THE STANDING SENATE COMMITTEE ON NATIONAL FINANCE
EVIDENCE
OTTAWA, Wednesday, October 18, 2023
The Standing Senate Committee on National Finance met this day at 6:45 p.m. [ET] to study bill S-258, An Act to amend the Canada Revenue Agency Act (reporting on unpaid income tax).
Senator Percy Mockler (Chair) in the chair.
[English]
The Chair: I wish to welcome all senators, as well as viewers across the country who are watching us on SenCanada.ca.
[Translation]
My name is Percy Mockler, senator from New Brunswick and Chair of the Standing Senate Committee on National Finance.
Now, I would like to ask senators to introduce themselves starting from my left.
Senator Forest: Welcome, everyone. Éric Forest, senator from the Gulf division in Quebec.
Senator Galvez: Good evening. Rosa Galvez, senator from Quebec.
Senator Loffreda: Good evening and welcome. I am Senator Tony Loffreda from Montreal, Quebec.
[English]
Senator MacAdam: Jane MacAdam from Prince Edward Island.
Senator Pate: Kim Pate from Kitchissippi, the unceded, unsurrendered territory of the Algonquin Anishinaabe.
Senator Smith: Larry Smith from Montreal, Quebec.
Senator Marshall: Elizabeth Marshall from Newfoundland and Labrador.
[Translation]
Senator Dagenais: Jean-Guy Dagenais from Montreal, Quebec.
[English]
The Chair: Today we begin our study of Bill S-258, An Act to amend the Canada Revenue Agency Act (reporting on unpaid income tax), which was referred to this committee on June 1, 2023, by the Senate of Canada.
[Translation]
As usual, our first witness when we have important fact-finding meetings is the Parliamentary Budget Officer, Mr. Giroux, along with his team. We are pleased to have you. Thank you for always accepting our invitation when we call upon you to share your thoughts and speak to the reports you present us with your usual professionalism.
[English]
We also have officials from Canada Revenue Agency with us.
[Translation]
Maxime Guénette is Assistant Commissioner, Chief Service Officer and Chief Data Officer at the Service, Innovation and Integration Branch.
We also have Ms. Cathy Hawara.
[English]
We also have Kelly Taylor, Director General, Research and Innovation Lab, Service, Innovation and Integration Branch.
[Translation]
Mr. Eric Ferron is Director General of the Criminal Investigations Directorate, in the Compliance Programs Branch.
[English]
Welcome and thanks to all of you. I would also like to recognize Mark from PBO. Thank you, Mark, for being present with the PBO.
Thanks to all of you for accepting our invitation to appear before the Standing Senate Committee on National Finance. We will have opening remarks by Mr. Giroux, to be followed by Mr. Guénette.
[Translation]
Mr. Giroux, the floor is yours.
Yves Giroux, Parliamentary Budget Officer, Office of the Parliamentary Budget Officer: Thank you for inviting me to appear before the committee today for its study of Bill S-258, An Act to amend the Canada Revenue Agency Act regarding the measuring of the tax gap in order to combat international tax evasion.
As you mentioned, accompanying me today is Mark Mahabir, Director General, Costing and Budgetary Analysis.
Bill S-258 is essentially the same as Bill S-243, which this committee studied in 2018. It includes amendments proposed by this committee and adopted by the Senate.
While the original bill included an annual calculation of the tax gap, the frequency was changed to a calculation every three years to make the comparison with the fiscal year from three years prior. That was a request from the Canada Revenue Agency.
More precise tax gap estimates are useful indicators of the tax system’s efficiency. Tax gap estimates also serve to give Canadians and their representatives in Parliament information about the extent of tax evasion and nonpayment. In that regard, I agree with Senator Marshall, who said the following in the Senate on May 16, 2023:
While simply measuring the tax gap solves nothing on its own, it is very much like taking a reading of someone’s vital signs. It reveals if something is wrong, and whether it is getting better or worse.
Those are words of wisdom from a very wise person. The provisions in Bill S-258 that more specifically caught my attention are in section 3.
Section 3 would amend the Canada Revenue Agency Act by adding new subsection 88.1(2), which would require the minister to collect, compile, analyze and abstract statistics on the tax gap in respect of each category of taxpayers, including individuals, corporations and trusts.
Finally, new subsection 88.1(3) would add a new provision to the Canada Revenue Agency Act that would require the minister to provide the Parliamentary Budget Officer with the tax gap data and any additional data that I consider relevant to conducting a further analysis of the tax gap.
[English]
These new requirements would not only ensure the availability of pertinent data to support further analysis but also strengthen my capacity to timely access information, enabling my office to provide an independent estimate of the country’s tax gap.
It’s important to note that any tax gap data that I would receive from CRA under the bill would be treated in accordance with other provisions of the Parliament of Canada Act. This means it would still be limited by restrictions under section 19 of the Access to Information Act or any provision of another act of Parliament. For example, I would not be able to obtain tax information that could directly or indirectly identify specific taxpayers.
Bill S-258 would strengthen the PBO’s ability to access the data on the tax gap that is required to conduct an independent analysis. I also believe that such an analysis would greatly benefit parliamentarians and the Canadian public. However, refinements to the bill to clarify the PBO’s entitlement to access to tax information would also strengthen its effectiveness. As an independent agent serving Parliament, I can’t agree more that strengthening accountability and transparency is necessary.
The Chair: Thank you, Mr. Giroux.
[Translation]
Maxime Guénette, Assistant Commissioner, Chief Service Officer and Chief Data Officer, Service, Innovation and Integration Branch, Canada Revenue Agency: Thank you, Mr. Chair. Thank you for inviting me to appear before you today. My name is Maxime Guénette and I am the Assistant Commissioner of the Service, Innovation and Integration Branch at the Canada Revenue Agency (CRA). With me are my colleagues Cathy Hawara, the Assistant Commissioner of the Compliance Programs Branch, Kelly Taylor, the Director General of the Research and Innovation Lab, and Eric Ferron, the Director General of the Criminal Investigations Directorate.
Within the scope of my responsibilities, Dr. Taylor’s Directorate has the mandate of fulfilling the Government of Canada’s commitment to estimate and publish the tax gap on an ongoing basis, while Ms. Hawara’s responsibilities, supported by Mr. Ferron’s directorate, include the delivery of programs to combat tax evasion and aggressive tax avoidance.
We also want to recognize the important work of the Parliamentary Budget Officer (PBO). The CRA will continue to provide the PBO with requested information it is legislatively entitled to receive, while protecting the confidentiality of taxpayers’ information as required by the provisions of the Income Tax Act and the Excise Tax Act.
In 2016, the Government of Canada supported Recommendation 7 from the Standing Committee on Finance to estimate Canada’s federal tax gap on an ongoing basis and make the information about the size of that gap publicly available. Since 2016, the CRA has assembled a team of experts dedicated to studying the tax gap.
From 2016 to 2020, the CRA studied different components of the federal tax gap and published seven reports, with a focus on the 2014 tax year. Given the complexity of tax gap estimation, the CRA took a step-by-step approach to develop appropriate and robust methodologies that work within the Canadian context.
[English]
In June 2022, the CRA published Canada’s first overall tax gap report — that was our eighth report — which brings together all previously published tax gap components with updated estimates and key findings up to tax year 2018. This included details about the CRA’s methodologies for estimating the tax gap, which were also reviewed by academics.
