Government underestimates losses from tax haven use by wealthy individuals

Tax evasion is not a “victimless crime.” The victims are everyone struggling when they can’t get the public services they need  – whether it’s people experiencing hallway medicine, a student who can’t afford rapidly rising tuition fees or drivers worried about their safety after snow plowing services have been privatized.  

Ottawa (07 Aug 2018) — Canadians for Tax Fairness (C4TF) is criticizing the federal government’s report estimating the amount of federal tax revenue lost due to tax haven use by wealthy individuals severely as it appears to underestimate the seriousness of the problem.

Recognized international methodologies for calculating losses due to tax havens put Canada’s losses at between $5 billion and $7.5 billion. Yet the federal government report claims that losses due to wealthy individuals using tax havens are only between $0.8 billion to $3.0 billion per year. Based on that gap, the federal government is under-estimating the how much we’re losing to tax havens by as much as $6.7 billion.

Individual use of tax havens only part of problem

Individual tax haven use is approximately 1/3 of the problem. Corporate abuse of tax havens is at least double that. In fall of 2017 C4TF updated their estimates, reporting that the use of tax havens by large corporations means Canadians are losing $10 to $15 billion each year.

The government estimates also don't include illegal funds, or “dark money.” Canadians don't know how much illicit money is flowing in and out of Canada because we don’t have transparency on the hidden or ‘beneficial’ owners of companies in Canada.

Improvements needed to tax gap analysis

While C4TF applauds the CRA for finally conducting this tax gap (the difference between what the government is collecting in taxes and the amount it is owed) analysis, unfortunately it is being done piecemeal. The GST and domestic individual gaps were estimated separately while the corporate gap is yet to be released. With this fragmentation, Canadians cannot see the full scale of the problem.

Federal government can do far more to tackle tax havens

C4TF has identified a number of actions the federal government should take immediately to combat this tax evasion by the wealthy, including:

  • International cooperation on transparency and information exchange including a public beneficial ownership registry.
  • Stepped up enforcement and prosecution - too many individuals are being let off the hook, some with no penalty at all. These are serious crimes, equivalent to bank robbery, but with much broader social consequences for us all. These crimes deserve more serious penalties, including appropriate jail time.
  • Aggressive action against the facilitators - the wealthy are not hiding money on this scale without the help of teams of lawyers and accountants. When the government takes this seriously, they will also enforce penalties and prosecutions for those who facilitate tax evasion and aggressive tax avoidance.

These are serious crimes and it is time for serious penalties

Tax evasion is not a “victimless crime.” The victims are everyone struggling when they can’t get the public services they need – whether it’s people experiencing hallway medicine, a student who can’t afford rapidly rising tuition fees or drivers worried about their safety after snow plowing services have been privatized.  

Canada has a double standard; white-collar criminals are being let off the hook. Polling has shown Canadians believe there is one tax system for the rich and another for the rest of us. Our government can restore our faith with one tax system for us all.