Last year, Canadian corporations held $71 billion in assets in Barbados. They had another $36 billion in the Cayman Islands.
Is Canada’s business elite anticipating a massive boom in beachfront hotels and little paper umbrellas for mixed drinks?
Not likely. More likely, they’re sheltering income earned in Canada from taxes at home. According to a recent estimate from Canadians for Tax Fairness, the amount of money Canadian corporations held in the world's top 10 tax havens jumped to $199 billion in 2014, from $187 billion a year earlier.
Most of that money “is there to avoid paying taxes back home in Canada,” says Dennis Howlett, the group's executive director.
“Walk down a street in Cayman Islands and you will see very little evidence of $36 billion in Canadian investment. But what you will see are small buildings with hundreds of mail boxes that are head office to more than 18,000 shell companies – most of them subsidiaries of corporations trying to avoid tax. The same scenario plays itself out in Luxembourg and other tax havens."
Luxembourg is one tax haven Canadian companies are bailing on; $5 billion in Canadian cash pulled out last year. The taxpayers' group thinks that may be partly because of last year's widely publicized leak of secret accounts held in the country.
Some of that money may be flowing instead to Switzerland, which has seen a tripling of Canadian corporate assets just since 2011, to $11 billion.
“More than half of the money is channeled abroad by Canadian banks and financial institutions who play a key role in facilitating tax avoidance,” the Taxpayers Federation says.
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Canadian Corporations' Favourite Tax Havens
And that may just be the tip of the iceberg. The Taxpayers Federation's numbers are based on foreign investment data from StatsCan, and don't include money held by Canadians through foreign-owned companies and undeclared assets.
The group estimates that $199 billion in sheltered assets cost governments some $7.8 billion in lost revenue for 2014.
The group is among many others who are calling for the Canada Revenue Agency to officially calculate Canada’s “tax gap” — the amount of money Canada’s governments are losing due to tax evasion.
While many countries, including the U.S. and U.K., have released official estimates of their tax gaps, the Canada Revenue Agency under the Harper government been accused of stonewalling on the issue.
Sen. Percy Downe, a Liberal from P.E.I. who has been pushing for Canada to estimate its tax gap, introduced a private bill this spring in the Senate to do just that.
Downe had asked the Parliamentary Budget Office several years ago to estimate the tax gap, but the PBO was unable to get the necessary data from Canada Revenue Agency.
After years of fruitless attempts to get the CRA's cooperation, Downe introduced Bill S-226 this spring. It would require the CRA to collect the necessary data, estimate Canada's tax gap and report that estimate to the PBO.
"The current state of affairs suggests an obvious failure on the part of the Canada Revenue Agency to come to terms with overseas tax evasion, a problem that is costing the Canadian government billions in lost tax revenue," Downe said in a recent statement.
“As a result, we risk an erosion of confidence in our taxation system at a time when every dollar counts."
Public service unions have criticized the Harper government for cutting the CRA's budget, saying it damages the agency's ability to enforce tax laws. The recent federal budget increased CRA funding by $16 million to go after tax evaders more aggressively, but critics say that's a drop in the bucket compared to the more than $500 million that has been cut from the CRA's budget.
"The federal government knows this -- in the 2015 budget it was estimated that for every $1 spent on enforcement, Canada would get $10 back -- but it is reluctant to act," the National Union of Public and General Employees (NUPGE) said in a statement. "Only a fraction of the cuts to the Canada Revenue Agency have been reversed."
The growing use of tax havens comes even as Canada’s tax burden shifts steadily away from corporations and onto individuals. One economist’s analysis estimates that 2014 was the first year that more than half the government’s revenue came from personal income taxes.
The federal corporate tax rate in Canada began falling at the turn of the century under the Liberal government of Jean Chretien, and has continued to fall under the Conservative government of Stephen Harper. It's down to 15 per cent today, from 28 per cent in 2000.