Minister of National Revenue publishes two new reports in the tax gap series

December 17, 2020                         Ottawa                       Canada Revenue Agency

Today, the Honourable Diane Lebouthillier, Minister of National Revenue, announced the release of two new tax gap reports on federal excise duty on cigarettes and the payment gap. This stems from a commitment made in 2016 by the Government of Canada to calculate the tax gap as a way to target compliance activities and ensure Canada’s tax system remains fair to all Canadians. 

The CRA is committed to ensuring the integrity of the tax system to protect Canada’s revenue base and provide the necessary benefits that improve the lives of all Canadians. We know that the vast majority of Canadians pay their fair share and we’re committed to making sure that all taxpayers abide by tax laws.

A better understanding of the tax gap allows the Agency to maximize investments from federal budgets to modernize its collections activities, improve communication with Canadians, and increase activities to encourage compliance.

The sixth report found that the federal cigarette duty gap before audit results is estimated to be around $486 million for tax year 2014. This represents 16% of cigarette excise duty revenue, or about 4% of overall federal excise duties, taxes and other specific levies revenue. The vast majority of tobacco licensees (legal producers) comply with their tax obligations. In general, non-compliance is primarily a result of smuggling or unlicensed tobacco production and the CRA works with provinces/territories, as well as other federal organizations, to implement targeted compliance activities. 

The seventh report found that, generally, as a result of the successful compliance and collections measures the CRA has implemented, the payment gap for 2014 has been getting smaller each year. This report examined the payment tax gaps for individuals, corporations, Goods and Service Tax (GST)/Harmonized Sales Tax (HST) registrants, and excise duty and tax licensees/registrants for a specific time range. For example, in December 2015, the total payment gap for tax year 2014 was $5.29 billion. In July 2020, the total payment gap for tax year 2014 was $2.19 billion, a decline of 59%.

Canada is part of a select group of countries that estimate and publish their tax gaps, including the United Kingdom, the United States and Australia. The CRA intends to build on this series of tax gap reports by publishing a future report on Canada’s overall tax gap in 2021.