Our report found that from 2014 to 2018, the tax gap has remained stable at approximately 9% of federal tax revenue. The fact that the tax gap has remained stable over those five years, even as federal tax revenue has increased due to the growing economy, is a positive sign for our tax system, in our view. This was possible largely because the CRA compliance and collection activities reduced the overall federal tax gap, on average, by somewhere between 39% and 45% during tax years 2014 to 2018. Those activities had a particularly strong impact on the corporation income tax gap, reducing the gap for each tax year by an average of 48% to 59%.
Through the CRA’s tax gap research, Canada has become one of the leading countries that estimate and publish tax gap estimates. In fact, I’m very proud to say Canada has recently been asked by the Organisation for Economic Co-operation and Development’s Forum on Tax Administration to take on the role of chair of the Forum on Tax Administration’s very first committee of interest on the tax gap, which was earlier this year. The CRA’s work on the tax gap, therefore, has been recognized internationally and will continue to play an important role in leading this community of interest on the tax gap.
Currently, the CRA is updating Canada’s tax gap estimates for more recent years. Our plan in the future is to publish the next overall tax gap report in the year 2025, which will cover statistics up to tax year 2022. The plan is to publish an overall tax gap report every three years from that point forward.
With respect to criminal investigations at the CRA, Mr. Ferron’s program’s mandate is to ensure that significant cases of tax evasion and tax fraud are investigated. Where appropriate, the program refers cases to the Public Prosecution Service of Canada for possible criminal prosecution. The CRA publicizes all of the results of prosecutions relating to criminal investigations. We feel that publishing this information serves to maintain public confidence in the integrity of the self-assessment tax system, to warn Canadians about potential illegal tax schemes and hopefully to deter others from committing tax evasion, tax fraud or other tax crimes.
Mr. Chair, that concludes my opening remarks. My colleagues and I would be pleased to answer any questions committee members might have on the work being conducted by the agency. Thank you.
The Chair: Thank you to both of you, Mr. Giroux and Mr. Guénette. Now we will move immediately to senators’ questions.
Senator Marshall: I only have a few questions. The first is for Mr. Giroux.
I take it from what you said that you’re satisfied with the wording of the clause that relates to your office. Do you see any need for any amendment, clarification or anything?
Mr. Giroux: In an ideal world, I would probably ask for or suggest amendments to ensure that there are no issues with providing us information that could inadvertently disclose taxpayer information, because that’s often an issue when getting information from the CRA. They’re very concerned about inadvertent disclosure. For example, even if they strip out any name, address or social insurance number, they’re worried that we could identify, through other means, a specific taxpayer. For that reason, they tend to aggregate data at levels that sometimes become an impediment for us doing the work, especially when it comes to trusts or large corporations.
So in an ideal world, I would suggest adding an exception to section 241 so that my office is entitled to tax information, but in practice, I don’t need identified taxpayer information. What I need is the data itself. But, as I explained, it sometimes leads to concerns on the part of the Canada Revenue Agency, or CRA, of residual disclosure.
Senator Marshall: Do I understand that the data is aggregated at too high a level?
Mr. Giroux: Sometimes.
Senator Marshall: Sometimes. That’s interesting. Thank you.
Mr. Guénette, in your opening remarks you talked about your comments on the proposed bill. I was specifically interested in whether there are any impediments in the bill that would cause you difficulty in complying with the bill?
My specific concern is on section 2(3), where it talks about statistics on the tax gap. It says to include statistics:
. . . for the fiscal year that ends in the year that is three years before the year the annual report is submitted.
I’m asking that question because when you released the information on the tax gap that we have now, it was for the period 2014 to 2018, but we didn’t get it until 2022, so it looked like you needed four years.
I take it from your opening remarks that the three years is okay? Did I interpret that correctly?
Mr. Guénette: If I understand your question, assuming the date of coming into effect of the bill, the bill states that the tax gap report would be published for the year three years after the coming into effect of the bill.
What I mentioned is that in 2025, we would be in a position to publish an overall tax gap report for 2022.
Senator Marshall: That’s only three years, so it seems like from your opening remarks that it’s okay, that you’ll be able to comply with that section. The only concern I had was when you released information on the tax gap for the years 2014 to 2018, it was actually four years after. I’m wondering if there’s a problem, and the three-year time frame is too tight.
Mr. Guénette: I don’t believe a three-year time frame would be too tight. I think what’s at issue is the very first overall tax gap report. This was our first foray into tax gap, and the previous seven reports were, in effect, about various aspects or components of the overall tax gap, and the methodology was refined, as it will continue to be.
But the thinking is that we’re going to get a little bit better and faster as we do this.
Senator Marshall: You don’t think you will have a problem complying with that section of Bill S-258?
Mr. Guénette: No. Certainly, our plan would be to publish every three years.
Senator Marshall: That’s it for me.
[Translation]
Senator Forest: My first question is for Mr. Giroux. We should probably give you some sort of VIP pass. It is always a pleasure to have you.
The bill specifies that the minister is required to provide the Parliamentary Budget Officer with the tax gap data. Since the CRA has the data and would be required to present a report on the tax gap, what would be the added value of also providing the PBO with the data?
Mr. Giroux: It would allow us to look more closely at the hypotheses submitted to or used by the CRA in its calculation of the tax gap, similar to when we provide parliamentarians with calculations or independent cost estimates even if Parliament produces its own independent estimates. There may be attempts to make things look better or to exclude important material elements from the calculations, especially when we are talking about billions of dollars. We have seen recent examples of that. Regarding the tax gap, it could be tempting to produce more positive estimates that paint the government in a more favourable light. That is the added value.
Senator Forest: Thank you.
Mr. Guénette, Senator Downe often uses the example of the Panama Papers, wherein citizens from around the world were identified. Over $1.3 billion have been recouped. For Australia, it was more than $172 million; for Ecuador, $105 million; for Spain, $209 million.
When it comes to Canada, as far as we know, there have been no convictions and very little, if any, money recouped, even if we have names. I understand that the proof is difficult to establish, but some would say — if I can play devil’s advocate for a second — that the objective is to have investigators on these cases instead of producing a report on the tax gap. How would you respond to that?
Mr. Guénette: I will ask my colleague to answer.
Cathy Hawara, Assistant Commissioner, Compliance Programs Branch, Canada Revenue Agency: Thank you for the question. Analyzing the Paradise Papers, Panama Papers and Pandora Papers was indeed complicated. I will be happy to provide the committee with the latest update I have on our compliance efforts.
[English]
With respect to the Panama Papers — and this is all as of the end of March 2023 — we’ve completed 285 audits, we have reassessed the taxpayers for $77.5 million in taxes owing and we have 143 audits still under way.
With respect to the Paradise Papers, which were leaked in 2017, we’ve completed our risk assessment of all of the taxpayers who were identified, just shy of 3,000 taxpayers. We have 35 audits completed, and we’ve assessed $1.8 million in taxes owing, and we have 26 audits under way.
With respect to the Pandora Papers, which were most recently released, about 437 Canadians were identified. We’re still doing our risk assessment. There were two big data submissions leaked, and we have six audits under way.
