News

Fresh from squeezing more tax dollars from income trusts, Finance Minister Jim Flaherty says Ottawa is scrutinizing offshore tax havens and “significant tax avoidance” by some Canadians.

At last count, Statistics Canada estimated Canadians have stashed $88-billion out of the country.

Mr. Flaherty wouldn't say whether Ottawa plans to crack down on offshore havens but said the Conservative government wants everybody to pay their fair share of taxes. “We are interested in broadening the tax base, and in tax fairness to Canadians, broadly defined,” he told a Parliamentary finance committee. Asked if the review is important, he replied: “We either review things or we don't — and we are.”

He did not elaborate on lost tax revenue but said only that “there is some significant tax avoidance there.” Mr. Flaherty was quick to note that tax avoidance — working within existing tax rules — is not the same thing as tax evasion.

A Statscan report last year said the most popular tax havens are Barbados, Ireland, Bermuda, the Cayman Islands and the Bahamas.

Separately, Mr. Flaherty announced that Ottawa was at risk of sliding into deficit years later if the Conservative government had done nothing to stop a growing bleed of revenue from tax-avoiding income trusts. “In the longer term, that was possible,” he said.

Income trusts were already costing Ottawa $500-million annually in lost tax revenue, and this hemorrhaging would have widened to $800-million if Telus Corp. and BCE Inc. converted to trusts as planned, Mr. Flaherty told MPs.

He said that in future years — if income trusts were allowed to proliferate under existing rules — the only option to stave off a deficit would have been to raise taxes on individual Canadians to make up lost revenue.

“The alternative would have been to impose a heavier tax burden on individual Canadians and their families, and that's not fair,” he said.

“We did not want to go there in the medium- or longer term,” he added.

Economists said that Mr. Flaherty's scenario is possible five to 10 years out if the trust population kept growing under previous rules.

“If you start getting into $2-billion to $3-billion in lost revenue down the road, and you get a slowdown in the Canadian economy ... there is certainly some risk to the financial picture,” said Jack Mintz, a professor at the University of Toronto's Rotman School of Management.

Mr. Flaherty also announced he will update Canadians on Ottawa's finances and the economic outlook on Nov. 23.

Toronto-Dominion Bank chief economist Don Drummond said he expects this year's surplus will be $1-billion to $2-billion higher than forecast, meaning $4.6-billion to $5.6-billion.

The Finance Minister plans to use the traditional fall fiscal update to lay out a new road map for the Canadian economy. This strategy will seek to preserve the country's standard of living amid increasingly brutal global competition.

This economic plan will compare how Canada ranks against other Group of Seven countries in categories such as education, productivity and fiscal prowess. It will lay out measures for Canada to become a more powerful global player.

Mr. Flaherty, who's frequently hinted that he plans corporate and personal income tax cuts in the next budget, cautioned Canadians not to expect a mini-budget in the update. “It's not a budget. It doesn't have a bunch of fiscal measures and tax measures.”

On Oct. 31, the Conservatives broke a campaign promise by deciding to slap a levy on income trusts, which pay few or no corporate taxes. Taxing them like corporations would plug a revenue leak and head off an expected rush of corporations converting into trusts.

Asked if his economic agenda is designed for Bay Street or Canadians in general, Mr. Flaherty laughed. “As you probably saw in the last 10 days or so, Bay Street is a bit grumpy with me, so that's life,” he said, referring to the trust tax.

He said his plan is aimed at middle-income Canadians.

Separately, Thursday, Mr. Flaherty announced a raft of tax housekeeping measures, including changes to prevent tax deferral and avoidance through the use of foreign investment funds and trusts. He said however this was not part of his review of tax havens.