moved that Bill S-243, An Act to amend the Canada Revenue Agency Act (reporting on unpaid income tax), be read the second time and referred to a committee.
Mr. Speaker, right now, Canadians are busy collecting tax slips and preparing to file their annual income tax returns. Despite the fact that no Canadian loves to pay income tax or particularly enjoys the act of complying with an increasingly onerous tax system, we can take comfort and pride in knowing that we live in a country where most taxpayers honestly report their income.
Respect for the rule of law is a foundational Canadian value. However, the biggest threat to a culture of compliance is the notion that other people or businesses do not comply, so tax evasion threatens the legitimacy of the entire tax collection system. If Canadians see that some Canadians succeed in evading taxes, other Canadians will resent that they are paying and complying, because they know they will have to pay even more as a result.
This past fall, the Auditor General tabled a report that pointed out the challenges that the Canada Revenue Agency has faced with collecting taxes from those who have offshore transactions. The Auditor General found that people or businesses with offshore transactions were given months or even years to comply with requests for information from the Canada Revenue Agency, and sometimes had their cases dropped with zero taxes collected or assessed. This is while regular Canadians are automatically reassessed and penalized after 90 days if they fail to respond.
The report from the Auditor General confirmed what many Canadians have suspected, and that is that there is a serious problem with offshore tax compliance and that some wealthy people have advantages that normal Canadians do not when it comes to avoiding taxes.
While compliance is the norm in Canada, some will under-report their income and others will not file returns at all. The underground economy of unreported cash transactions and the use of overseas tax havens are assumed to create a multi-billion dollar gap between what the law requires Canadians to pay and the amount that the Canada Revenue Agency actually collects. I say “assumed” because there is no real estimate of this gap. Bill S-243 seeks to measure, report on and hold the CRA accountable for its efforts to eliminate this tax gap.
As the opposition shadow minister for national revenue, I am pleased to join a multi-party effort to address the tax gap by sponsoring Bill S-243 in the House of Commons. The bill was introduced in the other place by Senator Percy Downe of Prince Edward Island, was amended at the Standing Senate Committee on National Finance and was passed with all-party support. I hope colleagues from all parties will support and swiftly pass the bill in the House of Commons as well.
In my remarks today, I am going to address what the bill would do, what it would not do and why it would be important for Canadians.
Bill S-243 would do three things. It would require the Canada Revenue Agency to publish distinct lists for convictions for both domestic and overseas tax evasion; to calculate and report on the income tax gap; and to give the Parliamentary Budget Officer information needed to calculate the tax gap for an independent assessment.
The bill starts by instructing the Canada Revenue Agency to publish distinct and detailed lists of convictions for tax evasion within Canada and overseas. As the Panama and paradise papers demonstrated, overseas tax evasion is a significant problem for Canada.
Canadians might be shocked to know that years after the revelations contained in those date leaks, no charges have been laid. They might also be shocked to know that according to the Canada Revenue Agency's own information, there have been less than a dozen successful prosecutions for tax fraud and evasion in the past year, and that is in a country with some 30 million annual tax filings.
Law-abiding taxpayers deserve to know what the government is doing to enforce the law equally and to crack down on Canadians who illegally hide money overseas as well as those who refuse to report their income at home.
Presently, it is difficult to find such information and details are not provided. Publishing two separate lists would help Canadians understand the extent of overseas tax evasion and would spur efforts by the Canada Revenue Agency to bring cases to trial in a timely manner. Canadians should never feel that the wealthy and well-connected can evade income tax without consequences.
Bill S-243 would also require the Minister of National Revenue to calculate and report on the income tax gap every three years. This would allow the CRA three years in which to gather all applicable data, analyze it and release a reasonable estimate of the difference between taxes owing under the Income Tax Act and those that it actually collects.
Analyzing and calculating the tax gap is an involved process which will take time. Therefore, a three-year reporting cycle would ensure that measurement and reporting would not consume a disproportionate amount of the CRA's resources. The three-year cycle would also allow time for increased efforts to combat tax evasion to take effect and for a long-term trend line to be plotted.
Finally, the bill would instruct the minister to collect, compile, analyze and abstract statistics on the income tax gap and provide that data to the Parliamentary Budget Officer. As such, he could verify the CRA's work and offer an independent opinion on the tax gap. Combined with CRA's reporting, this should allow a reasonably accurate estimate of the tax gap to be charted.
Bill S-243 would mandate that the minister consider certain factors in calculating the gap, such as the value of reassessments as a result of audits on individual, corporate and trust returns and the rate of incorrect returns that were not detected until being audited. However, it would not limit consideration to only these factors. It explicitly states that the calculation of the tax gap would be based on such factors, but with flexibility to consider other things as well.
The bill does not address tax avoidance schemes that are legal under the Income Tax Act or instruct the CRA to calculate potential revenue from amendments to the Income Tax Act. This bill would not mandate particular tax compliance efforts or targeting of any classes of taxpayer for greater scrutiny. It only aims to gather the evidence on which to base tax collection decisions, and it would leave those decisions to the government of the day.
