Hey Canada! It's 2016. Do you know where your money is?
In the span of a single year, $40Billion Canadian flowed to the top 10 tax havens – an all time high. Tax havens now hold at least $270B of Canadian corporate money, mostly untaxed.
Canadians for Tax Fairness based these calculations StatsCan’s latest foreign direct investment figures show that in 2015
- $13Billion was funneled to Cayman Islands,
- $9Billion to Barbados
- Nearly $8Billion to Bahamas.
- Money sent to Switzerland increased by 58 per cent.
“The top ten doesn’t even include Panama or the British Virgin Islands,” says Dennis Howlett, executive director of Canadians for Tax Fairness which has calculated these figures for the past three years. “The StatsCan figures do not capture all of the investments made by private individuals, much of which is done to illegally evade paying taxes.”
While offshore accounts are not illegal, Canadian residents are required to report and pay taxes on income from offshore investments. A study by the French National Assembly found that over 90% of individuals with offshore accounts used them to illegally evade taxes. There is probably at least another $100 billion in unreported Canadian money stashed away in tax havens according to economist Gabriel Zucman in his recent book, The Hidden Wealth of Nations.
Governments, including Canada’s, have stepped up efforts to combat tax haven facilitated tax dodging but the problem continues to grow.
“Canadian tax haven use continued to increase right under the nose of the Canada Revenue Agency even while it was assuring Canadians it had things under control,” says Howlett. “It is clear that we still have a long way to go. "
Howlett says if governments have the courage and the savvy to take up the challenge it could pay off for all Canadians. “Most of this money is not entrepreneurs ‘investing’ in the local economy of an island nation”, says Howlett. “It is sent there to lower tax bills. There is a lot of money that could be recovered and invested in Canadian infrastructure, public services, and all the jobs and economic growth that real investment would generate.”
The recent federal budget made a commitment of $444 million for CRA auditing and enforcement capacity focused on tax havens. While that could produce significant returns in the next few years, greater gains could result from tightening up corporate tax rules by requiring companies to prove “economic substance” for any offshore subsidiary to be considered legitimate for tax purposes. Setting a cap on interest payments to offshore subsidiaries is also a move that the government should be making to address this challenge.
Canadians for Tax Fairness is a citizens’ tax watchdog that advocates for an effective, modern and equitable tax system.