The federal government is proposing in its 2015 budget to undertake several initiatives to bolster its efforts to strengthen tax compliance, targeting the underground economy, international tax evasion and aggressive tax avoidance, primarily by large business entities.
The strengthening of compliance efforts via additional resources given to the Canada Revenue Agency (CRA) will yield $629 million in tax revenue over the next five years, according to budget papers. Meanwhile, efforts to close corporate "tax loopholes" will yield some $1.2 billion in revenue over the same span of time.
In the budget, the federal government is proposing to provide the CRA with $118.2 million over the next five years for the creation of additional underground economy specialist audit teams. These teams, the government says, will adopt new regimes to identify and combat the underground economy, including using advanced analytics and working with counterparts at the provincial level to address local sectors participating in the underground economy.
The government argues in the budget papers that the underground economy results in a loss of federal and provincial tax revenue and compromises the fairness and integrity of the tax system.
In recent years, the government has taken several steps to address tax non-compliance in the underground economy. These include expanded audit efforts; establishing a ministerial advisory committee with external stakeholders to work with the government to inform its strategy for tackling the underground economy; and supporting the Canadian Home Builders' Association's "Get It in Writing" campaign to raise awareness of the safety and financial risks of participating in the underground economy.
International tax evasion
The government is also proposing to provide the CRA with $25.3 million over the next five years to expand its activities to combat international tax evasion as well as aggressive tax avoidance. This will include the use of improved risk-assessment systems and business intelligence as well as the hiring of additional auditors.
In addition, the government is proposing to implement the OECD/G-20 Common Reporting Standard in Canada by July 1, 2017, allowing for a first exchange of information in 2018. The government says it remains committed to working with international partners to improve compliance and address cross-border tax evasion.
Finally, the government says it will continue to participate in the OECD/G-20 project on base erosion and profit shifting. That project aims to develop co-ordinated multilateral solutions to address international tax planning strategies used by multinational enterprises to inappropriately minimize their taxes.
Aggressive tax avoidance
The federal government is also proposing in the budget to provide the CRA with $58.2 million over the next five years to combat aggressive tax avoidance in Canada by large corporate entities. With these resources, the CRA will address additional cases that have been identified through the enhanced risk assessment systems to further combat aggressive tax avoidance, both domestically and internationally.
In addition, the government is proposing to close several "loopholes" that allow some businesses and individuals to avoid "paying their fair share," according to budget papers.
- Ensuring that corporations do not realize unintended tax benefits on synthetic equity arrangements.
- Improving an existing anti-avoidance rule that is meant to prevent corporations from converting their taxable capital gains into tax-free dividends.
- Improving an existing anti-avoidance rule in Canada's foreign accrual property income (FAPI) regime regarding captive insurance to help ensure that income of foreign affiliates of Canadian taxpayers from the ceding of insured Canadian risks remains taxable in Canada.
- Clarifying that the CRA or the courts may increase or adjust an amount included in an assessment that is under objection or appeal — as long as the overall tax amount assessed does not increase.