Ottawa estimates corporations dodged up to $11.4 billion in 2014 tax payments

Very interesting article published on June 18th, 2019 via the Canadian Press, regarding what appears to be Canadian Corporations avoiding the payment of $11.4 billion dollars in taxes owing to the CRA.

My initial reaction to that headline was likely similar to what others who saw this headline probably felt – that corporations are not paying their fair share of taxes, that corporations get all these tax breaks and that the government allows corporations to not pay taxes.

But before I would be able to properly comment on this, I would have to read the article a few times to figure out what the actual story is.

According to the article, the issues are these;
“Corporations avoided paying Ottawa between $9.4 billion and $11.4 billion in taxes in 2014″, according to a new federal report created by the Canada Revenue Agency (CRA), which estimated these figures.

The report estimates the “tax gap”, or the difference between what is owed to the government and what was collected by the CRA — for small and medium enterprises is between $2.7 billion and $3.5 billion and for large corporations, between $6.7 billion and $7.9 billion.

“The corporate figures bring the total estimated 2014 tax gap from a series of studies by a dedicated CRA unit to between $21.8 billion and $26 billion — or 10.6% to 12.6% of revenues — not including funds recovered or lost due to audits.”

By not including funds recovered or lost during audits, and not going into detail as to what “audit” specifically means, it could represent the amount of taxes assessed during an audit (where the CRA found additional taxes owing), or lost (where the CRA had assessed a corporation, only to find out during an audit that the assessment was inaccurate or invalid, and thus reversed, revised or reduced).

Taking a closer look at the figures, might be a huge shock to anyone who feels that corporations get it easy in Canada.

In 2014, Corporate tax filers reported approximately $298 billion in taxable income and $40.9 billion in total federal tax payable. Even though they made up only about 1% of the 2.1 million corporate tax filers, large corporations reported about 52% of the total corporate taxable income and contributed about 54% of the federal tax.

More than half the taxes collected in this country come from large corporations!

After being fed data which explained that the corporate tax gap for 2014 was between $9.4 billion and $11.4 billion, then the government goes on to mention that the “total” estimated 2014 tax gap is $21.8 billion and $26 billion, meaning between $12.4 billion and $14.6 billion is taxes owed by individuals who are not paying their taxes…

Then the government explains that after the audits, which were left out of the equation, are finalized, the corporate tax gap will actually be reduced by between 31-40% for small enterprises and between 64-75% for large corporations, which means overall, the corporate tax gap for 2014 is actually somewhere between $3.3 billion and $5.3 billion and not $9.4 billion to $11.4 billion.

Clear, right?

So that means the actual tax gap, taking into consideration the post-audit figures that the CRA anticipates, is actually between $15.7 billion to $19.9 billion, and of those taxes owing, most of it is owing from individual Canadians who are not paying.

Meanwhile, large corporations pay 54% of the total taxes paid to this country to fund services, roads, healthcare, and the many benefits that we have all come to appreciate.

Why is this article geared towards corporations? Shouldn’t it be thanking the corporations and pointing fingers at the Canadians who are not paying their fair share? Why was it positioned this way?

Since that answer could be anything, ranging from inaccurate reporting to political manoeuvring, then the only question that remains from this article surrounds what constitutes “taxes owing”? Is that figure based on amounts reported by Canadians who just never paid the taxes, or does that figure include assessed amounts owing that the CRA created, and which may or may not be owing? If it’s the latter then it’s highly likely that the tax gap is even smaller.

NOTE

Ask me one day to tell the story about the notional assessments that I raised while working at the CRA at the request of my team leader to “get the attention” of the business… It got the attention of more than the business! It got the attention of the Minister of Finance. Lesson learned.

So, to conclude, there is a tax gap. There will always be a tax gap because not every Canadian has the ability to pay their taxes in full and on time, each and every year. As well, not every Canadian files their taxes on time, or are required to file on time, which means the full picture will never be forthcoming because of all the moving parts.

The timing and content of this article leads me to believe that the Federal government and the CRA going to come after corporations.  They shouldn’t, based on the actual figures, but corporations do not vote in elections – people do.

What the true intent of this article is, however, is very unclear to me.

Advertisements

When News Really Is Not News: Revenue Canada “Forbids” Unitarians From Working For Justice.

I came across a headline from CBC.ca which screamed “Revenue Canada forbids Unitarians from working for justice – Tax auditors continue Harper-launched probe of religious charity under new Liberal government” and I could not hesitate to stop and see what this was all about.

The link to the original article is here, and comments are already closed for this topic, a day after it hit the public broadcaster’s website with a whopping 732 comments.

To summarize the article for those who do not want to follow the link, the CRA (not Revenue Canada) advised the Canadian Unitarian Council that it’s council bylaws are too vague.  They did not “forbid” them for doing anything but being compliant with Canadian Charity regulations.

The CRA wrote, “Vague purposes are ambiguous and can be interpreted in many different ways,” in a compliance letter, which includes other demands more than a year after the political activity audit of this charity was launched.

The Canadian Unitarian Council bylaws were accepted by Industry Canada when the Toronto-based charity submitted them for approval (applied for charitable status) in 2013, however the Canada Revenue Agency (CRA) found the wording to be contradictory to the Charitable definition set out in the Income Tax Act, and have asked the charity to remove any reference to “justice” or “social justice.”

Where I find this post to be completely irresponsible is where the author begins to compare audits of charities to being a witch hunt which started under Stephen Harper’s Conservative government and is continuing under Justin Trudeau’s Liberal government.

“Many charities targeted by CRA’s political activity audit program, begun in 2012 under the Stephen Harper government, had expected relief from the Liberals, who campaigned on a promise to set charities “free from political harassment.”

It is the responsibility of the Minister of National Revenue through the Canada Revenue Agency to ensure that each and every charity is registered correctly and that they are following guidelines set out in the Income Tax Act and that those rules, regulations and by-laws which were submitted by the charity is being followed.

While it might be a huge pain in the ass for established charities, the CRA audit process provides an opportunity for charities to ensure they are compliant with rules and regulations and are eligible to issue donation receipts.

With all the chaos the CRA has had to deal with regarding the GLGI charity scam and other ineligible donation programs, it is VERY important for each and every taxpayer that the CRA does their due diligence and confirms the charity is following the letter of the law because if they are not, the problems fall to the people who donate!

Wisely, the Minister of National Revenue said the 24 political activity audits underway would continue without interference from the Liberal government and the Notice of Revocation of Charitable Status issued to 5 other charities would not be rescinded by her government.

The Liberals did, however, cancel political activity audits on 6 other charities.

The fact that the Canadian Unitarian Council was a vocal critic of the Harper government is meaningless, as is the fact that many of the 60 charities audited in the $13.4-million political activities audit program were too.

The only thing that matters here is that Taxpayers like you and I will be able to donate to a charity, receive a donation receipt and be sure that the donation receipt is valid and will be accepted by the CRA.  Even if that means that charities which were started with all the best intentions in the world have to work a little bit harder to ensure they are fully compliant with the CRA’s Charities requirements, which can be found right here.

Personally, I’m happy to hear that of 38 completed audits so far, only one found no problems, six have been given notice the agency intends to revoke their charitable status, of which 5 will be appealing.

Considering the amount of discussion and opportunity to meet the CRA’s requirements during the audit process, it is likely that these charities which are appealing either do not meet the CRA’s charity requirements at all, or are refusing to change their bylaws and thus will have their status revoke for good.

At the end of the day, it’s not a war against charities, but it’s the CRA performing due diligence to ensure the taxpayer’s donated money is heading for a cause and not to pad the pockets of the charities Board of Directors.