The bill would not infringe on the privacy of Canadians. Likewise, material that the CRA must share with the Parliamentary Budget Officer would be subject to privacy protections that would prevent identification of individual taxpayers. This bill would not create new taxes, modify existing taxes nor change tax treatment. The bill is an effort to identify the extent of tax evasion to ensure that existing laws are being equally enforced.
I would like to address some of the observations raised by witnesses at the Standing Senate Committee on National Finance and by stakeholders with whom I have consulted.
Witnesses pointed out that Bill S-243 could make Canada a world leader in legislating measurement and reporting on the tax gap. Other countries are experimenting with measurement methodology, but none have written the reporting requirements into law. Canada has an opportunity to be a world leader in understanding the scope of its tax evasion problem and be better equipped to address it.
This is a problem that faces countries throughout the world. It is not unique to Canada, but Canada can and should take a leading role in addressing this problem.
Despite the fact that such reporting is new, I am confident that Canada's public servants are up to the challenge of developing a practical methodology over the next three years.
A further suggestion made at committee involved giving the Parliamentary Budget Officer access to anonymized underlying tax data instead of just the CRA's own analysis of tax data. This would allow the PBO to generate a more precise independent opinion, but it would require amending the Income Tax Act to address privacy protections. While I agree that greater precision from the PBO is desirable, such an amendment is beyond the scope of the bill.
Some witnesses thought Bill S-243 did not go far enough. They thought it should be expanded to include measuring tax avoidance in general rather than just tax evasion and that it should address evasion of other taxes like the goods and services tax and excise on liquor and tobacco. The bill targets only the gap between income taxes legally owed under the Income Tax Act as written and income tax revenue collected. Measuring tax avoidance would be more complex than the measures contained in this bill and would have to be left to other legislation in the future.
Witnesses also told the committee that participants in the underground economy often evaded multiple taxes at once. A business that neither collects nor remits GST, for example, almost certainly fails to report the income it receives.
I agree that other forms of evasion involving GST or excise duties such as contraband tobacco should be measured and reported as well for an accurate picture of the overall general tax gap. However, income tax is a reasonable place to start to measure the tax gap. Right now none of this is measured at all, so at least this bill we can begin to measure the tax gap by starting with income tax.
Personal and corporate income taxes account for two-thirds of the total tax revenue, so this is a good place for us to start. There is certainly nothing in the bill stopping a future Parliament or a future government from expanding the measurement and reporting system to include other taxes and duties at a later date.
Some stakeholders raised concerns that moves to measure and report on the tax gap would spur efforts by the agency to target law-abiding taxpayers, particularly small businesses, with sterner enforcement measures. I understand this concern and in general I share it, but I think that it is misplaced in the case of the bill.
The issue of overzealous tax collection measures is a separate issue and it is one that this Parliament could have dealt with by establishing a legislated duty of care between the agency and taxpayers. However, the House chose not to do so when Motion No. 43 was voted on in September 2016.
The bill seeks to improve Canada's ability to measure how effective our revenue collection and law enforcement systems are. It seeks to promote better governance through better information. The issue of the CRA's treatment of law-abiding taxpayers is a separate unrelated issue.
The proposed bill does not mandate any particular enforcement actions. It does not single out any class of taxpayers for further attention. It does not amend income tax policy to close perceived loopholes or to raise anyone's tax burden. It is simply a measure to uphold the rule of law. It aims to gather the information needed to ensure that all Canadians comply with the law, that no one can evade it due to wealth or overseas connections and so increase the burden on those who comply.
By requiring the CRA to post distinct lists of both foreign and domestic tax evasion convictions, it will likely focus greater compliance attention on overseas tax haven use. That is good news for honest Canadian businesses.
Bill S-243 would improve Canadian governance through better information. It would allow Canadians to see how effective tax collection and law enforcement efforts are and to demand better. It would provide successive governments the information they need to address domestic and overseas tax evasion more effectively and to provide the impetus to give offshore tax havens the enforcement attention they need. It would provide the evidence for evidence-based policy making. It would demonstrate Parliament's commitment to the rule of law and to treating Canadians equally and permitting none to cheat, thus increasing Canadians' overall confidence in our institutions. It would increase accountability from the Canada Revenue Agency through independent reviews by the Parliamentary Budget Officer.
This is important for small businesses, which often feel like they are the lowest hanging fruit for tax compliance scrutiny. They have watched as the Auditor General has pointed out how those with overseas transactions are sometimes given months or years to comply and maybe have the case thrown out, while a small business person with only domestic business has only 90 days. It is important for law-abiding taxpayers of more modest means to see that the wealthy and well-connected using tax havens are brought to justice. This is important for large companies and wealthy individuals to know that Canada upholds the rule of law.
No one likes paying taxes, but Canadians like cheaters even less. The bill would show Canadians that parliamentarians of all parties take such cheating seriously. It would show them that Parliament takes steps to understand the scope of the problem to better address it.
Therefore, I encourage colleagues from all parties to support the bill, grant it swift passage through the House and ensure that we maintain our culture of compliance and a culture where people believe in their institutions, have confidence in their institutions and are willing to comply with the tax laws that currently exist.