Up to 6,000 N.B. taxpayers to save $9 or less from $70 million tax cut package
Province says 200,000 to benefit from proposed cuts, but many of those will save little
That includes up to 6,000 taxpayers named as beneficiaries of the policy who will save $9 or less from the changes.
In the Legislature on Wednesday, New Brunswick Finance Minister Ernie Steeves was pressed for details on who would receive what from a plan announced this week to cut tax rates for those who earn more than $45,000 in taxable income per year.
The province has said 200,000 people above that income level would receive an "average benefit … estimated to be about $310'' by cutting rates in the top four income brackets, but under questioning, Steeves offered little further information on how the $70 million will be divided up among different income groups.
"It is true that the more you make, the more you will be helped by these tax cuts," Steeves said in response to a question about how much high income earners will receive.
"But do you know what? The more you make, the more taxes you pay."
High
income New Brunswick residents, like those who live in Saint John's
exclusive Anchorage estates neighbourhood, will receive the most from
recently announced income tax cuts. (Google Earth)
After question period, reporters fared little better obtaining more details, and Steeves repeated the "average $310" benefit message.
While the minister wasn't elaborating much beyond that, New Brunswick tax data on the public record did offer some clues.
The tax rate reductions being proposed are structured to benefit no one who reports taxable income below $45,000, which in 2020 (the latest year figures are available) included about 400,000 of 610,000 New Brunswick tax filers.
Of those who will qualify for some kind of tax cut, about 150,000 people, or more than two-thirds of those listed as benefiting, reported taxable income below the $82,700 level that would generate a $310 average benefit.
Included in that group are an estimated 5,000 to 6,000 people with taxable incomes just above $45,000 who will benefit from the changes, but by $9 or less.
Tax data for 2020 suggests the bulk of the savings will flow to higher income earners, including about 3,240 New Brunswick residents who reported incomes above $250,000.
That group is in line to save an average of more than $2,700 each from the changes, or more, if incomes in that group rise between 2020 and 2023.
Premier
Blaine Higgs suggested New Brunswick might be 'the highest-taxed
jurisdiction in the country' in defending income tax cuts in the
Legislature Wednesday. (Jacques Poitras/CBC)
On Tuesday, Premier Blaine Higgs suggested cutting tax rates on high income earners should help attract more professionals to New Brunswick, including doctors, but Steeves couldn't cite any data behind that belief when asked about it and instead cited some out of date statistics about how high taxes in New Brunswick used to be.
"Are people paying too much tax in New Brunswick?" Steeves asked reporters rhetorically.
"Yes, we thought they always have paid too much tax, and you can look at the data for that. Compared to other provinces we were the highest, the highest tax province and even in North America one of the very highest."
That was an apparent reference to 2015 when New Brunswick Liberals under former premier Brian Gallant raised New Brunswick's top income tax rate to the highest in Canada at 25.75 per cent. It was lowered to 20.3 per cent in 2016 where it has remained since.
Currently, New Brunswick has the lowest tax burden on high-income earners east of Ontario, according to an interprovincial comparison done earlier this year of all ten provinces by Alberta's Treasury and Finance Department.
Former
Alberta finance minister Travis Toews included a 10-province comparison
in his February budget that showed New Brunswick to be the lowest-taxed
jurisdiction in Atlantic Canada. (Government of Alberta)
According to that study a two income couple with two children and a household income of $200,000 per year in New Brunswick would pay $18,457 in provincial income tax, $244 less than in Newfoundland and Labrador, $1,458 less than in P.E.I. and $2,834 less than in Nova Scotia.
Income tax rates on the same couple are $6,836 cheaper in Ontario, but $3,519 in income-based payroll and health premium charges not levied in New Brunswick offset more than half of that difference.
Nevertheless, the belief that taxes in New Brunswick are higher than in all other provinces persists inside the provincial government and was cited again Wednesday by Higgs in defence of the tax cuts in the Legislature.
"When people look here, they do not want to see the highest-taxed jurisdiction in the country," he said.
