Canada’s biggest corporations are using complex techniques and tax loopholes to pay far less than the official corporate tax rate. A Toronto Star-Corporate Knights #investigation
December 14, 2017
A deep dive into the financial statements of Canada’s biggest corporations shows these companies pay far less than the official corporate tax rate.
For every dollar corporations pay to the Canadian government in income tax, people pay $3.50. The proportion of the public budget funded by personal income taxes has never been greater.
At a time when Prime Minister Justin Trudeau has made tax fairness a centrepiece of his government, the Toronto Star and Corporate Knights magazine spent six months poring over tax data to determine how much income tax corporations are really paying.
We found the amount of tax most big companies pay has been dropping as a proportion of their profits for years, and not only because the corporate tax rate has been cut repeatedly. Canada’s largest corporations use complex techniques and tax loopholes to reduce their taxes significantly below the official corporate tax rate set by the government.
Our analysis of the financial filings of Canada’s 102 biggest corporations shows these companies have avoided paying $62.9 billion in income taxes over the past six years.
The 2011-2016 audited financial statements of all large Canadian corporations (those worth more than $2 billion) reveal they paid an average of 17.7 per cent tax.
During that time, the average official corporate tax rate in Canada for this group of companies was 26.6 per cent.
That 8.9 per cent gap translates into tens of billions of dollars that could have been used to pay for the schools, roads, hospitals, police and paramedics we all rely on.
The accounting manoeuvres Canadian corporations perform to reduce their tax bills are legal. But complex reporting rules make it difficult to determine if a company is actually paying its fair share of taxes.
The Star/Corporate Knights analysis looked at the amount of taxes companies paid as a per cent of profits over a six-year period to even out yearly fluctuations. Big losses and investments happen, and may reduce a corporation’s tax rates in any given year, but consistently low tax rates can indicate a pattern of avoidance.
This project is the first comprehensive attempt to combine Canadian corporations’ audited financial statements with government data to quantify the extent of corporate tax avoidance — and determine how much it costs the rest of us.
“Some income simply is not taxed,” said Peter Spiro, an economist with the Mowat Centre, a public policy think tank at the University of Toronto. “The public policy question becomes: are these tax breaks or tax exemptions justifiable?”
At a time when stocks and corporate profits are near record highs, the federal government has targeted small private corporations, expecting to recoup an estimated $250 million in tax revenue by closing loopholes.
If Ottawa instead closed all the loopholes used by large corporations, it could collect 40 times more than that.
In an average year, the 102 biggest companies in Canada pay $10.5 billion less than they would if they paid tax at the official corporate tax rate.
“That gap is undermining the integrity of the tax system,” said Jordan Brennan, an economist with UNIFOR, Canada’s largest private sector union, which represents Star employees. “Once we establish what the rates are, you have to have enforcement mechanisms to make sure (corporations) pay them.”
“If the government closed that gap they stand to gain $10 billion every year. Think about what you could do with $10 billion each year. That’s a national child care program. That’s any government’s signature program. Even if you’re fiscally conservative, you could use it to reduce the deficit. That’s not an insignificant portion of revenue,” said Brennan.