Ottawa forfeited $8.7B in uncollected tax in 2014, says report

The Canada Revenue Agency has calculated the gap between personal income taxes owed and taxes actually paid, at $8.7 billion for 2014. The shortfall does not include any estimate of the taxes lost because of offshore tax havens. That more difficult calculation is expected next year.

CRA 'tax gap' report cautions that much of the billions owed might never be collectable

Diane Lebouthillier, minister of national revenue, has released a new report on the 'tax gap,' part of a commitment in the 2015 Liberal election platform. The gap measures what taxes are owed compared with taxes actually paid. (Sean Kilpatrick/Canadian Press)

Canada's personal income "tax gap" — taxes due but not collected — hit about $8.7 billion for 2014, says a ground-breaking Canada Revenue Agency report.

The analysis, which the Liberals promised in the 2015 election campaign, includes estimates of tax revenue lost because of unreported income in the domestic underground economy, as well as tax formally assessed against taxpayers who did not pay up for some reason.

The report follows a parallel analysis released June 30 last year by Finance Canada that estimated there was another $4.9 billion in GST/HST that was due in 2014 but not collected, bringing the total "tax gap" so far to about $13.6 billion.

Both analyses were for the domestic economy only, and did not attempt the tricky calculation of tax revenue lost because of offshore tax schemes — a hot-button issue that will get its own CRA report next year.

The latest report, released Friday, is riddled with caveats that warn of incomplete or even non-existent data, and of difficult assumptions. It also cautions that much of the taxes owed might never be collected because of factors such as the bankruptcy of a taxpayer.

Likely an underestimate

Despite those warnings, the 56-page document says the $8.7-billion figure for missing personal-income taxes "is likely an underestimate of the true … tax gap."

Other countries have estimated their own tax gaps, including the United Kingdom, the United States, Sweden and Australia, and each highlight the uncertainty of their own numbers.

P.E.I. Senator Percy Downe has been pressing the government since at least 2012 to measure the tax gap, as done by other countries such as the U.S. (Steve Bruce/CBC)

In the past the Canada Revenue Agency has resisted producing such estimates for Canada, partly out of concern that any reported gap might be construed as a work target for them to achieve, even though the math is uncertain.

The agency has also declined to carry out random audits of the population of taxpayers because of the expense, preferring to focus on specific sectors of the economy considered more likely to dodge taxes. The absence of random audits creates another analytical hurdle for tax-gap estimations.

The tax gap is sometimes seen as a measure of tax fraud or similar conduct.- Internal CRA document, cautioning that the gap can be for other reasons as well

Senator Percy Downe among others has been pressing the CRA for a tax-gap estimation, and in 2012 formally asked the parliamentary budget officer for such a study — partly to derive an estimate of federal revenue lost to overseas tax havens.

The PBO tried without success to get data from the tax agency to carry out the study, information the CRA said would cost $140,000 and six months to produce, say documents obtained by CBC News under the Access to Information Act.

The dispute escalated to Prime Minister Justin Trudeau in late 2015. The PBO project was eventually dropped with Downe's agreement, and the CRA announced on April 11, 2016, it would undertake the research itself.

For perspective, Friday's report on the personal income tax gap says the missing $8.7 billion in taxes represents about 6.4 per cent of all personal income tax collected in 2014. The Finance Canada report last June came up with a similar number: the $4.9 billion in uncollected GST/HST in 2014 represents about 6.5 per cent of all GST/HST revenues.

Can be taxpayer error

On Monday, CRA officials will join international tax experts for a two-day seminar in Ottawa, sponsored by the Canadian Tax Foundation, which will examine issues surrounding the measurement of tax gaps. Specialists from the U.S., U.K. and Sweden are expected.

Ugland House is the registered office of some 18,000 companies on Grand Cayman Island, an offshore tax haven. The latest CRA report does not include a calculation of taxes lost because of offshore schemes, saying it will release those calculations next year. (Reuters)

"Broadly defined, the tax gap is the difference between the tax that would be paid if all obligations were fully met in all instances, and the tax actually paid," says an internal CRA document, cautioning that the gap does not necessarily reflect illegal behaviour.

"The tax gap is sometimes seen as a measure of tax fraud or similar conduct. However, it encompasses revenues lost due to both intentional and unintentional behaviour, including tax evasion, taxpayer error, and in some cases unpaid and uncollectable liabilities, such as when a taxpayer is bankrupt."

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


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