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Ain't that a surpise!
YO Noé Osé aka Margareute Deschamps Who said this first within CBC???
Province cutting income taxes, property taxes
Premier says lower taxes will help New Brunswick attract more people
Under legislation introduced Tuesday, personal income tax rates will be cut in four tax brackets, with the largest reduction on incomes between $142,534 and $162,383 per year.
That bracket is being eliminated, with incomes in that bracket becoming part of the third bracket, dropping their provincial rate from 17.84 per cent to 16 per cent — a reduction of 1.84 percentage points.
Other brackets will see smaller reductions.
Incomes from $43,835 to $87,671 will see a smaller reduction, for example, from 14.82 per cent to 14 per cent.
Aiming for 'balance,' premier says
Premier Blaine Higgs defended giving the largest cut to higher incomes, saying it was part of a "balance" he was striking and the reduction could help attract more doctors to the province.
"You cannot expect people to come and invest and work if their taxation levels are such that you're not considered a desirable place," he said.
"It has to be a holistic view on what works, so New Brunswick is looked at."
Jill
Green, the minister responsible for housing, said she was still not
ready to say whether a cap on rent increases for 2022 would be extended
into next year. (CBC News/Jacques Poitras)
The province also announced tax changes aimed at giving developers and landlords incentives to produce more housing.
Legislation will move up to next year the date for its phased-in reduction by 50 per cent of the provincial property tax rate on non-owner-occupied residential properties, such as apartment buildings.
That was supposed to be completed in 2024 but it will happen in 2023 instead.
No decision on rent cap
And assessments on newly built apartment buildings will be phased in over three years, with assessed values cut to one-third of the total in the first year and two-thirds of the total in the second year.
"We know there is a supply issue," said Housing Minister Jill Green.
René Legacy, the Liberal finance critic, said tax cuts alone won’t make life more affordable. (Jacques Poitras/CBC)
She said she was still not ready to say whether a cap on rent increases for 2022 would be extended into next year.
The two opposition parties at the legislature questioned the income tax cuts, but to different degrees.
"Who am I to stand here and say that it's not good to cut taxes?" said Liberal finance critic René Legacy.
But he said tax cuts alone won't make life more affordable.
"The question, though, is you cut taxes and the relief is only going to be a year later. You can't take it in isolation. It can't be the excuse for solving everything, that we've cut taxes and everything is good now."
Green MLA Kevin Arseneau said tilting most of the savings to higher income brackets was a sign of the government's skewed priorities.
Green
Party MLA Kevin Arseneau said tilting most of the savings to higher
income brackets was a sign of the government’s skewed priorities (Jacques Poitras/CBC)
"This government has helped people that have problems making their latest payments on their Porsche, and not people who have trouble eating, paying for their housing, paying for their basic needs," he said.
In 2021 and 2022, the government cut the tax rate for the lowest income bracket and raised the threshold below which people pay no provincial income tax at all.
Tuesday's bill had no rate reduction for the lowest bracket and no increase to the threshold.
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How Irving's Bermuda insurance company piled up millions in offshore tax-free profits
Spokesperson calls captive insurance ‘a good business approach’ to cut costs
New Brunswick's billionaire Irving family created an offshore insurance company that allowed them to move millions of dollars in profits out of Canada and into the tax haven of Bermuda, according to leaked documents reviewed by CBC News and Radio-Canada.
The Irving-owned Bermuda insurance company, F.M.A. Ltd., sold insurance premiums to Irving companies in Canada and Bermuda for their marine vessels.
F.M.A. then reinsured major risks to those vessels by paying lower premiums to a non-Irving reinsurance company based in Bermuda.
That allowed F.M.A. to accumulate almost $13.4 million in untaxed income between 1973, when it was incorporated, and 2001, the last year for which CBC News and Radio-Canada have financial statements.
The company's records provide a rare glimpse into a topic that has intrigued New Brunswickers for years: the complex multibillion-dollar financial apparatus — including a $3 billion tax-free trust — that corporate patriarch K.C. Irving created in Bermuda over several decades.
