OTTAWA – The number of audits launched by Canada Revenue Agency on large corporations dropped by over 30 per cent in the four years preceding the pandemic, much to the surprise of the NDP and tax experts.
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“I’m disappointed,” said Toby Sanger of advocacy group Canadians for Tax Fairness. “We’ve been told for years and years that they’re focusing more in this area, but we haven’t seen all that much to show for it yet.”
According to documents tabled at the House of Commons at the NDP’s request, the number of new audits opened yearly by the CRA on large corporations dropped by nearly two thousand between 2016-2017 (6,281) and 2019-2020 (4,257).
The data also show that the number of large company audits that led to a tax reassessment worth more than $0 — in other words, audits that led to CRA claiming unpaid taxes — dropped very sharply from 5,127 to 2,059 during the same period.
In a statement, the agency said it was refocusing its audit targets from quantity to quality by focusing on the “big fish” and the suspected worst offenders, which generally takes longer but brings in more unpaid tax dollars in the end.
“We are performing fewer audits, but the audits that we are doing are producing greater results,” CRA spokesperson Etienne Biram said in a statement. The agency was not able to provide a breakdown of the average tax claim per audit over the years by deadline.
© Provided by National Post Data submitted by the CRA showed that of 30,000 audits on large companies launched since late 2015, only 18 were turned over to the CRA’s criminal investigations division.
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But the new data shocked MP Matthew Green as well as tax experts consulted by the National Post, who did not expect to see the number of large company audits drop so significantly.
“I feel like the CRA has recognized that the bigger the fish they go after, the more resources these companies have to fight back. And it feels like they’ve just given up on fighting that fight when they can instead go after small business owners,” Green said in an interview.
In its most recent tax gap study, in which the CRA assessed how much tax revenue wasn’t declared to the government in a single year, the agency found that Canadian corporations were by far the largest contributors to the gap in 2014, with up to $11.4 billion in unpaid taxes.
Of that amount, big companies were the largest portion, having avoided paying between $6.7 billion and $7.9 billion.
“CRA’s own tax gap showed that it was larger businesses that are more likely to be dodging taxes in different ways, way more likely than small businesses. And they’ve talked a lot about doing this, but we haven’t seen much action on it at all,” Sanger said.
But CRA says that better data and analytics are allowing it to better target bigger tax evaders instead of having to cast a larger net in the hopes of catching major offenders.
“Our compliance programs are focusing on taxpayers who are most likely to not comply with their tax obligations. As we refine our tactics to focus on these taxpayers, it makes sense that the number of audits, as a whole, that are being performed will decrease,” Biram explained.
“We are focusing our audits on the segments of the population who often have complex tax arrangements resulting in lengthy and time consuming information gathering processes during the course of the audits,” he continued, adding that wealthy corporations are also more likely to “fight the CRA through increased litigation.”
The data submitted by CRA also showed that of the nearly 30,000 audits on large companies launched since November 2015, only 18 were turned over to the CRA’s criminal investigations division.
Since then, half the investigations have been abandoned and of the rest, only one has been referred to prosecutors.
“Whether or not a referral is accepted for criminal tax investigation is based on many factors, including the availability of evidence and the likelihood of a prosecution. Given that the standard of proof in criminal matters is ‘beyond a reasonable doubt,’ the evidentiary burden is very high in the criminal prosecution context,” Biram explained.
Denis Meunier, a former director general of CRA’s criminal investigations and compliance program division, said he’s cautiously happy to hear that the agency is focusing on big fish audits, though he wants to see proof that the efforts are in fact leading to more unpaid taxes being collected.
“Those numbers are very, very … I wouldn’t say troubling, but they raise a lot of questions about the process that leads to so few investigations,” Meunier said. “In my view, they need to do a review of what’s preventing higher level of deterrence through criminal investigations.”
• Email: cnardi@postmedia.com | Twitter: ChrisGNardi
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