In How to Build an Economy for the 99%, Wendy Keats recommends five key strategies based on two important criteria: 1) they have been tried-and-proven, more than once, to help build more inclusive, sustainable economies; and 2) they can’t cost taxpayers one more cent than we pay now.

In this strategy, she explores how rich corporations and individuals are evading and avoiding paying their fair share of taxes, increasing the burden on small businesses and individuals and how it seems everyone but Canada is doing something about this.

In 1955, people and corporations contributed equal amounts of income tax to the Canadian government. By 2015, the scales had tipped dramatically, to the point that individuals were paying $145 billion compared to $41 billion for corporations.

In other words, for every $1 corporations pay in income tax, Canadians pay $3.50. The proportion of the public budget funded by personal income taxes has never been greater.

In 2017, the Toronto Star and Corporate Knights Magazine spent months poring over Canadian tax data to determine how much income tax corporations are really paying. What they found was that, not only had corporate taxes rates been repeatedly cut over the previous several years, complex tax loopholes had allowed large corporations to  avoid paying their fair share.

These figures were confirmed in a recent report of the Canada Revenue Agency that found in just 2014 alone Canadian corporations avoided paying up to $11.4 billion in taxes with the majority, $7.9 billion, by large corporations. 

Some of the biggest offenders are big banks. Between 2010-2015, profits in the banking sector soared by 60% while their tax rate dropped by almost the same amount, resulting in Canada’s big six banks paying the lowest corporate tax rate in the G7 - one-third of what other Canadian businesses pay. In 2016, they were ranked the nation’s most profitable corporations, booking $44.1 billion in profit and that same year, they avoided paying $5.5 billion in taxes. 

This loss of revenue translates into tens of billions of dollars that could have been used to pay for hospitals, schools, roads, and to address climate change.

We don’t have to go far New Brunswick, we don’t need to look far to find examples of corporate tax shelters and tax evasion. We have one of the country’s biggest culprits right in our own backyard. 

The Irving Group is the umbrella corporation for more than 200 companies in oil and gas, forestry, shipping and transportation, retail, media and more, with an estimated net worth of $10 billion.  With roots going back to the 1880s, the founder’s son, K.C. Irving, took over the business in the 1920s and became one of the earliest pioneers in the exploitation of offshore tax havens. By 1972, he had placed many of his companies in a Bermuda trust to avoid hundreds of millions in Canadian and New Brunswick taxes. When he passed away in 1992, K.C.’s worth was estimated at up to $16-billion and his will stipulated that his assets be retained in the offshore trust. It went further to instruct that if his sons wanted control of his empire, they would have to give up their Canadian residency in order to evade federal and provincial taxes.

There are literally dozens of examples of how the Irving Group has avoided paying their fair share of taxes or been given corporate subsidies, forgivable loans, and other concessions that have cost taxpayers dearly. Some would say that the reason our province is in such a desperate financial situation is due to the billions in lost revenues to one of the richest corporations in the country.  This is all public money that could have gone to health care, education, infrastructure, and paying down our debt.

According to a 2018 CBC report, the Canadian treasury could be losing up to $20 billion annually as a result of hidden offshore accounts. (By the way, can you guess who’s helping the mega-rich move their money into these tax havens? Yup, you got it...the big five Canadian banks.)

The controversial 2016 Panama Papers revealed a global tax evasion system that has been allowing elected officials, the uber-rich and crime bosses alike to hide trillions of dollars worth of assets in offshore tax havens. Nearly 900 Canadians (individuals, corporations and trusts) were on the list and Canada promised to put $1 billion into the investigation and hire 1,300 auditors.

However in April 2019, an investigation by the Journal de Montréal found CRA had only hired 192 and hadn’t recovered a single dollar! At the same time, other countries around the world had recouped $1.2 billion including Great Britain who collected $253 million USD, Denmark $237 million, Germany $183 million, and the list goes on. Even Iceland, with a population of roughly 350,000 people, was able to recover $25.5 million.

Community Economic Development Investment Tax Credits

I just couldn’t close this section without talking about one of the most promising opportunities to build local economies that I know of. Indeed, its one that already exists but isn’t being used anywhere close to its potential because so few people know about it. And those who do, often can’t figure out how to use it.

