I am a moderately wealthy Albertan. I recently sold a medical device company after 20 years of hard work, risk-taking and managing through challenging economic times. There were significant financial and personal risks during the development of the company. I wanted to be smart about protecting the fruits of my labour. So when the law firm that helped me with the transaction suggested meeting with their tax specialist – I agreed. Sitting in a downtown Calgary office, I expected to hear some solid advice from a professional who knew all the subtleties of the Income Tax Act.
I got something much different.
The tax specialist tried to convince me to utilize his “scheme” to defer taxes. It involved the formation of multiple offshore companies with various transactions between shell companies. I did not get any specific details but did know that the companies would not actually create any product or service. They were being created as part of the “scheme”. The firm would charge me a commission of 20 – 30 per cent. That meant I could pocket 70-80% of the taxes saved. This would be a substantial amount of money.
I asked about specific details. They said they would not reveal them to me unless I committed to the plan. That definitely didn’t feel right. I asked if the plan was legal. The answer was that the plan was ”not illegal at this point.”
That was a walkaway moment for me. I chalked it up to an isolated incident.
But recently I saw a news report about a KPMG tax scheme for “high net worth” Canadians. It involved setting up shell companies in the Isle of Man, a notorious tax haven. Money is “invested” in those companies and then investors get their money back in the form of tax-free “gifts”. In this case one investor received nearly $6 million that way. He was told that he was not required to declare any of that income to the Canadian government.
The news report quoted the investor. He said that he knew nothing about Canadian tax law and “went to the best people in the country” for advice. How could following the advice of KPMG land him in such hot water?
Whether he bothered to question those high-priced tax professionals about the legality of the scheme is a question for his conscience. But his case resonated with me.
There has been plenty of outrage surrounding this story. My anger is not directed towards those wealthy Canadians who utilize the schemes. It is mostly directed to those high-profile multi-national firms supposedly following ethical standards who create and promote these quasi-legal schemes.
In addition to being a tax consultancy firm, KPMG is one of the largest auditing firms in the world. Every year, federal and provincial governments hire them for their advice. The firm has won numerous awards for good corporate citizenship.
If you were sitting in their offices and encouraged to participate in a plan that could save you hundreds of thousands in taxes what would you do? Would you be a chump not to buy in? Are all the smart guys skirting the system?
During the past federal election, Justin Trudeau and the Liberal Party were elected partially on their tax plan transferring some of the tax burden from the middle class to the top 1%. However without a comprehensive strategy to limit the tax schemes available to the wealthy, the move may be counterproductive. It may push more wealthy Canadians towards the more aggressive tax avoidance strategies suggested by tax specialists. Most Canadians love our country, we complain about how all levels of government use our tax money but we expect all to pay their fair share of tax.
It is my right to employ professionals to help me develop a reasonable tax plan and to minimize the amount of tax I pay. But as a business person – and a Canadian - I also have a responsibility to contribute my fair share to the country that provides us with stability, infrastructure, health care and so much more.
It is time to demand a Canada Revenue Agency – and a federal government - that asserts itself against those organizations who are attempting to generate huge legal and accounting fees ultimately at the expense of the average Canadian taxpayer. We need to force a shift in the practices of those organizations to conduct themselves with integrity and for the common good of all Canadians.