OTTAWA — The federal government is hoping to crack down on tax cheats and increase government coffers by boosting the Canada Revenue Agency’s budget.
The Liberal government’s first budget, released Tuesday, included an additional $796 million over five years to the tax agency so it can tackle tax evasion. More than half that money, $444.4 million, was set aside to help combat tax avoidance and evasion by hiring new auditors and specialists to increase verifications, improve investigative work and develop a “robust business intelligence infrastructure.”
The government said it thinks the investment will translate into a financial impact of $2.6 billion over five years — money that doesn’t include the gains provinces or territories might also see as a result of CRA’s initiatives.
Another $351.6 million was devoted to helping CRA collect outstanding tax debts – leading, it says, to the collection of an additional $7.4 billion in tax debt over five years.
The Liberals are so confident the new measures will have an impact that they’ve already registered them as a total net revenue increase in the budget of $466 million over two years, rather than note them only as $104.7 million in spending over two years.
“The investment aims to ensure that all taxpayers pay their fair share of taxes,” Finance Canada spokesman Jack Aubry told The Huffington Post Canada. “The funding is based on both past and current experience, where the CRA has a proven track record of meeting expectations from targeted compliance interventions.”
Liberal Senator Percy Downe has been a thorn at the side of the Canada Revenue Agency for years, demanding that it do much more to crack down on overseas tax cheats and collect money Canadian taxpayers are owed. He called Tuesday’s budget a “good beginning.”
“In 2005, the government at the time put in a one-time injection of $30 million into the CRA for their aggressive international overseas tax evasion unit and in four years, that became a fiscal impact of $2.5 billion — and the last time I checked [in 2011], it became $4 billion,” Downe told HuffPost. “The government is absolutely correct – the more money they put into the agency, the more return they get for Canadian taxpayers. It’s a return that is simply off the charts.”
“Are the wealthy getting off? It appears that way.”
Tuesday’s budget includes more cash to fight tax evasion than the $80 million over four years promised in the Liberals’ campaign platform. It also fulfils Revenue Minister Diane Lebouthillier’s mandate letter tasking her with investing additional resources to help CRA crack down on tax evaders.
‘Let’s see if they can fight back’
Traditionally, the CRA has done a terrible job of going after big-time tax cheats. An internal audit in 2010 noted that cases potentially representing “significant criminal non-compliance” could be rejected by enforcement groups because of limited resources or other workload pressures.
“[O]ffices are choosing smaller cases of a lower dollar value that do not necessarily represent the greatest risk. This supports the observations by some program staff that offices are choosing smaller cases that represent ‘quick hits’,” the audit noted.
“Are the wealthy getting off?” Downe asked. “It appears that way.”
“I’ve always said CRA does an outstanding job on domestic tax evasion. Anybody living in the country trying to cheat on their taxes is usually caught…. But what you won’t see is any overseas tax-evasion convictions. None. Why is that? Is it because they have lawyered up, they have accountants and all kind of money to fight the CRA, and the CRA doesn’t have the resources to fight back. They were given some resources in the budget. Let’s see if they can fight back.”
Back in 2007, the CRA received a list of 106 Canadians with more than $100 million in assets who were hiding their money in Liechtenstein. For years, Downe repeatedly asked the government for information about CRA’s audits and how much money was collected. In 2012, in answers to his questions, the government reported that not one Canadian had been convicted, no one had been charged and not a penny had been collected in fines.
A year later, however, Terrance McAuley, the assistant commissioner of the Compliance Programs Branch at CRA, told a Commons committee that the Liechtenstein project was almost complete and that $8 million had been collected from $22.4 million owed in taxes. The government was trying to recover the remaining $14 million through the courts.
As a result of Canada Revenue Agency’s lack of transparency and the appearance of a “double standard,” Downe said, he feels Canadians’ confidence in the tax system has “eroded.”
Recently, the CBC reported that CRA offered an amnesty to wealthy KPMG clients caught using an offshore tax-avoidance scheme on the Isle of Man. It appeared the CRA had breached its own guidelines by offering amnesty to individuals who had not voluntarily come forward.
If the government is serious about fighting tax cheats, Downe said, it should do more to beef up the agency’s capabilities and increase its transparency to the public.
The salaries of bureaucrats who are trained by the CRA should be increased, Downe said, because many now leave after a while – having been trained at public expense – to make more money in the private sector giving high-income Canadians advice on how to hide their money overseas.
“We have a big investment in these people. We have to retain them, and that means changing the pay scale,” he said. “We’re not talking about Agriculture Canada or Fisheries Canada, we are talking about people who have a tremendous expertise, and that’s why Bay Street wants to hire them.”
Downe also called on the agency to estimate the “tax gap” and publicly report it. The tax gap is the difference between what is collected and what should actually be collected.
“The question for CRA is: How big is the problem? The answer is [that] they don’t know, because they won’t estimate the tax gap,” Downe said. “So do they need $400 million or do they need $800 million? We don’t know.”
Identifying the tax gap also identifies how good a job CRA is doing at catching tax cheats. “It may be another reason why the revenue agency doesn’t want to measure it,” Downe added.
The United States measures it, as do Britain and Australia, but CRA has refused to follow suit.
On its website, CRA says it won’t do so because estimating the tax gap is “costly” and involves a “high degree of difficulty and resources” and the uncertainty of the estimates is widely acknowledged.
Four years ago, Downe asked the parliamentary budget officer to request the raw data from CRA so it could do its own analysis of the tax gap. The agency refused the request, and the two offices have disagreed about its obligations towards the PBO ever since.
On Wednesday, however, Jean-Denis Fréchette, the current parliamentary budget officer, told HuffPost he is detecting a new tone from the CRA since the Liberals won the election in October.
“There is certainly more openness.”
A year ago, Fréchette said, there was no discussion “at all,” but “now, CRA made the move to discuss … and we are in the process of talking about what kind of information we can have from them.”
Fréchette said he is pretty confident the two bodies will “find some common ground” in the coming weeks that would allow his office to have access to information “that will allow us to do the analysis that Senator Downe wants us to do.”