How offshore tax havens fuel inequality in Canada and abroad
“It is a multi-partisan consensus that it should end, and it is also a multi-partisan consensus that has enabled it to proliferate and get worse.”
This piece was originally published in Ricochet.
A group of dozens of wealthy Canadians calling themselves “Patriotic Millionaires” recently wrote an open letter to Finance Minister François-Philippe Champagne asking him to implement policies to reduce income inequality in next month’s budget “by effectively taxing the rich.”
“One of us is a former member of the Canadian Parliament, and the other is a current member of the one per cent, so we’re well-positioned to tell you that our current level of wealth inequality is threatening the stability of our economy and democracy, and is partially the result of a failure to tax extreme wealth,” Patriotic Millionaires Ratna Omidvar and Sabina Vohra-Miller write in the Hill Times.
Omidvar and Vohra-Miller point to a new report from Statistics Canada that shows how income inequality — defined as the gap between the top and bottom 40 per cent of income earners — is at a record high in 2025, and contributing to significant economic distress.
The World Inequality Database, compiled by French economist Thomas Piketty, measures economic inequality by the share of income and wealth earned by the top one per cent.
The difference between income and wealth is similar to the difference between deficit and debt — the former is an annual measurement while the latter builds up over time, providing a more holistic measurement.
In 2023, the top one per cent in Canada earned 11.6 per cent of all income in Canada — higher than at any time from 1940 to 1998, but lower than the peak of 14.2 per cent in 2007, right before the global financial crisis, and 14.3 per cent in 1939, at the outset of the Second World War.
When it comes to wealth inequality in Canada, the top one per cent of wealth holders now hold 24 per cent of total wealth, and close to half of that is held by just the top 0.1 per cent. More than a trillion dollars is held by just 1,800 families, the top 0.01 per cent of wealth holders, according to a new report from the Parliamentary Budget Officer (PBO).
“PBO finds that there were approximately 169,400 families in the top one per cent in 2023, and they each had a net wealth of at least $7.4 million. PBO projects these numbers to have grown to 176,800 families with a minimum net wealth of $7.5 million in the last quarter of 2024,” the report states.
Canadian companies had a minimum of $682 billion in wealth stored offshore in 2024, representing a 165 per cent increase over a decade. And that’s just the money stored legally abroad.
In addition to advocating “an extremely modest wealth tax” on those who make more than $10 million annually and reversing the government’s abandonment of capital gains taxes increases, the millionaires asked Champagne “to crack down on the abuse of tax havens.”
A key factor in wealth and income inequality in Canada and elsewhere is the increasing use of foreign tax havens — jurisdictions that offer low-to-no taxation, particularly on capital gains or corporate income, and other benefits that enable the super rich to shield their wealth from taxation without breaking any laws.
According to a July report from Canadians for Tax Fairness (C4TF), The Rise and Rise of Tax Havens, Canadian companies had a minimum of $682 billion in wealth stored offshore in 2024, representing a 165 per cent increase over a decade. And that’s just the money stored legally abroad.
University of Calgary economist Lindsay Tedds told Ricochet that tax havens are as much a product as a driver of global economic inequality.
“It’s nowhere near as simple as people want it to be,” said Tedds, who specializes in tax policy. “It’s part of something bigger and more complex.”
A colonial institution
In 2024, according to the C4TF report, the most used tax havens by Canada’s large corporations and wealthy elite include Bermuda, with $142.4 billion in assets, Barbados with $120.6 billion in assets, Luxembourg with $97.1 billion, the Cayman Islands with $87.2 billion, and the Netherlands with $80.6 billion.
Other popular tax haven jurisdictions include the British Virgin Islands, the Isle of Man, Hong Kong, Singapore, Ireland and Delaware.
It’s no coincidence, says Tedds, that many of the top jurisdictions for offshore wealth hoarding are former or current British colonies.
“We colonized all those countries, and then we set up this structure with these tax rules to benefit us.”
