Canadians are stashing away more and more of their money in tax haven countries renowned for their secrecy laws, creating an enormous problem for tax authorities, a document shows, according to yesterday's Toronto Globe and Mail.

Bermuda is one of the countries of choice, the paper reported.

Canadians invested $44.6-billion in tax haven countries in 2001, almost a tenfold increase from $4.5-billion in 1988, according to a slide presentation made by federal tax officials to Elinor Caplan, Minister of National Revenue. Even more worrisome to Canada Customs and Revenue Agency is the fact that tax havens are no longer just being used by wealthy individuals and corporations to get around paying taxes, the presentation says. The Internet is also making it easier for middle-income Canadians to set up bank and brokerage accounts in far-flung secrecy havens, it says.

The countries of choice for Canadians are the Bahamas, Barbados, Bermuda, Cayman Islands and Panama, according to the presentation. All five were until recently on an international blacklist of uncooperative tax havens, the Globe and Mail reported.

Revenue Canada says the complexity and sophistication of international transactions make it difficult for its staff to ensure that Canadians are complying with tax laws and reporting all their income. The Internet only speeds up transactions, it also reduces the audit trail for tax authorities to follow, says the presentation, a copy of which was obtained by Ottawa researcher Ken Rubin under access-to-information laws.

Colette Gentes-Hawn, a spokeswoman for the department, said the presentation, titled Tax Havens, An Evolving Taxation Issue, was made last November to the minister and department officials across the country.

"Whenever there is any kind of tax that's not being paid, it's a serious issue," she is quoted by the Toronto Globe and Mail as saying. "It's not the offshore transaction itself that's the matter. It's the fact that you are taxable on your worldwide income. So you may have all kinds of wonderful reasons to put your money offshore even if it's only to hide it from a spouse or a creditor or whatever, and that's fine as long as you report the income from that money."

She added that the vast majority of Canadians are honest. Tax havens are of concern to tax authorities because secrecy laws make it difficult, if not impossible, to get information from a financial institution and collect income taxes owing from Canadians. The presentation says the promoters of tax havens are also making Revenue Canada's job more difficult.

"In general, these promoters are 'legal,' in that their advice simply relates to how to invest outside Canada. However, they often leave the impression that there are better ways to invest your money than to simply give it to the taxman."

The presentation cites two Web sites as examples of the services offered by promoters, http://www.escapeartist.com and http://www.goldhaven.com.

The escapeartist.com site contains newsletters and detailed information on nearly 50 tax havens. "As the Internet continues to grow along with the opportunities that e-commerce provide, more and more free-thinking individuals will use e-commerce as a path to economic freedom from governmental restraints," the site says, according to the Globe and Mail.

Tax havens are defined as countries that are governed by banking secrecy laws and have minimal or no taxes. Other common characteristics include political stability, easy accessibility and a well-established banking system. They are flourishing. Worldwide, offshore investments totalled $6-trillion (US) in 2000, with bank deposits in the Caribbean accounting for half that amount, the presentation says.

About one in four North Americans who earn more than $100,000 (US) a year invest some funds offshore, the Globe and Mail reported. The federal government has taken several steps over the past decade aimed at stopping Canadians from abusing the country's income tax laws. Foreign reporting rules introduced in 1996, for example, require Canadians to provide detailed information on investments held outside the country. And improved transfer-pricing rules introduced in 1997 ensure that an appropriate amount of profit is reported and taxed in Canada.

Ottawa is also working with the international community to tackle the tax haven problem, reported the Globe and Mail. The Organisation for Economic Co-operation and Development (OECD), of which Canada is a member, established a forum on harmful tax competition in 1998. At the time, the OECD blacklisted 41 countries because they did not have effective systems with which to share information with other nations. Most of them have since improved their systems and the blacklist now contains seven countries: Andorra, Liberia, Liechtenstein, Marshall Islands, Monaco, Nauru and Vanuatu.

The OECD's efforts are part of a broader crackdown on secrecy havens, said the Globe and Mail. The OECD's Financial Action Task Force on Money Laundering, a Paris-based agency backed by most of the world's industrialised nations, including Canada, plans to unveil recommendations this month, including measures to determine the true identity of account holders in offshore jurisdictions. Canada's top banking regulator plans to adopt the task force's recommendations by introducing new rules requiring banks to know the end beneficiaries of an account.

But the Office of the Superintendent of Financial Institutions has no jurisdiction over investment dealers. Investments by Canadians in offshore havens are disproportionately large compared with their investments in other countries, including the United States, Canada's biggest trading partner, the presentation shows.

"It is the fantastic growth of Canadian direct investment in certain tax haven countries compared to all other countries which causes us the most concern," tax officials say in the presentation, according to the Globe and Mail.

Walter Robinson, director of the Canadian Taxpayers Federation, said it's not surprising that more Canadians are moving their money offshore because people have become fed up with increasing taxes.

"People say, 'Why would I pay an extra $10,000 when the government is going to [waste it and not fund health care or build highways or give me better schools?' " Mr. Robinson is quoted by the Globe and Mail as saying, adding his group does not countenance tax evasion.

"The advent of the Internet with respect to taxation will turn taxation enforcement into something like enforcement on the high seas in the 1500s and 1600s. Good luck."