In terms of criminal investigations, there are two that are still under way with respect to the Panama Papers.
[Translation]
Senator Forest: Without revealing any confidential information, could you send us a written account of the results of your efforts?
Ms. Hawara: Yes, certainly.
Senator Forest: Thank you.
Mr. Guénette, earlier in your opening remarks, you mentioned the results of your tax gap reduction efforts, which I was greatly impressed with. We are talking about 30 to 45% depending on the categories. How do you explain such spectacular results?
Mr. Guénette: Thank you for the question, senator. It is in large part thanks to the investments made within the CRA, especially around the operations managed by my colleague, Ms. Hawara, that relate to compliance.
[English]
With regard to cracking down on tax evasion, the significant investments that have been made have allowed us, through the work that Ms. Hawara’s branch has been doing, to target efforts on higher-yielding audits, higher-risk audits, and so our activities are becoming more efficient. They’re more targeted and yielding better results in this space.
[Translation]
Senator Forest: You spoke of important investments. Did they mostly target human resources, or hardware and software? Did you set up new teams? What is the nature of these investments?
Ms. Hawara: They cover several elements ranging from risk analysis to data analysis, but we also added new teams over the years.
By using the additional data sources we have access to and much more sophisticated risk evaluation tools, we are able, as Mr. Guénette explained, to identify files that are much more complex and present a higher risk of non-compliance. We have more auditors on the ground who work on these more complicated files. As shown in the tax gap report of 2022, our compliance efforts produce increasingly better results.
Senator Forest: You are talking about the next report, in 2025, that will cover the year 2022. It’s a three-year time frame. Is that a normal, short or long time frame compared to good practices from around the world? Are we reaching our targets in terms of efficiency?
Mr. Guénette: I will let my colleague, Ms. Taylor, answer your question about the frequency and sequence of publication of tax gap reports in other countries.
Kelly Taylor, Director General, Research and Innovation Lab, Service, Innovation and Integration Branch, Canada Revenue Agency: Thank you for the question. According to the information we have, a three-year time frame is perfect.
[English]
All of our international partners are working closely with us to determine the best time frames and the best quality methodology that can be completed within those time frames. What we see is that those who are publishing the tax gap are publishing every three years. The exception to that is the U.K., where they do publish annually. Outside of that, other countries are updating estimates annually, but every three years is the gold standard, if you will.
This allows us to look at trends over time, which is really what the tax gap gives us as part of the benefit of doing this work. That three-year period gives time to be able to watch those trends as well.
[Translation]
Mr. Guénette: The U.K. just published its latest tax gap report. It is the country that has produced this kind of report the longest. Their latest one in 2023 covers the 2021-22 taxation year. They use a two-year time frame, and they have been doing this for much longer than we have.
I would say that our three-year time frame falls within the normal range.
Senator Forest: The report for the 2021-22 taxation year is published in 2023. Aiming for a one-and-a-half-year time frame would be preferable. From what I understand, as you become more experienced, the time frame for publication will decrease.
Mr. Guénette: Hopefully, yes. I will also say that the team working on this at the CRA is quite small compared to countries that publish reports more consistently than we do.
Senator Forest: Maybe that team should be bigger.
[English]
Senator Smith: Mr. Giroux, you’ve noted that there are legislative prohibitions on the sharing of individual tax information with you from the CRA. You’ve noted that in the past, you have had proposed workarounds, which included anonymized data, but the agency still had reservations. I am wondering if those conversations have continued with the agency, and would this bill change anything in terms of sharing individual tax information?
Mr. Giroux: There are still concerns with CRA sharing information to our office because CRA takes the issue of confidentiality quite seriously. Contrary to what one would believe or would think, simply stripping off an identifier is not sufficient. CRA wants to aggregate a number of taxpayers into a lump so that there is no residual disclosure. For that reason, they tend to aggregate at a certain level to ensure that we cannot inadvertently identify a corporation, a trust or an individual.
There have been workarounds around that because I don’t need individual taxpayer information. We can go to Statistics Canada and have our employees be deemed employees, and they look at taxpayer information that is stripped out of these identifiers. It is then vetted by Statistics Canada employees so that there is no information that would lead to residual disclosure, or we can get taxpayer information from the CRA at an aggregated level that is high enough to ensure there is no risk of residual disclosure. But when we are faced with estimating tax measures that affect corporations — for example, a digital services tax or a tax on banking — it limits our capacity to estimate the cost or the revenue-raising measure of these aspects because of the low number of taxpayers affected by specific issues.
It still is an issue still, but we have found workarounds around that to limit the negative impacts on our office.
Senator Smith: I want to go back to your 2022 report, the international comparison of Canada Revenue Agency’s performance in which you noted Canada ranks almost at the end of the line in terms of cost of collection ratios, that is, how much it costs the agency to collect revenue. The report does caution that underfunding, for example, could skew the numbers.
Based on your review of the CRA’s budget and operating costs over the last several years, do you believe the agency is well funded to take on the necessary level of audits and increased tax revenue collection? How would you assess the performance of the agency in this regard and possibly where it can go forward in a positive way?
Mr. Giroux: It’s not something that we have looked recently. The most recent information or analysis we have is that 2022 report, which used publicly available information, including from the OECD.
We looked at that and, as you say, the conclusions were that on average, the agency tends to be average. It excels in some areas, but it’s behind the curve on others.
To the question that you asked about whether they have sufficient resources, I would say they certainly seem to have enough resources, maybe too many resources, because they lapse every year, and they lapse significant amounts. It’s amounts that Parliament has allocated to the agency but that they cannot spend. As to whether they should still use these resources to pursue tax evasion more aggressively, I think there is certainly more that the agency could do.
We heard statistics about the number of audits under way from the Panama and Pandora Papers and others. Given the amounts and the number of files there, that seems a bit low to me, but I haven’t seen all the information that they have. I have to trust them because I don’t have access to all that information.
When it comes to criminal prosecution and investigations, a country of 40 million people and an economy of $2.5 billion, I would think there would be more criminal prosecutions that would be necessary to prosecute tax evaders. I am surprised by the low number of prosecutions when it comes to Canada as a whole.
Senator Smith: Mr. Guénette, what is the biggest challenge for the agency as it relates to investigating and convicting tax evaders, especially the international ones? Try to tie that into some of the feedback that Mr. Giroux just gave me so you can set the stage for where you think you can go now.
Mr. Guénette: I think that question pertains to the responsibilities of my colleagues.
Ms. Hawara: Thank you for the question. First of all, we have made criminal investigations a priority within the agency. We did receive some additional funding in Budget 2022 to increase our capacity, to hire additional investigators and make investments in some of our tools. In addition to that, there was some additional funding provided to the Public Prosecution Service of Canada.
I think we were of the view that more could be done. More investment has come our way, so we are ramping up and increasing the number of investigations that we conduct.
Some of our priorities include significant international tax evasion cases. That is one of the areas that we are focused on. We’re focused on significant cases of tax evasion domestically in terms of the Income Tax Act and the Excise Tax Act. We are particularly focused on promoters of schemes that are facilitating taxpayers in evading taxes.
This is a priority area for us, and we are very proud of the results we had last year. We had a 100% conviction rate. There were 31 convictions last year; 12 taxpayers were sentenced to jail time; and there were total fines of $6.9 million, which is the highest number of fines that have been issued by the courts in the last five years. Of course, that is in addition to the taxes, interests and penalties that these taxpayers have to pay.
