will continue to be as transparent as possible with Canadians as work on the Pandora Papers progresses.
• It is important to highlight that merely holding offshore assets does not automatically imply tax non-compliance. For example, in the Panama Papers, over 60% of Canadian taxpayers identified were found to have complied with their tax reporting obligations.

Background

The following points are illustrative of some of the key work that has been undertaken by the CRA in recent years to address aggressive non-compliance:

• The Office of the Auditor General's 2018 audit of the CRA's compliance programs found that audit yield (the additional tax liabilities identified and collected through audit activities) had increased by 60% from 2013-14 to 2017-18
• In recent years, the CRA has made over $12 billion in gross audit reassessments every year, over 60% of which is related to tax avoidance by large multinational corporations and aggressive tax planning by wealthy individuals
• Budget 2021 provided an additional over $304 million over 5 years to allow the CRA to fund new initiatives and extend existing programs, including GST/HST agile risk assessment, aggressive GST/HST audits, increased audit coverage of the GST/HST Large Business Audit Program, and mitigating the risk from rapid growth in trusts
• More than 30 criminal investigations are underway related to cases with over $1 million in potential tax evaded, and having an offshore or money laundering element
• Continued focus on the real estate sector has led to almost $2 billion in audit assessments being identified over the past six years in Ontario and British Columbia