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Briefing for the Minister of National Revenue

Compliance: Helping Canadians meet their tax obligations

The Canada Revenue Agency (CRA) helps Canadians meet their tax obligations through both service and enforcement activities. The CRA approaches its work with the underlying premise that most people—given the opportunity and the right services—will meet their tax obligations. Recognizing that the tax system is complex and confusing and also that voluntary compliance is more cost-effective than enforcement, the CRA is increasingly focused on helping clients comply by using an education-first approach. The CRA seeks to address non-compliance as early as possible with the appropriate level of interventions. As a responsible administrator, the CRA also strives to identify and actively enforce compliance in cases where taxpayers, through neglect, avoidance, evasion, or fraud, do not meet these obligations, ensuring that all clients are paying their fair share.

Key facts and figures 2020-2021

$74B

in unpaid tax debt resolved by the CRA ($577B collected)

2.5K

international and large business audits completed by the CRA, including approximately 870 aggressive tax planning audits and approximately 230 offshore audits

36

convictions with Court imposed fines totaling $5.2M from criminal investigations

15

taxpayers were sentenced for willfully evading payment amounts totaling $10.9M in tax and were sent to jail for a total of 26.2 years

86%

of Canadians voluntarily complied with their tax obligations

All figures are approximate

Recent and planned improvements

Sharpening focus on emerging tax risks
The CRA is making better use of available information to select the appropriate level of compliance or collection intervention for clients by improving data analytics and business intelligence.
Sharing information for better compliance
The CRA is increasing engagement and information sharing with domestic and international partners and, when appropriate, with law enforcement agencies to better target its compliance activities.
Adjusting the compliance approach according to the degree of non-compliance
The CRA has reached out to offer assistance to over 30,000 businesses to help them better understand their tax obligations, including increasing awareness on common filing and reporting errors.
Improving service experience of taxpayers owing money
The CRA continues to develop additional training, tools and resources to assist collections program employees on using an empathetic approach when assisting clients and negotiating payment arrangements.

COVID-19 — Implications for the CRA

In the initial months of the pandemic, the CRA reduced its core collections and compliance activities given the disruptions caused by the pandemic on individuals and businesses. Similarly, collection efforts on new tax debts were suspended and flexible payment arrangements were made available to clients. In addition, the CRA implemented additional verification and security measures up-front to help ensure that we deliver benefit payments only to people who are entitled to receive them.

This fall, the CRA intends to begin the verification of many of the COVID benefits for individuals using a risk-based approach to detect ineligible applicants. These activities are essential to protect the integrity of the programs and, as a result, many recipients will be required to reimburse the benefits they received. Throughout this exercise, the CRA will ensure its interactions with clients are empathetic and respectful.

Context

There is a continuum of services and activities at the CRA that runs from facilitating compliance to promoting it continuously through education and outreach, and to enforcing compliance through a series of steps that include verification and audit, collection, and criminal investigations. This continuum of activities is designed to secure revenues on behalf of the government cost-effectively, while minimizing disruption to Canadians.

The vast majority of Canadians comply with their tax obligations. The ease of compliance, the CRA's reputation for trustworthiness, and Canadians' impressions of the fairness of the tax system can all impact compliance. As such, the CRA is always striving to make compliance easier and to build Canadians' confidence in the fairness of the tax system. However, the CRA does deal with a range of clients: those who comply but need help to understand their obligations, those who require a nudge due to a misunderstanding of rules or a lack of appropriate information, and those who wilfully choose not to comply.

The CRA recognizes that despite a willingness to comply, many Canadians and businesses can experience challenges such as the complexity of the tax system. The CRA seeks to simplify tools and processes to reduce the compliance burden. The CRA works collaboratively with the Department of Finance to create legislation that allows it to keep up with the changing landscape of non-compliance and to also have the necessary tools to enforce compliance. It also pursues outreach and education strategies to address gaps in clients' awareness of their tax obligations. These efforts to make it easier to file an income tax and benefit return increase the likelihood that taxpayers will complete their returns correctly.

To protect the integrity of Canada's tax and benefit system, the CRA takes action to resolve non-compliant behaviour. The CRA has a variety of measures to enforce compliance. When undertaking interventions to address non-compliance, the CRA strives to maintain a client-centric approach, adapting its interventions to the circumstances. This enables the CRA to treat each case based on the seriousness of the non-compliant behaviour. Tackling wilful non-compliance is a costly endeavor. However, the CRA has demonstrated that it can leverage spending in this area to generate significant tax revenue.