We think we will continue to see good dividends from these resources that we have been given in Budget 2022, both for ourselves and for the Public Prosecution Service of Canada.
Senator Loffreda: Thank you to our witnesses for being here this evening.
In 2022, as we mentioned and know, the Canada Revenue Agency has estimated the tax gap to be between $18.1 billion and $22.4 billion in the 2018 taxation year. How was that determined? The reason I’m asking is because if we know the source and we could identify the origin, why can’t we collect the taxes? Why have they not been recovered? What legal implications hinder us in recovering those taxes?
Mr. Guénette: Thank you for the question. It’s a complex question, and it is one that took us eight reports over a number of years to answer. I will try to distill that.
Part of the reason is that the tax gap report — because it seeks to identify revenues that have been, in some cases, deliberately hidden — we are trying to identify tax revenues that we don’t have. Part of the methodology involves doing projections based on observations. The committee might have heard in previous appearances about different types of methodologies that we use. There are bottom-up and top-down methodologies that are used. With bottom-up, we start from audit-specific data that we have in hand and then extrapolate that to the population. For the top‑down approach, we use more macroeconomic indicators and work our way down.
Both of those methodologies inherently, in any tax gap report, involve projecting or extrapolating rates of non-compliance in different areas as opposed to identifying particular non‑compliance by individuals. The nature of the work doesn’t lend itself to identifying a particular taxpayer; it’s not that kind of work.
What it does allow us to do is identify areas where data suggests that there are higher rates of non-compliance. Those types of findings can help areas like the ones that Ms. Hawara is responsible for, and allow them to tweak and adjust their strategies to dedicate more of that audit focus in those particular areas to get at the identification of the actual non-compliance.
Hopefully, that answer is satisfying.
Senator Loffreda: So it’s not that easy to recover that tax. It’s a level of difficulty we have in identifying — Senator Downe states in his speech that it is not illegal to have a bank account overseas, but it is illegal not to report proceeds from those accounts to the Canada Revenue Agency.
What is the level of difficulty in identifying these sources of revenue — and that falls into your projections because you are projecting — and how difficult will that be?
Ms. Hawara: To take that particular example, we now have access to a lot more data than we used to. The international community recognized the fact that offshore tax avoidance or evasion is a global problem that requires countries to work together. So countries have agreed to a common reporting standard of financial account information. Every year, we automatically exchange, with a number of jurisdictions, financial account information about each others’ tax residents.
In the example you provided, assuming the bank account is in a jurisdiction with whom we are exchanging information, we will have access to that bank information from the financial institutions. That’s the kind of new source of data that I was referring to in one of my earlier responses.
We have access to a tremendous amount of data now. We don’t have to just rely on the taxpayers. We can use our tools — our BI and risk assessment tools — to identify unreported income, complex transactions and hidden transactions that are of higher risk. We are able to focus our audit efforts. That is what we do now. We take a risk-based approach, based on the data we have available and the tools we have to target the deployment of our audit resources.
Senator Loffreda: I am curious about the tax gap between $18 billion and $23 billion. How much of it is criminal activity? How much is investments overseas, like the example I just gave? How much of it would be domestic tax evasion, where businesses or regular citizens are not reporting their revenues and are avoiding the taxes?
That would lead to my next question, which I know is a policy issue and you probably won’t be able to answer it, but would lower taxes lead to less tax evasion?
Mr. Guénette: Mr. Chair, the senator is right; I won’t be able to answer the second question but on the first question —
Senator Loffreda: So I answered it for you.
Mr. Guénette: On the first question, the previous reports helped us get at the individual tax gap, domestic corporations, GST/HST and excise. So we have those breakdowns. I’m happy to provide that information, because it’s a lot of data to run through.
Senator Loffreda: What percentage is domestic? What percentage is criminal activity? Rough estimate.
Mr. Guénette: Corporations represent about $13 to $16 billion of the tax gap, individuals about 15 to 17, GST/HST is roughly $6.5 billion and excise is about half a billion dollars. Excise is heavily regulated, so we don’t see a lot of tax evasion there.
Unless Kelly has the data handy, I’m happy to get back to the committee with more detailed information with respect to —
Senator Loffreda: [Technical difficulties] attack them like we should? I think so. Thank you.
Senator MacAdam: This bill will shine a light on the tax gap and improve transparency.
I am thinking of the specific impact of the bill, and I am wondering about getting your comments on what CRA might do differently as a result of this bill. What impact will it have on your enforcement activities? You said you are ramping up already, but what about this specific bill and how it might change your activities. And also, how might it uncover tax evasion? How is this bill going to change the way you operate? It will be more transparent in terms of the tax gap and collection efforts, et cetera.
Ms. Hawara: It’s hard for me to say how it will change things, given that we are currently doing the analysis and publishing a tax gap; we look to that currently. When we look at the 2022 overall tax gap, we find that it validates a lot of the work we have been doing, in particular the areas in which we have been deploying more resources.
The report focuses on the underground economy, offshore tax non-compliance and the GST.
The tax gap analysis that we have to date certainly validates the efforts that we have been deploying, so we will continue down that road. We will look to the next tax gap.
As my colleague Ms. Taylor said, it provides us that longer‑term view to make sure we’re heading in the right direction and the approach we are taking is appropriate. So to the extent that the bill would do something similar, I think we would be very much heading in the similar direction as we are heading in now.
Senator MacAdam: Are you satisfied with the amount that you’re able to capture in collection and compliance efforts? In 2018, I think $17 billion was captured.
I’m wondering, first of all, if you’re satisfied. Do you have targets on the amounts that you expect to capture, and will those targets change as a result of this bill? Are you satisfied?
Ms. Hawara: We do have targets. We have annual targets for our compliance activities. The difficulty with tax gap analysis is that it looks back a number of years, and we receive the information later.
At the moment, we’re not able to directly use the tax gap information to identify our annual targets. We look at the trends. We use it to validate that we’re looking at the right areas, but it won’t necessarily impact our specific targets year over year, for now. We’ll see how the analysis evolves.
Right now we’re using it more as a way of validating that we are looking at the right sectors, and we’re taking the right approach.
Senator MacAdam: Thank you.
[Translation]
Senator Dagenais: Thank you. I will start with Mr. Ferron.
Those who manage to avoid paying taxes have an advantage that I consider to be unacceptable. You said that the information you have on these people is protected, but in your view, would you be more successful and be able to recoup our billions of lost tax dollars if you could share what you know?
Eric Ferron, Director General, Criminal Investigations Directorate, Compliance Programs Branch, Canada Revenue Agency: Thank you for the question. The information we use to inform Canadians and the media of our results are in the court files. We are limited by legislation in what we can and cannot say. If we could say more, people would be better informed. However, the information we are allowed to share to inform Canadians and the media is limited to the contents of the court files.
Senator Dagenais: If you could draw a table of your successful litigated cases what would be the percentage of cases that you have undertaken and won?
Mr. Ferron: Over the past year, we have won all the court cases; it has been a very good year for us. Generally, we are very successful once we go to court. With the Director of Public Prosecutions, we are working to bring responsible and well‑prepared cases to court with sufficient evidence. Last year was a great year for us, with 100% wins.
