written on behalf of Feigenbaum Law
According to a report recently released by the Canada Revenue Agency (CRA), Canadian corporations avoided around $11 billion in corporate taxes in 2014 (between $2.7 billion and $3.5 billion for small companies, and between $6.7 billion and $7.9 billion for bigger companies).
The report marks another measure in a series of actions taken by the CRA to look into tax avoidance by corporate and personal tax-payers in Canada, as we’ve previously written about.
Why This Report?
In 2016 the federal government committed to “estimating the federal tax gap to encourage an open and transparent discussion on tax non-compliance.”
As part of this commitment, a dedicated unit was created within the CRA to publish a series of reports analyzing various elements of the federal tax gap (i.e. taxes legally owed versus taxes actually collected), including this most recently issued report. There were five reports in total, with the previous focused on domestic tax evasion, the use of offshore tax havens, and sales tax fraud.
For the purposes of the report, the corporate income tax gap was estimated using CRA audit data. The CRA worked with technical experts and government departments, among others. 2014 was chosen as the relevant date in order to remain consistent with previously published estimates of the tax gap.
Broadly, the report found that:
- There were approximately 2.1 million corporate tax filers for tax year 2014;
- Of these corporate filers, more than 99% were comprised of SMEs (i.e. small and medium-sized enterprises) and less than one percent were large corporations;
- Corporations reported approximately $298 billion in taxable income, and $40.9 billion in total tax payable during initial assessment in 2014;
- Large corporations reported approximately 52% of the total corporate taxable income and contributed to approximately 54% of the federal tax assessed among corporations;
- The tax gap for tax year 2014 is estimated to be between $1.6 billion and $2.4 billion or between 4% and 6% of overall federal corporate income tax revenue (after considering CRA audit results for SMEs);
- The tax gap for large corporations for tax year 2014 is estimated to be between $1.7 billion and $2.9 billion or between 4% and 7% of overall federal corporate income tax revenue (after considering CRA audit results).
Response from the Government
The Minister of National Revenue said in a statement:
Our Government is committed to cracking down on tax evasion and aggressive tax avoidance, in Canada and offshore…[t]his information will help the CRA evaluate its approaches and better target compliance actions to ensure a tax system that is fair and equitable for all Canadians.
As for the CRA, the agency believes that it can recoup between 55-65% of the corporate taxes owing for 2014, and decrease the corporate tax gap to between $3.3 billion and $5.3 billion.
How Can Feigenbaum Law Help?
We will continue to follow any and all developments in this regard and will provide updates as more information becomes available. In the meantime, contact Feigenbaum Law if you have questions about corporate tax planning, including:
- expanding your business to the U.S. or to Canada;
- optimizing the structure of your business to minimize your tax liability;
- operating a professional corporation or other business entity;
- setup of subsidiaries;
- corporate reorganizations;
- dissolution, amendments, amalgamations;
- transfer pricing analysis and fee agreement drafting.
Our goal is to always create the best tax strategy possible for our clients. We work with you to create a personalized solution that will streamline your compliance requirements.
Our focus is complex matters related to tax planning for individuals with high net-worth. We offer services to clients in the US, Canada and around the world.
Contact us to learn more about how we can help or call us at (416) 777-8433 or toll free at (877) 275-4792.