Canadian citizens and corporations failed to pay roughly $111.2 billion in taxes between 2014 and 2018, according to a new analysis of the country’s tax gap conducted by the Canada Revenue Agency.
After years spent measuring Canada’s tax gap — namely, the uncollected money that never makes it into public offers — the CRA released its first overall report on Tuesday, offering a sweeping account of the scope and source of unpaid federal taxes by corporations and individuals alike.
The report found that individual Canadians did not pay between $41.9 and $52.8 billion in personal income tax between 2014 and 2018, while corporations did not pay between $23.1 and $36.6 billion over that same period.
Those amounts comprised roughly nine per cent of Ottawa’s total tax revenue, though the CRA says it’s focused on reducing that figure.
“We’re seeing significant reductions in the tax gap as a result of our compliance efforts,” said Kelly Taylor, a director general with the CRA.
Tax non-compliance is a result of many factors, including hidden income, bankruptcies, over-claiming deductions or ignorance of tax obligations. While the government can reduce its tax gap, several of those factors — including companies filing for bankruptcy and defaulting on their tax owings — makes a zero per cent tax gap difficult to reach.
Since 2016, when the Panama Papers investigations revealed hundreds of instances of tax evasion through offshore accounts held by Canadian individuals and companies, the federal government has faced pressure to crack down on tax dodgers and increase transparency surrounding its collection efforts.
In Tuesday’s report, the CRA said its enforcement policies — including company audits and penalties — have helped reduce the total tax gap over the past eight years.
In 2018, for instance, the CRA estimates the overall federal tax gap was between $35.1 billion and $40.4 billion before accounting for CRA enforcement measures. After enforcement, the CRA estimates the tax gap is between $18.1 to $23.4 billion.
The total amount of unpaid funds grew between 2014 and 2018, although the report attributes this growth to an increase in the overall tax base over the same period.
The amount of missing corporate income tax grew from between $4.2 to $6.7 billion in the 2014-15 fiscal year to $5.1 to $8.3 billion in 2018-19.
The CRA also estimated that somewhere between $6.4 and $17.2 billion in missing personal income tax was a result of hidden offshore investment income.
Data on offshore corporations and trusts is “sparse,” making it difficult to distinguish between legitimate uses of international holdings and tax evasion, said Taylor.
“We know there’s a lack of openness or truth in reporting revenue from offshore investments.”
Just last year, the CRA said it had retrieved missing money in 35 of the hundreds of Panama-related Canadian cases it had analyzed.
“Offshore leaks, such as the Panama and Paradise Papers, as well as formal information sharing agreements, including electronic funds transfers and common reporting standards, have increased the amount of data on these offshore entities and have helped the CRA investigate potential cases of international tax non-compliance,” the study said.
Since the Liberal government promised to crack down on tax dodgers after coming into power in 2015, the CRA has released several reports measuring Canada’s tax gap.
It released its first estimate of tax avoidance in 2016, finding that the government had lost $4.9 billion in would-be taxes due to non-compliance with GST and HST payments.
“Understanding how and why taxpayers are non-compliant is critical to help preserve the integrity of the tax system and to protect Canada’s revenue base,” said Minister of National Revenue Diane Lebouthillier in a statement accompanying the report.
JOIN THE CONVERSATION