It was clear, early in the pandemic, that the economic fallout would be unequally distributed. Unsurprisingly, in an unequal society, crises have unequal effects. However, few anticipated that the pandemic could mean boom times for some. But that is precisely what happened. While lost wages, lost jobs, and small business closures generated headlines, many of Canada’s largest corporations quietly managed to achieve record profits.
Research by Canadians for Tax Fairness identified 50 companies that had their highest ever profits in 2020. Our results came from analyzing 142 Canadian companies with annual profits of more than $100 million.
The 50 record-setters include some household names, as well as less familiar corporations. At the top of the list was insurance giant Manulife. Number two was controversial pipeline company TC Energy. Rounding out the top three was the convenience store chain Couche-Tard, which increased its profits by more than 33 percent over 2019.
One of the biggest gains went to Ontario’s recently privatized electric utility Hydro One. The company’s profits increased by a whopping 125 percent. Part of the increase came from higher revenue. However, Hydro One’s record-setting result was primarily due to more than doubling its profit margin from 12 to 25 percent.
Despite enjoying record profits, most of the 50 companies managed to pay taxes below the statutory corporate income tax rate. Once again, Hydro One is a stand-out. Not only did the company not pay any net corporate income tax in 2020, it actually recorded a tax benefit of more than $700 million.
We found that a majority of the 50 companies have at least one subsidiary in a known tax haven. Though we don’t have the data to know the extent to which any of these companies profited from those subsidiaries, we do know that diverting profits through tax havens is one of many methods that companies use to side-step their tax obligations.
Among the 50 companies, we also found seven that collected the Canadian Emergency Wage Subsidy (CEWS), either directly or through a subsidiary. Those seven were Couche-Tard, Tourmaline Oil, CCL Industries, Alamos Gold, Canfor, Interfor, and Enghouse Systems. Additionally, several franchisees of furniture powerhouse Leon’s collected CEWS.
Couche-Tard, Tourmaline Oil, CCL Industries, and Alamos Gold also have subsidiaries in tax havens. Further, those four companies increased their dividend payments. That means it is possible they took the wage subsidy from the federal government, while using tax havens to reduce their taxes, and increasing the amount of money sent to shareholders.
Do not feel too sorry for the companies that failed to set a record profit level. Among the 92 other companies we analyzed the combined profits were still more than $90 billion. TD Bank saw its profits decline by less than one percent thanks to an increase in its profit margin to 25 percent. This allowed it to eclipse RBC and become Canada’s most profitable company.
And you definitely should not feel sorry for the shareholders of these 92 non-record-setters. A majority of both the 50 record-setting and 92 non-record-setting companies increased their dividends. This sent an extra $6.6 billion into the coffers of their shareholders. TC Energy increased its dividend payout by a staggering 61 percent
We have long been told that profit-seeking benefits us all because it makes companies more innovative and more efficient. However, that many of Canada’s biggest companies continued to reap huge profits while the economy suffered its largest decline of the post-war era should raise eyebrows, if not alarm bells. This is significant evidence that what is good for corporations is not necessarily good for the rest of us.
Decades of reducing corporate income tax rates were justified with the same argument that defends profits. By cutting taxes, goes the claim, we leave companies with more money to invest in pursuit of more profit. That investment, the argument continues, will create jobs and prosperity.
However, both in the wider economy, and in the companies we analyzed, all cuts to corporate income tax have done is make the rich richer. By the end of 2020, the 142 corporations that we examined had increased their cash holdings by 57 percent to $1.5 trillion. Unsurprisingly, both financial and non-financial corporations were spooked by the uncertainty of the pandemic, so they hoarded their cash rather than invest it. This was a distillation of broader uncertainty, in part due to the climate crisis.
To support people during the pandemic, and to keep the financial system from collapsing, the federal government stepped in with unprecedented levels of deficit spending. The money spent will inevitably trickle up to people who do not need it and did not earn it.
Corporate taxes are one way for the government to keep the money moving and pay for the support it must continue to provide. However, they are also a way for governments to check the growing power of corporations.
With the justification for lower corporate taxes having failed, it is long past time to reverse those cuts. The Biden administration announced that it plans to increase its corporate tax rate. It is also advocating for a global minimum rate. The Canadian government should follow its lead.
The full report, including data on those 50 companies, is available on the website of Canadians for Tax Fairness. You can read it here.
D.T. Cochrane is an economist and policy researcher with Canadians for Tax Fairness. D.T. has lived in Ontario for more than 20 years, but still considers himself a Saskatchewanian at heart.