Canadian companies avoided up to C$11 billion in taxes in 2014, report finds

TORONTO (Reuters) - Canadian companies avoided paying up to C$11.4 billion ($8.5 billion) in corporate taxes in 2014, the Canada Revenue Agency said in a report on Tuesday, in the first report of its kind on the tax gap in the country.

FILE PHOTO: A Canadian dollar coin, commonly known as the "Loonie", is pictured in this illustration picture taken in Toronto January 23, 2015. REUTERS/Mark Blinch/File Photo

The “tax gap” is the difference between taxes that would be paid upon all obligations met and the taxes actually collected. Previous reports have analyzed the gap in the personal income tax system and in offshore tax havens held by Canadians.

The latest report estimates that the overall corporate tax gap in Canada was between C$9.4 billion and C$11.4 billion in 2014, representing a loss of between 24% and 29% of corporate tax revenues.

“The report confirms and shows there is a massive problem in tax dodging, particularly by larger corporations,” Toby Sanger, executive director of Canadians for Tax Fairness, said.

Large corporations were responsible for the lion’s share of the tax gap, at C$6.7 billion to C$7.9 billion before audits, while small to medium companies were responsible for C$2.7 billion to C$3.5 billion before audits.

The report said the tax gap is a result of factors ranging from minor errors to deliberately under-reporting income and “aggressive tax avoidance.”

The agency said that through auditing measures it expects to bridge the tax gap by 55% to 66%, shrinking the gap to between C$3.3 billion and C$5.3 billion. After accounting for auditing, the corporate tax gap would fall to between 8% and 13% of overall federal corporate income tax revenue.

Methods to close the gap include reaching out to small and medium-sized businesses and utilizing technologies like machine learning.

The 2019 federal budget by the Liberals in March announced C$150.8 million over five years in spending for additional auditors to counter tax evasion.

Sanger, of Canadians for Tax Fairness, said the impact of the tax gap includes reduced funding for public services and healthcare, and said reducing the gap would help pay for the proposed federal Pharmacare program or childcare in the country.

Reporting by Tyler Choi; Editing by Leslie Adler