With tax deadline—and federal budget—time fast approaching, here are three more of the top tax dodges exploited by the rich and famous.
Last week we explored the stock option deduction, partial taxation of capital gains and tax free savings accounts. This week family income splitting, meals and entertainment expense deductions and tax havens round out the dodgy half dozen.
4. Family Income Splitting. Family Income Splitting, which was introduced by the Harper Government in October, would allow couples with children under age 18 to nominally transfer up to $50,000 in income from the higher earning spouse to the lower earning spouse, potentially lowering the tax liability of the higher earning spouse.
This loophole will benefit families where there is one middle- or high-income earning parent and one parent with little or no income. The result is that the benefits of income splitting are highly concentrated among high-income families, whose incomes already make it possible for one parent to not have paid work. Only half all of families with children under 18 will receive any benefit from income splitting, and of them, 18 per cent will receive roughly a dollar a day. Over 85 per cent of Canadian households won’t benefit at all from income splitting and the benefits are concentrated among just a few.
Only 11 per cent of families with children will receive the maximum $2,000 benefit from income splitting. This benefit to a small number of high-income families will come at an estimated cost of $2 billion annually. The government’s haste in creating this loophole has already blown a hole in their revenues, so much that they had to delay the budget and sell their GM shares at a lower price than they could have obtained later to meet their balanced budget commitment.
The other problem with this loophole is that it is bad economic and social policy: it will provide an incentive for mothers to stay home instead of being part of the work force. It will increase inequality as well as reducing labour force and economic growth. Much better would be a quality public childcare program, which would benefit all families with children, promote women’s equality, be good for the economy, and could pay for itself through higher revenues.
5. Meals and entertainment expenses. The corporate meals and entertainment expense deduction allows businesses to deduct half the cost of meals and entertainment expenses, including the cost of season’s tickets and private boxes at sports events. It’s one of the reasons why tickets to major sporting events have climbed so high, and why tickets might not be available even though many seats remain empty. Use of corporate boxes and access to sports events and other meals and entertainment expenses are also widely abused for inappropriate lobbying.
The tax law stipulates that to be eligible for this deduction actual business must be conducted at these events. While a survey found that this tax measure was widely abused and almost impossible to police, little or no effort is made by tax authorities to police business entertainment expense fraud. Closing this loophole could save an estimated $400 million a year.
6. Tax havens. The problems with tax havens aren’t just hitting home again, now they’re also making it to the big screen.
Two hard-hitting documentaries investigating use of tax havens by Canadian and international companies hit the airwaves, internet and movie screen this year. The Great Canadian Tax Dodge is the result of a three year investigation by producer Robin Benger, was broadcast by TVO and is also available for viewing on their website. It reveals the major role Canada has played in creating a tax haven system that allows corporations and wealthy individuals to avoid many billions in taxes each year.
An even more ambitious production is The Price We Pay by acclaimed director Harold Crooks, which is now playing at film festivals and movie theatres. It “blows the lid off the dirty world of corporate malfeasance, the dark history and dire present-day reality of big-business tax avoidance, which has seen multinationals depriving governments of trillions of dollars in tax revenues by harboring profits in offshore havens.”
We don’t know how much Canadian governments are losing through tax havens, but just the official statistics show that it is over $2 billion a year, with banks and finance companies among the biggest exploiters. But these officially reported figures are undoubtedly far lower than what is stashed in these secretive tax havens. The problem is much worse for nations like Greece and developing countries that have a smaller tax base and more pressing needs.
Both these filmmakers relied on advice provided by both CUPE and Canadians for Tax Fairness (C4TF) which has led a campaign against the use of tax haven for many years, along with allies in the Global Alliance for Tax Justice. The hard work of C4TF and media exposure is now having some impact: countries through the OECD are finally taking serious steps to clamp down on some of the systematic abuses related to tax havens. The Canadian government continues to be a laggard on this, but public pressure is forcing it to take some steps—and more is needed!