Federal budget relies heavily on CRA recouping tax-haven revenues

The Liberal government forecasts a $10-billion boost in revenues by having tax collectors get more aggressive about tax havens and tax debts. But critics say it's risky to count on that money when the Canada Revenue Agency has such a weak record in chasing rich cheats and tax debtors.

Budget books billions in new tax revenues in areas where Canada Revenue Agency has poor track record

Minister of Finance Bill Morneau delivers the federal budget in the House of Commons. Morneau's fiscal blueprint relies on $10 billion in extra tax revenues from catching tax cheats and recovering tax debts — areas critics say are not Canada Revenue Agency strengths. (Adrian Wyld/Canadian Press)

This week's federal budget is banking on $10 billion in new tax revenues over the next five years in areas where the Canada Revenue Agency has a poor track record: collecting bad debts and cracking down on offshore tax havens.

The Finance Department says recovering that money will cost the agency only about $800 million in extra staff and resources — for a better than 10-to-1 cash windfall for the federal treasury.

But some critics are sounding the alarm, saying the Liberal government should not be counting its chickens before they hatch.

"There are inherent risks with booking revenues in the fiscal framework before they are realized," said Sahir Khan, former assistant parliamentary budget officer and now at the University of Ottawa.

Dennis Howlett, executive director of Canadians for Tax Fairness, welcomes the budget's new money for catching tax cheats, but wonders whether the agency can increase efforts as quickly as proposed. (CBC)

"There have been significant issues in the past from government proactively booking savings from efficiency initiatives before those savings were achieved, leading to program-integrity pressures."

The main budget document says the Canada Revenue Agency will get much better at collecting outstanding tax debts, recovering an extra $7.4 billion over the next five years, at an additional cost of just $352 million.

Increasing writeoffs

The agency, however, has been writing off increasingly large amounts of tax debt in recent years. Writeoffs hit $2.9 billion in 2014-15, the latest available Public Accounts figures, up 50 per cent from five years earlier.

The Finance Department has also booked another $2.6 billion in extra revenues from fresh efforts to "crack down on tax evasion and combat tax avoidance." Costs to recover that money are budgeted at $444 million.

The agency says it is creating a new branch on April 1 dedicated to aggressive tax planning, criminal investigations and new "strategies to combat offshore tax avoidance."

But critics have said the CRA actually treats the rich with kid gloves when it comes to tax havens.

'CRA's record on big tax-evasion cases has been abysmal'- Dennis Howlett of Canadians for Tax Fairness

CBC recently exposed a secret 2015 deal the agency offered some wealthy investors who put millions of dollars in an Isle of Man tax shelter directed by KPMG. The deal allowed them to avoid the normal penalties by simply paying back taxes and modest interest on income they failed to declare.

Laval University tax professor Andre Lareau has said the deal should be withdrawn, and NDP Leader Tom Mulcair called for a probe into the KPMG affair.

Dennis Howlett, executive director of Canadians for Tax Fairness, said he welcomes the new money the Liberal government is putting into chasing down offshore tax cheats.

"Up to now, the CRA's record on big tax-evasion cases has been abysmal," he said. "Can CRA ramp up that quickly?"

The agency has been cutting its overall workforce faster than most other departments, with its latest spending plan calling for another 400 jobs eliminated.

Need transparency

Howlett said the agency not only needs to beef up its own auditing staff, but the Justice Department should hire more prosecutors to take offshore tax cheats to court.

"Now, none of them get taken to court," he said. "They've got to take some of these big-time tax cheats to court and make an example of them."

Mostafa Askari, the assistant parliamentary budget officer, questioned how the government was able to put uncertain tax-haven revenues in the budget.

Revenue Minister Diane Lebouthillier's office provided no details on how the Canada Revenue Agency plans to increase tax revenues by $10 billion over five years. (Chris Wattie/Reuters)

"It's not very safe to book that kind of revenue ahead of time," he said, adding that the government needs at least to provide more details on how and when the agency will produce the additional revenue.

"There are certainly some issues there in transparency."

Asked for details on the initiative, a spokeswoman for National Revenue Minister Diane Lebouthillier said only that the minister is "confident that budget 2016 proposes important investments to prevent tax evasion and improve compliance to ensure all Canadian taxpayers pay their fair share."

"Not taking action here results in a cost to governments and taxpayers which reduces the fairness and integrity on the tax system," Chloe Luciani-Girouard said in an email.

Follow @DeanBeeby on Twitter


Dean Beeby

Senior reporter, Parliamentary Bureau

Dean Beeby is a CBC journalist, author and specialist in freedom-of-information laws. Follow him on Twitter: @DeanBeeby