Minister of National Revenue publishes two new reports in the tax gap series

OTTAWA, ON, Dec. 17, 2020 /CNW/ - Today, the Honourable Diane Lebouthillier, Minister of National Revenue, announced the release of two new tax gap reports on federal excise duty on cigarettes and the payment gap. This stems from a commitment made in 2016 by the Government of Canada to calculate the tax gap as a way to target compliance activities and ensure Canada's tax system remains fair to all Canadians.

The CRA is committed to ensuring the integrity of the tax system to protect Canada's revenue base and provide the necessary benefits that improve the lives of all Canadians. We know that the vast majority of Canadians pay their fair share and we're committed to making sure that all taxpayers abide by tax laws.

A better understanding of the tax gap allows the Agency to maximize investments from federal budgets to modernize its collections activities, improve communication with Canadians, and increase activities to encourage compliance.

The sixth report found that the federal cigarette duty gap before audit results is estimated to be around $486 million for tax year 2014. This represents 16% of cigarette excise duty revenue, or about 4% of overall federal excise duties, taxes and other specific levies revenue. The vast majority of tobacco licensees (legal producers) comply with their tax obligations. In general, non-compliance is primarily a result of smuggling or unlicensed tobacco production and the CRA works with provinces/territories, as well as other federal organizations, to implement targeted compliance activities.

The seventh report found that, generally, as a result of the successful compliance and collections measures the CRA has implemented, the payment gap for 2014 has been getting smaller each year. This report examined the payment tax gaps for individuals, corporations, Goods and Service Tax (GST)/Harmonized Sales Tax (HST) registrants, and excise duty and tax licensees/registrants for a specific time range. For example, in December 2015, the total payment gap for tax year 2014 was $5.29 billion. In July 2020, the total payment gap for tax year 2014 was $2.19 billion, a decline of 59%.

Canada is part of a select group of countries that estimate and publish their tax gaps, including the United Kingdom, the United States and Australia. The CRA intends to build on this series of tax gap reports by publishing a future report on Canada's overall tax gap in 2021.

Quotes

"Our government is delivering on its commitment to calculate the tax gap, in an effort to ensure our tax system is fair and equitable for all Canadians. A better understanding of the tax gap can help the CRA to better target its compliance activities and improve the integrity of the tax system."

-The Honourable Diane Lebouthillier, Minister of National Revenue

Quick Facts

• 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 that is actually paid and collected.
• This report is part of a series of reports: a conceptual study (June 2016), a report on the GST/HST (June 2016), a report on the domestic personal income tax (June 2017), a report on the international personal income tax (June 2018) and a report on the corporate income tax gap (2019). Tax year 2014 was examined in all seven reports.
• 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.

Associated Links

• Backgrounder
• Tax gap for Federal Excise Duty on Cigarettes
• Payment Tax Gap and Collection Efforts
• Tax Gap and Compliance Results for the Federal Corporate Income Tax System
• 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
• Estimating and Analyzing the Tax Gap Related to the Goods and Services Tax/Harmonized Sales Tax
• Tax Gap in Canada: A Conceptual Study
• Tax Gap: A brief overview
• Video: What is the Tax Gap?

Stay connected

To receive updates when new information is added to our website, you can:

• Follow the CRA on Facebook
• Follow the CRA on Twitter – @CanRevAgency
• Follow the CRA on LinkedIn
• Subscribe to a CRA electronic mailing list
• Add our RSS feeds to your feed reader
• You can also watch our tax-related videos on YouTube

Tax gap for Federal Excise Duty on Cigarettes and
Payment Tax Gap Reports

Canada Revenue Agency
Backgrounder

The Canada Revenue Agency (CRA) has published a series of studies 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. A dedicated unit was established at the CRA to examine different parts of the gap.

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.

