Canada Addresses Tax Gap

In several recent reports, the Canadian tax authority has identified various elements of the so-called “tax gap” and undertaken efforts to address it.

The tax gap is the estimated difference between what taxpayers would have paid if they fully complied with all tax rules, and what was actually paid and collected. The new estimates are part of an anti-tax evasion strategy that was funded in 2016.

For example, Canada recently estimated that the tax gap on offshore investment income was up to C $3 billion in 2014. 

When combined with an earlier estimate of the personal income tax gap, the total estimate is C $11.7 billion. There is also an estimated GST gap of about C $2.9 billion. 

The tax authority has a number of initiatives to address this problem. It has put new systems in place to capture all international electronic funds transfers over C $10,000. It also has initiated an offshore tax informant program, paying whistleblowers for information leading to tax recoveries. That program has yielded C $11.6 million in additional revenue, with over 350 taxpayers identified for audits involving offshore tax noncompliance. Audit capacity has also increased, with a focus on high-income taxpayers.  

The tax agency reported that it has identified over C $500 million of additional taxes owed as a result of these programs.

Offshore tax evasion has been a constant theme of nearly every government in recent years. For example, on 28 June, Canada, the United States, the United Kingdom, the Netherlands, and Australia created an international enforcement group call the Joint Chiefs of Global Tax Enforcement, within which they will work cooperatively to identify offshore evasion and collect unpaid taxes.

Related: Canada Looks to Begin Taxing Digital Economy

How This Impacts

Governments worldwide are becoming much better at finding and pursuing those with assets and income offshore who do not report it. Worldwide ERC® members must be alert to these efforts, and caution employees assigned abroad as to tax requirements. 

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