Senator Dagenais: Can the kind of investigation you are conducting be carried out with the cooperation of the countries where the money is hidden?
Mr. Ferron: Absolutely, we have to. For cases with an international component, we have to look for evidence abroad. To do so, we must use legal methods to retrieve this information, and sometimes even interview people from other jurisdictions who come to testify in court. If there has been tax evasion in another country, we will have to obtain information from other jurisdictions to prove our case in court.
Senator Dagenais: Now I have a question for Mr. Guénette.
Mr. Guénette, we are talking about billions of dollars, according to available reports. Following up on a question from Senator Forest, is the government giving you the resources you need to launch recovery efforts? Could you be more efficient with more staff, and how much does each dollar recovered cost?
Mr. Guénette: Regarding the cost of every dollar recovered, I do not have that information at my fingertips, but I can try to get it for the committee. I do not know if that information is available.
Senator Dagenais: You could send it in writing.
Mr. Guénette: Yes, this could be done.
In terms of resources, as my colleague Ms. Hawara said, we have made significant investments and hired quite a bit more staff over the past few years, and we become more efficient in our work as years go by. We are on the right track.
As is the case normally, having more resources could certainly help us, but there is a factor in the equation that relates to efficiency. So it is not strictly about increasing the number of audits. We do not want to audit taxpayers or businesses that do not need to be audited, so it is a matter of finding the right balance between proper staff and resource levels on one side, but also effective processes on the other side.
As my colleague mentioned earlier, the tax gap report that was published in 2022 covers 2018 and the measures that have been implemented since 2018, and we hope to see the impact in future reports on the tax gap, especially with regard to information sharing.
Senator Dagenais: Thank you very much.
[English]
Senator Pate: Thank you to all of our witnesses for being here. I want to pick up also on Senator Forest’s question.
In addition to the information that you’re going to be providing from Canada Revenue Agency about the Panama Papers, the Paradise Papers and the Pandora Papers, could you include the amounts that were assessed as owing as well as how much has actually been collected? As well, if there are barriers to collecting, could you include what those barriers are?
I want to also talk about one of the things that was announced over the summer. We heard that the Canada Revenue Agency had ramped up its debt-collection activities in the winter of 2023, and the comment was made particularly around, I think, the collection of the pandemic supports. There was an acknowledgement on the page, which I found very interesting, that this might create confusion and financial hardship for many individuals who had low income. So there was a recognition that, in my humble opinion, you knew some of the people who would be most greatly impacted financially, personally, socially and, potentially, health-wise were those with low incomes.
I’m curious how much you expect to collect from those various investigations, whether you’re disaggregating data along income levels in terms of how this will disproportionately impact folks and what attempts you’re taking to assess whether you’re effectively targeting what is the most cost-effective in terms of the cost of pursuing people versus what you will bring back.
And picking up on one of the questions from Senator Loffreda, it strikes me that in the years of the work I was doing before I came here, jails are full of people who don’t have money, not people who have money, because they can afford to often hire a phalanx of lawyers and accountants to help protect them from ever being criminalized. I’m curious about the 12 taxpayers who were jailed, what tax brackets they were in, how much money they owed and how much money was recovered.
Then in terms of recommendations to us, what are some of the changes that we could be recommending in terms of whether it’s tax filing or whether it’s financial policy changes that would facilitate addressing the fact that it’s predominantly folks who make the most who seem to get away with this, not the people who make the least, if I can put it that way. In my experience, with the folks I’ve met, the very few people — I can count on one hand without all of my digits — I’ve met in jail for tax evasion, and they tended not to have evaded a whole lot of taxes, quite frankly. I’m not suggesting we want to encourage that among any section of the population, but if we could get some of that information, and if you have any recommendations about policies changing, that would be great.
The Chair: I’ll start with the PBO, if you can link comments. If not, then, Mr. Guénette can go ahead.
Mr. Guénette: Thanks, Mr. Chair. There was a lot in there, some certainly that we’ll need to report back to the committee in writing.
I’ll pick up on the senator’s question about collections activity, the activities that had been put on a bit of a hiatus during the pandemic but have been since reactivated.
The agency is doing that with as much empathy and compassion as possible in the cases that the senator described of individuals who perhaps accessed some of these COVID benefits and might not have been eligible, but are in tough financial situations. My colleague, who is not here today, runs the collections program and has been very mindful and his team to have set up the ability for payment arrangements to defer penalties in the cases of honest mistakes, which there were many such cases during the pandemic.
There’s a reason why those activities were deferred for as long as they were and the agency is doing what it can to resume those activities, as I said, with as much compassion as possible for those individuals who might have made errors in good faith when it came to accessing some COVID benefits. That’s on the personal side.
On the wage subsidy side, when we’re talking about corporations, the approach is measured but perhaps we’re dealing with situations that are less problematic, so we’re moving into that with as much due diligence as we can.
In terms of percentages of what we expect to collect, I would have to go back to colleagues and see if we have those types of projections available to us and see if we can report back to the committee. I don’t know if my colleague has anything to add.
Senator Pate: I have a question for the Parliamentary Budget Officer. You heard some of the questions that I just asked. Are there questions that I’m too inexperienced and not aware of in these areas that I should be asking to get at some of this data?
Mr. Giroux: I would never suggest something like that, senator.
One question that I was wondering myself is the desire to hit as high a success rate as possible on the criminal investigations. I can easily understand that, but I think there might be some underestimation of the dissuasive effect of prosecuting somebody, even if it results in a not guilty plea. So I think the agency is right in aiming for as high a conviction rate as possible. It’s normal to not want to lose, but I think they might be losing the perspective that prosecuting somebody, even if you don’t win, has an immense impact on increasing enforcement.
Senator Pate: That’s an excellent question.
One of the issues is we know that the notion of deterrence is actually most effective with the highest income and educational levels, not with the lowest, and yet deterrence is a principle in sentencing. We also know that when people started to get notices about CERB, many people started to pay back or at least question whether they were entitled. That approach of sending out notices alone, and certainly publicity for folks who make a lot of money who may not want others to know that they’re avoiding their taxes, might be of useful benefit. Thank you for that question. I consider it asked and any responses you can provide would be useful. How many times did you lay charges knowing that that alone may assist people in coming forth and paying their taxes?
Mr. Ferron: Thank you for the question. The decision to lay charges is from the director of Public Prosecutions. Once they’ve reviewed our evidence, PPSC will decide if we should lay charges or not. They will be assessing the chances of winning but also if it’s in the public interest to move forward with the laying of charges.
To the second part, which is the type of people, in 2014 we made a change in the focus of our investigations to go more after big tax evaders. In the last five years, we’ve increased by 50% the number of cases that had a $1 million or more value. That tells you a bit about the type of individuals we’re going after in criminal investigations.
Senator Pate: I apologize for starting to interrupt you.
I’m familiar with some of that process of public prosecutions and often it can be based on the advice provided by the department. It strikes me that one of the things you may want to encourage is the laying of charges even if the case still has some challenges.
Senator Galvez: Thank you to our witnesses for coming here tonight and answering our questions. I also want to thank my colleagues who have presented many different perspectives and questions.
