All You Need to Know About Canadian Tax & Tax Havens
Posted: Oct 09, 2013
A tax haven is a country where taxes are nonexistent or are very low. To describe it in a more complex manner, it is said that it is a place where there is no relevant taxes that are levied. There are many countries like Canada that are becoming haven for tax avoidance in order to attract investment from other countries into their country. By doing this, they are providing business opportunities and jobs to the citizens of the country. In such countries, the taxation will be a lot more less than in any other country and will also give the investor a lot of tax benefits. The lower tax slabs or no collection of tax is generally for a few years after which the taxation rate will be hiked slightly.
Tax haven can be used in very straightforward ways such as setting up an offshore bank account to hide assets and income with the intention of not reporting the income. This is tax evasion. Tax evasion is a deliberate attempt to conceal or distort net income. Tax evasion schemes involving tax havens may also be quite sophisticated, and take many twists and turns.
Often, tax havens are used to set up trusts or to create corporations or other entities that are used to make tracing assets as difficult as possible, including foundations designed specifically to disguise the true ownership of assets. These entities are often used as part of larger tax plans to hide critical parts of the transactions. Such plans and transactions fall under the category of aggressive tax planning and may constitute tax evasion.
Aggressive tax planning is a challenge confronting all developed countries. It can involve very complex structures with both domestic and international elements. The objective of this type of tax planning is to get tax benefits that were never intended under the normal application of the tax laws. Aggressive tax planning manipulates transactions to avoid crossing the line to tax evasion.
The Canadian tax system discriminates greatly between countries with which Canada has a tax treaty and those with which it does not. In general, Canada has treaties with most non-tax haven countries, but not with pure tax havens.
There are legitimate reasons why a tax haven might be used, and tax administrators have no view on where Canadians invest as long as they comply with Canada’s tax laws. What the CRA is concerned about are investments, transactions and schemes that use tax-haven countries to reduce, avoid, or evade Canadian tax. Using tax-havens for tax avoidance and tax evasion is a growing concern for Canada as it is for other countries. The CRA is working closely with tax administrations of other countries in focusing its efforts on identifying offensive arrangements and taking corrective action.
Ken Donaldson is a chartered accountant who practices as an independent tax consultant. He also author of tax havens, in this article he provides canadian tax tips. For more information you can visit Taxca.com.