Mr. Speaker, hiding income and assets in foreign jurisdictions to evade taxes is a very serious issue that undermines the integrity and fairness of Canada's tax system. I welcome the chance to outline the actions our government has taken to combat international tax evasion and aggressive tax avoidance.
In private member's Motion No. 485, the member for Rivière-du-Nord has called on the government to “study and measure Canadian tax losses to international tax havens and tax evasion, in order to determine the Canadian federal 'tax gap'”. The motion further states that the Parliamentary Budget Officer should provide an independent estimate of the Canadian federal tax gap arising from tax evasion and tax avoidance through the use of tax havens, based on information that would be supplied by Canada Revenue Agency.
It is important for everyone here to listen to this. Our government believes that there are better and more effective ways to deal with the problems than simply going ahead with another study. Broadly defined, the tax gap is the difference between the taxes that would be paid if all obligations were fully met in all instances, and those that are actually received.
As was mentioned in the first hour of debate, there is ongoing international discussion about the precision, accuracy, and utility of any methodology used to calculate the revenues that may be lost due to international tax non-compliance.
To state the obvious, international tax evasion and aggressive tax avoidance are all about keeping money out of the tax collector's hands. They often involve undeclared income and assets that are deliberately hidden from the government.
An important point to make, and one that bears repeating, is that estimating the size of the international tax gap is an extremely difficult and unreliable undertaking. In fact, the OECD echoed this thought when it said that the tax gap “is almost impossible to calculate” at a recent appearance before the finance committee. Why the opposition fails to grasp this I am not sure.
International tax evasion and aggressive tax avoidance are certainly not new problems, nor are they unique to Canada. Recovering taxes lost to international tax non-compliance has been a significant challenge for most developed countries and a priority for their tax administrations for quite some time. Not only is failure to report income from domestic or foreign sources illegal, but it is also patently unfair to the vast majority of law-abiding Canadians who play by the rules and pay their fair share.
Our government has focused its efforts on discouraging tax evasion and tax avoidance from happening in the first place, and on identifying and dealing with it effectively when it does occur. We believe that the best use of hard-earned taxpayer dollars is not to spend them on “guesstimating” the international tax gap, but rather to continue to pursue the strategy we laid out in Canada's economic action plan. Only the opposition could think “guesstimating” the tax gap is an effective use of taxpayer dollars.
In economic action plan 2013, we provided the CRA with additional tools to combat international tax evasion and aggressive tax avoidance. Many of the measures we announced, such as the offshore tax informant program, are now coming into effect. They build the CRA's capacity to combat international tax evasion and aggressive tax avoidance to ensure tax fairness for all Canadians.
The offshore tax informant program was launched on January 15 of this year. Under this program, individuals with credible information about international tax evasion and aggressive tax avoidance may be eligible for a financial reward if the information they provide leads to the assessment and collection of additional federal taxes owing in cases of major international tax non-compliance.
In economic action plan 2013, we also streamlined the legal process by which the CRA obtains information concerning unnamed persons from third parties, such as banks. “Unnamed persons”, in layman's terms, are those unidentified parties with whom the taxpayer, under audit or investigation, may have had dealings. These persons can include individuals as well as lists of clients or persons to whom the taxpayer has paid money.
The CRA may issue a requirement to obtain information or documents for any purpose relating to the legislation it administers. For example, it may issue a requirement to a financial intermediary to identify unnamed persons who hold foreign assets or who are involved in foreign financial transactions.
The measures we introduced in economic action plan 2013 will make it much faster to obtain information in cases of suspected tax evasion and aggressive tax avoidance.
In economic action plan 2013, we also changed the reporting requirements for international electronic funds transfers of $10,000 or more. As of January 2015, certain financial intermediaries will have to report these transactions to the CRA, just as they do now to the Financial Transactions and Reports Analysis Centre of Canada, FINTRAC.
With this new measure in place, the CRA will be better able to verify the accuracy of information provided by taxpayers who engage in foreign financial transactions.
In addition, we brought in changes to the reporting requirements for Canadians with foreign income or property worth more than $100,000. These Canadians must now provide more detailed information about their offshore holdings to the CRA, including the names of specific foreign institutions and countries where offshore assets are located and the associated income earned on the offshore assets.
Also, the normal reassessment period has been extended to allow the CRA time to properly assess tax in cases where taxpayers have failed to report offshore income on their annual tax returns, and their offshore asset reporting forms have either been filed late or incorrectly.
To address the problem of non-compliance effectively, it is absolutely crucial to have good information at one's disposal. These new tools will strengthen the CRA's ability to identify and deal effectively with tax cheats.
Our government has invested $30 million over five years to ensure that the CRA is in a position to take full advantage of the new measures we have introduced. This includes new resources of $15 million through economic action plan 2013 and an additional $15 million in reallocated CRA funds.
Half of the investment, or $15 million, will be used to develop and implement the electronic systems the CRA will require to receive reports from banks and other financial intermediaries on international electronic funds transfers. The other half, that is the other $15 million, will be used over the next five years to establish dedicated resources to address offshore non-compliance.
These resources will enhance the CRA's existing internationally focused audit and compliance programs. The CRA has established a new offshore compliance division to ensure a focused approach in implementing the measures contained in economic action plan 2013.
Here is another important point. The CRA has already made significant progress in identifying and pursuing taxpayers who attempt to hide their money in offshore jurisdictions. Since 2006, over 7,700 cases of offshore aggressive tax planning have been audited, which have been worth about $4.6 billion in unpaid taxes.
Since 2007, the CRA has conducted audits of over 389 cases of high-net-worth individuals who were using sophisticated business structures and offshore arrangements to avoid taxes. It identified over $305 million in unpaid taxes.
Our government's tough stance on international tax evasion and aggressive tax avoidance is having a ripple effect. We can point not only to the number of cases of international tax non-compliance we have identified but also to the number of taxpayers with previously undeclared income who have chosen to correct their tax affairs voluntarily.
The CRA's voluntary disclosures program has seen a significant increase in the number of disclosures received involving offshore accounts or assets. This number has grown from a little over 1,200 in 2006-07 to more than 4,000 in 2011-12. Voluntary disclosures accepted and completed revealed just under $1.5 billion in unreported income and an estimated $416 million in federal taxes owing.
I just want to conclude by saying that our government's targeted actions to combat international tax evasion and aggressive tax avoidance are finding their mark. We will continue to pursue those individuals and businesses that attempt to shirk their tax obligations at the expense of hard-working Canadians who pay their fair share. That is why our government is taking action.