Senator wants to change law after PBO fails to get ‘tax gap’ data

A senator wants to change the law so the Canada Revenue Agency is required to annually report how much money is lost to tax evasion, after a two-year battle with “stonewalling” bureaucrats to get that information.

Senate Liberal Percy Downe is tabling a private bill aimed at getting a handle on money lost to overseas tax evasion and the impact it is having on the Canadian economy.

The bill – called the Fairness for All Canadian Taxpayers Act – calls for changes to the Income Tax Act that would overcome the hurdles the Parliamentary Budget Office faced in getting data from CRA to calculate the “tax gap” – the difference between what money is owed in taxes and what’s collected.

Downe asked the PBO more than two years ago to calculate the tax gap, similar to what’s done in other countries. The budget watchdog has since been mired in fruitless negotiations that broke down two weeks ago with no information provided.

Downe said Parliamentary Budget Officer Jean-Denis Frechette formally notified him several days ago that negotiations with CRA over sharing the data had collapsed.

“In these tight fiscal times, where every dollar counts and programs are being cut or reduced, the government does not know how much revenue it should be collecting. Are we losing $3 billion to overseas tax evasion or $30 billion? I don’t know, you don’t know and more importantly, the government doesn’t know,” said Downe.

His bill would amend the Income Tax Act to define “tax gap” and require the National Revenue minister to annually report to Parliament on the size of the tax gap. The report would include a list of all convictions for tax evasion, including a separate one on convictions for overseas tax evasion.

The bill would not only compel the government to “collect, compile and analyze” statistics on the tax gap but to also turn that data over to the PBO – along with any other information the PBO considers relevant – to further study the tax gap and its implications.

Downe said CRA now posts convictions on its website but they are typically for domestic tax evasion, such as a small businesses, real estate agents or house painters. The list doesn’t include convictions for overseas tax evasion.

“You have to ask, why is that? Is it because it isn’t happening? Or worse, because those responsible are getting away with it?”

Downe said the wrangling with CRA raises the question of whether the agency fears the tax gap will reveal that the agency is not devoting enough staff and resources to combat tax evasion in this area. The government has long had a problem keeping seasoned auditors in international tax because their knowledge of the tax laws and their loopholes will earn them much higher salaries in accounting or legal firms.

Downe originally asked the PBO to calculate the economic impact of tax evasion after leaked client lists of banks in Liechtenstein and Switzerland showed that Canadians had millions in offshore accounts. That request evolved into an inquiry to calculate the tax gap.

If adopted, Downe’s bill would give the PBO a way out of its longest standoff with a federal department for information.

Among the issues that bogged down PBO and CRA’s negotiations was that the two had conflicting interpretations of the Parliament of Canada Act, Income Tax Act and Excise Act. CRA argued it didn’t have the legislative authority to turn over tax information to the PBO.

Since the breakdown in negotiations, Frechette appealed to CRA Commissioner Andrew Treusch for the two parties to jointly go to the Federal Court to sort out the legal disagreement.

But Downe argues the big question is whether the PBO will take the government to court if CRA refuses to take part in a joint reference to the Federal Court.

The government, however, argues the tax gap is difficult to nail down and CRA is taking considerable steps to pursue tax evasion.

Rebecca Rogers, a spokesperson for National Revenue Minister Kerry-Lynne Findlay, said the OECD testified at Finance committee that countries should conduct robust audits because the tax gap is “nearly impossible to calculate.”

Rogers said the measures the government introduced in 2013 to help the government detect and pursue tax cheats sharply increased the use of the voluntary disclosure program – with 19,000 domestic and offshore disclosures last year that totalled $1.3 billion in unreported income.

She said the agency has identified and collected $5.6 billion in unpaid taxes since 2006.