Minister of National Revenue publishes Canada’s first overall tax gap report
June 28, 2022 Ottawa, Ontario Canada Revenue Agency
Today, the Honourable Diane Lebouthillier, Minister of National Revenue, is building on her commitment to study Canada’s tax gap by publishing Canada’s first overall tax gap report. The tax gap is the difference between the taxes that would be paid if all obligations were fully met in all instances, and the tax actually collected.
Over time, estimating the tax gap can help give the Canada Revenue Agency (CRA) a clearer picture of how and why taxpayers are non-compliant, which helps the CRA better target its compliance and collection activities. This, in turn, allows the CRA to continue protecting Canada’s revenue base, the foundation for government programs, services, and benefits that improve the quality of life for all Canadians.
From 2014 to 2018, the tax gap has remained stable at approximately 9% of federal tax revenue. The fact that the tax gap has remained stable over those five years, as the economy grew, is a positive sign for our tax system.
Since 2016, the CRA has had a dedicated team to examine and publish a series of reports analyzing different components of the tax gap. Today’s report examines the overall federal tax gap for tax years 2014 to 2018 by combining all previously published tax gap components: personal income tax, corporation income tax, goods and services tax/harmonized sales tax (GST/HST), and excise revenue.
The report also shows that for tax year 2018, the total gross tax gap was estimated to be between $35.1 billion to $40.4 billion. However, the CRA’s compliance and collection activities are reducing the tax gap. After accounting for these activities, the total net tax gap for tax year 2018 was estimated to be between $18.1 billion to $23.4 billion.
The CRA’s compliance and collection activities had a particularly strong impact on the corporation income tax gap, reducing the gap by an average of 48% to 59% during tax years 2014 to 2018. The CRA is committed to ensuring that all taxpayers comply with their tax obligations, and better data and more advanced analytics have allowed the CRA to focus its compliance activities on the files with the greatest impact for Canadians.
In addition to the overall tax gap report, the Agency also published a separate tax gap methodological annex. Canada is part of a select group of countries that estimate and publish their tax gaps, and we have now published reports for all major tax gap components, including today’s overall tax gap report and methodological annex. Although the CRA only began estimating the tax gap in 2016, Canada has become one of the leading countries that both estimate and publish their tax gaps.
“We know that most Canadians pay their fair share and our government is committed to improving the integrity of the tax system by combating tax evasion and aggressive tax avoidance. Today’s report and our continued work to study the tax gap is helping to better target our compliance activities so we can protect the revenue base that provides necessary benefits that improve the lives of all Canadians.”
-The Honourable Diane Lebouthillier, Minister of National Revenue
From 2016 to 2020, the CRA published seven reports on different components of the federal tax gap. Today’s report is the first overall tax gap report for Canada and brings together all previously published tax gap components with updated estimates and key findings up to tax year 2018.
The CRA’s compliance and collection efforts are reducing Canada’s tax gap. For tax year 2018, the CRA’s efforts are expected to contribute to reducing the tax gap by potentially recovering around $17 billion in federal tax revenue.
The CRA has taken innovative approaches to estimate certain components of the tax gap, which has led other countries to request the CRA shares some of its best practices.
The CRA consulted other tax administrations, government departments, and academic experts to refine the methodologies used in the report, and will continue to engage with them on methodology and research moving forward.
The Organisation for Economic Co-operation and Development’s (OECD) Forum on Tax Administration (FTA) is a forum for Commissioners from 53 countries to discuss global trends and ways to improve tax administration around the world. Bob Hamilton, Commissioner of the CRA, was appointed Chair of the FTA in August 2020.
Office of the Minister of National Revenue
Canada Revenue Agency
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