In listening to you, Mr. Guénette and Mr. Giroux, I can’t stop thinking that you both want the same thing. We are Canadians and we want to reduce tax avoidance and tax evasion.
Would you tell me, Mr. Guénette, why you are not in favour of this bill? Am I mistaken, or are you ready to give support to the bill and it should pass?
Mr. Guénette: Mr. Chair, I certainly did not want to give the committee the impression that I was either in favour or not of the bill. That is not my place to have that opinion.
Senator Galvez: Would you say there are more reasons in favour or fewer? Because from what I have heard from you, there are more reasons be to be in favour. That’s my guess from your answers.
Mr. Guénette: Again, it will be up to the government to decide whether or not they want to be in favour of the bill or propose amendments. The agency will enact legislation as is voted by Parliament.
What we have mentioned, I think, is that there’s strong alignment between what the agency is doing currently and some of the dispositions of the bill as it goes forward. My colleague Mr. Giroux mentioned some of the amendments that were put in from previous versions of the bill, references to a tax gap report every three years is something we’re considering.
Senator Galvez: Thank you. I’m going to ask other kinds of questions in order to clarify the situation.
We say that the U.K. is one of the references and the best in the world in this area, but it’s because they are older than us and they have so much experience with their own created tax haven paradises.
I follow more of what the Americans do more with respect to the taxes. They published a big report last year called Tax Havens: International Tax Avoidance and Evasion. They talked more about the methods that are used in tax avoidance and tax evasion. They start by identifying whether these are tax havens and then they go into the details of the methods on how different categories that my colleague Senator Loffreda mentioned, including corporate tax avoidance, the individual and how they shift the profit from high-tax to low-tax jurisdictions and whether they are contracts of manufacturing, hybrid entities, transfer pricing. The method that you use in order to measure your gap is extremely important.
If the PBO wants to use another method and comes to the same numbers as you, fantastic. He’s paid to do that, and you’re paid to do that. I don’t understand why we don’t want him using the method that he feels he needs to use, and you use your method, and we know whether it is $18 billion or $23 billion.
As to the other question of whether this is important and how much it costs to recuperate this money, I can think of a thousand things we can buy with $18 billion. This is just one year.
What are the methods that Canadians, both in tax avoidance and tax evasion, are using to commit the fraud that they are doing?
Mr. Guénette: There are a couple of things in that question. On the senator’s question about the methods for tax evasion, my colleague Ms. Hawara is in a better position than I to answer.
Just before I pass the floor over to her, the U.S. does also publish a tax gap, and I believe the report that the senator might have been referring to, if I understood correctly, is separate from their tax gap report and so it would contain a different methodology. Certainly for the tax gap report that we’ve produced, as I mentioned, we extrapolate past audit information to try to estimate where non-compliance might be, which is very different methodology than the methodology employed by the people who work in Ms. Hawara’s shop and who are actively involved in investigations and audits. I’ll turn to Ms. Hawara for that.
Senator Galvez: Could we have the opinion of Mr. Giroux with respect to my comments?
Mr. Giroux: I cannot tell you the methods that people are using to evade taxes. There are many, but I can think of a few.
With respect to the bill, it’s not a bad idea to have an obligation to measure the tax gap on a regular basis. It would enlighten the agency, but also Canadians and parliamentarians, as to what type of money and how much is evading the agency each year. We’ll never get that to zero because of nonpayment, for example. Even if we were to identify everybody who owes taxes, some will go bankrupt and will refuse to pay.
With respect to the methods of estimating the tax gap, there are two main ways of estimating the tax gap. One is to conduct random audits. You pick a couple of individuals and corporations, and knowing how many people and corporations are in the country, you can extrapolate. The other one is looking at macro data, the flow of money in and out of countries, economic activity. Based on measurements, you can estimate what should be paid in taxes, and you look at what is paid in taxes.
The first method, audit, is much more expensive because you audit people who have no business being audited. It could perhaps be more accurate. The other one is much less expensive to conduct. It gives you a higher-level number.
If the agency were to have to do the tax gap as per that bill, I would strongly recommend they do that second method, the top‑down approach, which is less expensive, less intensive and allows the agency to focus its auditing resources towards those that are deemed at highest risk.
Ms. Hawara: What I can add is there are many ways in which taxpayers try to avoid paying taxes or reduce their tax liabilities. The senator listed a few.
It depends on the type of taxpayer. Some corporations will engage in profit shifting, and we have audit programs that are designed around identifying those instances and addressing them. High-net-worth individuals tend to use complex structures, offshore, a web of corporations, trusts, to try to obscure their assets. Of course, we have the underground economy and people actively hiding income.
Those are just a few. There are many ways in which non‑compliance can occur. Our audit programs are designed to tackle those, both on the income tax side and on the GST/HST side. There are complex schemes on the GST side as well that we’re concerned about.
I’m not familiar with the U.S. publication that was mentioned, so I don’t know whether we have done something similar. It would not be the tax gap report; it would be something different. We have talked openly in various fora and in our corporate business plan and in other documents and on our website where we talk about what we are concerned about and how we’re tackling it.
I would simply add one more thing, and that is where we believe that a legislative amendment could be helpful either to close a loophole or to give the agency the powers it needs. We can work closely with the Department of Finance. They are interested in hearing what the agency sees on the ground. Obviously, they have the mandate to set tax policy in Canada, but we work with them.
Senator Marshall: For the data that has been promised in response to Senator Forest — I think there was also some data promised in response to Senator Pate’s question — is that information already on your website somewhere? I’m thinking about the data on the Panama Papers, the Paradise Papers, number of convictions, amount of money collected. Is that on your website somewhere? The last time you testified, we got into that area. I was looking at your website and I did find it, but it wasn’t easy to find.
Does someone go through your website on a regular basis and determine how people can navigate it more easily? I know that after the last meeting, we really had to search for the data. I’d appreciate some comments on that.
Ms. Hawara: Thank you for the question. Some of the data that has been discussed and requested is available on the website, but not all, though. For some, we’ll have to go back and see whether it’s available.
I appreciate the comment about the website and the data not being easily accessed. We are actually looking at that page right now, our better results page, to see what we can do to make it more impactful, easier to find. We do believe it is important to tell Canadians about our work, and there’s a lot more that we could be telling them. I take the point, and it’s something that we’re actively working on.
Senator Marshall: Maybe next time I can ask you a follow‑up question. Thank you.
[Translation]
Senator Forest: I too am going to visit a website, but it is going to be the Parliamentary Budget Officer’s website, where we see that four requests were made for information related to the calculation of the tax gap. Were those requests processed? Did you receive the information? If not, what were the main obstacles?
Mr. Giroux: There were obstacles. This was before I was appointed as Parliamentary Budget Officer. A request by my predecessor sought very refined information, in very fine increments, with a fairly high level of detail that could inadvertently lead to disclosure.
It was later agreed that abbreviated data would be provided to my office so that we could try to estimate the tax gap. An attempt was made in June 2019 and requests for information were resolved to our satisfaction, to the extent possible under the current legislative framework.
Senator Forest: Therefore, the obstacles were overcome.
Mr. Giroux: While taking into account the restrictions in the legislation.
Senator Forest: Mr. Guénette, we know that all departments have been asked to contribute 15 billion dollars in overall cuts. Given the challenges you are facing — and I am looking especially at Ms. Hawara — do you anticipate any impact from this budget-cutting exercise?
