Question Period Note: TAX AVOIDANCE AND EVASION

What is the Canada Revenue Agency doing to tackle aggressive tax avoidance and tax evasion?

• The Canada Revenue Agency (CRA) is aggressively pursuing individuals and businesses that engage in non-compliance and tax fraud in Canada and abroad.

• Those that wilfully choose to not fulfill their tax obligations can face serious consequences including criminal charges, prosecution, court imposed fines, jail time and a criminal record.

• With continued investments and an increase in information sources, the CRA is better positioned than ever to target litigious, wealthy individuals who push the limits of legal tax planning or who arrange their financial affairs with a view of flying under the CRA’s radar.

• Thanks to a strong international network of tax treaties it’s now harder than ever before to hide money offshore. The CRA’s increased collaboration with over 90 international partners ensures multinationals and participants in the digital economy pay the taxes they owe.

• The CRA has hired experts and is advancing business intelligence and technologies to detect and address the most serious instances of non-compliance. It does so through better targeted audits, using extensive data sources and enhanced analytical approaches to achieve this goal. The net is tightening on those who try avoid and evade their taxes.

• The government continues to introduce new tax legislation to identify and close loopholes that promoters may use to help their clients to contravene the law, to avoid paying their share. Examples include pursuing changes to the Mandatory Disclosures Rules and a review of the General Anti-Avoidance Rules.

• Recent court cases show that the CRA is choosing the right battles and taking the appropriate actions.

The Canada Revenue Agency (CRA) is in a better position to find those who try to avoid and evade their tax responsibilities. Through increased audit coverage, extensive data sources and enhanced analytical approaches, the CRA has maximized its ability to detect and deter the most serious instances of non-compliance.

The majority of Canadian taxpayers are compliant and make reasonable efforts to ensure they pay their fair share of taxes. However, there are those that knowingly challenge and test the limits of Canada’s self-assessment tax system by using their wealth to create complex tax arrangements and litigation to avoid providing documents and information to the CRA during the course of an examination, audit or investigation. The CRA is using all resources available to challenge these taxpayers, and is addressing potential non-compliance.

In recent years, the CRA and its international partners have increased collaboration. The CRA has maintained a leadership role in a number of initiatives of the Organization for Economic Co-operation and Development (OECD) Forum on Tax Administration (FTA), with, notably, the CRA’s Commissioner currently being the chair of the OECD FTA. The CRA also plays a key leadership role in the Joint Chiefs of Global Tax Enforcement (J5) and works closely with other countries and organizations to fight against those who commit, promote, and enable international tax crimes, money laundering, and cybercrimes through the use of cryptocurrencies.

More specifically, the CRA and its domestic and international partners are making it harder to hide money offshore. Through a combination of advancements and collaboration with domestic partners and over 90 international partners, the CRA now receives information on over 1 million electronic fund transfers per month and approximately 2 million records per year are exchanged with international partners under the Common Reporting Standard. These partnerships are focused on working together to unravel, understand and tackle high risk tax sectors, arrangements and issues with taxpayers across all jurisdictions.

Those who do not fully comply with tax laws and tax obligations place an unfair burden on law-abiding taxpayers and businesses. To level the paying field and ensure the tax system is fair for all Canadians, the CRA ensures that a high level of audit and investigative focus is directed towards those who try to evade or avoid paying their fair share of taxes. Both tax avoidance and evasion have serious financial consequences and being convicted of tax evasion can lead to court imposed fines, jail time, and a criminal record.

The CRA recognizes the need to have the right expertise and technology in place. The CRA has been investing in business intelligence, advanced analytics, and related technologies and infrastructure to assist in detecting and deterring the most serious instances of tax non-compliance. In its ongoing effort to enhance identification of taxes owed, increase revenue growth and improve the fairness of the tax system, starting in 2021-22, the Fall Economic Statement 2020 committed new funding for over 600 employees to close the high-net worth compliance gap, bolster technical support for high risk audits, and bolster the Criminal Investigations Program. The CRA estimates that these measures to combat aggressive tax avoidance and tax evasion will result in recoveries of over $1.4 billion in revenues over the next 5 years.
Finally, Budget 2022, as proposed (at the time of writing it is still being debated in Parliament) would also take action to close legislative tax loopholes, to work with our international partners, and to strengthen tax enforcement that will stop wealthy Canadians and businesses from sheltering their money overseas. That said, it is important to highlight that merely holding offshore assets does not automatically imply tax non-compliance. Budget 2022, as proposed, confirmed the government’s commitment to examine a new minimum tax regime; examine potential changes to the financial transaction approval process to limit the ability of federally regulated financial institutions to use corporate structures in tax havens; and proposes amendments to the Income Tax Act to create a specific anti-avoidance rule and provide that the General Anti-Avoidance Rule (GAAR) can apply to transactions that affect tax attributes that have not yet been used to reduce taxes. Building on recent investments, Budget 2022 proposes, starting in 2022-23, for the CRA to expand audits of larger entities and non-residents engaged in aggressive tax planning; these measures are expected to identify $3.4 billion in revenues over five years, with additional benefits to be realized by provinces and territories whose tax revenues will also increase as a result of these initiatives. Additionally, funding from the FES* will increase both the investigation and prosecution of those engaged in criminal tax evasion; and to expand its educational outreach.

*ERRATUM: In the above, “funding from the FES will increase” should be “funding from Budget 2022 will increase.”

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