Government pays up in bid to catch cheats

Tax auditors, investigators get more than half a billion to chase down scofflaws

Tax auditors and fraud investigators have been given more than half a billion dollars to pursue tax cheats, and the government expects them to collect five times that much in additional taxes.

The 2017 federal budget pledged $523.9 million over the next five years to the Canada Revenue Agency to prevent tax evasion and improve tax compliance and has targeted both wealthy individuals and multinational corporations.

The investment comes on top of the $444 million pledged in last year’s budget, giving the CRA almost $200 million each year to hire more investigators and develop computer systems to “target high-risk international tax and abusive tax-avoidance cases,” according to the budget document published Wednesday.

“Tax loopholes, evasion and avoidance and aggressive tax-planning take billions from our economy and from middle-class families. Working with partners at home and abroad, the government will crack down on these unfair practices,” according to the budget.

The first tranche of this investment in tax enforcement has already been used to crack down on the kinds of complex offshore schemes highlighted in the Panama Papers-investigations and the new budget promises more. It will: Eliminate a loophole that allowed life insurance companies to move profits to offshore tax havens.

Clarify rules on who really owns a corporation, even if they’re using intermediaries to mask their ownership.

Extend anti-avoidance rules to Registered Education Savings Plans (RESPs) and Registered Disability Savings Plans (RDSPs) to prevent their abuse.

Finance Minister Bill Morneau told Parliament his department had identified ways individuals were using private corporations to avoid paying taxes, either by “sprinkling” their income into multiple companies, or by converting that income into capital gains, which is taxed at a lower rate.

“(These) strategies can result in some very wealthy individuals getting unfair tax breaks at the expense of others,” he said, promising targeted reforms soon.

Ottawa expects to collect $2.5 billion in taxes as a result of the additional funding and new rules.