Further to my last post on the newly released Tax Gap study by the Canada Revenue Agency, the following comes from guest blogger Iain Campbell (ARC, UK):
Tagged as: Canada tax gap tax policy
The Government of Canada has released its first study of the "tax gap," which the Government defines as "the difference between the tax that would be paid if all obligations were fully met in all instances, and the tax actually paid and collected." The Canada Revenue Agency (CRA) has not completed a study of the income tax, but has released this paper on the concept and methodology. It has presented a report for GST/HST (Canada's VAT), estimating the tax gap to average about 5.6% per year over the period 2000-2014. For 2014, this produced an estimated tax gap of about $4.9 billion:
This study has been undertaken after many calls from academics and nongovernment organizations, including Canadians for Tax Fairness, which according to the CRA will be involved in consultations regarding the ongoing study. Canadians for Tax Fairness estimate that Canada loses $7.8 billion in income tax revenues to "tax haven" use, a number they constructed using Statistics Canada's foreign direct investment data.
The Government acknowledges that there is no reliable method for measuring the tax gap, and that the exercise is one in speculation based on imperfect information:
There are a number of challenges facing tax administrations undertaking tax gap estimation. The key challenge is access to the comprehensive and good-quality data necessary to produce estimates. A significant proportion of the tax gap involves unreported or under-reported income and assets and economic activity that are deliberately hidden from the government. As a result, many countries that publish tax gap estimates highlight their uncertainty.Expect more to come from this exercise as the tax gap study is a key component of the Government's pledge to spend $444 million over five years "to enhance [CRA] efforts to crack down on tax evasion and combat tax avoidance."
Tagged as: budget Canada compliance CRA evasion governance
I write on occasion about tax protestors and their persistent tilting at windmills to defeat the income tax. I find them fascinating and a reminder that income taxation is a really difficult tax to administer. Taxpayers will do everything they can to avoid it, justifying their actions in myriad ways. A major difference between the tax protestors (who usually represent themselves) and tax planners (whose business it is to represent others) is that the latter are well-trained and sophisticated. When tax planners make ridiculous arguments about the applicability of income tax, they typically do so in highly technical and targeted ways, and they can sometimes confuse administrators and courts into believing them. Not generally so with protestors. My student Marc Roy points me to a recently decided Canadian Federal Court of Appeal decision of interest: Brown v. Canada. Marc describes the case as follows:
The Federal Court of Appeal decided against a novel argument presented by self-represented taxpayer whose business losses the CRA had denied. In his appeal, Ian Brown raised, along with a more technical argument, an argument that the entire Income Tax Act is void as a constitutional matter “due to vague and convoluted interpretations in the [Act].”
His argument was essentially that the definitions in s. 248(1) of “business,” “employee,” “employment,” “person,” and “taxpayer,” are incomplete and render the Act unconstitutionally vague. These are inclusive definitions, a non-exhaustive style frequently used to define terms in the Act, which leaves room for the defined words to encompass things not explicitly contemplated in the statutory definition.
Unsurprisingly, the Court rejected Mr. Brown’s challenge to these terms and to the act as a whole, walking quickly through the approach to vagueness — a law is only unconstitutionally vague if it is so imprecise that it fails to provide sufficient guidance to legal debate. The court indicated that even if these terms were entirely undefined, there is sufficient meaning that their precise definitions could be, and beyond their inclusive definitions are, judicially determined according to their ordinary meanings in accordance with standard approaches to statutory interpretation.
This case nonetheless raises the question of access to justice for individual taxpayers. It is not unfair to note that the Income Tax Act and its interpretations are at times incredibly convoluted, and it may be impossible for an individual without legal training to accurately and confidently determine her tax liability without costly advice from tax professionals. As in criminal law, in tax ignorance of the law is no excuse — but ordinary persons’ meaningful access to this knowledge is increasingly illusory.
Thanks to Marc, for this succinct summary.
Tagged as: Canada tax culture Tax law tax policy
From the Toronto Star: CRA blames human error for disclosing confidential tax data to CBC
The Canada Revenue Agency confirmed late Tuesday that it has accidentally disclosed confidential taxpayer information to the CBC.
The agency said the document was “accidentally released” through human error and acknowledges this “constitutes a serious breach of privacy.”
CBC reported that the tax information contains data about hundreds of Canadians — many of them rich and famous — including their home addresses.
...The CRA said in a release late Tuesday that when it became aware of the breach, officials immediately contacted the CBC to retrieve the documents.
The agency said the CBC ”regrettably” chose to disclose names and a response from the network was not immediately available.
However, in its story on the breach, CBC News made clear it was not disclosing much of the information it had. The network said it was "withholding most details from the list, apart from the names of some of the people cited, out of respect for privacy."Oops, presumably.
