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Editorial: No special deal for tax dodgers

Get caught trying to avoid income taxes, and the Canada Revenue Agency will ding you with penalties, as well as the taxes you owe, dragging you through the courts, if necessary.

Get caught trying to avoid income taxes, and the Canada Revenue Agency will ding you with penalties, as well as the taxes you owe, dragging you through the courts, if necessary.

Unless you happen to be wealthy and have the resources to put up a legal fight. In that case, it appears, the CRA will roll over, ask nicely for payment of the avoided taxes, along with a little interest, and forgo any penalties or prosecution. And by the way, let’s just keep this between ourselves.

It can be expedient to work out deals to avoid costly legal battles, but it’s an arrangement that too often favours the wealthy over the not-so-wealthy. Justice should not depend on the size of a person’s bank account.

The CRA has offered amnesty to wealthy Canadians involved in what the agency called an offshore tax “sham” based on the Isle of Man, saying it will not charge penalties or full interest on the taxes avoided through the scheme. One of the conditions of the offer was that it remain confidential.

The CBC, which originally discovered the offshore tax-avoidance scheme, has obtained a copy of the amnesty offer, made in May 2015.

The tax-dodging arrangement came to light last September when the CBC reported, based on court documents, that a Victoria man and his two adult sons had signed up in 2000 for a KPMG tax product in the Isle of Man that targeted “high net worth” Canadian residents.

The documents show that the family paid little or no tax between 2002 and 2010, yet received almost $6 million from an offshore company. KPMG, which is both a tax and auditing firm, says any money the family members received were “gifts” and therefore not taxable.

The scheme, which the CRA says was initiated by KPMG, involved the Canadians giving all their money to a company on the Isle of Man, which has no corporate income tax, and drawing money from the company at will in the form of non-taxable gifts. It appears about two dozen Canadians were involved in such schemes through KPMG.

The CRA says the scheme was “grossly negligent” and was devised to deceive the minister of revenue. It had already assessed huge penalties against a handful of clients before making the secret offer to other investors.

We should not feel bound to pay more taxes than the law requires, and there is nothing wrong with trying to lessen the tax bite. In that process, though, mistakes are sometimes made, and it’s appropriate to let an unwitting offender off without penalty, other than paying taxes that are in arrears.

But it is hard to believe naïveté is at play when people receive millions in income and pay no taxes, when complex schemes are deliberately devised to hide income and avoid paying taxes.

A CRA official says the agency recognizes that “the earliest possible resolution of disputes is in the public interest, as lengthy litigation is costly to all parties and the outcome of complex, tax-related litigation processes may be difficult to predict.”

Settlement is often preferable to litigation, but it’s an approach that requires an even hand and shouldn’t be influenced by how many lawyers the defendant can afford. The CRA shouldn’t cave in because the other side can afford to put up a tough fight.

Those who seek to benefit from deliberate tax-avoidance schemes should not be allowed to do so; those who devise such schemes should be held to account.

And how much money they have shouldn’t be a reason to let them off the hook.