According to the CRA, up to $22 billion in unpaid taxes is lost each year

(Ottawa) A new report from Canada’s Internal Revenue Service finds that the federal government loses an average of up to $22 billion a year in unpaid taxes.

Updated yesterday at 5:30pm.

Marie Danielle Smith
The Canadian Press

The agency analyzed tax collection from 2014 to 2018 to produce this first-ever report on Canada’s “overall tax gap,” released Tuesday. The CRA estimates the “net tax gap” for those five years at $111.2 billion, the amount of money owed to the federal government but not collected.

Although the net amount of uncollected taxes has trended upwards over this period, with estimates as high as $23.4 billion in 2018 and $23.5 billion in 2017, the ratio has remained stable each year, at 9% of the country’s total tax revenue Federal.

According to the report, the income tax gap ranged from $8.4 billion to $10.6 billion per year, accounting for between 5% and 8% of total income tax revenue. That amount included unpaid taxes, undeclared offshore earnings and non-compliance with regulations related to the domestic informal economy, an analysis that ruled out illegal activities.

But the CRA still considers the income tax system to be largely “hedged”, meaning there is a “low risk of non-compliance”.

The corporate tax revenue gap has been estimated at $4.6 billion to $7.3 billion per year, accounting for between 10% and 17% of expected revenue in this category. According to the report, non-compliance from large companies contributed the most to this gap, while small and medium-sized companies had a smaller impact.

HST and Excise Taxes

The report also found that between 8% and 10% of expected harmonized sales tax revenue goes unpaid each year, for an annual average of about $3.9 billion.

And smaller amounts, between 400 and 500 million a year, went unpaid under the excise system, mainly for illegal cigarette production and smuggling. However, non-compliance from excise licenses and registrants was “very low”, the CRA points out, because “in general, excise licensees and registrants who pay duties and excise are highly regulated”.

The CRA says compliance and collections activities over the five years covered by the report enabled the federal government to recover an additional $72.4 billion that otherwise would not have gone to the IRS.

According to the report, the agency uses a “specialized observation approach” to screen for company audits and takes a “balanced approach” to non-compliance, offering options such as payment terms and taxpayer relief before taking legal action.

The size of the tax gap is affected by the overall size of the economy, the CRA points out, but also by bankruptcies, which can vary depending on the state of the economy. The agency says willful tax evasion or overuse of tax credits explains part of this tax loophole, but form errors and ignorance of the rules are also to blame.

The New Democratic Party responded to the CRA statistics by urging Liberals to crack down on tax avoidance and accusing the government of “turning a blind eye” on offshore tax havens.

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