Recent public leaks of tax information have once again put the spotlight on the growing, and never-ending problem of overseas tax evasion, where billions of dollars are hidden overseas to avoid paying Canadian taxes. As we know, it is not illegal to have a bank account overseas, but it is illegal not to report any proceeds from these accounts to the Canada Revenue Agency (CRA).
It used to be that the CRA didn’t attract a great deal of attention, either from the public or from the government. As the one branch of government counted upon to turn a profit, there has always been a temptation to simply let it go about its business—“if it’s not broken, don’t fix it.” However, that confidence is being eroded as we see the growing number of overseas tax evasion disclosures, compounded by the repeated responses of the CRA after such disclosures: they are working hard to catch tax cheats, they take it very seriously and so on. Unfortunately, the rhetoric belies the fact that their efforts and results are disappointing in the extreme, highlighted by the Agency’s continued reluctance to come up with an estimate of the tax gap as it relates to overseas tax evasion.
Other countries around the world, including the United States, the United Kingdom and Denmark, have recognized the need to estimate the tax gap (the difference between what is owed in taxes and what is actually collected). They acknowledge that such an exercise is, in the words of the United States Internal Revenue Service, a means of enabling government to “make better decisions about tax policy and the allocation of resources for tax administration”. Her Majesty’s Revenue and Customs (HMRC), the United Kingdom’s equivalent of the CRA, produces yearly estimates of their tax gap, calling them a “foundation for HMRC’s strategy”, which enables the agency to measure the effectiveness of its programs. Similarly, the Swedish National Tax Agency uses their estimate as a means of risk management, helping to determine the best allocation of their Agency’s resources.
As to the size of the tax gap problem in this country, the Conference Board of Canada’s report published on February 13th of this year titled Canadian Tax Avoidance: Examining the Potential Tax Gap, has concluded that up to $47 billion worth of taxes is not being collected by the Government of Canada.
Think of what could be accomplished if that money was actually collected by the federal government: taxes could be reduced, the deficit would be eliminated, much-needed programs could be funded—Canada as a whole would benefit. Moreover, collecting this $47 billion would demonstrate to all Canadians that their federal government is working hard to ensure everyone pays their fair share, no more and no less.
Questions remain about the CRA’s competence and ability to perform the important work ahead. In the past, their lack of transparency and openness has raised serious concerns that two sets of rules exist. If you hide your money overseas, your chances of getting caught are very low, but if you cheat on your taxes domestically, you are very likely to pay the price. Look on the CRA website, where at any given time you will find all kinds of Canadians charged, convicted, and in some cases, imprisoned for domestic tax evasion. There are far fewer, if any, notices of anyone charged or convicted of overseas tax evasion.
The CRA needs to be more open with Canadians, tell us what they are actually doing, and stop using vague wording like the amount of taxes they have “identified” as opposed to actually collected. A new policy of honesty and transparency would offer renewed confidence that all Canadians are treated equally, and we will finally see how much uncollected tax revenue a fair and efficient system can recover.
As an important first step, the CRA should reach out to the Parliamentary Budget Officer (PBO). After years of effort and research, the PBO determined that it is indeed possible to provide an estimate of the tax gap and subsequently approached the CRA to secure its cooperation in this endeavour.
Unfortunately, years of stonewalling by the Revenue Agency, and their refusal to pass on raw data, have prevented any progress. Canadians deserve to know the size of their overseas tax gap. It is time for the CRA to serve all Canadians and cooperate with the Parliamentary Budget Office in identifying, like other countries do, the actual amount of our tax gap. How many billions of dollars is the CRA failing to collect?
Percy Downe is a Senator from Charlottetown who introduced a bill in the Senate on Wednesday, November 22nd 2017, requiring the CRA to provide the PBO with the data required to measure the tax gap and to publish a list of convictions for overseas tax evasion.