Canada Revenue Agency's tax compliance crackdown reaps more money than expected

Newly released figures from the Canada Revenue Agency suggest the federal government's push to improve tax compliance has exceeded expectations dramatically.

Liberal government adds more auditors after billions collected in tax compliance push

The previous Conservative government's 2014-15 budget estimated that a boost in the CRA's enforcement resources would yield $550 million in 2014-15. But the agency brought in over $1.5 billion, more than triple what the agency had hoped to realize. (Chris Young/Canadian Press)

Newly released figures from the Canada Revenue Agency suggest the federal government's push to improve tax compliance has exceeded expectations dramatically.

The previous Conservative government's 2013 budget estimated that a boost in the agency's enforcement resources would yield $30 million in 2012-13, $125 million in 2013-14 and $550 million in 2014-15.

But the agency brought in $576 million in 2012-13, $566 million in 2013-14 and over $1.5 billion in 2014-15: more than triple the earlier estimates.

The 2016 federal budget announced even more resources to boost the agency's compliance and enforcement measures — $444 million to crack down on tax evasion and avoidance and $352 million over five years to collect bad tax debts.

A new branch set up on April 1 is dedicated to aggressive tax planning, criminal investigations and new "strategies to combat offshore tax avoidance."

The potential revenue Finance Minister Bill Morneau booked against this ramped-up spending was significant: an extra $2.6 billion from the compliance crackdown and $7.4 billion for the outstanding tax debts over the next five years. 

That's a 10:1 ratio of additional tax revenue compared to the newly budgeted spending on compliance efforts.

Isle of Man investigation only the 1st

It's unclear whether the amounts from the previous three years represent one-off windfalls from cracking down on historic tax evasion or avoidance, or a general tightening of the agency's procedures. It could also represent a combination of both. The agency did not supply more detailed breakdowns.

But the total realized from the previous government's push in 2014-15 — over $1.5 billion — sheds insight into the kind of results the CRA may have applied to estimate the potential of future spending on compliance and enforcement measures.

Revenue Minister Diane Lebouthillier's office says the hiring of new auditors means the CRA can conduct more investigations and bring in more tax revenue previously lost to tax evasion and avoidance. (Adrian Wyld/Canadian Press)

"The vast majority of middle-class Canadians pay their fair share of taxes, but some wealthy individuals avoid taxes by hiding their money in offshore tax havens. This is not fair and it needs to change," the revenue minister's spokeswoman Chloé Luciani-Girouard wrote to CBC News. 

As reported earlier this year by CBC-Radio Canada, the CRA offered amnesty to multi-millionaire clients of the accounting giant KPMG caught avoiding taxes by moving their assets to shell companies on the Isle of Man. 

The clients simply had to agree to pay their back taxes and modest interest on these offshore investments, which they had failed to report on their income tax returns.

Luciani-Girouard said that the investigation into the Isle of Man cases was the first, but additional jurisdictions will follow. 

More auditors, investigations

The budget investment gives the CRA the ability to hire more auditors and specialists, increasing the number of examinations focused on high-risk taxpayers from 600 per year to 3,000 per year. That's estimated to bring in $432 million in new tax revenue, the minister's office said. 

The agency is also bringing in 100 additional auditors to investigate high-risk multinational corporations, aiming to collect an additional $500 million in revenue over five years. 

"To make sure these investments deliver results, the CRA will have lawyers on investigation teams, so that cases can be quickly brought to court," Luciani-Girouard said.

Finance Minister Bill Morneau met with Quebec City Mayor Regis Labeaume Friday. His budget last month earmarked over $800 million for the CRA's efforts. (Jacques Boissinot/Canadian Press)

"We are focusing on a number of ways to deal with ensuring that Canadians pay their fair share of taxes," Finance Minister Bill Morneau said, following a noon speech in Quebec Friday.

"Internationally, we're working with the G20 to make sure that we understand how money flows around the world," he said, adding that his department is studying something called "base erosion and profit shifting" — a tax planning strategy that exploits international mismatches in tax rules to artificially shift profits to low or no-tax locations, resulting in little or no overall corporate tax being paid. 

Morneau said that the government wants to make sure that "when you pay your taxes you know that your next-door neighbour's paying their taxes as well."