Editor: Jeffrey Trossman

Volume 1, Number 1, March 2020


Introductory note from Heather Evans: "Introducing Perspectives on Tax Law & Policy"




Perspectives on Tax Law & Policy

Volume 1, Number 1, March 2020
©2020, Canadian Tax Foundation

 

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Comments

  • Thomas McDonnell 4/13/2020 11:37:21 AM

    Hi, Jeffrey. Congratulations on the first issue of Perspectives. All of the articles are both accessible and provocative and represent a great start to the Newsletter. I have a number of ideas and questions prompted directly or indirectly by them and welcome this opportunity to share them with you and your readers.

    1. Good tax policy takes account of the economic and cultural environment within which it operates. Today, that environment is changing dramatically and is significantly different from the one that shaped the assumptions on which most of our current tax policy is based. (See, for example, Klassen’s article on declining FDI in Canada.) Perhaps as importantly, we are now in the midst of a worldwide pandemic that is likely to dramatically change the way governments operate. How do we ensure that the ongoing tax policy formulation process takes account of these factors? Specifically, are we confident that there are adequate resources in the Department of Finance – the traditional source of tax policy development in Canada – to handle this? If not, what alternatives should we be exploring now?

    2. The department of Finance operates in a political environment that has changed radically from that in the 1960s when many of the foundational policies that shape our tax system were made. Today, it seems that effective political control is exercised in the PMO. In my perception, those most directly involved in the decision making in the PMO are more adept at managing politics than they are in developing tax policies that reflect the economic, cultural and social issues that drive our current world. If I am correct in this, we need to find better ways to develop tax policy than those we have adopted up to now. What does this involve?
    I appreciate that both of these points encompass a lot more than the details of technical tax policy and, as such, may appear to raise issues beyond the scope of Perspectives. But I believe we need to recognize, too, that we are past the point where narrow approaches to tax policy formulation and implementation are workable. Two areas in particular concern me right now.

    1. What steps can we take to reduce legislative uncertainty going forward? (Your article, Jeffrey, highlights important issues that need to be addressed here.) Let me elaborate briefly on my concern about the way we develop and implement legislative change. For me, there’s more than a bit of deja view all over again here. The problem is the way we conduct the tax legislative process when it comes to substantive changes in the tax rules. The Foundation addressed this concern in two Reports on the budget process (in the 1970s if my memory serves); I was the secretary and primary author for one of them. Both reports strongly recommended involving meaningful input from persons and entities outside Finance in both the conceptual and implementation phases of any significant effort at reform. The political environment since then has improved somewhat to the extent that budget secrecy is no longer the shibboleth it was then, but I have to assume that neither the PMO nor Finance is truly interested in meaningful input from persons outside of government, especially at the policy formulation stage. The restrictive covenant and TOSI provisions are two particularly egregious examples, but they have plenty of company. I don’t think we can expect much in the way of better legislation if the government isn’t prepared to seriously open up the process. Why it has not and what might be done about it are worthy subjects for informed discussion.

    2. What steps can we take to improve the way CRA manages what Ted Gallivan describes in his article as the “continuum of behaviours,” particularly those in his “zone of uncertainty?” Reading his article alongside Michael Munoz’s brings into focus the differing views of the Agency and the private sector about acceptable tax planning and uncertainty. It leaves me with a nagging feeling that the two are talking past each other. There was a time in the 1970s and 1980s when senior CRA officials met semiannually with a mixed group of tax professionals to review current issues of interest. Would the reestablishment of a similar group be helpful here? What other means are available to make both CRA officials and tax advisers aware of each other’s’ concerns in a respectful and consultative fashion.?

    Warm regards,
    Tom McDonnell