Mr. Guénette: Thank you for the question. The agency was not exempted from this exercise. We are looking into it, as are other departments.
Senator Forest: So you are not exempt.
My last question is a general one. Our tax system, which is essentially made up of taxes, dates back to 1917, when time of the War Tax Act was passed. Since then, measures just keep being added. I think Canadian tax policy is quite voluminous, so would it not be appropriate to think about making the tax policy simple, efficient and equitable?
Mr. Guénette: I do not know if the question is for me —
Senator Forest: I will not be asking you for a written answer.
Mr. Guénette: As my colleague Ms. Hawara said, the agency is responsible for the administration of laws; the Department of Finance is responsible for the implementation of tax policy in the country, so I would be remiss if I were to comment on that.
However, I recognize the breadth and complexity of the Income Tax Act; this is something that the agency is faced with. Wherever possible and in accordance with the current legislative framework, efforts are being made to simplify transactions for taxpayers.
Senator Forest: If I read between the lines, you mean that the current complexity of our tax system makes the work of the agency more difficult?
Mr. Guénette: I would say that, in some cases, non‑compliance with tax obligations has to do with the complexity or with a lack of understanding leading to errors. That is why the agency devotes part of its efforts to educational activities, but there is certainly always a certain degree of non-compliance.
Senator Forest: As usual, you are very cautious.
Mr. Giroux: I do not have to be as reserved as Mr. Guénette, because I am not in the same position.
I would say that, without a shadow of a doubt, simplifying the tax system would make its administration much more efficient and free up a lot of people in the agency who have to answer complex questions and make sure that all the pieces work well together. This would allow them to do a better job at auditing and collecting. So a simplification of the tax system would be very welcome in most sectors, except for tax preparers and tax experts, but it would necessitate much courage.
In fact, one of the advantages of a guaranteed minimum income, as I mentioned yesterday, is that it would significantly simplify programs that are currently administered in the tax system. This would consolidate them into a single program, which would help simplify the tax system.
Senator Forest: Is this a mission you would have the courage to tackle?
Mr. Giroux: No.
Senator Forest: I would ask for a written answer, please.
[English]
Senator Smith: Mr. Giroux, you mentioned you attempted to use data from Statistics Canada to assess the tax gap. What have been some of the challenges using data from Statistics Canada as opposed to directly receiving data from the CRA itself?
Mr. Giroux: Mark is the expert in relationships with Statistics Canada, so I will him answer.
Mark Mahabir, Director General, Costing and Budgetary Analysis, Office of the Parliamentary Budget Officer: Thank you for the question.
Any data that we access at Statistics Canada we have to pay for directly. So according to our legislation, we can request data freely and timely. Right now, we’re paying Statistics Canada for that data. Each project costs a certain amount of dollars. It limits us as to what we can do in a year.
Senator Smith: How do you plan? If you are going to use it, you have to pay for it, if I understand correctly. Do you have a priority list of where you would, in some cases, pay for the data from Statistics Canada? How do you set that up?
Mr. Mahabir: Right now, we have an ongoing project to access corporate income tax data, and that has been since 2016. That was due to the fact we couldn’t get the data directly from CRA.
We have other ongoing projects, but basically, if we receive a request from a parliamentarian or a committee, we have to start a new project with Statistics Canada and pay additional money.
Senator Smith: If I understand correctly, CRA would have data but if Statistics Canada has data that you can use, you have to pay for that. Do you ever see the relationship evolving to a different level with CRA?
Mr. Mahabir: I think so. Eventually, we should be able to access the data from CRA directly, but that would require changes to the Income Tax Act in section 241.
Senator Smith: Mr. Giroux, do you have anything you want to add to that answer?
Mr. Giroux: It’s the perennial issue of potential residual disclosure, accessing tax information and the fear that CRA has of residual disclosure, which is why they don’t want to share anonymized data with us. I understand that; I was with the CRA for a number of years.
So it’s that perennial issue of residual disclosure, but we need data. We don’t need identifiable taxpayer information; we just need anonymized data. But they have legitimate concerns when it comes to residual disclosure.
Senator Smith: Thank you very much.
Senator Loffreda: Disclosure is important. Methodology in determining the tax gap is important. But equally important, if not of greater importance, is the collection and capacity to collect. If we do pass this bill — we know the billions that are owed — how will collection be improved and why will it be improved? How quickly will the tax gap be reduced? Will it be reduced because of collection, disclosure or because of methodology?
Mr. Guénette: Thank you for the questions.
This is a bit of crystal ball gazing, but part of the tax gap that we have published includes the payment gap. There is a specific report on the payment gap that specifically speaks to collection activities.
As a trend analysis tool, the sense is that the more of these analyses that we can do, the more robust our data becomes and the better our subsequent projections become, and the more those can help inform our activities.
Again, I caution the committee that there’s a significant difference between the tax gap, which is meant to be a trends analysis document, and tactical operational annual plans that are made by colleagues in areas like Ms. Hawara’s or my colleague in charge of collections. While the trends analysis can help inform certain areas where more activity is required, it does not identify specific activities or taxpayers where that activity should be conducted.
It’s a tool in our tool box, but it’s not something that will give us a map to exactly where we need to go.
Collections is something that is crucially important to the agency. I don’t have the data to speak to that in this particular context, but we have targets we have to meet every year. We have been exceeding those target. That’s an area of activity that continues to be critical.
Senator MacAdam: So we talked about 100% of the court cases being successful. At that point, it’s out of your control; it’s the director of prosecutions who makes the decision. But before it gets to that stage, what kinds of measures do you take to try to recover those taxes? What kinds of heavy-handed measures do you use, even before you get to that stage of court cases? Are they successful? Do you have any stats on that?
Mr. Guénette: Stats in terms of how to resolve a case before it gets to court?
Senator MacAdam: Right, through other measures besides going to court, which you don’t have control over?
Mr. Ferron: Yes. We do have measures on that. If we use, for example, the Panama Papers, we have looked at the names in there, and we were able to see that 65% of the people in there had already done what was expected of them. That was done by checking and making sure everybody was on side.
Afterwards, there was the civil side, and they were able to resolve many of the outstanding issues, and only a few cases, then, end up with a criminal investigation, the worst ones, I guess, the biggest ones. So it is always a gradual enforcement approach that we take.
Senator MacAdam: Thank you.
[Translation]
Senator Dagenais: My question is for Mr. Guénette. Mr. Guénette, I would like us to examine the GST aspect of tax evasion. We know that taxes are a large part of the debts of businesses that will unfortunately have to declare bankruptcy. Can you tell us what proportion of businesses will be under the protection of the Bankruptcy Act once they have been identified by your services?
Mr. Guénette: Thank you for the question. I do not have that data with me, but we can certainly search for it and provide it to the committee. I think that information is available.
Senator Dagenais: I go back to Mr. Ferron. We have been talking about this for a few days; 10% of Canadians do not file income tax returns because they find themselves vulnerable. However, we must not forget that some of these people try their luck, try to hide money from the tax authorities and make quick arrangements as soon as they are investigated. Does it happen like it does before the courts? Are there negotiations to try to agree on payments?
