Flaherty On Tax Warpath With New Offshore Crackdown

by Mike Godfrey, Tax-News.com, Washington

13 November 2006

Jim Flaherty, Canada's Minister of Finance, has tabled a motion in the House of Commons to prevent tax deferral and avoidance through the use of foreign investment funds and trusts.

The motion, tabled at a Commons committee meeting last week, proposes to tighten the income tax rules, responding to concerns raised by the Auditor General that billions of dollars are being invested by Canadian individuals and companies in offshore financial centres, for the purpose of avoiding domestic taxes.

"Our new government is committed to a tax system that is both competitive and fair," Flaherty told lawmakers.

"The motion we tabled today will amend existing income tax rules to help ensure that income earned by Canadians through foreign jurisdictions, including tax havens, is subject to tax as if it had been earned in Canada," he added.

Flaherty explained that the measures in the motion relate principally to the taxation of income that is earned through the use of non-resident trusts and foreign investment entities, and generally follow the draft legislative proposals released for comment in 2005. The measures have been amended to take effect for years that begin after 2006.

The motion also includes a number of technical amendments to update the Income Tax Act and ensure the law reflects government policy, he added.

The Canadian government has become increasingly concerned at the rising level of money flowing into low-tax jurisdictions, after Statistics Canada revealed last year that $88 billion was invested in "tax havens" in 2003 - eight times the level recorded in 1990.

Of these increases, the largest sums were seen into flowing into Barbados, Bermuda, the Cayman Islands, the Bahamas and Ireland.

Auditor General Fraser has said that companies operating in Canada have avoided "hundreds of millions" in tax over the last decade as a result of these flows.

Recommended