OTTAWA: The Canada Revenue Agency is stepping up efforts to combat tax evasion and avoidance in hopes of generating billions more in revenue, announcing Monday it’s increasing the number of audits of wealthy individuals and hiring more auditors to investigate high-risk multinational corporations.
The federal government expects its $444 million investment in the CRA over five years will generate an additional $2.6 billion in revenues over that time – but also send a message to Canadians trying to avoid paying their fair share of taxes.
National Revenue Minister Diane Lebouthillier also said she’s creating an independent advisory committee on offshore tax evasion and aggressive tax planning. She said the CRA is beginning work on estimating the so-called tax gap – the difference between what Canadians owe in taxes and what is collected.
The CRA is targeting electronic funds transfers of more than $10,000 with four tax havens, including the Isle of Man. The CRA won’t identify the three other jurisdictions in an effort to keep tax evaders guessing. The agency intends to keep tabs on financial institutions and pursue as many as four jurisdictions per year.
Also, the agency is launching a program to stop organizations that create and promote tax schemes for the wealthy. The agency will target more than 200 promoters of these tax schemes, many of who are often auditors.
“Most middle-class Canadians pay their fair share of taxes but some well-off taxpayers avoid paying taxes by hiding their revenue in overseas tax shelters. This is not acceptable and this situation must change,” Lebouthillier said Monday in Ottawa.
“These high-income Canadians should not be able to buy their way out of paying the taxes that they owe.”
The announcement comes amid the fallout of the Panama Papers, a leak of 11.5 million documents from Panama-based law firm Mossack Fonseca that exposed the shady business dealings of thousands of individuals and companies who’ve set up offshore accounts or shell companies in low-tax havens.
The CRA is boosting the number of examinations focused on “high-risk” wealthy individual taxpayers to 3,000 per year from 600.
The CRA will hire 100 new auditors, increasing the staff by 10 per cent, to investigate high-risk multinational corporations.
Overall, the CRA’s tax audit program brought in more than $11 billion in taxes, penalties and interest in the 2015-16 fiscal year, including $1.6 billion on audits of abusive tax planning, the government says.
The CRA previously offered a secret amnesty deal to multimillionaire KPMG clients caught using what court documents say is an offshore tax “sham” on the Isle of Man. The deal, first reported by CBC/Radio-Canada, would allow the clients to avoid penalties and prosecution if they paid their taxes.
The CRA has been fighting KPMG in court for the names of wealthy individuals who set up shell companies in the Isle of Man, a self-governing territory located in the Irish Sea between England and Ireland, but the case has been stalled before the courts.
Meanwhile, the CRA is examining 350 individual taxpayers and 400 businesses who conducted operations on the Isle of Man, with more than 60 audits underway, Lebouthillier said.
Electronic funds transfers to the Isle of Man totalled $860 million during a 12-month period, with the CRA having examined all 3,000 transfers involving the close to 800 taxpayers.
Dennis Howlett, executive director of Canadians for Tax Fairness, a watchdog group, said he’s encouraged by the CRA’s focus on high-risk taxpayers and facilitators of tax evasion, which could produce large amounts of uncollected revenue.
“They’ve been going after the low-hanging fruit. This is a shift in strategy. That’s good news,” he said.
But Howlett said the CRA has been giving “special treatment” to KPMG and wants the agency to push for criminal charges against the accounting firm for facilitating tax evasion.
As the Panama Papers fallout continues, the CRA has made requests to the International Consortium of Investigative Journalists and Canadian media sources for the full data set, and is also working with tax treaty partners to try to obtain all relevant Canadian information on the file.
Part of the government’s efforts to fight tax evasion include a new seven-member offshore compliance advisory committee that will be headed by Colin Campbell, an associate professor of law at Western University and former senior tax partner in the private sector.
Kimberley Brooks, a tax expert and associate professor at the Schulich School of Law at Dalhousie University, will serve as vice-chair of the committee.
