Canada's biggest corporations avoided paying $30 billion in taxes last year: report

Avoiding taxes is becoming an increasingly regular practice for big corporations, and it’s affecting affordability in Canada, according to a new report.

Non-profit organization Canadians for Tax Fairness found that 123 of Canada’s largest corporations avoided paying $30 billion in taxes in 2021.

“Unfortunately, a lack of corporate financial transparency makes it difficult to identify how corporations were able to avoid so much tax,” reads the report, which was released on Tuesday.

“The government needs to explain how corporations are able to avoid such large amounts of tax and take action to reduce the corporate ‘tax gap.'”

Read our new report: https://t.co/QEb5lNRrAz

— Canadians for Tax Fairness (@FairTaxCanada) October 4, 2022

Titled “Unaccountable: How did Canada lose $30 billion to corporations?” the report delves into the growing corporate “tax gap” and listed the companies that avoided paying the largest amount of income tax from 2017 to 2021.

It also explores how these corporations avoid paying taxes, and why that may be contributing to inflation.

What is the “tax gap”?

According to the report, the “tax gap” is the difference between how much a taxpayer actually pays in tax, and how much they would pay at the statutory rate, which is imposed by law on taxable income within a given tax bracket.

“The corporate tax gap grows if corporate profits increase or if the effective tax rate — how much income tax companies actually pay as a share of profits — falls,” explained DT Cochrane, the author of the report.

The organization determined the corporate tax gap from 2017 to 2021 by analyzing the sales, pre-tax profits, and taxes paid by 123 of Canada’s largest corporations.

In the graph below, you can see the considerable jump in the tax gap between 2017 and last year.

In 2018, corporations avoided paying $13.5 billion in taxes — that nearly doubled to $30 billion in 2021.

This increase is a product of corporations making higher profits and paying less in income taxes, according to the report.

“In other words, although corporate operating costs increased in 2021, those costs were more than passed along to buyers,” wrote Cochrane. “Canadian corporations were not just responding to inflation. They were helping to drive inflation.”

Top 20 corporations with the largest tax gap

The report revealed the top 20 companies that are the biggest tax avoidance perpetrators. It lists corporations from a range of industries including oil and gas, banking, and telecommunications.

Investment company Brookfield Asset Management had the largest tax gap from 2017 to 2021, followed by oil and gas corporation Canadian Natural Resources.

Other notable companies include Canada’s big five banks like Scotiabank and TD; pipeline giants like Enbridge and TC Energy; and telecom giant Bell Media.

How do corporations avoid taxes?

The report says that companies are able to avoid taxes through both legal and questionable means.

“Among the most significant ways that corporations avoid taxes is by taking advantage of tax havens,” wrote Cochrane. “Complex and opaque corporate structures allow companies to record revenue and profit in low-tax jurisdictions even if it was not generated in that jurisdiction.”

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The report also credits legal government loopholes for providing corporations with questionable benefits.

“For example, the business meals and entertainment deduction subsidizes luxury perks enjoyed by corporate executives,” reads the report.

Lastly, it cites an underfunded Canada Revenue Agency and meagre penalties imposed by Canada’s tax laws as one of the major reasons for tax avoidance.

“Although Justin Trudeau’s government has acknowledged the problem of excessive corporate power and tax avoidance, it has done too little to confront it,” wrote Cochrane.

So, how does this affect you as the average taxpayer?

The report suggests that tax avoidance is driving inflation, which contributes to the increased cost of living in Canada.

“Corporate tax avoidance has significant consequences for government finances and the Canadian economy,” reads the report. “It also undermines people’s confidence in our tax system.”

“The affordability crisis of Canadians and record corporate profits are two sides of the same coin,” it added.