Tax Gap in Canada: A Conceptual Study
The Canadian Perspective
The experience of other countries provides an in-depth view of the number of factors and considerations that inform the development of tax gap estimates. While the CRA's work is still in its early stages, a framework is emerging that will guide us as we progress.
Canada's unique federal-provincial context – and the CRA's role within the federation for tax and benefits administration – presents some additional considerations as we move forward with further studies on tax gap estimation. For example:
- The CRA not only administers and collects taxes for the federal and most provincial and territorial governments but also administers various social and economic development programs on behalf of other government departments, and provinces and territories. Despite this range of responsibilities, at this point, the CRA's view of the tax gap is focused exclusively on the various taxes it administers.
- Further, due to the complexity of incorporating the tax rules and rates of 13 provinces and territories, when discussing direct (or income) tax gaps the CRA will consider federal taxes only.
In this context, Canada will use the following as its broad definition of the tax gap:
This definition will apply to personal income taxes, corporate income taxes, GST/HST, excise taxes and other taxes.Footnote 7 In general, the CRA's approach to the tax gap encompasses non-compliance related to non-filing, non-registration (in the case of GST/HST), errors, under-payment, non-payment, and unlawful tax evasion. To the extent possible, the CRA's approach will encompass the three main stages of compliance in the tax system: registration and filing, reporting, and payment. These stages will provide a framework for the CRA's exploration of the tax gap as illustrated in the tax gap map below. However, data availability and methodological factors may limit the CRA's ability to examine all stages of the compliance continuum. For example, the GST/HST gap estimate released in conjunction with this paper focuses on the tax gap that arises in respect of non-registration, non-filing and underreporting but does not consider the tax gap arising at the payment stage.
The Tax Gap Map for Canada
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