Tax evasion blackens fiscal skies

Posted on April 21, 2016 by Vauxhall Advance

Welcome to Canada — land of polar bears, beavers and hockey; of double-doubles, loonies and inukshuks — and, apparently, homeland of rampant tax evaders.

Recent figures announced by the Canada Revenue Agency show the organization continuing to struggle in collecting owed taxes, with total uncollected debt escalating more than 110 per cent in the past decade, leaving a gargantuan $38 billion to be legally clawed out of the pockets of Canadians who consider their civic duty to contribute their fair share back to the nation to be more of a euphemism than black-letter law. By contrast, only 10 years ago in 2004-2005, the CRA’s undisputed tax debt was only $18 billion.

At the same time, so-called “doubtful accounts” considered unlikely to be recovered have doubled to roughly $13 billion, an increase over the past 10 years of more than 125 per cent. More than $3.5 billion was officially written off by the CRA in 2014-2015 as uncollectible debt.

That’s a wallet-bursting truckload of cheddar that could have been going toward federal programs and services rather than continuing to line the pockets of our less civic-minded citizens. To put that into perspective for a moment, if the CRA were able to collect even a fraction of the $38 billion it is currently owed by Canadians, that would easily take care of the $30 billion deficit being run in the 2016-2017 federal budget, and still leave more than $8 billion to spare.

Not exactly an exercise in small change. When the amount of your national deficit begins to mirror your uncollected tax revenues, it may be time to consider breaking out the fiscal bull whips on recalcitrant tax evaders.

To their credit, something to that effect is already underway at Canada Revenue Agency. Last week, the CRA announced a series of new measures designed to bring the ledger back into balance, but many analysts are doubtful if the new measures will make much of an impact in securing outstanding tax revenues.

Unfortunately, tax evasion is one of the few crimes that might even be applauded by wide segments of the population who consider it their God-given right to “put one over on the Man” if that “Man” isn’t intelligent enough, or vigilant enough, to catch them in the act. There’s certainly the perception among many that tax evasion is easily the most victimless of crimes. The reality is that far from being victimless, it ends up — in a national sense — making victims of all citizens, especially those of us that choose to actually pay our taxes on time, and in full.

Because while tax cheats are obviously found in every class and in every tax bracket, white collar tax evaders are almost by definition more the rule than the exception, both by virtue of the amounts they generally owe, and their overall prevalence in our society. Much reviled by most of the common citizenry, white collar tax cheats are reserved for the most vitriolic criticism — and for good reason. White collar cheats are not only the individuals usually most able to afford their tax bills, they are also the segment of the population where tax evasion is most prevalent. One could argue the social impacts of this trend — that the richest Canadians are also the least willing to contribute their fair share of the national tax bill — is a despicable development, but one shared by almost every democracy. Wrestling that beast to the ground has proven to be a task unfulfilled by more tax agencies than just the CRA.

Fundamentally, while tax evasion may seem like a victimless crime, the end result in a collective sense is increasing tax pressure on those who can least afford it.

While we all might like to believe that the flowering of democracy in the past three centuries has contributed to class equalization and a shortening gap between rich and poor, most of us know that there are still clearly-defined class barriers between the excessively affluent, the middle class, and the poor.

And the lower class, unfortunately, usually makes up the lion’s share of the population. Correspondingly, these people are likely not to be the predominant tax evaders. An individual making $25,000 a year, for instance, probably has a lot less to hide from the tax man than someone who adds another $100,000 or more onto that figure.

When large numbers of the rich or middle class manage to evade paying their taxes — to the tune, apparently, of more than $38 billion in Canada — this only puts more tax pressure on the largest segment of the population, and the most vulnerable. If taxes routinely go uncollected amongst Canada’s more wealthy citizens, it is left up to the lower classes to make up this proportional shortfall — individuals who mostly pay their taxes in full. There is never an overt targeting of this demographic (usually for political reasons), and the effect is indirect, but the end result is still the same — tax cheats at the highest levels put increasing tax pressure on a society’s lowest levels, as nations and governments look at their bottom lines and attempt to achieve the wishes of the electorate.

Not unlike a mob mentality during a riot or a breakdown into civil disobedience, the crowd — as the old adage goes — is only as moral as its most immoral member. The same could be said about tax evaders. The diffusion of responsibility that exists in not paying your taxes, being only one lonely citizen in a sea of 35 million, can help play into the attitude that my taxes, or my contribution, won’t actually be missed — or even worse — doesn’t really matter. It’s a form of mental sleight of hand, a rationalization that allows offenders to believe that what they’re doing “isn’t really all that bad”. Human nature has yet to progress to the point where altruism has become a universal quality of our character — especially when it comes to forking over big dollars to our federal government.

Fortunately, the sticky red pens of our bean-counting civil servants at the CRA don’t view it that way, as well they shouldn’t. Although Canada has something of a hit-and-miss record in prosecuting high-level tax offenders, tax evaders aren’t always given a slap on the wrist followed by a brief stint at our most exclusive Club Fed. In a similar vein, the most recent federal budget has promised $351.6 million over five years to strengthen the CRA’s ability to collect outstanding tax debt, which is expected to generate an additional $7.4 billion in tax revenues over five years.

All of which is not to say Canada’s tax climate is full of loops ripe for a mid-winter fiscal getaway to sunny banking-liberal Caribbean nations like the Cayman Islands or the Bahamas, where white collar evaders can wile away the tax season drinking margaritas on sandy beaches, content in the knowledge that the CRA’s button-down accountants can’t touch their lofty millions, carefully salted away in an untouchable offshore tax haven.

But there is some light at the end of the tunnel. According to Revenue Minister Diane Lebouthillier, 90 per cent of Canadians pay their reported tax on time.

As for the other 10 per cent, it’s about time someone put them on notice for some hefty penalties, or lined them up for an extensive stint in the stripey hole. The rest of us all seem to be able to manage to pay our taxes on time and in full — although we may complain, whine, or otherwise protest vigourously — without much undue hardship. Foregoing that new luxury SUV this year, or the down payment on an 18-room lake-front mansion, doesn’t appear to be much of a hardship to us members of the Great Unwashed who have enough trouble coughing up the rent at the end of the month, or buying groceries this week.

Then again, perhaps one less flight in the private Lear, or being forced to consume non-gluten free, non-organic, non-vegan meals occasionally might be too much for the hearts and minds of Canada’s white-collar tax evading elite, whose fragile emotional and physical well being might well be compromised by being called to account for their avaristic tendencies.

Somewhere in the distance I hear violins playing. Or maybe it was just a quartet evicted from the premises when the CRA expropriated the owner’s mansion.