Hello to all CTF members—
March has been an interesting month, with tax matters addressed in various forums.
The CRA has very deliberately focused and intensified its communication with taxpayers, using the revelations from the Panama papers as the grounds for targeting aggressive tax avoidance and tax evasion. Advertisements in major newspapers and messages in social media (featuring, in some cases, an image of handcuffs) leave no doubt about the potential consequences of such actions. Some may take issue with the CRA’s merging of “avoidance” and “evasion,” terms that are legally distinct in meaning. (I have certainly discussed this particular point with many of you.) However, the CRA’s provocative campaign is clearly part of a broader government strategy to maintain and bolster public confidence in the tax system—a goal that we all support. The niceties of precise definition appear to have become collateral damage in the government’s pursuit of this general cause.
Building on last year’s budget, the 2017 federal budget (tabled on March 22) proposes additional investment to combat tax evasion and avoidance, and to enhance compliance. The tactics proposed to achieve these goals include increased verification activities, the hiring of additional auditors and specialists in the underground economy, and the development of robust business-intelligence infrastructure and risk-assessment systems in order to target high-risk international tax and abusive tax-avoidance cases.
In general, despite prior speculation to the contrary, the tax measures proposed in the budget are relatively modest. It appears to have been prudently decided that more significant changes should wait until we have greater clarity about tax policy south of the border.
More interesting, perhaps, than the specific tax measures proposed in the budget is its announcement that there will be a review of the planning strategies deployed by private corporations—strategies that inappropriately reduce the personal taxes of high-income earners. Also under review will be certain features of the current tax system that may have inappropriate, adverse effects on genuine business transactions involving family members. The government’s intention is to release a paper in the coming months that details these issues and proposes policy responses. It is hoped that this review will dispel the uncertainty that now exists in many areas affecting the taxation of private corporations. And it is likely that the budget’s clear resolve to study, identify, and address tax loopholes and tax-planning schemes will lead to proposals of a different sort. Whatever the paper yields, its release will represent an important opportunity for the wider tax community to provide input into the process.
Other notable income tax measures in the budget include a proposed clarification of the de facto control test in the Income Tax Act (a response to McGillivray Restaurant Ltd. v. Canada 2016 FCA 99, dismissing the appeal of the decision of the Tax Court of Canada, 2014 TCC 357), the elimination of a few boutique tax credits and related items, changes to the treatment of Canadian exploration expenses, and the timing of recognition of gains and losses on certain derivatives.
With respect to indirect tax, the introduction of an “Uber tax” has been proposed, with the goal of ensuring that GST/HST is charged on ride-sharing services as it is on traditional taxi services. (This topic was addressed in a recent issue of Canadian Tax Focus and at our Annual Conference in Calgary, as part of a broader presentation on the sharing economy.)
A final point of interest in the budget (although transparency is not, strictly speaking, a tax measure) is the proposal to enhance transparency in Canada, with a national strategy of setting high standards for the availability of information regarding corporate and beneficial ownership. Enhanced tax-reporting requirements for trusts are also underway. The goal of this exercise—part of a pronounced trend toward global transparency—is to ensure that authorities have the tools to combat money laundering, terrorist financing, and tax evasion, as well as to address tax avoidance.
Meanwhile, at the Canadian Tax Foundation, detailed preparations are underway for our 2017 regional conferences. The planning committee for the Prairie Provinces Conference has been active for several weeks, and it has developed a great agenda for May 29-30 in Edmonton. Similar efforts will soon begin for the Atlantic, Ontario, and British Columbia regional conferences, and then we start preparing for the Annual Conference. To our many volunteers across Canada, without whom none of this would be possible—thank you for your efforts.
Difficult though it is to look beyond our preparations for this year’s conferences, I am pleased to announce that next year will see two additional events. First, the Corporate Management Tax Conference, which has been on hiatus for a few years, will return in June of 2018. Planning for this event is in the very early stages, but I can say that one important focus will likely be the impact of technology on the tax department. Second, it has been many years since the Foundation hosted a comprehensive discussion of municipal taxation. Given the macroeconomic trends and demographic shifts within Canada, which are increasing and shifting the demands for municipal expenditures and testing the traditional revenue-raising tools available to municipalities, the time seems right for a national forum on the funding of the Canadian city. In early February of 2018, the Foundation will be co-sponsoring—with the Institute on Municipal Finance & Governance at the Munk School of Global Affairs, University of Toronto—a symposium on municipal taxation. We are very much looking forward to the exchange of ideas.
One final thought on the subject of looking ahead. The Foundation’s support for advanced and leading thought should extend to emerging and non-traditional tax and public-finance concepts—for example, the taxation of robots (an idea recently espoused by Bill Gates), gender-based budgeting (adopted in many other countries and now formally addressed in Canada’s 2017 federal budget), or the implications of a sugar tax (it seems that Jamie Oliver’s talent for activism has carried him beyond the culinary world, into tax policy). Tax professionals thrive on change, and it is important that we challenge ourselves with forward-thinking—and provocative—new ideas.
See you in April.