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For the Profession

By Doug Wallis, CA, Director of Professional Advisory Services, Institute of Chartered Accountants of BC

Bill C-25 (an Act to amend the Income Tax Act, the Excise Act and the Budget Implementation Act, 1999) received Third Reading in the House of Commons on June 22, 2000 and received Royal Assent on June 29, 2000. Included in this Bill are the amendments to implement civil penalties for "Misrepresentation of a Tax Matter by a Third Party." With Royal Assent, the civil penalty provisions came into effect on June 29, 2000.

Several alterations were made as the Bill advanced through the parliamentary processes. The changes are that (1) a cap was placed on the tax preparer penalty of $100,000 plus gross entitlements, and (2) an exemption was made for employees (unless involved in tax shelter situations) by deeming their conduct back to their employer for purposes of the penalty provisions. ICABC has opposed the implementation of these penalties since their unexpected introduction in the February 1999 Budget Proposals. A working group of the Taxation Committee prepared a submission setting out members' concerns about the proposals, which was forwarded to CICA and, through them, to the Department of Finance and the Canada Customs and Revenue Agency (CCRA). President Chuck Chandler, FCA, Past President Woody Hayes, FCA and CEO Richard Rees, CA raised this issue and received members' input during last year's visits with local CA associations throughout the province. The Institute's Executive voiced members' strong concerns at various national meetings within the profession.

CICA, on behalf of the accounting profession across the country, has argued extensively against the implementation of the civil penalties from the time of their introduction. It became apparent early on that the Finance Department was adamant that civil penalties were going to be put in place, and CICA turned its attention to convincing Finance to reduce the effects of the proposals to the extent possible.

CICA (and others) had some success in convincing Finance to moderate the proposals. The "gross negligence" test was changed to "culpable conduct" and the "good faith" defence, which will apply to most activities, was introduced. Our concerns about potential conflict of interest with our clients arising from even a "threat" of the imposition of civil penalties, were somewhat addressed with the promise of a CCRA Review Committee. Briefing documents and press releases stated that CCRA would consult with affected parties (including CICA) in the development of guidelines for this Review Committee.

As Bill C-25 was proceeding though the committee stage in Parliament, CICA made presentations expressing our concerns to both the Finance Committee of the House of Commons and the Senate Committee on Banking, Trade and Commerce. These presentations, in part, led to the above-noted changes to the penalty provisions and the exemption for employees.

While some changes have been made to the original proposals, the accounting profession remains very concerned about the application of civil penalties. It is the profession's view that the penalty provisions remain far too severe and are far larger than they are in other countries with such penalties. While the government has committed to putting in place a central committee to review all potential civil penalties, we would take far greater comfort if this committee were enshrined in the legislation itself.

Concerns remain that consultations have yet to begin on the development of implementation guidelines. CICA will continue to push for this process to begin as soon as possible and for the government to ensure that the guidelines are completed before the civil penalties are implemented.

In the absence of clear implementation guidelines, CICA intends to object most strenuously to any government official who might contemplate situations under which the penalties might apply. Therefore, until the guidelines are put in place, we ask that members immediately advise the Professional Advisory Services Department at the BC Institute about any situations in which they are threatened with the imposition of civil penalties. We will immediately inform CICA of the circumstances.

Professional Development will be having an Executive Breakfast on Civil Penalties in their Fall program. Watch for further details in the Fall PD brochure and monthly mailings.