The Process for Making Tax Policy in Canada

Transcription

1 caadia tax joural / revue fiscale caadiee (2013) 61:4, The Process for Makig Tax Policy i Caada Bria Erewei ad Nacy Horsma* Keywords: Tax policy policy makig tax legislatio process Caada Cotets Overview 1032 Geeral Descriptio of the Process 1032 Developmet Stage 1032 Geeratio of Ideas for Tax Chages, Icludig Idetificatio of Problems i the Existig Tax System 1032 Research, Iformatio Gatherig, ad Study 1033 Idetificatio ad Evaluatio of Solutios 1033 Draftig of Legislatio 1034 Legislative Phase 1034 Post-Eactmet Review Stage 1034 Govermet Departmets ad Advisory Bodies with a Role i or Resposibility for Tax Policy Formulatio 1035 Primary Resposibility for Formulatig Tax Policy 1035 Resposibility for the Admiistratio of the Tax System 1035 The Role of Advisory Bodies ad Parliametary Committees 1036 Resources Devoted to the Formulatio of Tax Policy 1037 Professioal ad Other Staff 1037 Private Sector Cosultats 1037 Temporary Secodmets from the Private Sector 1037 Cosultatios with the Public ad Tax Professioals 1038 Cosultatio Process 1038 Issues Cosidered Suitable for Public Cosultatio 1039 Timig ad Form of Public Cosultatio 1040 Effectiveess of the Cosultatio Process 1040 * Of the Departmet of Fiace, Ottawa ( Bria.Erewei@fi.gc.ca; Nacy.Horsma@ fi.gc.ca). The authors would like to ackowledge the cotributios of Ted Cook ad Michael McGoell i the preparatio of this paper. 1031

2 1032 caadia tax joural / revue fiscale caadiee (2013) 61:4 Other Issues 1040 Academic Research 1040 Trasparecy 1040 The Role of Politics ad Politicias 1041 The Role of Iteratioal Orgaizatios 1041 The Role of Idepedet Tax Reform Bodies 1041 Overview Caada has a federal system of govermet. The federal govermet ad each of the 10 provicial ad 3 territorial govermets develop ad eact tax legislatio. The federal ad provicial govermets do so uder their ow costitutioal authority; the territorial govermets do so uder power delegated by the federal govermet. At the federal level, legislatio is eacted by the Parliamet of Caada. Each provice or territory has its ow legislature that eacts provicial or territorial laws. Federal laws apply across the coutry. Provicial ad territorial laws apply withi the boudaries of the provice or territory. The federal ad provicial govermets each have jurisdictio to levy taxes o persoal ad corporate icome ad to impose sales taxes. However, the costitutio of Caada 1 restricts provicial taxig powers to direct taxatio withi a provice. Oly the federal govermet ca impose idirect taxes (such as import duties). The descriptio below outlies the federal tax policy process. Geeral Descriptio of the Process Developmet Stage Geeratio of Ideas for Tax Chages, Icludig Idetificatio of Problems i the Existig Tax System The Tax Policy Brach (tpb) of Caada s Departmet of Fiace is resposible for the developmet of tax policy at the federal level. tpb persoel coduct iteral research ad aalysis (for example, coductig ecoomic aalysis ad reviewig case law) to geerate ideas for tax iitiatives ad to aalyze ideas for tax chages from other sources. The Caada Reveue Agecy (cra), which admiisters most federal taxes, is a importat source of ideas for tax iitiatives. I additio, tpb persoel are i regular cotact with other braches of the Departmet of Fiace, other federal departmets, ad represetatives of provicial ad territorial govermets. Other sources of policy iitiatives iclude elected officials (either idividually or by way of recommedatios of a parliametary committee); 1 Costitutio Act, 1867, 30 & 31 Vict., c. 3, sectio 92.

