Canadian taxpayers can expect to see increased activity from the Canada Revenue Agency (“CRA”) over the next few years, as major funding increases to the agency were announced in the 2016 Federal Budget. According to the Federal Budget, the CRA is set to receive a further $444.4 million over five years to “crack down on tax evasion and combat tax avoidance” and 351.6 million over five years to improve its ability to collect tax debts. In addition, the CRA is proposed to receive an additional $185.8 million over the next five years to expand and improve its services and administration.
It is not known exactly how the $444.4 million dollars will be allocated, but budget documents indicate that the funds will go toward “hiring additional auditors and specialists”, “developing robust business intelligence infrastructure”, expanding verification programs, and improving the quality of tax evasion investigations. The consequence of these activities will inevitably be an increase in the number of audits and reassessments of Canadian taxpayers.
Budget 2016 also proposes to provide $351.6 million over five years for the CRA to improve its ability to collect outstanding tax debts. The government estimates that this will lead to the collection of an additional $7.4 billion in tax debt over five years.
All of these proposed measures signal that taxpayers should expect increased activity from the CRA over the next five years. Further, the new measures add to previous steps taken by the CRA. Some of the more notable programs the CRA has instituted since 2014 are as follows (as noted in the CRA Annual Report to Parliament 2014-2015)
Offshore Tax Informant Program
In January 2014, the CRA began offering financial rewards to individuals who provide information on international tax non-compliance through the Offshore Tax Informant Program. Information leading to the collection of more than $100,000 in federal tax can provide an informant with a reward of 5% – 15% of the federal tax collected. By March 31, 2015, the program had received 1,920 calls, including 522 from potential informants. Of these, 201 individuals followed up with written submissions and 110 cases are actively under review.
Mandatory Reporting of Electronic Funds Transfers
Since January 2015, certain financial intermediaries (including banks, credit unions, trust companies, money services, and casinos) have been required to report all international electronic funds transfers (EFTs) of $10,000 or more. In 2015 the CRA:
- reviewed 12,981 international and large business files, resulting in over $7.8 billion in fiscal impact;
- reviewed 9,440 aggressive tax planning files, resulting in $1.4 billion in fiscal impact;
- conducted five GST/HST and income tax third-party penalty audits, which resulted in $36.7 million in penalties being imposed on third parties (such as promoters and tax preparers);
- received information on approximately 3 million international EFTs in the first three months of 2015.
Criminal Investigations Program
In 2014, amendments to the Income Tax Act, the Excise Tax Act, and the Excise Tax Act, 2001 allowed the CRA to start sharing taxpayer information with law enforcement agencies to provide evidence with respect to serious criminal offences. These new measures increased the number of fines and convictions handed out to individuals and businesses.
Overall, the new funding announcements and recent ramp-up in enforcement signal interesting times ahead for Canadian taxpayers and professional advisors alike.