OTTAWA, June 28, 2018 /CNW Telbec/ - The Government of Canada is working to ensure a tax system that is fair for all Canadians. Building on that commitment, today the Honourable Diane Lebouthillier, Minister of National Revenue, announced the release of the fourth study of the tax gap in Canada which focuses on individuals' international income tax compliance.
The approach of the study is based on methodologies developed by international experts. According to the most recent study, the estimate for the offshore investment tax gap for individuals was between $0.8 billion and $3 billion in 2014, or between 0.6% and 2.2% of individual income tax revenue. Canada is the first G7 country to study the offshore tax gap. In previous studies, the tax gaps for personal income tax and the federal portion of the goods and services tax / harmonized sales tax were estimated at up to $14.6 billion in 2014.
The studies conducted to date underline the importance of examining not only individuals, but also their related entities when investigating non-compliance. The Government of Canada's recent Budget 2016, 2017, and 2018 investments in the fight against tax evasion and aggressive tax avoidance will further support this approach and promote enhanced information sharing among the Canada Revenue Agency (Agency) and its international partners.
With these investments, the Government is delivering better data, better approaches and better results. Furthermore, the Agency has the capacity to leverage new global collaboration and data sharing to crack down on tax cheating.
New approaches include being able to automatically access and review all international electronic funds transfers over 10K entering or leaving the country, allowing us to better risk assess individuals and businesses. The Agency has also improved its audit capacity to focus on high net worth taxpayers and thanks to the Common Reporting Standard is gaining easier access to information on Canadians' overseas bank accounts.
The Agency's next tax gap study will be released in 2019 and will focus on incorporated businesses.
"Most Canadians pay their fair share of taxes. They expect their government to do all it can to pursue people and businesses that try to avoid doing the same. This latest study of the tax gap is evidence of our Government's ongoing commitment to better target international tax evasion and aggressive tax avoidance."Cette dernière étude sur l'écart fiscal permettra à l'Agence de mieux comprendre l'évasion fiscale et l'évitement fiscal, et contribuera à inspirer une plus grande confiance envers le régime fiscal du Canada. »
– The Honourable Diane Lebouthillier, Minister of National Revenue
- The Agency describes the tax gap as the difference between the taxes that would be paid if all obligations were fully met in all cases and the taxes that are actually received and collected.
- Each year, the CRA processes about 29 million income tax and benefit returns and assesses about $180 billion in individual federal income taxes.
- Based on international audits completed between 2014 to 2015 and 2016 to 2017, almost $1 billion in income was uncovered and assessed from 370 individuals, 200 corporations and a small number of trusts. The additional tax identified was $284 million. Of this, 23% was attributed to individuals and 77% to corporations and trusts linked to those corporations.
- In 2014, about $429 billion in assets, $9 billion in foreign income and $13 billion in capital gains were reported. Top countries where assets were held and foreign income was reported tended to be the U.S. and the U.K.
- Canada is one of over 65 nations sharing Country-by-Country Reports (CbCRs). CbCRs provide automatic access to information about multinational corporations' activities in every country they operate in, giving us a deeper understanding of the operations of these large companies.
- This year, we are also gaining easier access to information on Canadians' overseas bank accounts, with the implementation of the Common Reporting Standard. With this new system, Canada and close to 100 other countries will begin exchanging financial account information. This information will help us connect the dots and identify instances where Canadians hide money in offshore accounts to avoid paying taxes.
- International Tax Gap and Compliance Results for the Federal Personal Income Tax System
- Tax Assured and Tax Gap for the Federal Personal Income Tax System
- Tax Gap in Canada: A Conceptual Study
- Estimating and Analyzing the Tax Gap Related to the Goods and Services Tax / Harmonized Sales Tax
- Backgrounder: Tax gap estimates in Canada
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Tax gap estimates in Canada
The Canada Revenue Agency (CRA) is publishing a series of studies on Canada's tax gap. To do this, a dedicated unit was established at the CRA to examine different parts of the gap. To date, the CRA has published four studies:
- A conceptual study on tax gap estimation (June 2016)
- An estimate of the tax gap for goods and services tax / harmonized sales tax (GST/HST) (June 2016)
- A report on domestic personal income tax (PIT) compliance in Canada (June 2017)
- International Tax Gap and Compliance Results for the Federal Personal Income Tax (PIT) System (June 2018)
The CRA is committed to continue estimating the tax gap, while engaging with external experts and interested stakeholders to further the CRA's work in this area. The CRA has made information relevant to tax gap available to the Parliamentary Budget Officer and to Canadians through the Government of Canada's Open Data portal.
The next tax gap study will focus on the domestic and international business tax gap, which will allow the CRA to provide its first estimate of Canada's overall tax gap in 2019.
International Tax Gap and Compliance Results for the Federal Personal Income Tax System (June 2018)
The CRA's fourth report covers the international component of the tax gap for individuals and their related entities. This report allows the CRA to:
- set the context and review past reports
- explain reporting obligations and voluntary compliance
- report on audit activities related to international non-compliance
- estimate the tax gap related to offshore investment income
- describe the CRA's compliance tools, activities and results
Key highlights of study:
- Tax gap: Of individual income tax revenue (2014), $0.8 billion to $3 billion or 0.6% to 2.2%. Combined with the tax gap for domestic individual income tax, the personal income tax gap would be up to $11.7 billion in 2014. The combined personal income tax and GST tax gap is estimated to be up to $14.6 billion for 2014.
- Tax gap methodology: Offshore non-compliance is particularly difficult to measure because individuals may be intentionally hiding income and assets using sophisticated means. This study used an approach recently developed by international experts based on international financial and banking data to estimate tax loss due to unreported hidden offshore investments. Canada is the first G7 country to publish an international tax gap study using this method.
- Foreign reporting: Canadians are reporting their offshore income and assets in greater numbers. Between 2004 and 2014, foreign reporting using Form T1135, Foreign Income Verification Statement, increased to 268,910 in 2014, from 81,300 in 2004. Individuals accounted for 78% of total filers. The rest were corporations, trusts or partnerships.
- Foreign assets, income and capital gains: In 2014, about $429 billion in assets, $9 billion in foreign income and $13 billion in capital gains were reported. Top countries where assets were held and foreign income was reported tended to be the U.S. and the U.K.
- Offshore audits: Based on international audits completed between 2014 to 2015 and 2016 to 2017, close to $1 billion in income was uncovered and assessed from 370 individuals, 200 corporations and a small number of trusts. In additional taxes, $284 million was identified, of which 23% was attributable to individuals and 77% to corporations and trusts linked to those individuals.
- Holistic approach: Results show the importance of emphasizing networks rather than only individuals when doing audits. Since the completion of the audits examined for this study, funds from Budget 2016, 2017 and 2018 have enabled the CRA to invest in its audit capacity to better identify non-compliance in the international context.
SOURCE Canada Revenue Agency
For further information: Jérémy Ghio, Press Secretary, Office of the Minister of National Revenue, 613-995-2960; Media Relations, Canada Revenue Agency, 613-948-8366