Morneau outlines plans to catch tax avoiders

Finance minister cites system’s ‘blind spots’

TORONTO • Canada is tightening rules, increasing international co-operation and stepping up collaboration with the provinces to make sure that companies and individuals all pay their fair share of income tax, the federal finance minister says.

Bill Morneau brought his plans for more tax fairness to a Toronto lunch crowd on Thursday.

Morneau said that right now some Canadians are exploiting tax loopholes to pay less tax. He gave the example of two neighbours who each do well and earn $220,000 a year.

The first neighbour declares his income and pays about $80,000 in tax, Morneau said. The second neighbour owns a private corporation and “sprinkles” their income among themselves, their spouse and an adult child.

“In cases where the spouse or child have no role in the business, suddenly your neighbour is paying roughly $30,000 less tax than you do,” Morneau said. “We see no good reason for that.”

Morneau said Canada recently adopted the Common Reporting Standard. For example, if a Canadian owns a bank account in Luxembourg, Luxembourg must tell Canada the identity of the account owner.

Canada also wants to tighten up rules which allow companies to make things in a low-tax company and then sell them at inflated prices to an affiliate in a high-tax country, which shifts profits to the low-tax country. Morneau said Canada has teamed up with other countries to “limit this kind of aggressive tax planning.”

Ginette Petitpas Taylor, parliamentary secretary to the finance minister, will be in Paris at the OECD next month to to sign a multilateral convention on what’s known as “base erosion and profit shifting.”

In his speech Morneau referred several times to “blind spots” that hamper the Canada Revenue Agency’s ability to levy a fair tax on all Canadians. Morneau said later Canada has already tightened rules and can do more.

“We don’t have complete information, and that’s why we want to make sure that we get that information, on what people are holding outside the country, on what corporations are actually owned by who, where in the country,” he told reporters.

Morneau said he needs coordinated action with the provinces to find out who owns corporations, because only 10 per cent of companies are federally incorporated.

“The end goal is for government to understand who owns what corporations in our country, so we can understand beneficial ownership and see what is transpiring,” he said.

The Bank of Canada said Wednesday that recent government policy has yet to cool hot housing markets. Indeed, the elevator that Morneau rode on Thursday to the fourth floor of First Canadian Place featured an ad for a discussion panel, “When unscrupulous deals drive a too-hot housing market.”

But Morneau on Thursday downplayed concerns about a housing bubble.

“We believe that the work that we’ve done, both the initial work around changing mortgage downpayment rules and the stress test we put on mortgages were important steps,” Morneau said. “We believe as well that the work we did to work together with the provinces and the municipalities in Vancouver and in Toronto had the desired impact. We need to keep vigilant.”

Morneau also said that a high-speed train from Toronto to Windsor, as touted this week by Kathleen Wynne, the premier of Ontario, is a potential investment opportunity by the new Canada Infrastructure Bank, which Ottawa plans to set up in Toronto by the year’s end.