Mr. Speaker, I rise today to speak to the Senate public bill, Bill S-243.
Before I begin, I would like to thank Senator Downe for his work in both highlighting the importance of better understanding Canada's tax gap and the fight against tax evasion and aggressive tax avoidance. Rest assured, the government shares the senator's concerns and understands the importance of both issues.
Early in her mandate in April 2016, the Minister of National Revenue publicly committed to releasing a series of reports that would provide detailed information about Canada's tax gap for the first time ever. In fact, from an overall tax gap perspective, few countries produce and publish tax gaps for all of their major tax categories. The OECD has stated that, as of 2015, only eight countries measured and published the major components of their tax gaps. Canada was proud to join this group of eight starting in 2016. With this information, the government is able to report on the difference between the taxes that would be paid if all obligations were met and taxes that are actually paid and collected. It is important for Canadians to have an awareness of Canada's tax gap and an appreciation of how evading taxes cheats us all.
Canada is now one of the leaders in the tax gap estimation among OECD countries. For example, the CRA was the first tax administration to use underground economy statistics to estimate the personal income tax gap and the first to publish an estimate of the OECD concept of tax assured. As the minister indicated, this tax gap information serves as an important tool that helps build the confidence of Canadians about the fairness of the tax system.
Having an understanding of the tax gap helps CRA identify areas of higher risk for non-compliance. In turn, the CRA can allocate resources where the risks are highest. Generally speaking, tax gap information can provide tax administrations with insights into the overall health of the tax system and indicate the levels of non-compliance with tax laws.
The agency has adopted a progressive approach to estimating Canada's tax gap. Its approach involves taking the time to develop appropriate, well-founded research methods that work in the Canadian context. The method varies depending on the type of tax. Sometimes, a single tax may require the use of more than one assessment method, as I am sure members understand.
I am pleased to announce that the agency's work has resulted in the release of four reports on tax gaps in Canada. A fifth report on the incorporated business tax gap will be published later this year.
The CRA released the first report in June 2016. It was a conceptual study that defined the tax gap. The study presented the challenges involved in estimating the tax gap and it provided details about how tax gap estimates can be used in administering taxes. The study also described tax gap estimations in other countries.
A second report, published in June 2016, provided an estimate for the goods and services tax and harmonized sales tax gap. With support from the Department of Finance, this report estimated the tax gap to be $4.9 billion in 2014, with the federal component accounting for $2.9 billion.
The third report, published in June 2017, estimated the domestic personal income tax gap to be about $8.7 billion in 2014. This amount included both the tax gap related to the underground economy, $6.5 billion, and payment of taxes, $2.2 billion.
Most recently, the fourth report, which was released in June 2018, focused on the international tax gap and compliance results for the federal personal income tax system. It estimated the international personal income tax gap to be between $800 million and $3 billion in 2014.
I will take a moment to highlight in greater detail some of the information that was brought to light as a result of the release of the fourth report on the international personal income tax gap.
In the fourth report, the CRA worked to define how it measures the international tax gap. Essentially, the report sets out to help Canadians understand our international tax obligations. The report explains Canada's reporting obligations and voluntary compliance, as well as reports on audit activities related to international non-compliance. It also estimates the tax gap related to offshore investment income, in addition to describing the end results of the CRA's compliance tools, activities and results.
Defining the issue was crucial to helping Canadians understand the international tax gap. Without a doubt, this is a complex issue, and it can be extremely difficult to measure non-compliance internationally given the sophisticated methods some individuals use to hide their income and assets.
It is also important to note that Canada was recognized as the first of the G7 countries to publish its study of the international tax gap using a new method. The method was developed using a collaborative approach that included offshore financial and banking data to estimate tax loss due to unreported investments hidden offshore.
Moreover, the CRA works closely with experts and international partners from the United Kingdom, United States, Denmark and Australia to develop robust methodologies to assess the different components of the tax gap. As I mentioned, international tax schemes are more sophisticated and more complex than ever. I cannot overemphasize the importance of strong international relations and partnerships to tackle tax evasion and aggressive tax avoidance on a global scale.
Canada is well regarded for our contributions internationally. We take the opportunity to share expertise and learn from the experience of other countries to understand the global intricacies of tax evasion and aggressive tax avoidance. In fact, Canada is one of more than 65 nations that send out and receive country-by-country reports. Shared automatically, these reports provide countries with access to information about multinational corporations' activities in every country in which they operate. Once analyzed, this information provides great insight into the operations of large companies.
The common reporting standard is another tool used to gain access to information on Canadians' overseas bank accounts. With this system, Canada and close to 100 other countries exchange financial account information. This information helps identify instances where Canadians hide money in offshore accounts to avoid paying taxes, which is a key concern shared by Senator Downe, the government and indeed all Canadians.
I want Senator Downe and all parliamentarians to know that the government is working hard to study and release information on Canada's tax gap. This is a key part of the CRA's commitment to a fair tax system that meets the needs of all Canadians.
Information collected to assess Canada's tax gap allows the CRA to skilfully target our compliance activities and ultimately improve the integrity of the tax system.