Tax agency looked at data from 2014 tax year to assess role of corporations in tax leakage
Canadian companies avoided paying up to $11.4 billion worth of taxes they should have paid in the single tax year of 2014, according to the federal tax agency.
The Canada Revenue Agency released its fifth and final report on the tax gap, this one focusing on corporate taxes. Previous reports examined factors such as sales tax fraud, domestic tax evasion, and the use of offshore tax havens to look at how much leakage Canada’s taxation system has.
Tuesday’s report estimates that in the 2014 tax year, Canadian corporations managed to pay somewhere between $9.4 billion and $11.4 billion less than they should have in taxes.
Broadly speaking, bigger companies seem to be responsible for a bigger chunk of corporate tax leakage. The CRA report says small companies avoided paying between $2.7 billion and $3.5 billion in taxes. By the CRA’s definition, there were just over two million small companies in Canada that filed taxes that year.
Big companies, meanwhile, avoided paying between $6.7 billion and $7.9 billion. According to the CRA, there were about 14,000 big companies that filed some sort of income taxes in 2014.
The tax agency is cracking down on that sort of behaviour, and says it thinks it will be able to recoup between 55 and 65 per cent of the corporate taxes it feels it is owed for 2014. That brings Canada’s corporate tax gap bill down to $3.3 billion and $5.3 billion in 2014.
The CRA says Canadian corporations earned $298 billion in taxable income that year, and paid about $40.9 billion in federal taxes. That means if their estimates about tax leakage are correct, the taxman missed out on about a quarter of the corporate tax revenue that could have been recouped.
“Our government is committed to cracking down on tax evasion and aggressive tax avoidance, in Canada and offshore,” said Diane Lebouthillier, Canada’s minister of national revenue.
Along with previous reports, Tuesday’s corporate tax data “will help the CRA evaluate its approaches and better target compliance actions to ensure a tax system that is fair and equitable for all Canadians,” she said.
While the government is eager to recoup that money, even the tax authority admits not all of that $11-billion unpaid tax bill happened because companies were knowingly trying to defraud the system. Often, honest mistakes are to blame, including ignorance of tax law changes, accidentally overclaiming of deductions and credits, and even an inability to file taxes properly when businesses fail or go bankrupt during the year.
“Like other taxpayers, corporations may be non-compliant with their tax obligations due to both intentional and unintentional actions ranging from honest mistakes to aggressive tax avoidance,” the CRA said.
Sonia Dhaliwal, an accounting professor at the University of Guelph in Ontario, said the $11-billion figure was higher than she thought it would have been, but in and of itself, it isn’t enough to make her think Canada has a rampant problem with corporate tax evasion.
Dhaliwal has previously worked with countless companies on tax issues and said that on the whole, companies big and small “try their best to be compliant.”
While corporate tax rates are comparatively lower in Canada than they are elsewhere, she said, the country actually has among the more complex tax systems in the world.
“Complexity could perhaps lead to non compliance because they’re not familiar with the rules.”