Trudeau’s Sprin­kle Spin

Pro­posed Tax Changes - Per­spec­tive One

The Victoria Standard - - Commentary - MOR­GAN DUCH­ES­NEY

As Trudeau’s govern­ment un­veils new tax re­forms, I’m re­minded of a re­cent ATV in­ter­view with for­mer Prime Min­is­ter Paul Martin. I’m not sure if it was good man­ners or the in­su­lat­ing aura of wealth and power that pre­vented an­chor Steve Mur­phy from inquiring about Martin’s his­tory of per­fectly le­gal tax avoid­ance. In­stead of wit­ness­ing Martin’s ill-con­cealed an­noy­ance, view­ers were treated to his mus­ings on pol­i­tics and busi­ness. Al­though Cape Bre­ton­ers fre­quently see Martin’s Canada Steamship Lines Inc. (CSL) ships load­ing gravel at the Canso Cause­way, they might be sur­prised at how few Cana­di­ans serve on those ves­sels.

Like many Cana­dian firms, CSL is partly reg­is­tered in Bar­ba­dos. The cor­po­ra­tion is con­trolled by a Ber­mu­dan hold­ing com­pany, and since Ber­muda is a tax haven, CSL out­ma­neu­vers the Canada Rev­enue Agency (CRA) with per­fect le­gal­ity. Trudeau’s re­cent em­pow­er­ment of CRA, and sud­den en­thu­si­asm for loop­hole clo­sures, has ig­nored tax losses caused by the for­eign reg­is­tra­tion of “Cana­dian” com­pa­nies like CSL and Irving.

The Martin ex­am­ple pro­vides con­text for Trudeau’s re­cent tax changes which may elim­i­nate an ex­emp­tion em­ployed by pro­fes­sion­als, like doc­tors and lawyers, who in­cor­po­rate their prac­tices and “sprin­kle” the prof­its among fam­ily mem­bers to re­duce their tax bills. This prac­tice works be­cause spouses and younger fam­ily mem­bers usu­ally have lower tax rates. Ac­cord­ing to the fed­eral govern­ment, ap­prox­i­mately 50,000 Cana­dian fam­i­lies en­gage in this prac­tice.

While Canada’s tax­a­tion sys­tem cer­tainly needs re­form, Trudeau’s fo­cus on in­come sprin­kling pro­vides a great dis­trac­tion from more sig­nif­i­cant tax­a­tion is­sues like off­shore cor­po­rate reg­is­tra­tion and the un­col­lected bil­lions sit­ting in shel­tered tax havens (see the Cay­man Is­lands and the Isle of Man). Of­fi­cial Canada’s en­thu­si­asm for col­lect­ing il­le­gal tax haven de­posits re­mains largely rhetor­i­cal.

Fi­nance Min­is­ter Bill Morneau re­cently or­dered CRA to ag­gres­sively pros­e­cute tax delin­quents. This is quite a de­par­ture from the for­mer pol­icy of le­nient self-dis­clo­sure deals of­fered to Brian Mul­roney and oth­ers. Aside from the pos­si­bil­ity of crim­i­nal con­vic­tions, Trudeau’s pub­lic com­mit­ment to big league tax eva­sion is sim­i­lar to Harper’s timid ap­proach. For­mer Con­ser­va­tive Fi­nance Min­is­ter Jim Fla­herty warned about the risks of an over-zeal­ous ap­proach to tardy tax col­lec­tion - cap­i­tal flight be­ing chief among these haz­ards.

Morneau re­cently con­fided that his con­sult­ing busi­ness will prob­a­bly face a higher tax bill un­der the pro­posed changes. How­ever, it is rea­son­able to ques­tion Morneau’s com­mit­ment to tax fair­ness know­ing his fam­ily busi­ness Morneau She­p­ell fig­ures promi­nently in an on­go­ing CRA in­ves­ti­ga­tion of KPMG’S al­leged Isle of Man tax eva­sion schemes for wealthy Cana­di­ans. Like his boss, Justin Trudeau, Morneau suf­fers from the chal­lenge of man­ag­ing in­her­ited wealth; in this case, his fa­ther’s firm.

Un­for­tu­nately for the Fi­nance Min­is­ter, Morneau She­p­ell’s au­di­tor KPMG was named in the in­flam­ma­tory Panama Papers, and is cur­rently un­der U.S. in­ves­ti­ga­tion for its role in the 2008 fi­nan­cial cri­sis. KPMG is also au­di­tor to BMO Burns Nes­bitt where Justin Trudeau parks his in­her­i­tance. Never mind the Lib­eral Party of Canada’s de­ci­sion to hire KPMG ex­ec­u­tive John Her­halt as fi­nan­cial man­ager of po­lit­i­cal do­na­tion funds.

In good times or bad, it seems Canada’s cor­po­rate tax rate is never low enough for the Cana­dian Coun­cil of Chief Ex­ec­u­tives (CCCE); a group ded­i­cated to the ‘pri­vate profit at pub­lic risk’ busi­ness model. For­merly known as the Busi­ness Coun­cil on Na­tional Is­sues, CCCE spent the 1970’s, 80’s and 90’s lob­by­ing the fed­eral govern­ment to al­ter busi­ness and tax law to favour the wealthy while cre­at­ing deficit hys­te­ria amongst the pub­lic.

Grad­u­ally, and with great sub­tly, Canada’s cor­po­rate elite and ad­vo­cates for the su­per-wealthy re­ar­ranged the rules to their ben­e­fit. Dur­ing the mid-1990s, the Chre­tien/martin Lib­er­als im­posed ruth­less so­cial pro­gram cuts that frayed Canada’s so­cial fab­ric and pop­u­lar­ized ugly eu­phemisms like down­siz­ing, ra­tio­nal­iza­tion and hu­man cap­i­tal. For­mer NDP leader Ed Broad­bent ex­plained that the ex­ag­ger­ated deficit prob­lem could have been re­solved grad­u­ally, but the Chre­tien govern­ment fa­vored po­lit­i­cal glory and for­eign bond hold­ers over work­ing Cana­di­ans.

While po­lit­i­cal and eco­nomic aware­ness does re­quire some re­search, it’s not dif­fi­cult to dis­credit a gen­eral tax pol­icy that shifts re­spon­si­bil­ity to those who can least af­ford it. While tax lawyers and bu­reau­crats have in­vented com­plex ter­mi­nol­ogy to con­fuse and dis­cour­age peo­ple, they’re ul­ti­mately just de­scrib­ing hu­man be­hav­iour, which never re­ally changes. Per­haps we’ll learn more by not­ing what’s left un­said when politi­cians re­veal new tax­a­tion poli­cies.

Newspapers in English

Newspapers from Canada

© PressReader. All rights reserved.