Considerations

Progressive interventions

The CRA manages non-compliance such as missing returns, unreported revenues, and incorrect deductions, using a range of progressive interventions. The CRA's approach is to address non-compliance as early as possible through the least disruptive means.

The CRA's extensive education and outreach and its People First philosophy have guided a variety of service improvements to support Canadians' ability to comply with their tax obligations. Through ongoing and deliberate efforts to optimize its Web content, the CRA has measurably improved answers on Canada.ca to questions related to tax filing (with a focus on helping people navigate through an exceptional year as a result of the COVID-19 pandemic). These improvements were tested with Canadians before and after they were released. The CRA provides education services and tools, including the sharing of easy to understand information in guides and publications, as well as proactive outreach to individuals and businesses to ensure Canadians have the information they need to comply.

While Canada's tax system is based on self-assessment, the CRA reviews income tax and benefit returns to ensure taxpayers are entitled to the claims they make and that the amounts reported are correct.

The CRA takes action to resolve non-compliant behaviour using sound risk management to guide its reviews, audits, criminal investigations, and debt collection. The CRA will also seek to reduce its reliance on audit functions for low-dollar discrepancies, and focus its efforts on clients who purposefully try to avoid paying their fair share of taxes. At the same time, the CRA will increase consideration of penalties for repeat offenders and focus its resources on high-risk audits and the most significant criminal investigations.

Collections

Most Canadians will pay their tax debt in a timely fashion upon filing. In 2020-2021, 98% of all tax debt cases resolved were by a letter or a telephone call. In more difficult circumstances, the CRA works with the taxpayer to find a workable solution such as a payment plan. In cases where the taxpayer deliberately chooses not to pay, the CRA applies a range of progressive interventions to collect those tax debts. Despite the CRA' s efficiency in resolving debt, the tax debt continues to grow and is expected to increase significantly as compliance and collections work on COVID-19 emergency relief measures continues.

Tools

To support compliance efforts, the CRA uses various data sources and analytical approaches to maximize the ability to detect and deter the most serious instances of non-compliance, and take responsible compliance actions where necessary. It strives to ensure that non-compliance is detected and addressed, using sound risk management to guide reviews, audits, criminal investigations and debt collection. The CRA is investing in significant information technology (IT) projects and enhancements to have the tools in place to support its ongoing compliance efforts.

The CRA engages its domestic and international partners to better understand and address areas of common concern and to achieve effective and fair tax administration across jurisdictions. The CRA participates in various international forums and partners with other tax administrations to combat international tax evasion. Canada is the lead on the Organisation of Economic Co-operation and Development's (OECD) Large Business International Programme and is a member of the Joint Chiefs of Global Tax Enforcement.

Furthermore, CRA auditors and analysts play a significant role in targeting non-compliance risks both domestically and internationally. From audits to risk assessments, the work they do is essential in upholding the integrity of the tax system.

Recourse and relief

Canadians have the right to disagree with CRA decisions regarding their tax situation. Canadians can use the objection process to request an impartial review. If Canadians disagree with the outcome, they can formally appeal through the court system. Litigation in recent years has increased, including at the audit stage, where issues tend to be more complex. Appeals to the Tax Court of Canada and appellate courts have also become more complex as a result of the CRA's focus on aggressive tax avoidance and international non-compliance.

The CRA recognizes that taxpayers sometimes cannot meet their tax obligations because of circumstances beyond their control (e.g., health issues, death of family members, actions of the CRA, natural disasters, financial hardship). Various measures are available to support taxpayers who face these types of situations including waiving or cancelling penalties and interest, adjusting audit and/or collections activities, and extending deadlines.

Media, Parliament and public perception

Media coverage tends to focus on concerns that the CRA is not doing enough to respond to the kind of aggressive tax planning in which high net worth individuals and large businesses have the means to engage. There is often a perception that the CRA is cracking down on the average Canadian more than wealthy Canadians and businesses. Media coverage also gives rise to attention to issues raised in Parliament. What the CRA can say publicly in response about specific taxpayers is limited due to legislated confidentiality provisions.

Next steps

The CRA's approach to compliance, like that of all advanced tax administrations, is dynamic. The fundamentals remain consistent, but the expectation for agility is always present. The ongoing impacts of the COVID-19 pandemic will continue to require an increase in the responsiveness, empathy, and tailoring of the CRA's approach in order to balance the statutory requirement to administer Canada's tax law fairly, while taking into account the limiting impacts the pandemic is having on Canadian's health and financial security as well as the Canadian economy.

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