Mr. Ferron: If a case is brought before the court and the person is found guilty, they must pay all the taxes due, including penalties and interest. Just because they plead guilty, for example, does not mean that they will get away with not paying her taxes.
Senator Dagenais: Do you have to go to court? If these people got caught and they owe money to the tax authorities, can you negotiate without going to court and tell them that they must make arrangements with the tax authorities?
Mr. Ferron: Once a case is submitted to the Director of Public Prosecutions, it is up to them to negotiate with the person, and we can no longer negotiate with the person once the case has been sent to the legal system. Any plea agreement, for example, will be made directly with the director of public prosecutions. We are not involved.
Senator Dagenais: Have you identified any parts of the act or regulations that could be amended to make your work more efficient so that more people are prosecuted, as the Parliamentary Budget Officer pointed out?
Mr. Ferron: We are always looking at best practices in other countries. We are part of a group of five countries called the J5, and we are always comparing ourselves to find out what the best ways and best practices are in other countries. We all learn from each other, not only about the criminal offences we can detect, but also about the tools we can use to help us catch the tax evaders.
Senator Dagenais: I think the CRA system is working well; when you have to pay instalments, they even give you two weeks’ notice. It is very clear, and it works very well. I am just kidding by the way.
The Chair: I noticed it was not a question.
Senator Dagenais: No, it was a short comment.
[English]
Senator Pate: When Senator Downe was introducing Bill S-258, he talked about the fact that every time there is a new policy that is suggested in Canada, the question is how much it is going to cost, and who will pay for it? And, certainly, part of his motivation, as he has articulated for this legislation, is what he described as — and none of you have disputed this — the billions of dollars of tax monies that are hidden overseas. He said it to me personally. He said it publicly. For many of the things that we want to see, whether it’s pharmacare or income supports, his view is that many of them could be paid for by the taxes that are currently not being paid.
I’m curious — and this is for you, Mr. Giroux — in terms of the costing for this, I know you have looked at this issue, but are there other predictions or consequences that you have examined in terms of the avoidable consequences of not pursuing these matters?
I appreciate, Mr. Ferron, the comments you just made about the discussions you have with other countries. I am always struck, when I look at a little country like Iceland, where their focus is on going after folks like this. And when I visited their prison, there were 13 people in jail, total, and they were actually people of a much higher income than I’ve ever seen in any other prison worldwide. Yes, they also have higher tax and cost of living, but I also saw no homeless people. I also saw nobody starving, in terms of food insecurity, and I’m curious as to whether those policy implications are part of the discussions that happen around your tables or, if as has already been suggested — I mean, obviously, the government makes decisions like that — are those ever the sorts of recommendations that are sought by the government from you in terms of your work?
I was really struck by the empathetic nature of the message from the Canada Revenue Agency this summer about the whole issue that you are going after the Canada Emergency Response Benefit, or CERB, and wage subsidies.
The Chair: Was that a question or —
Senator Pate: It was. I did have questions in there.
Did you hear the questions? If I wasn’t clear, I apologize.
Can you give policy direction, and what are the areas that you would like — sorry. I could have been more succinct.
Ms. Hawara: I will start, and maybe my colleague Mr. Ferron will want to jump in.
I think fundamentally the Canada Revenue Agency understands the important role it plays in Canadian society. These revenues that we bring in are not for our purposes. They are for the purposes of the government. They fund the services that we all rely on.
So when we do our work, it is always with that in mind, and I think it’s in our mission statement that we do this for the economic and social well-being of Canadians. That is certainly front of mind for Canada Revenue Agency officials.
I don’t know, Mr. Ferron, if there’s anything you wanted to add?
Mr. Ferron: When we were talking about the 12 people that were sent to jail last year, they were found guilty to have evaded a total of over $8 million. Again, these are people who do have means, and these are people who are evading large sums of taxes.
Mr. Giroux: I have a few thoughts.
I think the issue of perception is very important when we have a system like ours that relies, for the most part, on self‑assessment. For the average citizen, it’s very difficult to evade taxes, because if you forget a T5 slip or a T3 slip, the CRA can very easily identify that you forgot it, so there is a perception that average citizens, normal people, get caught quickly, and those with the means to evade taxes don’t get prosecuted.
That may be right or that may be wrong. I think that perception is probably overblown, but it is very important for the Canada Revenue Agency to be perceived as aggressively pursuing tax evaders to maintain the trust in the tax system. That’s why an emphasis on prosecuting those who evade taxes and publicizing it, even if it is not a 100% success rate, is very important.
The Chair: Honourable senators, with your indulgence, I have a question for both Mr. Giroux and Mr. Guénette.
We have a common denominator, and you have heard us say that more than once. Our common denominator is transparency, accountability, reliability and predictability of budgets.
Bill S-258 on page 1 says,“ Subsection 88(2) of the Canada Revenue Agency Act is amended by adding the following after paragraph (c)” — and I’m reminded of the question posed by the senators about looking for tools to dissuade people. My question is about when it says, “(c.1) a detailed list of all convictions for tax evasion, including a separate list for international tax evasion.”
[Translation]
My question is, do you think it is important that the annual report of the Canada Revenue Agency includes all convictions for tax evasion, as provided for in Bill S-258? Should there be exceptions, depending on the size of the offence? Should this publication requirement apply to both corporations and individuals? I would like to hear your comments on these three questions.
Mr. Guénette: I will start, and I am sure my colleague Mr. Ferron will have an opinion on this.
First of all, you are absolutely right that the common denominator is transparency and the deterrent effect of transparency. That is why we are currently publishing the information we can on convictions, not in the annual report, but on the website. The vehicle may be different, but there is a commitment to transparency on the agency side.
The second part of the question deals with whether or not to disclose certain information that may be protected under the Income Tax Act. That is where I would turn to my colleague Mr. Ferron, because there is some information that we are not allowed to publish, such as taxpayer information, even though it is already public. We must stick to what is available in court records and not go any further. In some cases, the information that is available in court records does not say if it was overseas or domestic tax evasion. There may be some nuances to be included in the bill that will require some work. I do not know if Mr. Ferron wants to add anything.
Mr. Ferron: Mr. Guénette is absolutely right. Right now, everything is published on the Web and the media are notified. We can only go as far as the law allows. It is true that some information could be used to identify overseas cases if we were allowed to go further, but we are restricted by the law on what we can report.
The Chair: Mr. Giroux, do you have a comment or an answer on that?
Mr. Giroux: I completely agree with my colleagues from the Canada Revenue Agency. Publishing the list of convictions for tax evasion in the annual report would be another opportunity to point out the consequences of overseas tax evasion, by providing some context, of course. This could have an additional deterrent effect beyond what is already being done.
The Chair: Thank you very much.
[English]
Honourable senators, before we conclude the meeting, I would like to remind our witnesses that we have an agreement to please submit written responses through the clerk by the end of the day on Wednesday, November 1, 2023.
Our next meeting will be Tuesday, October 24, 2023, at 9 a.m. to begin our study of Bill C-241, an Act to amend the Income Tax Act, that represents deduction of travel expenses for tradespeople.
Before closing, honourable senators, on behalf of the committee, we would like to thank the entire support team of this committee, those in the front of the room as well as those behind the scenes, who are not visible. Thank you all for your work, which contributes enormously to the success of the work of all senators.
(The committee adjourned.)