The great northern tax haven

Posted on September 28, 2011 in Governance Debates

Source: — Authors: – opinion/editorialopinion
Published On Mon Sep 26 2011.    By Linda McQuaig, Columnist

For troubled youth or couples seeking counselling, the Northwood Family Office might sound like the place to go. Except for one thing — you can’t get in the front door without $10 million.

That’s rock-bottom what you’ll need. The Northwood Family Office caters to families with assets ranging from $10 million to $500 million. (So don’t think you can sneak in with just $9 million.)

Despite its homey sounding name, the office is actually a boutique Toronto firm that offers wealth management services for the very rich — a growing industry in Canada, even while growth in much of the rest of our economy remains stagnant.

While Canada’s reputation as a leading peacekeeping nation has taken a nosedive, we’re punching above our weight on the international scene on a new front — as a tax haven for the rich.

“Canada is a desired destination for global high-net worth families, and the Canadian tax system makes it even more attractive,” notes Toronto tax lawyer Jonathan Garbutt, pointing to Canada’s lack of estate and wealth taxes.

Sovereign Investor, a U.S. website that provides advice to affluent Americans, says, “Canada is a safe, stable, lower tax country . . . (where) you can find an easy, affordable, manageable, accessible offshore bank account.”

This puts Canada at odds with what’s happening elsewhere in the advanced world, particularly the U.S. and U.K., where governments are seeing the difficulty of reducing deficits without going after the people who’ve been capturing an ever-larger share of the national pie.

For years, Canada followed the U.S. and U.K. almost lockstep in cutting taxes on the rich. Now that those countries are heading in the opposite direction, Canada is suddenly marching to its own drummer.

Barack Obama’s vow last week that he’d veto any debt reduction plan that didn’t include higher taxes on the rich — so that millionaires wouldn’t pay lower rates than their secretaries — apparently stirred no interest in Ottawa.

Obama is trying to shut down a tax loophole — dubbed the “most unconscionable tax loophole” by New York Times columnist Nicholas Kristof — that allows ultra-rich hedge fund managers to pay tax at the special low capital gains rate. A battle over the loophole has raged in Congress for four years, and recently heated up with multi-billionaire Warren Buffett pointing to the measure as evidence that Congress has been “coddling the rich.”

It’s unclear if the loophole exists in Canada. Canada Revenue Agency officials denied Monday that it did.

But Toronto tax lawyer Jack Bernstein, writing in the tax journal Tax Notes International in June 2007, said that the loophole applied in Canada and the U.S., and described it as “attractive” for Canadian fund managers. Bernstein, who advises hedge funds, did not return calls Monday.

This raises the possibility that Canadian fund managers have been taking advantage of the loophole but haven’t yet been challenged by revenue officials.

The lack of controversy here is surprising, given that Canada also has deficit problems and, like the U.S., has seen a huge concentration of income at the very top in recent years.

Canada’s ultra-rich — those in the top 0.01 per cent — now have a bigger share of national income than at any point in Canadian history, according to data compiled by McMaster University economist Michael Veall. But the median Canadian family income hasn’t grown in 30 years; in fact, it’s declined from $48,800 (in today’s dollars) to $46,700.

This means ordinary Canadians have little buying power, reducing the incentive for business and the wealthy to invest their substantial cash reserves in ways that create jobs.

As growing inequality becomes a global issue, the subject is strangely absent from Canadian politics, including the current Ontario election.

While the NDP has called for increased corporate taxes, it’s retreated in recent years from urging higher taxes on the rich — as even Bob Rae did when he was Ontario NDP leader. In the 1990 provincial election, Rae ran on a platform that included a provincial estate tax — and won a majority government.

Is it too much to hope that our most progressive party would take a stand as progressive as the president of the United States and America’s second richest man?

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One Response to “The great northern tax haven”

  1. Matthew Schofield says:

    I agree with what the article has to say. I am troubled that the Canadian government has gone the opposite way in regards to solving this economic inequality. I am hopeful that the NPD will actually go through with their plan to increase corporates taxes. I was disgusted to learn that a corporate secretary pays a higher tax percent then the CEO they work for. How is that at all fair? I agree with the social democratic paradigm of politics in regards to their beliefs of more equitable distribution of income, and opportunities. I also agree that this ideology condemns progressive taxation policies, specifically the special low capital gains rate tax law.

    I’d like to believe that is another factor that is contributing to the problem that the poor are getting poorer and the wealthy are getting richer. Not only are the low and middle class people already at a huge income deficit, even the tax policies are contributing to this growing gap. I can only hope that the the NPD follows through with their plan and holds truth to the ideologies that they claim to the foundation of their party. They believe in government intervention in regards to economic beliefs and it is clear that government intervention is necessary at this point in time. I am simply curious as to what the ramifications of increasing tax’s to the rich will have on this country, wether they be positive or negative.


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