Article content

Building a good tax system is not easy.

Article content

The Scottish economist Adam Smith, in his 1776 book The Wealth of Nations, said a good tax system should have the following tenets:

Article content

Article content

Article content

Article content

Canada has significant work to do in all of the above areas and that’s the reason many have loudly been calling for comprehensive tax reform for decades.

Article content

Article content

One of the most common responses I get is that our tax system is too complex so let’s just simplify it. That deals with the second tenet above — certainty. I wish reducing complexity was easy.

Article content

Unfortunately, many of our governments look at the tax system as a nail that needs a good hammer to solve issues. And anytime a nail is pounded by the hammer — the addition of new tax measures — it adds complexity.

Article content

For example, there are many who believe there are billions and billions of dollars in unreported income sitting offshore. These beliefs are often fuelled by ideology rather than facts. There’s no shortage of research papers published by think tanks, academics and governments that try to estimate the amount of hidden wealth and, therefore, lost taxation revenues.

Article content

International Tax Gap and Compliance Results For the Federal Personal Income Tax System, a 2018 publication by the Government of Canada, said “the stock of hidden offshore wealth held by Canadians could be between $75.9 billion and $240.5 billion … in 2013.”

Article content

Article content

The report also said that “for the 2014 tax year, the estimated range of federal tax revenue loss due to hidden offshore investment income earned by Canadians on their foreign assets was between $0.8 billion and $3 billion.”

Article content

Article content

My first reaction when I read that publication was that’s a pretty big range for the amount of hidden wealth. That’s like a cookbook saying to use one cup of sugar in a recipe for cookies, but, hey, you can also use four cups.

Article content

My second reaction was that the amount of estimated lost tax revenue was low compared to the overall compliance burden placed on Canadians to ensure they properly report their foreign income. My overall reaction — despite the report’s disclosed research methodologies — was that these estimates are a bit of a crapshoot.

Article content

Recent data leaks also add to the belief that the rich are hiding their assets. For example, the 2016 Panama Papers — the theft of client information from a Panamanian law firm — had the media in a frenzy about this.

Article content

The CRA in March 2024 disclosed that it had completed more than 310 taxpayer audits linked to the Panama Papers, resulting in approximately $83 million in federal taxes and penalties. The Paradise Papers resulted in $6.8 million in disclosed tax recoveries, while the Pandora Papers had nothing.