According to a new report from the nonprofit Canadians for Tax Fairness, Canada’s largest companies are making record profits and paying income taxes at record low rates.
The report found a “huge increase” in the gap between what companies would pay at the corporate rate set by tax law and what they actually paid. That gap grew to $30 billion by 2021 — an amount the organization says represents an “inexplicable loss” to the country.
The report analyzed profits and taxes paid in the past five years by 123 of the country’s largest companies with market caps of $2 billion or more. It found that the annual tax gap averaged $13.5 billion in the three years before the pandemic, but that amount has more than doubled by 2021 — to $30 billion.
“This was due to record high profitability coupled with companies pushing their effective tax rates to record lows,” the report’s author, DT Cochrane, told the Star.
The findings, according to the report, raise transparency questions about tax tactics — “from perfectly legal deductions to tax planning maneuvers of questionable legality,” which allow companies to evade tax.
The usual statutory tax rate for Canadian companies is 26.5 percent of profits, according to the report. In 2021, tax avoidance lowered the effective tax rate for the 123 companies to just 15 percent.
“The 2021 gap between the statutory rate and the effective rate is the largest since the 2008/9 global financial crisis,” the report says, noting that no significant corporate tax changes came into effect in 2021.
Amid inflation, growing deficits and a looming recession, “this lost public money is of course worrying,” Cochrane said. “This unexplained loss of $30 billion couldn’t have come at a worse time.”
In an email to the Star, Adrienne Vaupshas, spokesperson for the Treasury Secretary, said the government has taken steps to ensure companies pay their fair share, including providing $3.4 billion to the CRA. since 2016 to audit larger entities and non-residents engaged in aggressive tax planning.
Other measures, Vaupshas said, include a searchable public beneficial owner registry that will be accessible before the end of 2023, and limiting the ability for wealthy Canadians to use shell companies to evade taxes in Canada.
“Canada’s strong and essential social safety net is built on a robust national tax base,” said Vaupshas. “That’s why those doing business in Canada have to pay their fair share.”
Brookfield Asset Management, an alternative investment firm, topped the list of companies with the biggest corporate tax gap for 2021, which the report said “reduced the tax bill by a whopping $3.5 billion.”
“We calculated how much you’d expect them to pay if they paid at the rates in the tax code and compared that to how much they actually paid,” Cochrane said.
In a statement, a Brookfield spokesperson said it “complies with all tax laws and regulations of the countries in which it operates.”
There was no immediate response from the second company on the list, Canadian Natural Resources, “which paid $2.6 billion less than the usual statutory tax rate,” the press release said.
A Canada Revenue Agency official was not immediately available for comment.
The report says companies are using a variety of means to avoid paying the right taxes.
It calls on the federal government to take immediate action to close the corporate tax loophole, suggesting it would raise federal corporate taxes from 15 percent to 20 percent.
It also calls on the government to introduce a minimum tax on book profits, similar to the recently passed Inflation Reduction Act in the US, and to close the capital gains loophole: currently only half of capital gains are subject to income tax.
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