Lack of fairness with overseas tax evasion: Canadians pay the price

The Government of Canada has been moving ahead with its plans to solve the deficit by cutting services to Canadians and yet, there are billions of dollars in taxable assets illegally hidden by some Canadians in overseas tax havens.

Overseas tax evasion is a serious problem requiring assertive action not yet taken by the Government of Canada even though the impact of thousands of Canadians hiding their money in overseas tax havens is that the rest of us have to pay more taxes to make up the shortfall.

Eight years ago, the Canadian Government was given the names of 106 Canadians with secret bank accounts in Liechtenstein. The information they were handed showed that the amounts in Canadian-held Liechtenstein bank accounts totalled over $100 million — one account had over $12 million. Not one account contained less than half a million dollars. These are very rich Canadians.

Since Liechtenstein, the Government of Canada has been handed the names of Canadians with secret accounts in a bank in another tax haven, Switzerland. As an example of the size of the problem facing the federal government, just these two banks had accounts for over 1,800 Canadians. Imagine how many other accounts exist throughout the world? In the eight years since this information has come to light, not one of these Canadians who have hidden their money abroad in those accounts to avoid paying taxes in Canada has been charged or fined; and yet, these same overseas tax cheats benefit from taxpayer-funded services, such as Canada’s healthcare system, but they refuse to fund their fair share of the system.

Any ordinary resident of Canada who is found to not be declaring their income would be hounded by the Canada Revenue Agency. Why the double standard for Canadians with foreign bank accounts? The Government has some explaining to do as to why some Canadians are being treated differently from Canadians who “work hard, pay their taxes and play by the rules.”

Australia serves as a very good example of what a government can accomplish when it takes the problem of overseas tax evasion seriously. In 2006, the Australian Government instituted Project Wickenby to “protect the integrity of Australia’s financial and regulatory systems” by cracking down on illegal overseas tax evasion. Wickenby was expected to recover around $AUS500million in wrongfully evaded tax revenue.

Not only was this goal met, but as of June 30, 2012, the Australian Government was able to recover just over $AUS660million. On top of that, unlike in Canada, many people were charged and convicted. This is how dedicated enforcement of tax laws pay off. If a prospective tax evader believes they will be caught and persecuted, they will not attempt to hide their money overseas in tax havens.

The Canadian Government’s inaction is perhaps best exemplified by an October 2010 internal audit by the Canada Revenue Agency (CRA), which expressed concern that, “Cases that could potentially represent significant criminal non-compliance can be rejected by a specific TSO enforcement group because of limited resources or other workload pressures. . . (O)ffices are choosing smaller cases of a lower dollar value that do not necessarily represent the greatest risk. This supports the observations by some program staff that offices are choosing smaller cases that represent ‘quick hits’.” In other words, CRA officials are taking the easy way out, rejecting risky cases of large scale tax evasion in favour of more certain, smaller victories.

If it is a matter of resources, why has the Minister of National Revenue not asked for the money to rectify the situation? History would suggest that this would be money well spent: Internal CRA documents obtained by my office reveal that an infusion of $30 million dollars from the February 2005 budget to counter Aggressive International Tax Planning, yielded a total fiscal impact in excess of $2.5 billion dollars in just four years, and has since grown to a fiscal impact of $4 billion.

This state of affairs cannot be allowed to continue. Tax fairness, like justice, must be seen to be done. Honest, law-abiding, taxpaying Canadians should not have to feel let down by a federal government unable or unwilling to make a serious effort to recoup monies from Canadians who try to avoid paying their fair share.

It is unconscionable that this Government would introduce numerous cutbacks, including increasing the age seniors can draw their pensions from age 65 to 67 and continue to nickel and dime veterans, while allowing overseas tax cheats off the hook; when this Government has searched the tax havens of the world, recovered the taxes owed, and punished those who illegally hid their money there, then we can talk about cutbacks.

Australia continues to reap the true benefits of effective enforcement of tax laws. Our Federal Government must recognize that without a determined and effective effort to find and prosecute overseas tax cheats, there is no meaningful deterrent against this behaviour.

The Australians have learned this lesson, and reaped the rewards. It is time for Canada to follow their lead.