"Under current Bermuda law, the Company is not obligated to pay any taxes in Bermuda on either income or capital gains," says a note that appeared in F.M.A.'s annual financial statements between 1985 and 2001.
F.M.A. was what is known as a "captive insurance" company, an insurer with the same owner as the insured company or assets, allowing that owner to benefit from the insurance profits.
J.D. Irving Ltd. was listed as a parent company of F.M.A. Ltd., an Irving-owned insurance company in Bermuda. (Mike Heenan/CBC)
It had no office: its Bermuda address was that of Appleby, an offshore services law firm used by the Irvings. The leaked documents, which come from Appleby, identify no F.M.A. insurance customers other than Irving companies.
Anne McInerney, the J.D. Irving Ltd. vice-president of communications, said in an emailed statement that F.M.A. "has not been active for at least 10 years."
It's an easy way for a Canadian-based multinational to save some Canadian tax.
- Geoffrey Loomer
The company turned down an interview request and McInerney did not specify in her email whether a new company was set up to replace F.M.A., but suggested J.D. Irving Ltd. still considers captive insurance to be a useful strategy.
"A captive insurance company was then and continues to be a good business approach to reduce insurance costs and ensure the best possible insurance coverage," she said.
Geoffrey Loomer, a professor of tax law at the University of Victoria Law School in British Columbia, says it's not surprising the Irving family set up a captive insurance firm.
"It's an easy way for a Canadian-based multinational to save some Canadian tax," he said.
"The premiums that they're paying … that's a deductible expense [in Canada], usually. It's income to the Bermuda insurance company. But the tax there is zero."
In 2020, Reuters News reported that several large global oil companies, including Shell, BP and Chevron, used offshore captive insurance firms and banks to lower their tax bills.
The practice is legal.
McInerney said all insurance sales between F.M.A. and J.D. Irving Ltd. companies were at fair market value. Canadian tax authorities wouldn't have allowed them overwise, she said.
Irving 'captive insurance' company revealed in leak
F.M.A. Ltd. is one of several previously unknown Irving companies in Bermuda revealed in documents leaked to German newspaper Süddeutsche Zeitung and shared with the International Consortium of Investigative Journalists and CBC and Radio-Canada.
Many of the records in the leak, known as the Paradise Papers, come from Appleby, which was founded in Bermuda.
F.M.A.’s existence was unknown until the Paradise Papers leak, which included these financial statements. (Frédéric Gagnon/Radio-Canada)
The Irving family is among Canada's wealthiest.
K.C. Irving's oldest son, J.K. Irving, and his family oversee J.D. Irving Ltd.'s forestry and paper operations, New Brunswick's largest private sector employer.
His fortune has been estimated by Forbes Magazine at between $4.1 billion and $8.3 billion over the last decade.
K.C.'s second son, Arthur, and his family own Irving Oil, which operates Canada's largest oil refinery in Saint John.
Forbes has pegged his wealth at $1.9 billion to $5.5 billion.
A third son, Jack, died in 2010. His family owns Irving companies such as Ocean Steel and Commercial Properties.
Irving companies have benefited from federal and provincial subsidies, taxpayer-funded government contracts and tax concessions over the years.
They range from $304 million in loans to J.D. Irving Ltd.'s Irving Shipbuilding in Halifax to a 25-year cap on property taxes — later repealed — on Canaport LNG, co-owned at the time by Irving Oil.
Offshore holdings and an ode to 'home'
The Irvings portray themselves as fiercely loyal to New Brunswick, driven by a desire to create jobs in, and give back to, their home province.
"We're for New Brunswick. This is home," Jim Irving, J.K.'s oldest son and co-CEO of J.D. Irving Ltd., told a committee of the provincial legislature in September 2021. "We're not absentee owners, sitting in New York or Toronto."
Jim Irving appears at a legislative committee hearing in 2021, in an image taken from the New Brunswick Legislature stream. (CBC)
Yet F.M.A.'s captive insurance arrangement is just one example of the Irvings moving their wealth far from home to avoid Canadian taxation.