Tax havens, she explained, have the impact of strengthening structures of colonialism, in which a small economic elite in the tax haven benefits from practices that starve the state of much-needed tax revenues.
“We colonized all those countries, and then we set up this structure with these tax rules to benefit us,” said Tedds, who specializes in tax policy. “That’s their industry.”
While Canada loses an estimated $3.65 billion in total from individual offshore avoidance, according to the Tax Justice Network, with as much as $15 billion in annual tax revenue lost through avoidance by Canadian companies, Canadians have cost offshore tax jurisdictions $11.58 billion.
The result is a “perpetuation of inequality between the Global North and the Global South,” said Tedds. “You can’t overlook that.”
Because of this relationship of dependency, the solution isn’t as simple as just shutting down offshore tax havens, she emphasized.
“We’re just colonizing them all over again and we need to tackle that. Don’t get me wrong. But we’ve got to do this carefully, because we created them,” said Tedds.
What we know and don’t know
According to the C4TF report, at least 46 companies listed on the Toronto Stock Exchange 60 have subsidiaries based in known tax havens.
These companies saved $7 billion in 2024 due to foreign tax rate differences, but it’s impossible to determine how much of this money was saved specifically due to offshoring, because while companies have to file financial statements for each country they do business in with the CRA, these aren’t made public.
“Given that all of the avoided taxes were in companies with confirmed subsidiaries in tax havens, however, it is safe to say that a significant portion of this revenue was lost through the use of tax havens, including subsidiaries set up for the express purpose of reducing taxes,” the report notes.
Brookfield, where Prime Minister Mark Carney worked before entering politics at the beginning of this year, has the most, with 44 subsidiaries storing their wealth offshore.
During the election, Radio-Canada reported that two investment funds worth a combined $25 billion and another worth $5 billion, which were established when Carney was at the helm of Brookfield, were registered in Bermuda and the Cayman Islands, respectively.
This might explain why of all the party platforms in the 2025 federal election, only Carney’s Liberals were unwilling to address the issue of tax havens.
Jared Walker, C4TF’s executive director, told Ricochet that because publicly traded corporations have to produce public filings, “it is harder for them to obscure where they have parked some of their money.”
Determining which individuals have wealth stored offshore is a much “more labyrinthine” process, he added.
“People who are extremely high net worth individuals are able to use the kind of structures that we have seen that big corporations are able to use to their personal benefit, as well as the benefit of their the companies that they work for, own or on the board of,” explained Walker.
He added that it’s “almost certainly the case” that these individuals are using tax havens to increase their wealth, but they also have other means at their disposal.
Several of Canada’s billionaires, as listed by Forbes, earned their fortunes from companies that make prolific use of tax havens.
Bruce Flett, the CEO of Brookfield, which has the most subsidiaries registered in tax havens, is worth $7.1 billion. Sam Pollock, CEO of Brookfield Infrastructure, is worth $1.8 billion.
Thomson Reuters, which owns the Reuters wire service and the Globe and Mail, in addition to various legal and accounting services, has legally avoided $240 million in taxes via foreign tax differences. Heirs to the family fortune Peter, David and Taylor Thomson, Linda Campbell, and Gaye Farncomb are worth a combined $46.7 billion.
But tax havens, cautions Walker, are just one “part of a larger constellation of tax laws that enable wealthy people to avoid their fair share of taxations.”
Wealthy executives often receive the bulk of their pay in stock options, which are taxed at half the rate of income. If they sell these stocks, then they would have to pay taxes on the capital gains, which are also taxed at 50 per cent of income.
A quirk of Canada’s tax code, says Walker, is that there is no estate tax, meaning that when a wealthy person dies, “all of the wealth, with some very small exceptions, that they have accrued in their life, moves right onto their little nepo baby kids.”
“That’s part of the reason why, if you look at a list of the wealthiest families in Canada versus a list of the wealthiest families in the U.S. or Europe, there is a lot less fluctuation,” he said.
