A new report has found that Canadian corporations pay so little in tax that they received enough revenue to cover their annual income tax bills less than one week into 2022.
The report from Canadians for Tax Fairness titled “Corporate Income Tax Freedom Day” notes that in 2021, corporations paid their lowest ever recorded income tax rate despite enjoying booming profits driven in part by more than $100 billion in federal pandemic support programs that were paid out last year.
According to the report, if pre-pandemic trends return in 2022, then corporations covered their tax bill at 12:33 a.m. on January 7. However, the report’s author D.T. Cochrane told The Maple, if the economic performances seen in 2020 and 2021 signal the start of a new trend, then corporations finished paying their taxes as early as 8:34 p.m. on January 6 this year.
“This is really a continuation of the outcome of a long-term process of ever-lower corporate tax rates,” said Cochrane. Over the past 20 years, according to the report, this trend has shifted $1.1 trillion in revenue from governments to corporations.
Cochrane said he was surprised that Corporate Income Tax Freedom Day has trended earlier under the Trudeau government.
“Typically, we think of the [Stephen] Harper government as having been hyper corporate friendly, and the Liberals as maybe taking a slightly more measured approach,” Cochrane explained. “But whatever their rhetoric might be, whatever promises they may have made about shutting down corporate loopholes, about ending the ability of corporations to exploit tax havens, that has not materialized in terms of the financial performance of corporations, and their ability to reduce the cost of corporate income taxes.”
In addition to falling statutory corporate tax rates, the use of tax loopholes, tax havens and aggressive corporate accounting tactics has also lowered tax bills, according to the report. Back in October, the publication of the “Pandora Papers” renewed attention to the fact that many wealthy individuals and corporations – including hundreds from Canada – are still able to shelter wealth in tax havens with relative impunity.
More generally, Cochrane explained, many of the exact methods used by companies to avoid taxes remain hidden from the public because they are conducted internally.
“There's a lot of, honestly, very innovative efforts put into reducing corporate tax bills,” said Cochrane. “It's stunning and infuriating. It's almost impressive how complicated these things can get.”
Corporations have also benefited from a boost in profits driven by federal pandemic support programs.
Many companies benefited directly from the Canada Emergency Wage Subsidy (CEWS) program, which was first implemented back in March 2020 to help employers retain workers amid government-ordered lockdowns. The program ended in October 2021.
According to the Government of Canada, the program paid out a total of $99.13 billion to 458,000 applicants. It has since been replaced by two new programs, the Tourism and Hospitality Recovery Program and the Hardest-Hit Business Recovery Program.
The problem with CEWS, Cochrane explained, was that the payments were disbursed with little accountability and loose eligibility requirements.
A report published earlier this month by the Canadian Centre for Policy Alternatives (CCPA) revealed that Canada’s top 100 highest-paid CEOs recorded their second best ever year for compensation in 2020. Thirty of those executives, the CCPA found, headed companies that received CEWS.
Large corporations also benefited from pandemic support programs disbursed to the general population, Cochrane said, because some of those companies control many of the basic goods and services that the public depends on. Grocery chains, for example, saw a surge in profits during the pandemic, particularly in the first wave.
“Just by the way that the economy functions, that money trickles into corporate profits, they skim off of their revenue, profits that then go into dividends paid to their wealthy owners, that go into interest paid to their wealthy lenders,” Cochrane explained.
At the same time, 2020 saw an “extraordinary” reduction in corporate taxes due to the economic hardships that many businesses faced, according to the report. But when profits rebounded in 2021, corporate taxes did not follow suit.
According to the report, non-financial corporations increased their cash holdings by almost $200 billion during the pandemic. It is estimated that at least $123 billion of that came from money paid out by the federal government.
“Our trickle up economy has likely meant inequality, income and wealth inequality, has gotten worse,” said Cochrane.
The report recommends restoring the corporate income tax rate from 15 to 20 per cent, implementing a minimum tax on profits recorded in foreign jurisdictions, investing in the Canada Revenue Agency, mandating greater transparency, closing tax loopholes and imposing a pandemic excess profits tax.
A report published by the Parliamentary Budget Officer in April last year found that if an excess profits tax of 15 per cent – as proposed by the federal NDP – were applied to companies with revenues of $10 million or more that achieved higher-than-average profit margins during the pandemic, the government could generate nearly $8 billion in tax revenue.
“Once that money comes back to the government, it allows it to maintain the financial supports for those at the bottom of the economic hierarchy,” said Cochrane.
LISTEN:In this week’s episode of The Maple’s North Untapped podcast, we spoke to health policy researcher Andrew Longhurst about the B.C. NDP government’s failure to implement measures needed to curb the spread of Omicron, and whether their response to the latest surge – which is already driving hospitals to crisis mode – is meaningfully different from the approach taken by right-wing Conservative governments in other provinces.