The Government of Canada committed in 2016 to calculate the tax gap, fully recognizing that it would help it better target its compliance activities and ensure a tax system that is fair to all Canadians. Today, the Honourable Diane Lebouthillier, Minister of National Revenue, announced the release of the fifth report in the tax gap series. Canada is part of a select group of countries that estimate their tax gaps, including the United Kingdom, the United States, and Australia.
This fifth report focuses on the corporate income tax gap, estimated to be between $9.4 and $11.4 billion for tax year 2014 before accounting for audit results. However, the Canada Revenue Agency’s (CRA) efforts to address corporate non-compliance are expected to reduce this gap by between 55% and 66% to between $3.3 and $5.3 billion in 2014.
The Government knows that CRA’s compliance efforts are instrumental in reducing the tax gap, and has made historic investments of over $1 billion to do its work. Most recently, Budget 2019 committed $150.8 million over five years to hire additional auditors, build technical expertise in sectors of emerging risk, create a new data quality examination team, and extend programs aimed at combatting offshore tax non-compliance. These investments are helping the CRA crack down on tax evasion and aggressive tax avoidance.
The CRA intends to build on this series of tax gap reports by producing studies on other areas of non-compliance and updating its tax gap estimates on a three-year cycle.
“Our Government is committed to cracking down on tax evasion and aggressive tax avoidance, in Canada and offshore. Today, the government is delivering on its commitment to calculate the tax gap. This information will help the CRA evaluate its approaches and better target compliance actions to ensure a tax system that is fair and equitable for all Canadians.”
-The Honourable Diane Lebouthillier, Minister of National Revenue
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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.
This report is part of a series of reports: a conceptual study (June 2016), a report on the goods and services tax/ harmonized sales tax (GST/HST) (June 2016), a report on the domestic personal income tax (June 2017), and a report on the international personal income tax (June 2018). Tax year 2014 was examined in all five reports.
The CRA has shared the data requested by the Parliamentary Budget Officer (PBO) to support his analysis of the tax gap, while ensuring that the confidential information of Canadians remains protected.
The CRA consulted other tax administrations, government departments, and experts to refine the methodologies used in the report, and will continue to engage with them on methodology and research moving forward.