Tax gap for Federal Excise Duty on Cigarettes (December 2020)
The CRA's sixth report in the tax gap series focuses on federal cigarette excise duties. Key highlights include:

• Tax gap: The report estimates the excise duty gap for cigarettes using two methods which rely on administrative tax data and external data sources.
• Based on the first method called gap analysis, the federal excise duty gap for cigarettes was estimated to be about $483 million for tax year 2014.
• An alternative approach, an econometric model, was also used to estimate the gap. It estimated the federal excise duty gap for cigarettes to be about $490 million for tax year 2014.
• Since the two estimates are relatively close in dollar value, an average was used (each was given equal weight).
• The federal cigarette duty gap is estimated to be around $486 million for tax year 2014. This represents 16% of cigarette excise duty revenue, or about 4% of the overall federal excise duties, taxes and other specific levies revenue.
• Tax gap methodology: Given the complexity of tax gap estimation and data availability, multiple methodologies are required to adequately measure Canada's tax gap related to excise duties and taxes. 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. For the federal cigarette excise duty gap, the CRA used a gap analysis and an econometric modelling to estimate the tax gap. Further details on these methodologies are contained in the report.

Payment Tax Gap and Collection Efforts (December 2020)
The CRA's seventh report in the tax gap series focuses on the payment gap. Key highlights include:

• Tax gap: The total payment gap for tax year 2014 amounted to $5.29 billion after one year (2015), before declining by 59% to $2.19 billion in 2020.
• In particular, the payment gap from individuals decreased at a faster rate (-76%) than the payment gap from corporations (-38%) and GST/HST registrants (-30%).
• For tax year 2014, the payment gap from individual filers was $3.09 billion after one year (2015) before declining to $0.73 billion as of 2020, a decline of 76%.
• Around 88% of the current individual filers payment gap was due to unpaid taxes, while 22% was due to repayable deductions and credits.
• The corporation payment gap for tax year 2014 was $1.09 billion after one year (2015) before falling to $0.68 billion as of 2020, a decline of 38%.
• While Small and Medium Enterprises (SMEs) accounted for 99% of all filers, the corporation payment gap was about evenly split between SMEs and large corporations.
• For tax year 2014, the GST/HST payment gap was $1.11 billion after one year (2015) before declining to $0.78 billion as of 2020, a decline of 30%.
• The excise payment gap for tax year 2014 was negligible due to the small number of non-compliant licensees/registrants; the exact amounts could not be reported to maintain taxpayer confidentiality.
• The payment gap amounts presented in this report include outstanding debt and write-offs, but exclude interest and penalties. The payment tax gap was calculated using CRA's accounting data and the tax gap results account for the latest reassessments (e.g., audits, appeals) and collection efforts as of 2020.
• Tax gap methodology: While previous tax gap estimates required advanced statistical or econometrical approaches to measure what is not directly observed by the CRA (e.g., hidden income), payment gaps can be calculated based on the CRA's accounting records because taxfilers have either paid or have not paid their taxes owing.
• Accounting records track the balance of outstanding debt, total write-offs, and reassessment amounts for all taxpayers.
• The payment tax gap is the sum of assessed taxes that are not fully paid by the payment deadline for a particular tax year.
• In general, the payment gap includes federal and certain provincial taxes owed (the portion collected by the CRA), as well as amounts written off as uncollectible (i.e., write-offs). However, the payment gap excludes all interest and penalties, including those written-off, as they do not represent tax liabilities.
• Total Payment Gap
• The total payment gap for each tax year was calculated by aggregating the payment gap amounts for all four types of taxfilers.
• There are key features of the payment tax gap that make it difficult to compare with CRA's previous tax gap estimates. Therefore, the payment gap cannot be directly added to previous tax gap estimates without special considerations.
• Federal Tax Gaps Estimated to Date: Combining the federal cigarette excise duty gap with other tax gap components previously published by the CRA, Canada's federal tax gap in 2014 is estimated to be between $20.1 billion and $24.3 billion or between 9.2% and 11.2% of corresponding revenues – before considering the impact of audits and excluding the payment gap.

SOURCE Canada Revenue Agency

Jeremy Bellefeuille, Press Secretary, Office of the Minister of National Revenue, 613-995-2960, [email protected]; Media Relations, Canada Revenue Agency, 613-948-8366, [email protected]

Related Links

http://www.cra-arc.gc.ca/