Joint Tax Committee’s thoughts on 2018 tax proposals

  • September 25, 2018

In July, the government proposed amendments to the Income Tax Act to implement parts of the 2018 federal budget for both personal and business tax.

The Joint Committee on Taxation of the Canadian Bar Association and Chartered Professional Accountants of Canada commented on the proposed amendments in September.

In the 2018 budget the federal government announced its intention to impose a new filing obligation on certain trusts that would require the trusts to report the identity of all trustees, beneficiaries and settlors of the trust, and each person who has the ability to exert control over trustee decisions. Exceptions included lawyers’ general trust accounts.

“The Joint Committee understands and fully acknowledges the legitimate interest of CRA in obtaining sufficient information to assess taxpayers’ liabilities,” the Committee says in its submission.

“Nonetheless, we believe that, in some respects the proposals are disproportionate. We believe that, due to the narrowness of the exceptions … onerous compliance obligations will be imposed in some situations that are realistically very unlikely to produce meaningful information for CRA.”

The Joint Committee makes a number of recommendations for the proposed amendments to personal taxes, including questioning the CRA’s plan to exempt trusts whose fair market value is less than $50,000, calling the dollar value arbitrary and noting that “fair market value” can fluctuate from day to day and would have to be checked continuously. The amendments would exempt trusts that exist for less than three months, which the Committee says should be changed to six months, or to no time limit at all if the purpose of the trust is to “secure a potential contractural claim in the context of an arm’s-length transaction for the purchase or sale of a business.” It also recommends extending that time limit for testamentary trusts.

The Joint Committee would also like to see an exemption for trusts holding family-owned personal-use property.

In terms of business income tax amendments, the Joint Committee revisits a letter sent to the government in January discussing tiered partnerships. It offers two possible alternatives to the proposals to address the Finance Department’s concerns.

“We believe that the current provisions of the Act create various undesirable burdens on taxpayers using such structures, and that the proposed amendments … will exacerbate those burdens. We submit that the functioning of the Act could be improved to reduce such burdens on taxpayers and at no revenue cost to governments.”

The Joint Committee notes that it is in ongoing talks with Finance officials regarding international tax measures. The submission comments on cross-border surplus stripping using partnerships and trusts. It also identifies specific issues with proposed measures dealing with tracking arrangements used by “certain groups of Canadian taxpayers” to avoid controlled foreign affiliate status.

“We are concerned that these proposed mechanical rules, having no connection to tax avoidance, are apt to give rise to other anomalous outcomes that cannot be predicted now, and we would therefore urge finance to consider changing the text of the provisions so they are clearly anti-avoidance rules, consistent with the narrative in Budget 2018.”