opinion | BCBusiness

opinion | BCBusiness

Why do we shop across the border? Because things are cheaper there. Why? Because U.S. taxes are lower

Tax avoidance, and its darker cousin tax evasion, have been popular news items in the last few months as countries everywhere (including Canada and the U.S.) try to smoke out rich fat cats and their hidden accounts in places like Switzerland and the Cayman Islands.
 
And make no mistake—tax avoidance (which is legal) is given very few moral points over tax evasion (which is illegal). The U.S. in particular sees no substantive distinction between the two, and Canada’s position isn’t far away: rich folks—or the one percenters in Occupy Wall Street parlance—must be reigned in and made to pay their fair share.
 
Segue now to a couple of news events that, in my mind, indicate that we are all tax avoiders (not evaders), and while individual scales are small, the collective scale is massive. The fat cats get a high public profile, but they are not the real problem.

• Toronto-based Sunquest Vacations announced two weeks ago that it will now offer Canadians vacation packages using U.S. airlines departing from five U.S. cities: Detroit; Burlington, Vermont; Buffalo, Bangor, Maine; and Bellingham.

• Bank of Montreal deputy chief economist Doug Porter concluded in a report released last year that cross-border shopping costs the Canadian economy $20 billion a year inlost economic acvitity.

What does this have to do with tax avoidance? Everything.
 
The Sunquest announcement is just the latest example of a problem that has been growing in significance for nearly a decade. Most Canadians live within a two-hour drive of the U.S. border, and a Conference Board of Canada report estimates that nearly five million Canadians a year fly out of U.S. airports instead of Canadian airports because they can get, on average a 30-per-cent discount on their tickets.
 
There are several reasons for this, but a big factor—40 per cent according to the Conference Board—is taxes. The federal government uses Canadian airports as cash cows, charging outrageous rents (a.k.a. taxes) and other fees—all of which get passed on to customers in the ticket prices—except for those five million who head south.
 
Cross border shopping is in the news frequently, especially around U.S. Thanksgiving and the upcoming Christmas Holidays. BMO’s Porter was quoted in a Canadian Press story saying his $20-billion estimate is conservative, and he predicts that the raised duty-free levels (from $50 to $200 for a 24 hour or longer stay) will exacerbate the problem.
 
Why do Canadians flock across the border? Because the prices are lower—for just about everything. And they are lower, in part, because American tax rates are lower. This is particularly true for commodities like gasoline.
 
When $20 billion is sucked out of the Canadian economy, that’s $20 billion that does not get taxed by anyone in Canada. Cross-border shoppers—and the numbers are steadily rising—are tax avoiders.
 
Whether it’s cheaper airplane tickets, cheaper gasoline, or cheaper big-screen TVs, Canadians have shown by their behaviour that they have no problem whatsoever with tax avoidance—as long as it isn’t a rich person doing it.

 


whiteley%20resized_0_0.jpg Don Whiteley is a natural resources writer based in North Vancouver.