Overall Federal Tax Gap Report and Tax Gap Methodological Annex

Backgrounder

The Canada Revenue Agency (CRA) has published a series of reports on Canada's tax gap. 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 paid and collected. 

The CRA has followed through on its commitment to estimate the tax gap and to publish these estimates. It will continue to engage with external experts and stakeholders to ensure Canadians are informed about tax compliance and collection. 

Overall Federal Tax Gap Report (June 2022)

The latest report brings together all previously published tax gap components with updated estimates and key findings up to tax year 2018. Key highlights include:

  • The overall federal tax gap is estimated by combining all previously published tax gap components for tax years 2014 to 2018: personal income tax (PIT), corporation income tax (CIT), goods and services tax/harmonized sales tax (GST/HST), and excise revenue. 
  • The 2018 tax year was selected as the latest year of analysis in order to examine the most recent audit and collection results, which can take a couple of years to complete.
  • During fiscal years 2014-15 to 2018-19, Canada’s federal tax revenue increased from $236.6 billion to $271.8 billion. As Canada’s federal tax revenue increased, so did the potential federal tax gap. However, the CRA is holding the federal tax gap stable up to 9% of federal tax revenues. 
  • This was possible because the CRA compliance and collection activities reduced the overall federal tax gap, on average, by 39% to 45% during tax years 2014 to 2018.
  • With additional investments from recent budgets, the CRA has increased its ability to identify and target tax non-compliance. Therefore, the CRA expects the federal tax gap to decrease over time relative to what it would be without these investments. 
  • Further details on key findings for each tax component are included in the report:

Tax gap methodology: The methodological annex contains technical details related to the methods used to estimate different components of the overall federal tax gap. 

  • Given the complexity of tax gap estimation, the CRA has taken a step-by-step approach to develop appropriate and robust estimation methodologies for the different tax gap components that work within the Canadian context. The methodologies were developed in collaboration with the CRA’s internal and external partners. Some methodologies were adapted from academic studies, and from internationally developed approaches. 
  • The CRA plans to continue studying Canada’s tax gaps including estimating new tax gap components and improving existing methodologies. 
  • Further details on the methodologies for each tax component are contained in the methodological annex.
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