The Canadian government has put forward proposals to prevent its citizens using foreign investment funds and trusts to defer and avoid tax. ...

The Canadian government has put forward proposals to prevent its citizens using foreign investment funds and trusts to defer and avoid tax.

The motion, which would tighten income tax rules, was in response to concerns raised by the Canadian Auditor General that billions of dollars are being invested by Canadian individuals and companies in offshore financial centres, to avoid domestic taxes.

"The motion will amend existing income tax rules to help ensure that income earned by Canadians through foreign jurisdictions, including tax havens, is subject to tax as if it had been earned in Canada," said Jim Flaherty, Canada's Minister of Finance.

Mr Flaherty said that the measures in the motion relate principally to the taxation of income that is earned through the use of non-resident trusts and foreign investment entities, and generally follow the draft legislative proposals released for comment in 2005.

The measures have been amended to take effect for years that begin after 2006.

The Canadian government has become increasingly concerned at the rising level of money flowing into low-tax jurisdictions. Official statistics revealed last year that C$88 billion was invested in offshore jurisdictions in 2003 - eight times the level recorded in 1990.

Of these increases, the largest sums were seen flowing into Barbados, Bermuda, the Cayman Islands, the Bahamas and Ireland.