Every year, Maritimers send over $1 billion in RRSP contributions into mutual funds, bonds, and domestic and foreign stock exchanges, who in turn invest it into things like pharmaceutical companies, arms manufacturers, and the fossil fuel industry. Only 2% of that money comes back to our economy!

Together, Canadians currently invest $40-billion every year in their RRSPs. If we were to divert even a small percentage of those investments into local small businesses, it would have a tremendous impact on our economies, particularly in rural and small communities.

Community economic development (CED) tax credit programs have been in the Maritimes for over 20 years, beginning in Nova Scotia in 1999 and expanding to PEI in 2013 and to New Brunswick in 2016. These programs allow communities to raise local capital by providing significant tax credits to any resident of the province who invests in CED Investment Fund. They are RRSP and Tax-Free Savings Account eligible, meaning people can self-direct their existing RRSPs and TFSAs into them, receiveing the benefits of both and effectively recouping the bulk of their money while helping to build their local economy.

To date, Nova Scotia CEDIFs have raised about $100 million, all of which has been invested into local co-ops, social enterprises and small businesses. For example:

• New Dawn in Cape Breton raised $11 million to invest in a dozen local small businesses from micro-breweries to technology and bio-medical companies, renewable energy, manufacturing, and even their own technical college.

• Farmworks has raised nearly $3 million and invested an average of $30,000 into over 100 small food-related businesses across Nova Scotia, creating hundreds of jobs and helping those businesses to stabilize and grow.

• The Tignish Fisheries Co-operative in PEI has been raising the maximum allowable ($3 million) every year since the program began and has been able to greatly expand their facilities and create significant employment as a result.

There are many other examples of how these tax credit programs have been used to build local economies however they are a drop in the bucket compared to what could be done if more people knew about them and could get through the onerous application and development process.

Imagine if we diverted 10% or 20% of those investments into local businesses using CED and Small Business Investor Tax Credit programs, it would have a tremendous impact on our economies, particularly in rural and small communities.

I truly applaud Maritime and other governments for their innovation and willingness to bring these tax credits into being. However none have put any real resources or commitment into building the knowledge and capacity of our communities to use this complex securities-based tool. With the exception of New Brunswick, there isn’t even anyone in government offices that people can contact for anything more than basic information. There are also some unnecessary regulatory hurtles with Canada Revenue Agency that limit what can be invested in, i.e. affordable housing, that prevent many communities from being able to use it to meet their needs.

I think most of us can appreciate that tax evasion is a complicated issue. However a major part of the solution for Canada seems to be quite simple. Just do whatever Great Britain, Denmark, Germany and all those other countries are doing to collect their money. Hire those auditors and nail those tax evaders. You could be putting billions of dollars into our economy and literally wiping out our debt with money that is legitimately owed to Canadians.

As for large corporations and banks paying only a fraction of the tax rate that small and medium-sized businesses pay…well, that’s just plain wrong.

99.8% of all Canadian businesses are small- to medium-sized and they create 9 out of 10 jobs in the private sector.

So WHY in the world would we give these large greedy corporations a break? Am I missing something here?

A simple solution that wouldn’t cost us anything is to stop reducing the corporate tax rate for those .02% of large Canadian corporations (and be sure to not leave out the big banks).

Community Economic Development Investor Tax Credit programs have tremendous potential for raising funds to support the development and growth of local economies and I truly applaud Maritime and other governments for their innovation and willingness to bring these tax credits into being.

However none have put any real resources or commitment into building the knowledge and capacity of our communities to use this complex securities-based tool. With the exception of New Brunswick, there isn’t even anyone in government offices that people can contact for anything more than basic information. There are also some unnecessary regulatory hurtles with Canada Revenue Agency that limit what can be invested in, i.e. affordable housing, that prevent many communities from being able to use it to meet their needs.

Solution? A simple change to our existing economic development programs that would help build the knowledge and capacity of communities to use CED investor tax credit programs, and some minor changes to CRA legislation, would make a huge difference in stopping the “leakage” of money out of our provinces, keeping it circulating locally, and addressing a myriad of social, environmental and cultural issues and opportunities.