The federal government has singled out Canadian banks for gaming the tax system to artificially reduce their tax bills.In the budget released Tuesday, Ottawa announced it will tighten tax rules “meant to prevent a small group of taxpayers, typically Canadian banks and other financial institutions, from gaining a tax advantage.”The measure was one of a slew of reforms to prevent tax evasion and avoidance that Ottawa estimates will bring in almost $1 billion per year.An investigation published by the Star and Corporate Knights magazine in December crunched six years of corporate financial data to show that Canada’s Big Five banks avoided an average of $3.8 billion in tax every year.Despite being the most profitable companies in the country, Canadian banks pay 1/3 the tax rate of other large corporations. They also pay a lower rate of tax than big banks in any other G7 country.While publicly available information wasn’t specific enough for a forensic auditor to determine exactly how the Big Five — BMO, RBC, TD, CIBC and Scotiabank — avoided billions in tax, the banks all use offshore subsidiaries based in tax havens to lower their tax bills.The 2018 federal budget specifically targets “the use of sophisticated financial instruments and structured share repurchase transactions,” used by banks and other financial institutions to create “artificial losses.” “The Government is committed to closing tax loopholes that benefit small groups of taxpayers at the expense of those Canadians who pay their fair share of taxes,” states the budget document made public this week. The Canadian Bankers Association, on behalf of the Big Five banks, said without more detail on specific legislative measures, it’s difficult to know how the reforms will affect banks.“Banks in Canada have always paid their full share of taxes and will continue to work closely with Finance to ensure continued compliance in t ...
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