Irving family members pay "onshore" taxes in Canada such as personal income taxes, and their operations here are subject to property taxes.
But for decades, a large part of their fortune was maintained offshore, including holding companies and the $3 billion trust created by K.C. Irving's will, out of the reach of Canadian tax authorities.
"That's a lot of money that's not in schools, in our hospitals, on our roads, in our common good," said Green Party MLA Kevin Arseneau, who has raised the Irving use of offshore tax havens in the legislature.
"That's a lot of money that was not taxed, that is not in the hands of who it should belong to, which is the people of New Brunswick."
Leak reveals previously unknown Irving companies in Bermuda
Over the years, Statistics Canada's inter-corporate ownership database showed the New Brunswick Irving companies under eight Bermuda holding companies: F.M.O., F.M.R., Forest Mere Investments Ltd., F.M.P., F.M.W., F.M.K., F.M.N. and F.M.I.
Several Irving Bermuda holding companies have appeared for years in a Statistics Canada database. (Jacques Poitras/CBC)
F.M.O. was the parent company of Irving Oil, and F.M.P. was the parent of Irving Pulp and Paper.
Two Irving shipping companies, Kent Line International Ltd. and Voyageur Shipping Ltd., were also registered in Bermuda and publicly identified by Statistics Canada.
The Paradise Papers leak reveals five previously unknown companies using the "F.M." naming convention that have never appeared in the federal database: F.M.C., F.M.E., F.M.F., F.M.H. and F.M.A.
"The various 'FM' companies you refer to have not been active in our organization for more than 10 years," McInerney said in her statement. She said the J.D. Irving Ltd. companies "are wholly owned and controlled by Canadians who proudly reside in New Brunswick."
Shipping company's name an anagram
Another newly revealed offshore shell company incorporated in Bermuda by the Irvings is Gainvir Transport, which owned some of the vessels insured by F.M.A.
"Gainvir" is an anagram for "A. Irving."
Court filings in 1989 listed Gainvir's business address at Kent Line's office at 300 Union St. in Saint John, J.D. Irving Ltd.'s head office.
F.M.A. insured vessels owned by J.D. Irving Ltd. and Timberline Shipping, a company described as "affiliated" with Gainvir. F.M.A. also lent Gainvir and Timberline $2.7 million to buy two ships, the Irving Forest and the Irving Timber.
"The interest that they would earn on that loan would be income in Bermuda, which means it's zero corporate tax in Bermuda," Loomer said.
Insurance firm paid no taxes in Bermuda
Because Bermuda's corporate registry doesn't disclose the shareholders of companies registered there, Irving ownership of F.M.A. would have remained a secret if not for the Paradise Papers leak.
Irving ownership of F.M.A. would have remained a secret if not for the Paradise Papers leak. (Frédéric Gagnon/Radio-Canada)
A February 1973 letter by Bermuda's deputy controller of foreign exchange says Forest Mere Investments, an Irving holding company incorporated in Bermuda in 1969, was the beneficial owner of shares in F.M.A.
A 1988 letter describes J.D. Irving Ltd. as F.M.A.'s "parent company" and a 1996 document calls Forest Mere its "ultimate parent."
Bermuda does not charge corporate income tax on companies that do not produce or manufacture anything on the island.
F.M.A. often sold premiums for more than what it was spending
Six months after F.M.A. was created, it signed a reinsurance agreement with Insurance Managers Ltd. of Bermuda.
F.M.A. would cover claims below $150,000 from its own accounts but would reinsure potential claims above that amount with a third party.
In 1974 F.M.A. sold $948,920 worth of insurance premiums to Irving companies and paid $430,599 to third-party reinsurance firm Insurance Managers Ltd. That left F.M.A. with $518,321 in "net earned premiums" and $131,258 in net income.
The company continued charging more in premiums than what it was spending on reinsurance, accumulating $13.4 million in cumulative net income as of 2001, the last year for which there are leaked financial statements.
