Accountants Reluctant to Report Tax Delinquency by Small Businesses: CRA Survey

The Canada Revenue Agency (CRA) headquarters Connaught Building in Ottawa on Aug. 17, 2020. Sean Kilpatrick/The Canadian Press

“Very few” accountants are willing to report on small business who were remiss in their tax filings, according to in-house polling by the Canada Revenue Agency (CRA).

“Very few were interested in the establishment of a system by which tax intermediaries or business owners and operators would report to the Canada Revenue Agency on those they believed might be participating in the underground economy,” said the report, “Underground Economy in Today’s Post-Pandemic Environment,” according to Blacklock’s Reporter.

Researchers said a small number of respondents indicated that it was the primary responsibility of businesses themselves to report income and did not want to be involved in the affairs of others. They also said they did not see the underground economy as an issue and that the CRA should not use further resources on the matter. “Some felt it would be unlikely that Canadians would report on one another,” researchers said.

The conclusions were drawn from surveys conducted with tax professionals, accountants, and small- and medium-sized businesses. The research carried out by The Strategic Counsel market research firm cost the CRA $122,345.

The agency’s own calculation puts the underground economy at over $61 billion annually. According to responses from surveyed business owners, non-compliance with taxes was the government’s problem.

“The major criticism or concern regarding the Agency’s current set of measures to address underground economic activity in Canada was the targeting of small businesses over larger corporations,” said the report.

According to the CRA report, “Underground Economy Strategy 2018–2021,” the underground economy is defined as “economic activity or transactions in goods or services that are partially or entirely hidden from the government in order to evade paying taxes and other government reporting obligations.”

The researchers said that tax compliance was driven more by the desire to avoid negative outcomes like interest charges and fines, rather than a sense of moral responsibility to contribute.

‘Disillusionment’

Business owners and their accountants cited “general disillusionment with government and a perceived lack of transparency or accountability regarding government expenditures” in justifying their own tax delinquency.

The report said that many respondents—both businesses and tax professionals alike—thought it would be wiser for the CRA to focus on larger corporations they perceived as better able to exploit tax loopholes. In terms of compliance, this was seen as “a ‘demotivator’ for smaller businesses particularly from the perspective of any arguments which purport that small and medium sized enterprises should pay taxes out of a moral or social obligation.”

The CRA actively maintains programs that enable the public to report on businesses or individuals believed to be engaging in tax avoidance or fraud.

“If you suspect a person, business or charity of tax or benefit cheating in Canada, report them to the CRA by submitting a lead to the Leads Program,” the CRA says on its website. For overseas tax evasion, the CRA invites people to share information via its Offshore Tax Information Program (OTIP).

The OTIP reports that as of March 31, 2022, “nearly 650 taxpayers have been identified for audit base[d] on information the CRA has received through the program and the program has facilitated audits that have uncovered approximately $113 million in additional federal taxes and penalties.”