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 enhanced data sources, the CRA is well-positioned to target those wealthy individuals who deliberately push the limits of legal tax planning to evade or avoid taxes and side-step reporting obligations.

• With continued budget investments, and a strong international network of tax treaties, it’s now harder than ever to hide money offshore.

• The CRA’s increased collaboration with domestic and international partners ensures multinationals and participants in the digital economy pay the taxes they owe.

• The CRA has hired experts and continues to use tools such as enhanced business intelligence and advanced data analysis to improve risk assessments, and detect and address the most serious instances of non-compliance.

• The government continues to introduce new tax legislation to identify and close loopholes that promoters may use to help their clients skirt their tax obligations, such as
  o enhancing the Mandatory Disclosures Rules, and

o modernizing and strengthening the General Anti-Avoidance Rule.

The majority of Canadian taxpayers are compliant with tax legislation and make reasonable efforts to pay their taxes. However, there are those that knowingly 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 uses all resources available to challenge these taxpayers, and addresses potential non-compliance.

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 playing 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 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.

Tax avoidance and aggressive tax planning are different. When tax planning reduces taxes in a way that is inconsistent with the overall spirit of the law, the arrangements are referred to as tax avoidance. The CRA's interpretation of the term "tax avoidance" includes all unacceptable and abusive tax planning. Aggressive tax planning refers to arrangements that push the limits of acceptable tax planning. Through increased audit coverage, analyzing data sources, and enhanced analytical approaches, the Canada Revenue Agency (CRA) has maximized its ability to detect and deter the most serious instances of non-compliance. Furthermore, the CRA is well-positioned to identify those who try to avoid and evade their tax responsibilities deliberately.

The CRA has increased its collaboration with its international partners. The CRA has maintained a leadership role in a number of initiatives of the Organization for Economic Co-operation and Development’s (OECD) Forum on Tax Administration (FTA). Notably, the CRA’s Commissioner is currently the chair of the FTA. Over 50 tax administrations work together to share best practices and emerging trends, deal with international risks, and improve compliance and the overall delivery of tax administration. 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. These partnerships are focused on working together to unravel, understand and tackle high risk tax sectors, arrangements and issues with taxpayers across all jurisdictions.

A key part of the CRA’s compliance strategy is to target promoters of tax schemes. Tax schemes are plans and arrangements that attempt to deceive taxpayers by promising to reduce the taxes owed, often through large deductions or promises of tax-free income. "Promoters" are individuals or corporations who promote or sell schemes that seek to break or bend the rules of the Canadian tax laws. These promoters deliberately make false statements to assist their clients in tax cheating. As a result, these promoters obtain a financial benefit from the remuneration they receive from their client. Through increased audits of promoters, improved intelligence gathering, and better communication with taxpayers, the CRA continues to identify and shut down illegitimate tax shelters and tax schemes. Those who choose to participate in or promote these schemes may face serious consequences, including penalties, court-imposed fines, and possibly even jail time.

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 to hire over 600 employees to help close the high-net worth compliance gap, bolster technical support for high risk audits, and strengthen the Criminal Investigations Program. As of March 2023, the CRA’s audit programs have identified over $14 billion in fiscal impact for the 2022-2023 fiscal year as the CRA was able to better focus and increase its audit activities to identify and target offshore non-compliance and aggressive tax planning. In addition, measures announced in the Budget 2022 are intended to close legislative tax loopholes, enhancing our work with international partners, and strengthening tax enforcement that will stop wealthy Canadians and businesses from sheltering their money overseas.

Building on recent investments, starting in 2022-23, Budget 2022 provided funding for the CRA to expand audits of larger entities and non-residents engaged in aggressive tax planning; increase both the investigation and prosecution of those engaged in criminal tax evasion; and to expand its educational outreach. 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.

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