Comments on pending Canadian income tax issues: November 14, 1991 - submitted by Tax Executives Institute to Canadian Department of Finance; includes letter on proposed legislation on prepaid interest bonds, November 11, 1991

Tax Executive, The, Jan-Feb, 1992

18(9) and (9.2). As TEI has

previously argued, these provisions

are simply unnecessary

in light of the General Anti-Avoidance

Rule. Nonetheless,

they will be incorporated into

the Income Tax Act, confusing

and perplexing taxpayers for

years to come.

Two steps can be taken to address the problem of complexity. First, Finance should resist the temptation to engage in what we have called "overkill" in an effort to close real and perceived "pinholes in the Income Tax Act. Concededly, there may be times where specific legislation is needed to staunch abuses that the Government feels may exist. We question, however, whether the added complexity and the restrictions on legitimate activities can be justified by the desire to reach all foreseen (and to anticipate unforeseen) evils. Second, more detailed explanations of proposed amendments should be provided. Such explanations of the purpose of the amendments -- and the abuses they are intended to curtail -- would be of considerable use to taxpayers and tax advisers and, ultimately, possibly to judges in understanding the provisions.

B. Undue Delay

Another difficulty for most tax practitioners is differentiating between actual law and proposed law. Some publishers have helpfully included certain proposed amendments in their versions of the Income Tax Act. It remains extremely difficult, however, to provide advice on tax matters where there is uncertainty over whether and when certain proposals will actually become law. This problem is exacerbated by the long interregnum between the announcement of budget proposals, introduction of (draft) legislation, the release of a massive volume of proposed changes, and the final act of Royal Assent. (One obvious example is the recent technical amendment bill, Bill C-18.) The long delay and large number of amendments make it difficult for taxpayers and taxpayer representatives to make meaningful comments on the amendments and, we suspect, more difficult for the Finance Committees to review the proposed legislation.

TEI recommends that the Department of Finance adopt a policy of introducing technical amendments on a yearly basis at a particular time in the year. Such an approach will not remove the possibility of subsequent additional amendments (where absolutely necessary), but it will bring some order out of the chaos that currently reigns. By evening out the workload of drafting, reviewing, and understanding tax law amendments, there will be an enhanced understanding of the revised law within a reasonable time.

C. Retroactivity and Retrospectivity

In the past, TEI has addressed the desirability of protecting taxpayers from increased taxation by way of retroactive or retrospective legislation.(2) We recognize that the courts have consistently ruled that the Federal Government has the power and ability to enact retroactive and retrospective legislation. We also recognize that the Department of Finance has historically been unwilling to cede its ability to tax retroactively. The Government's raw power to tax retroactively, however, in no way imbues such actions with any sound tax policy or moral basis.