Canada’s tax gap could be as high as $50B a year: report

Conference Board of Canada says a comprehensive assessment by Ottawa is lacking.

OTTAWA — Canada could have an annual tax gap (the difference between what should be collected and what is collected) of as much as $50 billion, but the federal government hasn’t conducted a comprehensive assessment to determine the amount of the shortfall.

A briefing by the Conference Board of Canada that applies estimates from other countries suggests Canada falls in the $8.9 billion to $47.8 billion range annually.

“When some individuals and companies do not pay their fair share of taxes, it increases the burden of funding public services on compliant taxpayers,” said Matthew Stewart, associate director, national forecast at Ottawa-based research firm.

The Conference Board notes in recent years, the federal government has stepped up its efforts to increase tax collections and has begun to estimate elements of the tax gap. In June, the Canada Revenue Agency said non-compliance has caused an average annual loss in potential Goods and Services Tax/Harmonized Sales Tax revenues of 5.6% from 2000 to 2014.

Components of the gap can include:

• deliberately ignoring a specific part of a law to evade taxes;

• unacceptable avoidance of taxation – undertaking activities that comply with the letter of a law, but contravene the spirit and intent of the law;

• mistakes made by tax filers; and

• nonpayment of assessed tax liability.

The briefing suggests actions that would help reduce the tax gap include more sophisticated evaluation and auditing, regular consultations with other tax administration authorities, learning from best practices worldwide and increased use of data analytics.

Measures that simplify Canada’s tax code and smooth tax administration would also help by reducing filing errors.

Click here for an abstract of the report, Canadian Tax Avoidance: Examining the Potential Tax Gap, commissioned by the SAS Institute.

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