The federal government is losing an average of $22 billion a year in unpaid taxes, according to a new report from the Canada Revenue Agency that analyzed tax collection from 2014 to 2018.
In its first report on Canada’s “overall tax gap” released Tuesday, the CRA estimates the net tax gap for those five years, or the amount of the money owed to the government that it did not actually collect, totalled as much as $111.2 billion.
Although the amount of uncollected tax trended upwards over that time, with estimates ranging up to $23.4 billion in 2018 and $23.5 billion in 2017, the ratio stayed steady each year at 9% of federal tax revenue overall.
The gap in personal income tax amounted to between $8.4 billion and $10.6 billion a year, the report said, which represented between 5% and 8% of personal income tax revenue overall.
That amount encompassed unpaid taxes, hidden offshore income and non-compliance related to the underground economy, an analysis that excluded illegal activities.
But the CRA deems the personal income tax system largely “tax assured,” meaning it expects a low risk of non-compliance.
The gap in corporate tax revenue, meanwhile, was estimated at between $4.6 billion and $7.3 billion a year, which represented between 10% and 17% of the expected revenue in that category.
Non-compliance related to large corporations was the most important factor, the report says, while small- and medium-sized enterprises were less prominent.
The report also found between 8% and 10% of the expected revenue from harmonized sales taxes went unpaid each year — an average of about $3.9 billion.
And smaller amounts of between $400 million and $500 million a year went unpaid within the excise tax system, largely accounted for by illegal cigarette production, though non-compliance by excise licensees and registrants was “very low.”
The CRA says compliance and collections efforts over the five years covered by the report recouped an additional $72.4 billion that would otherwise not have been paid.
The report says the agency uses a “specialized compliance approach” to triage business audits and takes a “balanced approach” on non-compliance by providing options such as payment arrangements and taxpayer relief provisions before taking legal action.
The size of the tax gap is affected by the overall size of the economy, the agency says, and bankruptcy levels, which can fluctuate depending on the health of the economy.
Although intentional tax evasion, failures to report income and over-claiming tax credits account for some of the uncollected money, the agency adds, unintentional mistakes and ignorance are also at play.
The federal NDP reacted to the CRA statistics by calling on the Liberals to do better in cracking down on tax avoidance, accusing the government of “turning a blind eye” to offshore tax havens.