Tax gap estimates, considered alongside other information and intelligence on non-compliance, provide insight into the overall health of the tax system and estimate the level of non-compliance with tax laws. In reacting to the tax gap analysis, the following considerations should be recognized:

• Tax gap estimates are an evolving measure because they need to be revised on an ongoing basis based on new data or improvements in tax gap methodologies.
• Tax gap estimates are a historical measure because they involve analyzing historical data such as compliance and collection activities, which can take multiple years to complete.
• Fluctuations in the tax gap are not fully under the control of the CRA. For example, increases in the tax gap could be due to changes in the economy or the tax system.

In addition, all tax gap estimates are subject to some degree of uncertainty due to multiple factors, including the quality of available data and the complexity of non-compliance practices.

That said, the CRA remains committed to putting downward pressure on the federal tax gap. The next overall tax gap report is planned for publication in 2028 and will cover up to the 2025 tax year. This period will reflect how the federal tax gap evolved after the COVID-19 pandemic and during the recent economic uncertainties related to global tariffs. As tax gap estimates are a historical measure, certain compliance efforts have already been finalized or are underway for the period covered by the next report.

Ongoing initiatives

The Federal Government has announced in recent years a series of initiatives aimed at improving compliance and collection activities to enhance revenue generation and address outstanding tax debts. While these measures contribute to reducing the tax gap, their monetary impact should not be directly equated with tax gap estimates. The connection between these initiatives and the tax gap is multifaceted, influenced by factors such as differences in timing, methodology, and scope. For example, tax gap estimates reflect potential non-compliance for a single tax year, whereas revenue from compliance and collection activities often spans multiple years with a broader scope including interest and penalties as well as future revenues. In addition, external factors such as economic growth or changes in tax policy can affect the size of the tax gap independent of compliance and collection efforts.

The 2024 Fall Economic Statement confirmed an investment to enhance the CRA’s ability to combat fraud and conduct audits by:

• Strengthening tax compliance by targeting non-filers, particularly high net-worth individuals and participants in the underground economy, who are likely to owe taxes.
• Promoting compliance and combating tax avoidance through permanent funding for the Trust Filers Verification Program (T3VP).
• Increasing capacity to review high-risk claims, prevent unwarranted refunds, address tax schemes, and protect vulnerable populations.

The 2024 Fall Economic Statement initiatives listed above are projected to recover $2.6 billion in federal revenue over the first five years, starting in fiscal year 2025 to 2026, with additional tax revenue benefits for provinces and territories.

Furthermore, Federal Budget 2022 provided funding to the CRA to reinforce its tax compliance activities, specifically by:

• Expanding the audit coverage of medium-sized economic entities engaging in aggressive tax planning through the addition of audit resources.
• Strengthening and expanding the Non-Resident Audit Program to adequately address non-compliance, including increasingly complex issues in the non-resident taxpayer population.
• Fighting tax evasion in a complex global and digital environment by investing in additional resources for the Criminal Investigations Program.
• Strengthening the capacity to achieve effective coverage of compliance activities in line with the business and payroll client population it oversees.
• Digitizing tax compliance through the electronic filing and usage of more than 45 elections and returns.

The Budget 2022 investments are projected to recover $3.4 billion in revenues over the first five years, with additional benefits to be realized by provinces and territories whose tax revenues will also increase as a result of these initiatives.

Finally, investments announced in the 2020 Fall Economic Statement and Budget 2021 have resulted in the implementation of measures to strengthen the CRA’s efforts to combat tax avoidance schemes:

• Enhancing the CRA’s capacity to combat tax crimes, such as money laundering and terrorist financing, through improved tools and increased international collaboration.
• Expanding the CRA’s offshore audit capacity to target individuals hiding income and assets abroad to evade taxes.
• Modernizing GST/HST risk assessment systems to identify and review high-risk refund and rebate claims before payments are issued.
• Enhancing the CRA’s ability to collect outstanding taxes.
• Providing legal resources to support audits and defend against costly litigation from wealthy taxpayers challenging assessments.

These initiatives, launched in fiscal year 2021 to 2022, are projected to recover $2.3 billion in revenues and collect $5 billion in outstanding taxes over the first five years.

In addition to the ongoing work already underway, the CRA continues to focus on reducing the federal tax gap by encouraging voluntary compliance, identifying compliance gaps, and addressing non-compliance. These efforts are supported by activities designed to put downward pressure on the tax gap and strengthen the integrity of Canada’s tax system.

To encourage voluntary compliance, the CRA is implementing targeted education and outreach campaigns that help taxpayers understand their obligations. It is also investing in technology improvements to make compliance easier and more efficient for individuals and businesses. These measures aim to foster a culture of compliance and reduce the likelihood of errors or omissions.

To identify compliance gaps and address non-compliance, the CRA is expanding process automation and enhancing systems and procedures for the early detection of fraudulent activities. The CRA is also strengthening risk assessment capabilities while improving access to information to better support compliance efforts. Finally, it is offering digital tools and resources to help taxpayers manage tax debt.

Forward-looking initiatives

In addition to ongoing efforts, the CRA is exploring potential initiatives highlighted in Budget 2025 that could further strengthen compliance and reduce the tax gap, including:

• Proposed changes to the Excise Tax Act to help prevent carousel fraud and improve the overall fairness of the Canadian tax system. Specifically, the government is proposing to introduce a new reverse charge mechanism beginning with certain supplies in the telecommunications sector.
• In recent federal budgets, new legislative measures were announced to meet Canada’s commitments under the OECD/G20 Inclusive Framework on Base Erosion and Profit Shifting action plans. These measures, which have been enacted, relate to the Global Minimum Tax (GMT), the Excessive Interest and Financing Expenses Limitation (EIFEL) rules, and the Mandatory Disclosure Rules (MDR). Budget 2024 estimated that the GMT will increase revenues by $6.6 billion over 3 years, and Budget 2021 estimated EIFEL rules to increase revenues by $5.3 billion over 5 years. Budget 2025 announced $221 million over five years starting in fiscal year 2025 to 2026 for the CRA to administer and ensure compliance with these measures. Budget 2025 also proposed to modernize Canada’s transfer pricing rules in the Income Tax Act, which together with the above measures are expected to meaningfully reduce base erosion and profit shifting by large businesses.
• Finally, the CRA is working in partnership with other government departments and international partners to share information on non-compliant businesses. This collaboration strengthens the ability to identify tax gaps and promotes a coordinated effort to address compliance issues across various sectors. For example, Budget 2025 proposes to allow the CRA to share information with Employment and Social Development Canada to address workers misclassification. In addition, it also provided ongoing funding for the Canada Revenue Agency to lift the moratorium on the penalties for failure to report fees for service transactions in the trucking industry and to implement a focused program that addresses non-compliance issues related to personal services businesses and reporting fees for service.