Tagged as: Canada CRA disclosure information
The United States enacted a tax reform in 2010 known as the Foreign Account Tax Compliance Act (FATCA), which will impose an extensive third-party monitoring and disclosure regime on financial institutions around the world in an effort to “smoke out” American tax cheats and expose their undeclared foreign assets to the U.S. Internal Revenue Service (IRS). The flow of information from Canadian financial institutions directly to the IRS that is required by FATCA would violate a number of laws in Canada. Accordingly, the United States has requested changes to these laws. The Canadian government now seeks to accommodate these requests in the form of an “intergovernmental agreement” (IGA) with the United States, which will be enacted into law as the Canada–United States Enhanced Tax Information Exchange Agreement Implementation Act (the Implementation Act) pursuant to a proposal released for comment by the Department of Finance. The Department of Finance invited public comments on these documents. We examined the proposed Implementation Act and the IGA and we find that they raise a number of serious issues ranging from likely constitutional violations to violations of international law. We submit these comments in the hope that they will help lawmakers and the public understand that FATCA, while intended to catch tax evaders, is poised instead to impose serious and unjustified harms on people who live around the world as non-resident U.S. citizens and green card holders, as well as their family members and business associates.I know that some of my good friends and colleagues view FATCA as a net positive step toward a much-needed global automatic information sharing regime, and some have not understood my reasons for caution. I hope that this submission will help explain some of these reasons.
I want to add that in my view, the Department of Finance unnecessarily inhibited public debate on the impact of the proposed legislation by setting an arbitrarily short period for comments. The agreement itself is complex and must be analyzed in the context of the underlying U.S. law and regulations as well as the more than twenty agreements the U.S. has signed to implement FATCA with other countries. In the little more than one month’s time that the Department of Finance allotted for public comment, these thousands of pages of applicable law and regulations have been augmented by several hundred new pages of guidance from the United States tax authorities, and will be further augmented when the Canada Revenue Agency (CRA) publicly releases its own guidance for Canadian financial institutions.
In restricting the time for Canadian tax practitioners and policy observers to review this lengthy, complex, and fundamentally global regime, the Department of Finance has deprived itself of the opportunity to receive more meaningful and thorough consideration of the many policy and practical issues involved in implementing FATCA in Canada. I hope that the Finance Department will extend its time to receive comments, especially if and when further guidance is issued.
Tagged as: Canada FATCA tax policy
Things have been exciting the past few days as a long-expected agreement on FATCA between Canada and the US was announced and Canada's Department of Finance released a flurry of accompanying materials. The US Treasury has now added Canada to the list of jurisdictions deemed to have an agreement in effect. I will have more analysis soon but just wanted to provide some of the most useful links to get things up to speed.
First, here is the text of the intergovernmental agreement--it is not a signed copy unfortunately, which leaves a couple of technical questions unanswered for now. Here is the Press Release from the United States. Here is the Press Release from Canada, and here are explanatory notes to the agreement, a "backgrounder", and an FAQ,
Canada's Department of Finance has also produced a draft legislative proposal that would implement the agreement into Canadian law. This includes text for a new section on Enhanced International Information Reporting in the Income Tax Act. Assuming that the agreement is considered to be a treaty, Parliament needs to be officially notified that an agreement has been signed and 21 sitting days must pass before legislation is introduced to implement the agreement into Canadian law, which would take us to roughly March 27.
During Thursday's Parliamentary proceedings, MP Murray Rankin offered some pointed questions on the pact and the implications for the financial privacy of Canadians, but I am afraid the answers may actually sow confusion, more on that later.
Comments on the legislative proposal can be submitted to the Department of Finance at IGA-AIG@fin.gc.ca or to the address below. The closing date for comments is March 10, 2014.
Tax Policy Branch: Department of Finance
140 O’Connor Street Ottawa, ON K1A 0G5
The media, mostly Canadian at first, has taken notice of the agreement and many are commenting on the privacy concerns as well as the reciprocity and scope of the deal:
- Patrick Cain explains the agreement and its implications;
- James Fitz-Morris explains how the pact takes some heat off Canadian banks but leaves several problems unresolved;
- Louise Egan and Patrick Temple-West discuss the agreement and challenges that remain;
- Robert Wood discusses the shrewdness of using the CRA to bypass privacy protections;
- Windsor Star Editorial discusses enduring privacy concerns;
- Theresa Tedesco at the Financial Post comments on the scope of FATCA and what reciprocity really means.
More to come as things unfold in the coming weeks.
