Harper's HST skyrockets the number of tax cheats (as predicted)

Millions of tax cheats going undetected by revenue agency: Auditor-General

Postmedia News
Apr 3, 2012
By Jason Fekete

OTTAWA — The Canada Revenue Agency is unable to adequately assess and track potentially millions of tax cheats in the country because of lack of resources, and weak oversight and enforcement practices, the federal Auditor-General said Tuesday.

In his first report as Canada’s Auditor-General, Michael Ferguson highlighted several areas of improvement for the Canada Revenue Agency in how it monitors and enforces cases where individuals and corporations fail to file tax returns, and where businesses fail to register for the Goods and Services Tax (GST) or Harmonized Sales Tax (HST).

“The Agency continues to struggle to develop measures that demonstrate its effectiveness in addressing filing or registration compliance,” the Auditor-General said.

The CRA has identified the “underground economy” — commercial activity that’s unreported for tax reasons — as one of the biggest risks it faces, yet the auditor found the agency is unable to determine how effective some of its enforcement measures are in recouping unpaid income taxes. Officials wouldn’t say how much federal revenue is potentially being lost from tax cheats.

The agency has limited resources to pursue all non-filers and non-registrants — its program budget for tracking tax cheats was $39 million of the CRA’s $4.5-billion total budget in 2010-11 — so it has developed a risk-scoring model to identify which cases to pursue.

The CRA hasn’t tested its screening to determine whether the cases it chooses not to address — from among the initial 2.5 million to three million individuals initially identified as non-filers — should in fact be pursued.

“The Agency does not know if its risk-scoring process is as effective as it could be,” the auditor general’s report says.

The Auditor-General examined businesses identified as potential GST/HST non-registrants between April 2009 and March 2011 and found “the Agency cannot manage the volume” of the roughly 185,000 potential non-registrants its automated system identifies.

“The Agency has the capacity to review about half of these files,” the report says. “The Agency does not know if its selection methods to pursue potential GST/HST non-registrants are effective.”

Furthermore, the CRA’s performance measures do not provide information about the impact of the enforcement program or whether it has met its objective of ensuring high levels of taxpayer compliance.

For each of the 2009-10 and 2010-11 fiscal years examined, the non-filer/non-registrant program generated $2.8 billion in additional taxes and penalties. In those same years, individual filing compliance was about 93 per cent, much higher than that of corporations (about 85 per cent).

The Auditor-General made four recommendations to the CRA:

• Determine the effectiveness of its selection and rejection process for non-filers and non-registrants;

• Implement a robust risk-assessment system to prioritize its file selection;

• Follow through on previous commitments to develop meaningful performance measures; and

• Include its research findings in its planning and reporting to effectively manage the risk of potential tax cheats.