Why are some Canadian companies paying almost no tax?

The government has been creating tax loopholes for business while clamping down on regular taxpayers

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How much income tax do you pay? Forty per cent? More? Lately the government has become obsessed with making everyone pay their fair share. It set up a snitch line for tax cheats just last month, with Revenue Minister Kerry-Lynne Findlay announcing she would “aggressively” pursue those who aren’t paying every penny they owe. No more offshore tax shelters in the Cayman Islands or stuffing numbered Swiss bank accounts full of cash: the age of tax leniency is over.

That is, if you’re a person. If you’re a corporation, it’s a different story. Because quietly, while the government has been clamping down on regular taxpayers, it’s been busy creating new tax loopholes for business. The result? According to an exclusive Canadian Business investigation, some Canadian corporations are now paying virtually no taxes at all.

It’s hard to believe, but you can see the numbers for yourself in our special report, which is broken up by company in the navigation menu above. We independently scoured the financial statements of select large corporations in Canada to come up with a shortlist of 15 companies that are using legal strategies to achieve unbelievably low tax rates. For instance, we found that Canadian Pacific Railway paid an average effective cash tax rate of just 1.8% over the past decade. Manitoba Telecom paid 4.1%. Gildan Activewear paid 5.5%. And First Capital Realty has gone for years without paying any cash taxes at all.

These companies are using several different strategies to lower their taxes, but the government just keeps adding to their arsenal. A new policy that just came into effect in 2009 allows Canada to sign tax information exchange agreements with countries such as Bermuda, the Cayman Islands and the Isle of Man. It was intended to allow authorities to ferret out scofflaws hiding their money in offshore accounts. Instead, it ended up allowing companies to set up subsidiaries in these jurisdictions and bring their profits home tax-free.

Companies that do so are not breaking the law. The problem is that only certain types of businesses can take advantage of these agreements, which results in a corporate tax system that is neither transparent nor fair. Corporations like Gildan Activewear, which was able to structure itself so that its worldwide sales are managed out of an office in Barbados, are able to reduce tax rates to single digits, while those who continue to manage sales out of Canada have to pay millions more. By implementing this policy, the government is literally providing a strong cash incentive for companies to move operations out of the country.

This is not part of a larger government strategy to help Canadian businesses compete in a global marketplace. It’s the result of sloppy policy and backroom negotiations. It in no way helps to promote business as a whole, and only exists because most regular Canadian taxpayers are not aware that it’s going on.

When the Guardian newspaper in Britain revealed that Starbucks had paid just £8.6 million in taxes on £3 billion in U.K. sales since 1998, there was a public outcry, and a committee of MPs released a report accusing the coffee chain of an “immoral” use of royalties, secretive jurisdictions and Byzantine company structures to avoid paying taxes on British profits. It will be interesting to see how Canadians react when they discover that not only are some Canadian corporations paying tax rates that are almost as low—their own government is helping to make it all happen.

7 comments on “Why are some Canadian companies paying almost no tax?

  1. Dear Ed;
    I find it interesting that the “Bermuda-owned” Irving $4.billion dollar empire is nowhere to be found in your story? Perhaps Canadian tax is paid regularly by this conglomerate OR is the Irving Group avoiding Canadian tax altogether by having benefit of Bermuda ownership?
    W. Grant, Halifax NS

  2. When the likes of Tim Hudak, the late Jim Flaherty, Joe Oliver, as well as Charles Sousa, or Andrea Horwath talk about finding efficiencies, cutting waste and increasing or cutting taxes, they should start by closing loopholes and make sure taxes are paid at the nominal rate.

  3. the ignorance of this article is astounding.
    If you force corportations to pay out millions/billions more in tax they WILL move out of the country to tax sheltered countries to operate. How is anyone better off losing jobs AND losing the corporations? So many attack corporations on tax issues but have no problem taking their pay cheques to the bank

    • Simple if they move out they can’t come back. If they want to export to Canada they will have a tariff hurdle. These strategies have been used successfully in the past. Then these new offshore businesses can sell to Sri Lanka, Afghanistan, Russia, Bolivia and Chad. Good luck with that gentlemen. They better get foreign passports too while they’re at it. Because we’re coming for those too.

    • I find your statement a result of decades of right winged propaganda and does nothing to forward a logical and sensible discussion.
      First, the fact that companies benefit from the society paid infrastructure it is unethical to think that these companies would just up and move to a jurisdiction where these assets are not available.
      Secondly, from our societal paid health care system, companies do not have to augment salaries to allow employees to pay for health insurance such as state side.
      Thirdly, corporations have the benefit of a society which has relatively good security in the way of policing, regulators, banking and laws that go a long way to protect companies and their assets. case in point China is now requiring a higher level of disclosure for foreign companies which puts their operations in jeopardy of technology transfer with no benefit to the companies.
      Fourthly, where else on the earth are you going to be able to access the amount and number of resources available in this country.
      Considering the above mentioned its only through propaganda have these corporations been able to skirt paying taxes so with a concerted effort on the part of the G8 countries these tax dodgers could be made to tow the line.
      And more importantly, if they want to move their companies to south America or elsewhere where the rule of law is fuzzy they could find themselves kidnapped or worse their companies nationalized. Do you think shareholders would be enticed to invest in a company who decides to move to a jurisdiction where all of a sudden the government nationalizes the assets. I tell you this much, I wouldn’t invest in one.
      Not to mention it would be very difficult for an entity to raise capital operating in a country with dubious laws. So going forward you should analyze the reality of corporations moving out in masse just because they have to pay taxes. Also, in countries where free trade agreements are not in placed it would be simple to impose a tariff on their products on the way into Canada.
      Corporations should ethically be good corporate citizens and pay their part of the social bills so that they receive the benefits they all require to operate