Canadian companies avoided up to $11B in taxes in 2014, CRA report says

The Canada Revenue Agency headquarters in Ottawa. THE CANADIAN PRESS/Sean Kilpatrick

Canadian corporations avoided paying between $9.4 billion and $11.4 billion in taxes in 2014, according to a new report from the Canadian Revenue Agency.

The federal tax agency released its final report Tuesday on Canada’s tax gap — taxes legally owed vs. those collected — which focused on corporate taxes. They found that in 2014, small Canadian companies managed to dodge $2.7 billion and $3.5 billion in taxes, while bigger companies avoided paying between $6.7 billion and $7.9 billion.

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The analysis showed that between 24 to 29 per cent of all corporate income taxes were not paid that year.

“Our Government is committed to cracking down on tax evasion and aggressive tax avoidance, in Canada and offshore,” Minister of National Revenue Diane Lebouthillier said in a statement. “This information 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.”

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The CRA said it believes it will be able to recoup between 55 and 65 per cent of the corporate taxes owed for 2014, bringing the corporate tax gap bill down to $3.3 billion and $5.3 billion in 2014.

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The report found that billions lost in unpaid corporate taxes in Canada can be traced to both “intentional and unintentional actions” like:

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  • deliberately under-reporting income
  • mistakes
  • ignorance of filing, reporting, or payment obligations
  • inability to comply (i.e. bankruptcy

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But exactly how much Canadian tax income is flowing to offshore accounts — highlighted by the Panama Papers and Paradise Papers — remains unclear. The CRA said that  the “highly complex” nature of these tax schemes can make it difficult to distinguish between “legitimate and abusive activities.”

“Profits shifted abroad by corporations lower the amount of corporate taxes governments can collect,” the report said. “[But] many techniques are fully compliant with the laws of the countries involved and thus do not represent non-compliance.”

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Toby Sanger, executive director of the advocacy group Canadians for Tax Fairness, said tax dodging is a “massive problem” and the report shows “ordinary Canadians have to pay proportionally more services.”

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“This amount, per year, could pay for a pharmacare program, it could pay for free tuition for every student, it could pay for a national child-care program,” Sanger told Global News. “These are things that governments say they can’t afford. Well, they can. If they are serious about this issue.”

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His group estimates federal and provincial governments are losing out on between $10 billion and $15 billion a year in revenues from the reported use of tax havens by corporations. In 2018, the Canada Revenue Agency estimated that one corporation, Cameco, evaded $2 billion in federal taxes alone from using tax havens.

Since 2014, the CRA increased the number of offshore audits it has completed annually, with almost 300 completed last year.

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And through its Offshore Tax Informant Program, whistleblowers provided more than 1,200 calls, 500 written submissions and entered into contracts with 30 informants. In its latest budget, the Liberals pledged $150.8 million over five years to hire additional auditors to fight the problem.

“Of the $29 million in additional taxes identified so far, 91% is from personal income tax returns,” the report said.

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However, Sanger said when countries like Australia are pledging $1 billion over four years to fight tax avoidance Canada’s numbers pale in comparison.

“Our corporate tax system is somewhat broken,” he said. “Other countries are moving forward on this, but the Canadian government has been somewhat silent.”

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This is the CRA’s fifth report focusing on the tax gap in Canada, with previous reports focusing on sales tax fraud, domestic tax evasion, and the use of offshore tax havens to look at how much leakage Canada’s taxation system has.

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