Understanding the Tax Gap
The tax gap is the difference between what the government should collect under ideal full compliance and what it actually receives. Causes include mistakes, deliberate evasion, aggressive tax planning, refunds and GST/HST fraud, and offshore income not declared.(canada.ca)
New CRA Compliance Priorities
CRA’s 2026-27 Departmental Plan outlines several new measures aimed at bridging the tax gap:(canada.ca)
- Targeting GST/HST refund schemes, such as carousel fraud, through enhanced audits and real-time validation tools.(canada.ca)
- Combating aggressive tax planning, non-compliance, and fraudulent behavior with stronger penalties.(canada.ca)
- Enhancing collections approaches—offering more flexible repayment for those in financial hardship, using data analytics, and improving digital services for managing tax balances.(canada.ca)
- Strengthening cooperation with other jurisdictions and international bodies to address cross-border evasion and enforcement.(canada.ca)
How Recent Tax Measures Tie In
Budget 2025 introduced and enacted multiple legislative tools to support CRA’s fight against the gap:(budget.canada.ca)
- Global Minimum Tax Act (GMT): Canadian multinational corporations must ensure a 15% tax rate on profits in every jurisdiction—limiting the benefit of using tax havens.(canada.ca)
- Excessive Interest and Financing Expenses Limitation (EIFEL) and Mandatory Disclosure Rules (MDR): strengthen enforcement and transparency on cross-border flows and financing arrangements.(canada.ca)
What Businesses and Individuals Need to Do
- For corporations, ensure all global and cross-border operations comply with Pillar Two GMT rules. Collect, report and disclose required data (e.g. through GloBE returns) in a timely manner.(canada.ca)
- High-net-worth individuals should review structures that might be caught by DINES, cross-border trusts, or undisclosed foreign assets. Consider whether any offshore arrangements comply with new disclosure and reporting rules.(canada.ca)
- All taxpayers should maintain strong records, backup documentation, correct filings, and anticipate audits especially in high-risk areas like large refund claims or aggressive deductions. Engaging qualified tax professionals can help avoid penalties.
Example Case
A mid-sized Canadian company operating in multiple countries uses a financing company in a low-tax jurisdiction to route interest payments. Under GMT and EIFEL/MDR rules, such structure might trigger top-up tax, require reporting, or become non-compliant. Correcting the structure and properly documenting operations is essential to avoid liabilities.
In Summary
- CRA is significantly stepping up its tools to ensure fairness, protect revenue, and discourage aggressive tax avoidance. The policy landscape is shifting rapidly.
- Businesses should review their cross-border and refund-based positions now; individuals with substantial credits or foreign income or assets should ensure full compliance.
- Avoid surprises during audits by being proactive, informed, and supporting your claims with clear documentation.