News Article

The Other 8%: Managing Tax Cheats

Posted: January 10, 2017 By: Evelyn Jacks
Posted in: Breaking News, Current Issue

Canadian taxpayers are a compliant lot: according to CRA, in 2012–13, 92% of Canadians filed their taxes on time and 95% paid their reported taxes in full. This is a remarkable record for a tax system based on self-assessment and voluntary compliance. Yet, there is another side to the story.

In its current corporate business plan, ending in the 2016-17 fiscal year, CRA notes that it is committed to ensuring that it deters tax cheats while maintaining strong internal control to prevent disclosure or access to confidential information.

This is all part of CRA’s challenge to itself to maintain the public’s trust by managing three key risks to its mandate, which is an ongoing and expensive challenge.

When it comes to tax cheats, the top two risks CRA faces are:

  1. Aggressive tax planning and tax planning schemes. Here, CRA is focused on aggressive tax shelters.
  2. The Underground Economy (UE). Managing this risk involves identifying sectors that are prone to non-compliance, in particular those in which there are commonly cash transactions. Educating and discouraging taxpayers from overstating deductions and credits or understating income is also a key focus.

A third risk is maintaining the integrity of CRA—the protection of confidential taxpayer information—which it manages through a constant review and upgrade of internal controls.

This all costs a lot of money, as shown in the chart below from the CRA business plan, which also outlines how resources will be deployed in managing non-compliance:

  2016-17 planned spending
Taxpayer and business assistance $260,696,720
Assessment of returns and payment processing 613,033,592
Collections and returns compliance 445,886,632
Reporting compliance 1,041,278,958
Appeals 189,591,545
Benefit programs 394,904,973
Internal services 800,490,087
Taxpayers' ombudsman 3,170,366
Total planned spending $3,749,052,873
Respendable non-tax revenue pursuant to Canada Revenue Agency Act (175,962,593)
Cost of services received without charge 419,714,150
Total CRA spending $3,992,804,430

 

Over the planning period, the CRA has pledged to manage non-compliance in the small business profile as follows:

   
  • Use tailored messaging to prompt taxpayers with a poor compliance record or business performance that is out of step with industry norms to reconsider what they have reported and filed.
  • Engage industry associations to guide compliance messaging and outreach activities.
  • Strengthen audit quality and identify training needs and best practices.
  • Pilot various approaches—such as focused messaging, benchmarking, industry engagement, and remote reviews—to educate and encourage individuals and businesses to comply with their tax obligations.
  • Focus on “soft” skills development to ensure CRA communicates effectively with taxpayers at every stage of the audit process.
  • Support small businesses at key points in their life cycle through the Liaison Officer Initiative.

These measures, together with the enshrined Taxpayer Rights (see this article), should provide a reasonable approach to managing the other 8% of Canadians who spoil the record of full compliance for CRA.

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