In 2023, Canada’s investment in the top 15 tax havens hit a record $620B. As tax havens take centre stage in this federal election, it is important to note that the use of tax havens by large corporations and wealthy Canadians has increased steadily over 40 years under both Liberal and Conservative governments. There are concrete and practical actions Canada can take now to put an end to it, regaining tens of billions in lost tax revenue every year.
Figure 1. Top countries that Canada is invested in aside from the US, 2023.
Canadians and Canadian corporations move money to tax havens because Canada has agreements with these countries that allow corporations to pay little to no income tax and then repatriate profits to Canada tax-free. Concerns about these types of agreements with tax havens have been raised since 1980. The Auditor General pointed out that Canada was losing hundreds of millions in tax revenue because of these agreements as early as 1992.
Yet, despite this knowledge being widely available, the Conservative government signed new agreements with several tax havens in the early 2010s. This includes the agreement with Bermuda signed in 2010 when Pierre Poilievre was the Parliamentary Secretary to the Prime Minister. Since then, Bermuda has risen to become Canada’s most used tax haven, with $135.8B of Canadian assets stashed in the small island in 2023. During Stephen Harper’s tenure, agreements were also signed with Caribbean islands including the Bahamas, British Virgin Islands, Cayman Islands, Guernsey, Isle of Man, and Jersey.
Figure 2. Growth in Canadian foreign investment in tax havens has skyrocketed during all four previous governments.
In 2010, before any of these agreements were entered into force, there was $53B of Canadian investment in these seven islands. In 2023, there was $267B.
These tax agreements were clearly not the result of social movement campaigning. Rather, they were designed by, and to benefit, the wealthiest Canadians, who are able to hire professional tax planners to exploit these agreements to their fullest extent. They have no use to working Canadians whose main income source is their paycheck. Yet the costs are borne by working Canadians through the underfunding of crucial public services and infrastructure that result from the lost public revenue.
Under Justin Trudeau, the Liberals did make some progress in addressing this issue, through the implementation of the Global Minimum Tax Act (GMTA) and updates to the General Anti-Avoidance Rule (GAAR) in 2024. However, the GMTA is based on an international framework that was made “largely toothless by a series of loopholes” according to Nobel Prize-winning economist Joseph Sitglitz. And the changes to the GAAR were called a “debacle” in a recent book by tax policy expert Kerry Harnish. This will not be enough to address the use of tax havens on its own because it does not address the root of the problem. We have known since 1980 that it is tax agreements with tax havens that facilitate this tax avoidance.
The NDP has come out with a clear plan to end agreements with known tax havens, which would eliminate much of the incentive for corporations to shift their assets to tax havens. The Conservatives have also felt the need to address the issue of tax havens, although their plan does not specify exactly how they would address the problem, instead punting the details to a “Tax Task Force”. The Liberals on the other hand – whose leader Mark Carney has been under fire for overseeing funds set up in tax havens at his previous employer, Brookfield Asset Management – have yet to release any plan to address tax havens.
Closing down the use of tax havens has public support across the political spectrum. No one likes that people with money and power are getting a better deal on their taxes than everyone else. The tens of billions of dollars lost annually to tax havens reduces funding available for public healthcare, transportation and education. Poillievre and Carney need to rectify the mistakes of their parties’ previous leaders and make tangible commitments to action. They should promise to end tax agreements with known tax havens, make country-by-country corporate financial reports public, and support international cooperation to end tax avoidance.