From the Canada Revenue Agency website: Harper Government launches new right to ensure Canadian taxpayers are treated fairly [french version here]
The new right says:
16. You have the right to lodge a service complaint and request a formal review without fear of reprisal.
We know that to be trusted, effective, and efficient, we must conduct ourselves ethically and honestly, and the CRA strives to do so every day. Our employees are expected to act in accordance with the CRA Code of Ethics and Conduct and the Values and Ethics Code for the Public Sector. These codes are terms and conditions of employment and they reinforce our commitment to serve the public with integrity, professionalism, respect, and cooperation. This right means that if you lodge a service complaint and request a formal review of a CRA decision, you can be confident that the CRA will treat you impartially, and that you will receive the benefits, credits, and refunds to which you are entitled, and pay no more and no less than what is required by law. You should not fear reprisal. We are required to apply the law and relevant CRA guidelines and policies, which may include the charging of penalties, or requiring the payment of your debt. When CRA employees act in accordance with the law, these do not constitute acts of reprisal. If you feel that you have been subject to acts of reprisal, the CRA wants to hear from you. We take your concerns seriously. Tell us about them by completing section 3 – Reprisal Complaint on Form RC193, Service‑Related Complaint. We can assure you that we will address your complaint, and that we will send it directly to an investigation office located at CRA Headquarters. This will ensure that the investigation is conducted independently of the office associated with the complaint.At a meeting with members of Certified General Accountants (CGA) Canada to discuss taxpayer fairness, Minister Gail Shea stated:
“Our Government is committed to ensuring that all Canadians are treated with fairness and respect by the Canada Revenue Agency. In our system of voluntary compliance, taxpayers must have confidence in the objectivity and fairness of CRA’s actions as a tax administrator. This new addition to the Taxpayer Bill of Rights will help reinforce public confidence in Canada’s tax system, and ensure that Canadians taxpayers feel free to speak up if they have a disagreement with the CRA.”Curiously, the CRA website adds the following:
Although there is no evidence that Canadians have been subject to reprisal by the CRA, in his work across the country, the Taxpayers’ Ombudsman heard that taxpayers would sometimes hesitate to lodge a complaint for fear of being treated differently afterward. To address this unwarranted fear and encourage Canadians to speak up if they have a disagreement with the CRA, the Ombudsman recommended that a new right be added to ensure Canadians are confident they will be treated fairly.The Taxpayer Bill of Rights is an agency statement that lacks the force of law, but many of its rights are legislated (via the Charter or otherwise). This new right aligns with observed attempts by tax agencies to present themselves as "service-oriented," that is, as if taxpayers were customers. It remains to be seen if and how taxpayers will avail themselves of this newly articulated right.
Tagged as: Canada institutions rule of law tax culture tax policy
The Canadian Tax Foundation will hold a lunchtime conference on May 1st in Montreal on The Fight Against Abusive Tax Planning at the Federal Level and the New Quebec Rules with respect to Non-Resident Trusts, with updates by the CRA and Revenu Québec. The event will be held from 12 to 2pm at the Center Sheraton, Salons 4 & 5, 1201 René-Levesque Blvd. West, Montréal. From an email alert:
Mr. Dan Rivet, (Manager / GAAR and Inter-provincial Tax Avoidance Section at the CRA) will discuss the various types of abusive tax planning schemes that are currently being audited by the CRA and the success that the CRA has had in its fight against abusive tax planning both at the domestic and the international levels.
En français, I expect--you can check out the program at the link above and register online.Mrs. Agathe Simard (Director General – Direction principale de la lutte contre les PFA at Revenu Québec) will be discussing the new Québec measures that require the filing of tax returns by all non-resident trusts who hold immovable property in Québec.
Tagged as: Canada conference offshore tax policy
Canada Revenue seeks source data on tax evasion from the ICIJ to bring "appropriate action"; What role due process?
Tagged as: Canada CRA offshore rule of law
Senator Percy Downe has issued a call to the Harper government to put some money and some effort into curbing Canadians hiding their assets overseas to escape taxation:
Sen. Percy Downe said the vacancy [at the head of the CRA] gives Prime Minister Stephen Harper the opportunity to elevate the job to the “importance it deserves” — to provide the resources to crack down on Canadians who stash money in havens to avoid paying taxes.
...“It’s either a resource problem or a leadership problem and this is an opportunity for the prime minister to identify it as a problem and correct it,” said Downe. “I don’t want to see someone parked there to manage the status quo …. It’s time to shake up the status quo.”Former CRA commissioner Michel Dorais said it's a question of resources:
“CRA is a big collection machine and the money collected is directly proportional to the money invested. The determination of where to put the effort is a combination of ministerial direction, priorities of its clients, direction from the board of management and management decisions of the CEO/commissioner. If one of those three components is weak, the whole thing can breakdown rapidly.”But the Senator says it is a question of will, not resources, becuase more resources put in will yield more revenues out. The story quotes a "former CRA executive" who said “wherever you look you’ll find money.” Info on offshore accounts not being fully pursued by the CRA is a case in point:
In 2007, the government was given a list of 106 Canadians with secret accounts worth more than $100 million in a bank in Liechtenstein. They were among a longer list of clients taken from the bank by a former employee and later acquired by the German government, which shared the information with countries whose citizens were on the list.
By April, Downe said CRA had assessed only $16.5 million owing in back taxes, interest and penalties on the money hidden in Liechtenstein. Of that, they collected only about $5 million and “not one penny has been assessed in fines.”
“By its own admission, since CRA received this information five and a half years ago, not one of these Canadians who have hidden their money abroad to avoid paying taxes in Canada has stood before a judge,” said Downe.More at the link.