CRA audits of ultra-wealthy Canadians yield zero prosecutions, convictions

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OTTAWA — Data from the Canada Revenue Agency shows its recent efforts to combat tax evasion by the super-rich have resulted in zero prosecutions or convictions.

In response to a question tabled in Parliament by NDP MP Matthew Green, the CRA said it referred 44 cases on individuals whose net worth topped $50 million to its criminal investigations program since 2015.

Only two of those cases proceeded to federal prosecutors, with no charges laid afterward.

The lack of prosecutions follows more than 6,770 audits of ultra-wealthy Canadians over the past six years.

It also comes amid a roughly 3,000 per cent increase in spending on the agency's high-net-worth compliance program between 2015 and 2019 due to a beefed-up workforce, according to an October report from the parliamentary budget officer.

Green said federal authorities avoid pursuing Canada's biggest tax cheats but go after small business owners who don't pay their taxes under a "two-tiered system" pocked with "loopholes."

"The CRA is not pursuing Canada's largest and most egregious tax cheats. And yet for a small mom-and-pop shop, if you don't pay your taxes long enough -- two or three years -- then they will absolutely go in and garnish your wages because they know you don't have the ability to take it to court," he said.

"There's a tax code for the ultra-wealthy and then there's a tax code for the rest of us," Green said. "The rich are taking advantage of the holes in our tax system. And this Liberal government continues to allow them to do so."

The issue is top of mind for federal lawmakers this week as a parliamentary committee convened Tuesday to discuss the CRA's attempts to combat tax evasion and avoidance.

"The ultra-rich will not be treated with kid gloves. I have no respect for those who cheat the tax system. But I can tell you that if you think that we're going to resolve everything, I think you're naive," National Revenue Minister Diane Lebouthillier told the panel in French, citing the need for international co-operation.

"The super-wealthy are able to pay for super lawyers, super tax specialists. They can do everything to get out of paying their fair share."

Increasingly, those individuals are going to court when audited in order to withhold documents, with about 3,000 "complex" cases now ongoing, the minister said.

"The fact that the cumulative 44 investigations ... have not resulted in convictions within five years is a result of the complexity of the cases and the high legal threshold for securing a criminal conviction in Canada," CRA spokeswoman Pamela Tourigny said in an email.

Members of the House finance committee also passed a motion Tuesday from NDP finance critic Peter Julian calling on the government to launch a public inquiry into tax planning by KPMG in connection with shell companies -- named after ancient swords -- and allegations of investment fraud on the Isle of Man.

The requested investigation follows reports that the British Crown dependency, renowned as a tax haven, may have been linked to alleged fraud that saw millions siphoned offshore and embezzled from Canadian investors.

"KPMG Canada has been very clear that we have no connection whatsoever to the Isle of Man sword companies or the CINAR fraud," spokeswoman Tenille Kennedy said in an email, adding that the company will continue co-operating with the CRA.

Conservative national revenue critic Philip Lawrence said in a statement that "well-connected elites" enjoy exemptions "while everyday Canadians are left further behind," and that Tories stand for tax fairness.

Denis Meunier, former director general of the CRA's criminal investigations directorate, said the dearth of criminal charges is striking. But authorities often lack resources to carry out pricey, painstaking prosecutions across international borders and can opt instead for hefty non-criminal penalties.

"They may have some of the best lawyers fighting, so you may see that more in Tax Court, rather than convictions," Meunier said of proceedings against the ultra-wealthy.

Settlements are much more common than criminal prosecutions, saving investigators time and money, said Kevin Comeau, author of a 2019 C.D. Howe report on money laundering.

"The problem with that is that you don't have on the public record that these persons did not comply with the tax law. And therefore you don't have that public shaming and you don't have that warning to other tax cheats out there," he said.

Tax evasion often boils down to unreported incomes or exaggerated expenses, which can then be deducted from income declared on tax filings.

"It's not atypical to see individuals pay out invoices from foreign consulting companies. You pay a million bucks for a specialized report, and the company is a consulting firm based in a tax haven (where the real, or 'beneficial,' owner is hidden from view) and basically the company is owned by the same guy in Canada whose business it is," Meunier said.

It can be extraordinarily tough to trace money through the warren of shell companies and tax havens used by those seeking to stash their loot.

"They hear you coming. They know CRA is after them," said Comeau."They can just put in a couple more trusts and companies in other jurisdictions to make the trail longer at any time. It's a never-ending rabbit hole."

The Liberal budget in April allotted $2.1 million over two years for the Industry Department to launch a new beneficial ownership registry by 2025. The government has also pledged $606 million over five years starting this year to "improve the criminal investigations program" and crack down on illicit tax schemes, including by super-rich Canadians, Lebouthillier said.

Comeau, a retired lawyer and member of Transparency International Canada's working group on beneficial ownership transparency, said the registry could be a "game changer" for tax avoidance in a country with some of the weakest financial transparency laws among liberal democracies.

"Even if it is legal, they're not paying their fair share. So there's going to be huge social pressure on those persons to unwind those dealings and actually start bringing their money back to Canada," he said.

"Many of these people are very highly respected people in the Canadian establishment."

Tax evasion -- a predicate offence, meaning it forms a component of a more serious crime, such as money laundering -- differs categorically from tax avoidance, a legal means of keeping cash out of tax collectors' hands through clever accounting.

But critics say the vast troves of wealth that remain untouchable to government authorities reveal the need to tighten tax rules as well as hunt down cheats.

"In former times we didn't see tax avoidance as a crime," said Brigitte Unger, professor of economics at Utrecht University whose book, "Combating Fiscal Fraud and Empowering Regulators," was published in March.

"But now we see the public sector needs money, and this is effectively stealing money from public coffers, and should be treated as such."

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This report by The Canadian Press was first published June 22, 2021.