25th May 2017

Two facts ought to draw close attention now that the regular tax filing season is complete.

The first is that record numbers of the highest-earning Canadians are paying no tax, according to a recent analysis by the CBC. The number is still small on a national scale – roughly 6,000 people, according to the most recent statistics made available – but it represents an increasingly visible issue in a country where many have argued that the tax laws are unnecessarily complex and vulnerable to clever accounting tactics that occasionally take advantage of original approaches to tax filing, including write-offs totaling billions of dollars each year.

The publicity alone surrounding this issue is likely to spur the Canada Revenue Agency into action, in addition to the CRA’s own recognition of the fact of lost revenue, as well as the likelihood that the Trudeau government would pressure the agency toward a more transparently equitable outcome.

The other noteworthy fact to consider is that the Offshore Tax Informant Program (OTIP) has been inundated with leads lately. The OTIP was launched in 2014, for the purpose of inviting taxpayers to report on their peers with any tips or information regarding those who are allegedly avoiding their obligation to pay taxes. The program offers the promise of rewards for those whose information leads to the collection of $100,000 or more in federal tax, and has already received hundreds of submissions.

Whatever one’s views about such a government program, the reality is that, by all accounts, the CRA is taking these submissions seriously and investigating the leads it has thus far generated. A spokesman for the CRA recently indicated that as a result of citizen submissions, the agency had initiated audits on 218 taxpayers, and reassessed upwards of $1 million in penalties and taxes.

And that’s just for tax issues related to international accounts. The program’s purely domestic analogue is far more active. In the 2016-7 financial year, reports indicate that the domestic tipline – which does not offer rewards for caught tax avoiders – has received well over 35,000 calls.

The CRA has not been shy about pursuing those it identifies as tax avoiders, as one Vancouver real estate developer recently learned to his cost. The man was recently stuck with a penalty of $300,000 for not paying GST on sales, in addition to the $203,082 he was deemed to have avoided paying in the first place.

Perhaps a third fact is also relevant to this picture of a possible increase in the number of audits to come. In an embarrassing development, the CRA has recently admitted that it sent $2 million in paychecks to former employees who were not supposed to be included on its current payroll. Moreover, this has been a recurring problem for the agency, which made similar mistakes in the past.

The upshot of all this is that the CRA has been given strong incentives to increase its frequency of demanding audits, reviews, investigations and inquiries – and that at the same time, it may well be doing so based on an imperfectly functioning database system.

 

 

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