It’s time to end tax havens for wealthy citizens
B.C. set good example for action, says Joan L. Rush.
On Sept. 11, the B.C. government ended the province’s tax-haven status by terminating the tax advantages given to corporations and individuals under the International Business Activity Act. The “global businesses” that benefited from the IBAA included Canadian domestic and foreign banks, many securities dealers and at least one alleged money-launderer, PacNet.
The benefit of the IBAA for B.C. citizens was never clear. The banks and securities dealers were refunded up to 100 per cent of B.C. corporate tax for doing business they would have done anyway. The CEO of Advantage B.C., which administers the IBAA, admitted the program wasn’t set up to create jobs, but to attract international investment. Ending a program that made B.C. a tax haven was the right thing to do.
Ottawa should follow B.C.’s example, and overhaul Canadian legislation that allows wealthy Canadians and Canadian corporations from using offshore tax havens. When Canadian companies and wealthy individuals were named in the Paradise Papers as holding investments in known tax havens, many protested that their financial arrangements are legal. They shouldn’t be. Ottawa should make it illegal for Canadians who invest offshore to escape taxes that should apply equally to all Canadians.
Canada has a history of negotiating tax treaties, but easy access to a tax haven for wealthy Canadians began when the Joe Clark Conservative government passed the Barbados tax treaty in 1980. Offshore investing increased so dramatically that, in 1995, the Jean Chretien Liberal government legislated to limit its tax benefits. Controversially, the Liberals exempted Barbados, enabling Canada Steamship Lines, owned by then-Liberal finance minister Paul Martin, to benefit from Barbadian business and investment subsidiaries. Canadian investment in Barbados grew through the 1990s, swelling from $628 million in 1988 to $23.3 billion by 2001.
In 2011, the Stephen Harper Conservative government passed another amendment to limit the use of tax havens, but again exempted Barbados. Barbados became even more attractive as a tax haven and has become the third-largest destination for Canadian offshore investment. Also in 2011, the government signed a tax treaty with the Cayman Islands, which has no taxes on international income and investments. Within five years, the Cayman Islands became the fifth-largest destination for Canadian offshore investment. As of 2016, more than $261 billion was invested in the world’s top-10 tax havens.
Two auditors-general, Denis Desautels and Sheila Fraser, warned about the growing loss of tax income, but neither Conservative nor Liberal federal governments acted to address their concerns. A 2016 private member’s bill that proposed taxing Canadian-owned Barbados international business corporations as Canadian residents failed. The federal government should introduce legislation applicable to any tax haven.
Tax havens charge little or no tax on foreign investment, allowing the wealthiest Canadians and large Canadian corporations to grow their investments tax-free, often in accounts administered offshore by Canadian banks. Ottawa must stop allowing Canadians to bring those funds back into Canada tax-free and allowing the funds to be distributed as dividends. Canadians who earn and invest their money in Canada don’t get those benefits, and nor should the wealthiest Canadians who invest in tax havens.
Properly taxing Canadian companies and high-net-worth individuals who invest offshore would provide billions of dollars for health, education and infrastructure. Those companies and wealthy individuals who store their wealth in tax havens still enjoy our health care and other benefits. They shouldn’t be allowed to escape Canadian taxes.
Just as B. C. citizens didn’t benefit from the IBAA, citizens of the Caribbean tax havens don’t benefit from them. The OECD confirms that income inequality and poverty are growing in countries like Barbados, the Cayman Islands and Bermuda. If our federal government cares about income inequality, it can change the rules to stop the richest Canadians and wealthiest corporations from benefiting from our own tax laws.
Canada can maintain its existing 93 tax treaties to share financial information about residents who do business and keep accounts in two or more countries. However, there is no justification for allowing the wealthiest Canadians and companies to invest money free of tax and bring it home tax-free. Our federal government must create fair taxation and repair tax laws that benefit only the wealthiest among us.