Tax non-compliance is costing Canada up to $40 billion

The gap between the amount of tax that should be collected by the Canada Revenue Agency and the actual amount of tax paid has been revealed in a new report.

The analysis of data by the federal tax agency shows that, in 2018, between $35.1 billion and $40.4 billion that should have been paid, was not.

Ongoing CRA compliance and collection activities could collect around $17 billion that has not been paid, but still represents a tax gap of 7-9%, or up to $23.4 billion.

Reporting non-compliance was responsible for 80% of the lost revenue with payment non-compliance accounting for the remainder. The split is 70/30 for personal income tax and 95/5 for corporate income tax.

The CRA highlights that the tax gap was held steady at 9% from 2014-18, despite tax revenues rising, which it says is a positive sign for the Canadian federal tax system.

During the years analysed for the report, the gap for corporate tax revenues was reduced by 48-59%. The overall tax gap was reduced by 39-45%.

“We know that most Canadians pay their fair share and our government is committed to improving the integrity of the tax system by combating tax evasion and aggressive tax avoidance,” said Diane Lebouthillier, Minister of National Revenue. “Today’s report and our continued work to study the tax gap is helping to better target our compliance activities so we can protect the revenue base that provides necessary benefits that improve the lives of all Canadians.”

Can it reduce to zero?

Last year, an OECD report put the amount of tax the Canadian government loses to tax abuse annually at around $5 billion, the equivalent of 1.1% of Canada’s tax revenue or $146 for every member of the population.

The CRA report says that reducing the tax gap to zero is unlikely due to some potential tax revenue loss that is harder to identify.

This includes complex international tax evasion and tax debt that cannot be collected because of bankruptcy, for example.