Feigenbaum Law

House of Commons Re-Opens Probe Into Tax Sham

Personal Tax Planning
May 21, 2021

The Canadian government recently announced plans to pursue the collection of taxes from ultra-wealthy Canadians who may be hiding assets in shell companies located in the Isle of Man in order to avoid paying taxes or alternatively to shelter them from creditors, such as former spouses. A story recently published by the CBC states that a long-dormant parliamentary probe into the tax shelters, involving the accounting firm KPMG, is going to be relaunched.

Sword companies established

The matter was originally brought before the House of Commons in 2016 after reports that the CRA alleged KPMG was involved in setting up a “tax sham” that allowed very wealthy Canadians to set up sham companies in the Isle of Mann, a self-governing territory in the middle of the Irish Sea, in order to avoid paying tax. The story that broke the news stated that a Victoria, BC family avoided paying any tax for eight years despite receiving more than $6 million in “gifts” from their offshore company, which meant they were non-taxable. At the time the CBC reported that the CRA accused KPMG of deliberately helping its clients avoid paying tax.

The probe went silent in 2016, but was resurfaced after another report surfaced that alleged the sham companies were also used by criminals to embezzle more than $500 million from investors.

Accounting firm refuses to name clients

KPMG has admitted that it stopped offering the service to its clients in the early 2000s, but it appears that sham companies set up before that continued to remain active for another decade. This has prompted members of the House of Commons finance committee to try to identify who holds these accounts. Lucy Iacovelli, KPMG Canada’s head of tax, testified before the committee on May 6  but refused to provide the identity of the firm’s clients.

When asked by Conservative MP Ed Fast if KPMG offered a “product” to its clients that could be used to reduce their tax burdens, Iacovelli said the issue was “very complex,” adding a yes/no answer could not be provided. Bloc MP Gabriel Ste-Marie warned her that she “cannot refuse to provide this information.” The committee gave KPMG until the beginning of June to supply the information, or else MPs could subpoena witnesses and documentation.

Billions in tax revenue go uncollected

The National Post reported earlier this week that offshore tax avoidance keeps the government from collecting up to $25 billion a year. Just last month, it was reported that a leak of financial records showed that around 900 Canadians had companies and trusts established in Panama, and that just 60% of them had complied with tax obligations. The remaining individuals and companies have been or will be audited. So far the CRA has issued $21 million in penalties or new taxes, though it was not clear if any of that money had been collected.

Contact the team at Feigenbaum Law to assist you in manage your complex tax files. Our team of professionals will work alongside you to ensure that you and your clients receive excellent service and advice. We offer services to clients in the US, Canada and around the world. Contact us at mark@feigenbaumlaw.com, or call us at (905) 695-1269 or toll free at (877) 275-4792 to learn more about how we can help.