The Canada Revenue Agency (“CRA”) released its Annual Report to Parliament (“Report”), outlining the CRA’s performance and key statistics for 2014-2015. This article highlights some of the measures that the CRA has undertaken to combat non-compliance.
During 2014-2015, the CRA assessed over $1.7 billion in additional taxes owing and identified over $21.9 billion of non-compliance. As a result, the CRA has devised separate strategies to combat non-compliance of both (i) international and large businesses, and (ii) small and medium enterprises.
International and Large Businesses
The 2015 Federal Budget allocated to the CRA $58 million over five years to combat aggressive tax avoidance. In 2014-2015, the CRA identified and addressed aggressive tax avoidance by completing an initial assessment of a new national risk-assessment model; by developing a new training framework for auditors working on aggressive tax planning cases; and by developing a preliminary list of performance measures related to aggressive tax planning.
The CRA, through its role in the Organisation for Economic Co-operation and Development (“OECD”), also assisted in introducing the Joint International Tax Shelter Information and Collaboration Centre. This and other developments, some of which are highlighted below, have led to a plethora of voluntary disclosures of previously unreported offshore income. According to the Report, “total unreported income from offshore disclosures was $780 million, an increase 157% from 2013-2014”. CRA-OECD group collaborations are expected to continue.
Other CRA tools for detecting non-compliance include:
- The Offshore Tax Informant Program, which awards international tax non‐compliance informants 5% to 15% of the federal tax collected, if the informants provide information that leads to the assessment and collection of more than $100,000 of additional federal tax. As of March 31, 2015, almost 2,000 tip calls were received by the CRA.
- Reporting requirements by financial intermediaries of international electronic funds transfers (“EFT”s) of $10,000 or more. As of March 31, 2015, the CRA received approximately three million international EFT reports.
- An automated risk-assessment tool that links information from various CRA databases and checks it against sophisticated algorithms to detect non-compliance.
Furthermore, the CRA has indicated that it plans to audit the most recent tax years. As a result, the CRA is closing lower-risk legacy files, but will continue older case audits involving high-risk issues. The CRA has also implemented integrated large business audit teams under the “One Team – One Voice – One Audit” concept. This concept is expected to be less burdensome to taxpayers, while providing better services and enhanced collaboration across the audit team.
Small and Medium Enterprises
The CRA is focusing on targeting the underground economy and increasing compliance support.
Revised estimates show the total underground activity in 2012 amounted to 2.3% of the gross domestic product. In 2014-2015, the CRA audited 6,540 income tax and GST/HST underground economy files and identified over $448 million in fiscal impact. The CRA’s strategy for combating the underground economy is by:
- Refining their understanding of the underground economy: initiatives such as the CRA Underground Economy Advisory Committee and underground economy roundtables provide the CRA with access to diverse perspectives, input, expert advice and feedback on their efforts to combat the underground economy.
- Reducing the social acceptability of participating in the underground economy:
- The CRA’s Get it in Writing campaign seeks to raise awareness of the risk of participating in the underground economy.
- The CRA’s underground economy compliance projects will result in issuing third party requirements to verify compliance.
- The CRA’s point-of-sales audit teams have begun enforcing new legislative provisions aimed at addressing electronic suppression of sales.
- Implementing initiatives to promote compliance and reduce participation in the underground economy: the Government will invest $118.2 million over five years to expand CRA underground economy specialist teams that conduct high-risk underground economy audits.
To increase compliance support, the CRA has undertaken several initiatives:
- The Liaison Officer Initiative provides information and in-person support at key points in small and medium enterprises’ business cycle, to assist with proper reporting and reduce the risk of future audits. 3,600 visits were completed during the 2014-2015 fiscal year.
- The Registration of Tax Preparers Program allows the CRA to link each tax return that was prepared for a fee by a tax preparer to the individual tax preparer and the business that the tax preparer worked for. The purpose of the program is to identify people who prepare inaccurate income tax returns, so that the CRA can work with them to prevent future mistakes.
- The Industry Campaign Approach is meant to encourage voluntary tax compliance within various industry sectors by giving businesses sector‐specific tax information to increase compliance.
- The office audit letter campaign is meant to encourage voluntary compliance by educating taxpayers. The letters are likely not enforcement letters for voluntary disclosure purposes.1 Since 2010, more than 30,000 letters were sent to taxpayers within groups at risk of non-compliance.
Small and medium enterprises should therefore take advantage of these compliance support initiatives, while both (i) international and large businesses, and (ii) small and medium enterprises should be mindful of CRA tools for detecting aggressive tax avoidance and non-compliance.
1 See 2010 Canada Revenue Agency Tax Roundtable, Member Advisory, Institute of Chartered Accountants of Alberta and Institute of Chartered Accountants of Saskatchewan, October 2010, at question 19(d).