F.M.A. was dissolved in 2014, part of a wave of apparent dissolutions of Bermuda-based Irving companies in the wake of the family's decision to split the conglomerate.
McInerney's statement to CBC and Radio-Canada did not respond to a question about whether the Irving family owns any companies in offshore tax havens now.
An 'artificial' but legal oil trading arrangement
Even before the Appleby leak, Irving's offshore strategy has occasionally come into public view.
In 1978 the federal government tried to tax profits from IrvCal, a company created in Bermuda by Irving and its then-refinery partner Standard Oil to buy foreign crude at a low price and resell it to the Saint John refinery at a higher price.
Sales
of crude oil to the Irving refinery were routed through a Bermuda
company that allowed Irving Oil to pay less tax, an arrangement ruled to
be legal. (Carl Mondello/Radio-Canada)
That lowered the refinery's Canadian profits and its tax bill, while padding IrvCal's accounts in Bermuda with large tax-free profits.
"It makes sense from an economic point of view, from their perspective," Loomer said. "But it obviously deprives the Canadian and U.S. authorities of tax they might have raised otherwise."
From 1971 to 1975, IrvCal made $142 million from the arrangement, of which $137 million went to Irving Oil as tax-free dividends.
In 1991 Justice Patrick Mahoney of the Federal Court of Appeal ruled Irving Oil broke no law.
The IrvCal transactions were "artificial" and "a tax avoidance scheme, pure and simple," he said, but "it is my opinion that the tax avoidance scheme contrived in the present case did not offend the Income Tax Act."
Loomer said this was one of several rulings that prompted Ottawa to tighten tax laws in 1994, making it easier to tax more of what he calls "mobile income."
K.C. Irving fled 'devastating' tax bill in 1971, son confirms
Even K.C. Irving's move to take up residence in Bermuda was recently confirmed as a tax avoidance strategy.
The industrialist left Saint John at the end of 1971, days before a new provincial estate tax came into force, and never explained the move.
"I do not choose to discuss the matter further," he said in a statement at the time.
His son, J.K. Irving, said in 2017 that the tax changes could have imposed a rate of up to 80 per cent on the family companies if K.C. had continued living in Canada.
"This would have been devastating to the businesses as they would have had to have been sold to pay the anticipated death duties and taxes," Irving wrote in a letter to Atlantic Business Magazine, responding to a columnist who accused the family of tax avoidance.
Loomer said the 80 per cent tax figure is a stretch: it was the top income tax rate at the time, but other business tax rates were lower.
Tax
law expert Geoffrey Loomer says Irving’s claim of a potentially
'devastating' tax hit in 1972 'seems like an exaggeration.' Frédéric
Gagnon/Radio-Canada
"He was looking at a significant tax hit to the family," Loomer said. "Whether it would have destroyed the companies and ended all these jobs is hard to know. It seems like an exaggeration."
Irving companies won't comment on Bermuda holdings
K.C. Irving lived briefly in the Bahamas before settling in Bermuda, where he had incorporated F.M.O. in 1968 and F.M.P. and Forest Mere Investments in 1969.
Others would follow, including F.M.A., incorporated in July 1973.
The provincial estate tax was later abolished but Irving remained a Bermuda resident until his death in 1992.
Though the 2017 letter from his son framed his motive as saving Irving jobs, not the family's personal fortune, it appears to be the first time a family member has confirmed that Irving left for tax reasons.
J.D. Irving Ltd. and Irving Oil turned down requests for interviews with Irving family members about their Bermuda holdings. Jack Irving's son John did not respond to a request.
Irving Oil spokesperson Katherine d'Entremont said in an email statement that "the full ownership structure of Irving Oil is fully taxable in Canada."
And McInerney said that "our companies pay all taxes in Canada."
"All taxes" is a relative term for businesses using offshore tax havens, Loomer said.
"When you say, 'We are paying all the tax that we owe,' yes, that is likely true," he said. "It's just that you are ensuring that that amount is very low."
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