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Bill C-362 and “Tax Fairness”: Closing loopholes and bringing money back to Canada


This blog post is part of a series of posts that will be focusing on the tax avoidance by Canada’s most wealthy. This series was sparked by findings in the Paradise Papers — the latest leak that revealed the offshore tax haven activities of former Canadian elected officials and political insiders. Tax avoidance is wrong. It robs the Canadian government from paying for and maintaining our health and social programs; ones that work to improve the lives of all Canadians. A government crackdown on offshore tax havens is urgent and necessary.

“Tax Fairness” is a phrase being bandied about more and more lately. If I had a dollar for every time I’ve heard Liberals say “tax fairness” over the past 6 months, I would be very wealthy indeed. But for all the talk, where’s the action in addressing this terrible problem? A recent Environics poll shows that 90% of Canadians agree that using tax havens to avoid paying taxes is morally wrong, even if it’s legal.  And almost all agree that the law should be changed to make the use of tax havens illegal.

I have introduced a private member’s bill that would close tax loopholes like those exploited and outed in the Paradise Papers. My bill would crack down on abusive tax avoidance schemes by denying tax breaks to transactions with no real “economic substance”, designed solely to avoid taxes. These transactions without any real economic substance play an important role in tax avoidance.  Canada is now out of step with other jurisdictions so the General Anti-Avoidance Rules (GAAR) would be amended to require that “economic substance” be considered as a relevant factor in determining whether a transaction is an “avoidance transaction”, and also in deciding whether the transaction results in a misuse of the relevant taxing provisions or is an abuse of the Act when read as a whole.  These changes would make Canada’s tax anti-avoidance law similar to the tax avoidance measures that are already in place in a number of other jurisdictions like Australia, New Zealand and the United states.

Right now, for example, corporations can put money in a Canada-based investment corporation, then legally create a subsidiary corporation in a tax haven, like the Cayman Islands, and transfer money into this shell corporation. And the big problem is that investment income is taxed in tax havens at either 0% or at a ridiculously low rate. Had that money remained in Canada, the corporation would have paid taxes on that income. As the law stands today, that corporation can then move this income back into Canada and avoid paying taxes on it. Does this sound like “tax fairness”? The current federal government apparently thinks so. And Starbucks may think so, when it uses tax havens to arrange its affairs to save corporate taxes; however the coffee shop owner across the street cannot.

If my bill is adopted, this type of tax avoidance scheme would no longer be legitimate. Companies that actually employ people and undertake real business operations wouldn’t be affected. However money being moved from a tax haven like the Cayman Islands where there may only be a name plate on a door and no other presence by that company would incur Canadian tax.

Canadians for Tax Fairness estimates that my bill could recover up to $400 million per year — money that could be invested in infrastructure, creating jobs, or providing services to Canadians.  That’s hundreds of millions of dollars annually currently pocketed by large corporations and the 1% but not being spent on making lives better for hard working Canadians who pay their taxes.

My bill was shaped in consultation with the late Dr. Robert McMechan, a former tax litigator in the Department of Justice. It was a great honour to work with Robert who called for these changes in his acclaimed book on international tax avoidance. I am proud to follow through on this pioneering scholarship.

Bill C-362 would help restore trust in the fairness and integrity of our tax system, and would help recover hundreds of millions of dollars in lost revenue needed to provide better public services for Canadians. Imagine if all Canadians could enjoy the benefits derived from these recouped revenues. I can’t imagine anything fairer than that.

Murray Rankin is a nationally-recognized expert in environmental and public law. Murray Rankin was first elected as Victoria’s Member of Parliament in 2012 and now serves as the NDP's Justice Critic. Murray has worked as a law professor at the University of Victoria and is past President of the West Coast Environmental Law Association, the Land Conservancy of BC and the BC Public Interest Advocacy Centre. He has a longstanding interest in tax reform and income inequality in Canada.

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