Small Firms Are Slipping Through The Tax Net, Claims Canada's Auditor General

by Mike Godfrey, Tax-News.com, Washington

02 April 2004

The Canada Revenue Agency does not have a consistent and integrated approach to identifying threats to the tax base to ensure its resources are allocated effectively, says Sheila Fraser, the Auditor General of Canada.

Commenting on her recently-published report, tabled in the House of Commons on Tuesday, Ms Fraser observed: "The Canada Revenue Agency does not have the resources to be everywhere at once"

She added that an “overall analysis of all the threats to the tax base would help the Agency decide how to allocate its resources most effectively."

In order to design an effective audit strategy, the Revenue agency needs to ascertain how many small and medium-sized firms are transgressing the tax rules, noted Ms Fraser. She suggested that an increase in the number of random audits would be one way in which the agency could increase its understanding of the problem.

"For the Canada Revenue Agency, increasing taxpayer compliance is a measure of success comparable to increasing net profit in a private-sector business," commented Ms. Fraser. "Both are bottom-line indicators of an organization's effectiveness."

The Auditor General also noted that an audit strategy for small and medium enterprises that better reflected the risks to tax revenue would allow the Agency to allocate its resources to the areas of highest overall risk. It could then intervene where necessary and reduce the burden on compliant taxpayers. The Agency's own studies indicate that many of the small and medium enterprises it has audited represented little or no risk.

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