In addition to artificially lowering their personal income taxes, Tedds of UCalgary notes that these sorts of loopholes make some of the wealthiest Canadians improperly eligible for benefits like Old Age Security, the Guaranteed Income Supplement, GST tax credit and the Canada Child Benefit.
“There are some real horrible cases of people who are incredibly wealthy, who are not paying taxes and stealing benefits from the system,” said Tedds.
‘Bending the law without breaking it’
On paper, Canadian companies still have to pay corporate income taxes on profits earned abroad to the Canada Revenue Agency (CRA), but wealthy companies and their executives can afford high-priced lawyers and accountants to find ways around this requirement.
Thaddeus Hwong, a scholar at York University’s School of Administrative Studies, describes this process as “bending the law without breaking it.”
The constellation of interests enabling this behaviour works as a “perpetual motion machine,” he added, in which “one actor reinforces the actions of the other, and the machine never stops on its own.”
“Taxpayers, out of self-interests, don’t want to pay taxes. Tax lawyers and tax accountants, out of self-interests, enable them to do so. Those in power in government, out of self-interests, won’t challenge those with economic power and thus political power,” said Hwong.
Canada’s tax haven era began in 1980, with Prime Minister Pierre Eliott Trudeau’s Liberal government signing the Canada-Barbados Income Tax Agreement. This treaty enabled Canadian companies to set up shop in Barbados, pay the island nation’s virtually nonexistent corporate tax rate and return the dividends to Canada without having to pay any additional taxes on them.
“In our system, the policy agenda is often not decided by most who vote. Instead of one person one vote, more like one dollar one vote.”
Throughout the 1980s and 1990s, Canada signed agreements with other tax havens modelled after the Barbados agreement.
While this arrangement is only supposed to apply to subsidiaries that are actively conducting business in the jurisdiction, meaning they have employees, machinery and are producing a product, accountants have tricks they can use to make it appear that a subsidiary is conducting active business on paper.
One of these is loaning capital to a tax haven-based subsidiary with no interest, which then loans it back to the main company at high interest rates to conduct economic activity. The interest payments are recorded as profit, wiping out the company actually conducting the economic activity’s taxable income on that transaction. The subsidiary then pays dividends on these profits to the main company tax-free.
In 2009, Conservative Prime Minister Stephen Harper began signing tax information sharing agreements with tax havens, which allows the CRA to request tax information about Canadians who own property in a foreign jurisdiction, in response to calls from the Organization for Economic Cooperation and Development (OECD), of which Canada is a member, to crack down on illegal tax evasion.
At the same time, Harper, a long-time anti-tax crusader with the National Citizens’ Coalition before his return to politics, changed the law to extend the tax benefits of full-blown tax treaties to those with tax information sharing agreements, leading to an explosion in offshore wealth hoarding.
What’s the answer?
Closing tax loopholes to ensure the rich pay their fair share is an immensely popular policy across the political spectrum.
According to a 2021 Abacus Data poll commissioned by the Broadbent Institute and the Professional Institute for the Public Service of Canada, 92 per cent of Canadians endorse “making it harder for corporations to strategically book profits in tax havens when no economic activity happens there.”
“It is a multi-partisan consensus that it should end, and it is also a multi-partisan consensus that has enabled it to proliferate and get worse,” said Walker of C4TF.
There are some potential solutions on offer.
The simplest of which is to cancel tax agreements with known tax havens, which Tedds of UCalgary cautions against, citing tax havens’ dependence on foreign capital.
Another is to apply the same standards for dividends on profits earned abroad to those earning personal income abroad, who have to remit the difference between the tax rate they paid abroad and their marginal rate in Canada.
Canada could also place the onus on companies to prove that they are using a foreign subsidiary to produce goods and services, support a UN international tax convention to address the issue on a global scale, and make the country-by-country financial information companies are required to provide the CRA public.
All of these possibilities depend on the political will to address the problem, which Hwong of York University notes is lacking for material reasons.
“In our system, the policy agenda is often not decided by most who vote. Instead of one person one vote, more like one dollar one vote,” he said. “The government is captured by those with economic power and thus political power.”