Canadian Federal Tax Auditor's Report Misleading Says Official

by Mike Godfrey, Tax-News,com, Washington

08 July 2003

A senior official with the Canada Customs and Revenue Agency has claimed that federal tax auditors deliberately exaggerated the extent of tax avoidance whilst compiling a study for the government, in order to claim that more resources were needed to fight tax evasion.

David Miller, assistant commissioner at the CCRA told Cnews how the auditors who were asked to provide files for a study in tax evasion intentionally "cherry picked" some of the worst cases, which in Miller's words, were viewed "as a great way to get additional resources." Consequently, the 1,470 files that were scrutinized in the study showed that an unrealistically high level of tax evasion was taking place amongst the country's employers, and it was concluded that some 43% of them were either deliberately or inadvertently cheating the tax system, depriving Ottawa of $4.3 billion in revenue a year.

Consequently, the report concluded that the audit team's numbers should be increased in order to help recover this lost revenue. However, such are the inconsistencies contained within the report's data that a final version has yet to be published, despite numerous rehashes and recalculations.

"We had a hell of a time trying to swallow what this thing was trying to tell us," Miller told Cnews. "We said we don't agree with the conclusions, we don't agree with the analysis and we don't agree with the kind of information you've got in here. Every version they give us, we shoot holes in whatever conclusions and recommendations they've reached."

One such inconsistency, Miller explained, was the conclusion in the report that the highest level of tax non-compliance was amongst so-called 'MUSH' institutions (municipalities, universities, schools and hospitals) which according to the assistant commissioner have traditionally been the most tax-compliant employers. Miller also revealed that the study failed to account for existing programs in place to counter tax evasion, and recalled that a statistical expert drafted in from Statistics Canada had been unable to iron out the numerical inconsistencies.

Nevertheless, despite the apparent weakness of its case, since the study commenced in 1999, the employer-compliance department has had its staffing levels doubled to 120.

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