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Paradise Canada

As published in the Victoria Standard: December 20, 2017.

Lawyers whose Canadian clients use offshore tax havens often emphasize the legality and popularity of the practice among those who can afford their expensive services. The evolution of this reality and its implications for Canada’s future are worth considering since lost tax revenues present a genuine threat to the operation of government programs. Increasingly, the tax burden is shifting to working people since few Canadians are positioned to legally park their money beyond the taxman’s reach.

Canada’s involvement with offshore tax havens began after World War Two when Canadian bankers began making secretive financial arrangements in former British colonies like Bermuda, the Cayman Islands and Barbados. The situation remained relatively stable until globalization removed currency transaction barriers. Subsequently, tax shelter use accelerated as money began circling the world at digital speed.

Canada’s lost tax revenue situation worsened in the 1980s when the federal government entered a series of tax haven treaties that actually facilitated legal tax avoidance. As well, Canada itself became a tax haven due to poor transparency on corporate ownership and the Harper government’s 2007 decision to radically cut Canada Revenue Agency (CRA) funding, supposedly to increase efficiency.

The recent Paradise Papers leak of 13.4 million documents exposes the operations of Bermudan law firm Appleby, a company that serves the world’s largest corporations and wealthiest families. Numbered among their clients are the business interests of former Canadian prime ministers and the Liberal Party of Canada. German newspaper Sueddeutsche Zeitung released the documents to The International Consortium of Journalists who revealed the names of 560 Canadian corporations and 2700 citizens served by Appleby who at one point considered opening a Halifax branch.

While CRA has been generally aware that vast sums in uncollected taxes sit safely in tax-sheltered havens; the tax agency has only recently been empowered to act after a partial reinstatement of previous operating fund levels. Worse than CRA’s anemic approach to elite tax avoidance is the agency’s failure to actually track and calculate tax losses.

Even though a 2017 Conference Board of Canada report estimated Canada’s offshore shelter tax gap at possibly $47 billion a year; CRA refuses to share its internal data with journalists or even MPs. Canada is one of the few Western nations that fails to track offshore tax losses and the omission seems odd for a country that prides itself on financial stability. One could be forgiven for suspecting political interference in these matters.

It is not surprising when extremely wealthy people use their power and influence to arrange legislative change that favor their interests over those of working people. For example, Liberal fundraiser Leo Kobler; a Bronfman associate, was appointed to the Senate in 1983 where he served as chair of the banking and finance committee. Kobler was mentioned in the Paradise Papers along with fellow Liberal fundraiser Stephen Bronfman. It was revealed that the two men had been involved in a tax-free offshore structure that held over $60 million; ostensibly amassed for liberal Party of Canada use. Had the funds been held in Canada, tax would have payable every year on interest accrued.

Kobler’s Senate appointment may have been a reward for his vigorous fundraising on Pierre Trudeau’s behalf. Among his accomplishments, Senator Kobler convinced Finance Minister Paul Martin to cut the taxable percentage on capital gains to 50 per cent from 75 per cent. In context, this largesse occurred in an austere era of high unemployment and harsh employment insurance requirements. More importantly, Kobler’s lawyer, Davies Ward; was instrumental in lobbying efforts to block offshore tax legislation in 1999. A diluted version of the legislation was eventually passed by the Conservatives in 2007.

If our political parties continue to depend mainly on private funding, market forces will subvert democracy and perpetuate the undue influence of private economic power to protect legal tax avoidance and other schemes that mainly benefit the wealthy. One fix for our leaky taxation regime is a radical overhaul of the legislation governing political funding so we can elect legislators who will work for the general welfare of Canadians; without excessive pressure from private economic power.

I propose a federal election finance plan whereby citizens could donate unlimited funds to a general election fund and receive a 100 per cent tax credit. These funds would be shared among qualified political parties and independent candidates through a handicapping system to ensure that all platforms and ideas are equally publicised. In this way, the dominant parties will be forced to compete in an atmosphere that favors reason over attack ads, insults and fear-mongering. If enough people cast their votes beyond the three main parties, positive change might actually occur.