What do the Panama Papers Mean for Canadians?

In 2013, the CRA introduced a number of enforcement measures to crack down on “tax cheats” and the result has been more than $1 billion in new revenue over what Ottawa had hoped for from trying to close the tax gap.¹

One of the measures announced in the 2013 budget included amending tax laws so that financial institutions must report international electronic fund transfers of $10,000 or more. Also, individuals and companies must file more detailed information on their foreign holdings and income. Many have just experienced this first hand with the completion of the Form T1135 – Foreign Income Verification Statement when completing their personal tax returns.

So what is a tax haven?

There are three key attributes of a tax haven:

1. There is little to no tax levied on non-residents who have assets in that country.
2. The jurisdiction protects personal financial information and may have laws and/or administrative practices in place that prevent scrutiny by foreign tax authorities.
3. Finally, there is a lack of transparency.

The first thing to note is that it is not illegal for a Canadian to set up an offshore account or business in a tax haven jurisdiction, but they do have to comply with Canada’s tax laws.  This means they must declare their foreign income earned and foreign property worth more than $100,000. If those exposed in the leak where complying with Canadian tax laws, then there is no tax evasion.

The offshore accounts behind the Panama Papers may turn out to be legal, but that doesn’t mean they are fair. Taking full advantage of regulatory loopholes and complicated tax-minimization schemes can certainly be characterized as clever, but

Canadians – who see so much of their hard earned income go towards taxes – may not see it that way.

According to an article in Maclean’s magazine, Ottawa’s official figures say $200 billion in Canadian wealth currently sits offshore and out of reach of the Canada Revenue Agency. The actual amount, however, appears to be much, much higher, with annual tax losses somewhere in the $6-billion to $7.8-billion range —roughly a quarter of the current federal deficit.²

The existence of tax havens seems to undermine a country’s ability to collect its fair share of taxes. Tax havens are not adding to overall global wealth and do not have any useful economic purpose.  They benefit those who can afford to take advantage of the current system but it seems at the expense of everyone else.  The Panama Papers are likely to add fuel to the CRA’s effort to search out off shore accounts.