Setting Restrictions for Those Who Break or “Play” with Tax Laws

Canada’s voluntary tax compliance rate is one of the highest in the world, yet there are certain groups neglecting tax laws.

One of the responsibilities of the Canada Revenue Agency (CRA) is to fix this situation by creating fair conditions for everybody.

Tax evasion takes place when a business or a person falsifies claims and records, conceals the real income and enlarges the expenses. Aggressive tax avoidance happens when individuals purposefully avoid the law. CRA finds new ways to resist this situation.

Putting an end to tax cheating with new approaches

Owing to the financial support from the federal budgets, the CRA has improved the tools and approaches, which produce better results. Consequently, more Canadians follow the law.

Starting from 2014 the number of offshore audits has been doubled. The full picture of the measures taken over the past years can be seen on CRA at work for you web page.

New Ways and Improved Data

International Electronic Funds Transfers (EFTs) access

Starting from January 2015, the CRA has checked more than $10K international EFTs entering or leaving Canada. In March 2018 this number increased up to $177 billion (187K transfers) checked with an intention to understand potential taxes that could have been paid. This also allowed investigating certain individuals and businesses better.

Offshore banking information exchange

Canada has agreed with 100+ countries to exchange financial account information on an automatic basis. As a result, this will help the CRA to match up data and reveal the cases when people or businesses hide something.

Cooperation with the Joint Chiefs of Global Tax Enforcement (J5)

Canada is now a member of J5 group along with the UK, the USA, Austria and the Netherlands. As a result, there will be an international exchange of criminal investigation techniques against money laundering, tax crimes and cybercrimes. This also means that Canada will participate in joint operations with the countries of J5.

Worldwide finances disclosure

Canada is now participating in the Country-by-Country Reporting program, which discloses profit and revenue information on big international companies. It allows the CRA to analyze the companies’ financials and the right amount of tax that should be paid. Altogether, the program consists of more than 60 countries.

Controlling mechanisms

Starting from 1998, the CRA has come up with the General Anti-Avoidance Rule which is known as the GAAR. This tool allows reassessing tax payer’s files in order to identify the avoidance schemes of individuals and companies.

Results of the CRA’s Work

The CRA works for you to eliminate tax avoidance of certain individuals and companies in order to ensure a fair system for everybody.

One of the measuring tools that CRA uses is “fiscal impact” which contains the following:

— Tax refund reductions;
— Gross federal tax assessment;
— Provincial tax assessment;
— Interests and penalties;
— Current value of future federal tax based on the compliance actions.

Fiscal impact does not include uncollectible amounts and appeals reversals that may have a certain impact too.

Overall results of CRA’s audit programs revealed $13.6 billion in fiscal impact throughout 2017 and 2018. This is $1 billion more than previous annual numbers. $7.9 billion out of $13.6 billion was identified via offshore audits and large multinational businesses, whereas $2.9 billion relates to serious and preplanned tax avoidance.

Identifying the leaders

The CRA has focused on identifying the leaders and promoters of abusive and illegal tax schemes. The scope of actions was considerably increased and included:

— Increase of audit programs in number;
— Developing information gathering methods;
— Conducting criminal investigations;
— Improving communication with taxpayers by making it more clear and effective.

Audits based on risk assessment

Extensive data analysis along with the enhanced business intelligence are the tools which CRA uses for better risk-assessment of companies and individuals. As a result, the CRA can distribute audit resources towards the areas of highest risk.

Criminal investigations

Considering that tax crimes progress in terms of their degree of complexity, the CRA develops new methods and tools to identify criminal actions. Criminal investigations conducted by authorities that include the CRA may often last for years.

The reasons that stay behind long periods of investigation include:

— Evidence availability;
— Number of parties and persons involved;
— Willingness to cooperate of a witness or the accused parties;
— Legal tools for gathering evidence;
— Time needed for obtaining information from other countries.

Considering that tax evasion is a crime, the evaders will go through the court, what may result in severe penalties, fines and/or jail time. Transparency in the tax system is the number one objective of the CRA and it commits to inform people about its enforcement actions.