The federal government has generated nearly six dollars in “fiscal impact” for every additional dollar of funding provided to the Canada Revenue Agency’s business compliance programs since 2015-16, according to a report released on Thursday by the Parliamentary Budget Office.
Dating back to Budget 2015, Ottawa allocated close to $1.9 billion in additional funding to the CRA over fiscal years 2015-16 to 2023-24, with the goal of supporting the agency’s tax compliance efforts. The government has said it expects to raise $13 billion in additional revenue over the period, which represents a return of about $6.84 for every dollar of additional funding.
The PBO report estimates that the CRA’s business compliance programs collected an average of $3.90 in additional revenues for every additional dollar of funding, and enjoyed a fiscal impact of $5.70 per dollar of additional funding for the period 2015-16 to 2018-19. Fiscal impact includes non-cash items such as tax refunds reduced, interest and penalties, and the present value of future taxes assessable.
The report estimates that only about 81.3% of the total fiscal impact “will materialize” based on historical CRA data, because a portion of the assessed taxes responsible for the impact will be subject to objections and/or appeals.
The PBO report focused solely on business compliance programs as defined by the CRA, not compliance programs targeted at individuals.
Assuming additional federal spending on business compliance programs gradually declines after 2019-20, reaching zero by 2024-25 as per government announcements, the fiscal impact Ottawa could expect to generate would also gradually decline, “reflecting taxpayers’ behavioural changes,” the report says.
The PBO estimates that Ottawa would generate $4.90 of fiscal impact per dollar of additional funding on business compliance programs in 2023-24, and $4.30 of fiscal impact per dollar of additional funding in 2024-25.
The CRA administers five business compliance programs: Small and Medium Enterprises; International and Large Business; High-Net-Worth (HNW) Compliance; Scientific Research and Experimental Development; and Goods and Services Tax (GST)/Harmonized Sales Tax (HST).
According to the PBO report, since additional funding was announced in Budget 2015, spending increased for all the CRA’s business compliance programs, except for the international and large business stream, which recorded a 4% decline between 2015-16 and 2018-19.
Notably, the HNW compliance program experienced outsized spending growth of almost 3,000%. The PBO report didn’t include dollar figures for the spending increases.
Almost all the spending growth in the HNW program between 2015-16 and 2018-19 was attributable to a significant increase in the number of employees engaged in the program, the report says.
This HNW program involves the audits of wealthy individuals, families and their related parties through their corporate holdings, with HNW being defined as those whose net worth is $50 million or more, and who control or are connected to 30 or more related entities.
Activities under the HNW program address situations where the CRA deems there is a discrepancy between a taxpayer’s apparent living standard and their reported income, the report says. As part of HNW audits, the CRA assesses holdings in private corporations, trusts, partnerships, joint ventures, foundations, foreign entities and investment holdings, in addition to investments and transactions conducted through registered accounts.