3 the process for makig tax policy i caada 1033 submissios from idividual taxpayers, tax advisers, idustry groups, ad tax practitioer groups (for example, the Joit Committee o Taxatio of the Caadia Bar Associatio ad the Chartered Professioal Accoutats of Caada [ the cba-cpa joit committee ] ad the Tax Executives Istitute); expert paels appoited by govermet (for example, the Expert Pael o Fiacial Security for Childre with Severe Disabilities ad the Idepedet Pael o Federal Support to Research ad Developmet); studies ad research by private groups (for example, the C.D. Howe Istitute ad the Caadia Tax Foudatio); iteratioal bodies (such as the Orgaisatio for Ecoomic Co-operatio ad Developmet [oecd] ad the G8/G20); ad academic research ad advisers from the academic commuity. Research, Iformatio Gatherig, ad Study The tpb is made up of five divisios: Persoal Icome Tax; Sales & Excise Tax; Busiess Icome Tax; Tax Legislatio; ad Itergovermetal Tax Policy, Evaluatio ad Research. All except the Tax Legislatio Divisio carry out quatitative ad qualitative ecoomic research ad aalysis regardig cotemplated policy optios. Members of the Tax Legislatio Divisio ad the Sales & Excise Tax Divisio review case law ad commetary published by practitioers ad academics. tpb staff review submissios by taxpayers, practitioers, ad expert committees such as the cba-cpa joit committee. The research udertake depeds o the ature of the issue. The cra has developed a large database usig data from taxpayers retur iformatio. Departmet of Fiace staff have access to this database for research ad aalytical purposes. It is a major source of iformatio for the quatitative portio of the tpb s policy aalysis ad allows tpb staff to model the projected outcomes of policy proposals. Idetificatio ad Evaluatio of Solutios The aual federal budget is ormally the major vehicle for the itroductio of ew tax policy iitiatives; accordigly, the policy optios aalysis process ormally tracks the aual budget cycle. Optios are aalyzed i aticipatio of their potetial acceptace as measures to be adopted i the budget. For measures cosidered for iclusio i the budget, the legislative feasibility of various policy optios, their cosistecy with the govermet s priorities ad with tax policy objectives (fairess, eutrality, simplicity, etc.), the ecoomic ad distributioal impacts, the cost/reveue impact, potetial provicial/territorial impacts, ad other cosideratios are all reviewed. I additio, all tax measures are reviewed for their geder ad evirometal impacts. This is doe by way of preparatio of a briefig package for cosideratio for miisterial approval. Similar aalysis is coducted for potetial tax chages cosidered outside the budget cycle.

4 1034 caadia tax joural / revue fiscale caadiee (2013) 61:4 Draftig of Legislatio Federal icome tax legislatio is drafted by members of the Tax Legislatio Divisio i cosultatio with the Departmet of Justice ad the cra. Federal sales ad excise tax legislatio is drafted by members of the Sales & Excise Tax Divisio i cosultatio with the Departmet of Justice ad the cra (ad the Caada Border Services Agecy [cbsa] i some istaces). Departmet of Justice lawyers are assiged to the Tax Cousel Divisio, which works withi the tpb but is part of the Departmet of Justice. tpb staff also prepare the associated explaatory otes for use by parliametarias ad taxpayers. Tax legislatio is ormally released i draft form ad the public has the opportuity to submit commets, usually for a period of days. Commets received o the draft legislative proposals are cosidered i fializig the legislatio before its itroductio i Parliamet. Legislative Phase The Departmet of Justice prepares govermet bills for itroductio i Parliamet. Tax legislatio is ormally tabled i Parliamet by the miister of fiace. Federal legislatio must be passed by both chambers of Parliamet (the House of Commos ad the Seate). The House ad the Seate will geerally study proposed legislatio i committee before passig it. Legislatio becomes law upo receivig royal asset (received from the goveror geeral). Post-Eactmet Review Stage Admiistratio of tax legislatio is the resposibility of the cra. If the cra idetifies issues with the applicatio of the legislatio, it will advise the tpb accordigly. tpb staff also have ogoig cotact with stakeholders ad review court decisios to idetify issues i existig legislatio. Idividual taxpayers may fid that legislatio has a impact that they believe is ot withi the policy itet of the legislatio. I such circumstaces, taxpayers (or their advisers) may cotact the tpb. If, upo review, tpb officials cosider that the techical applicatio of a particular provisio is ot i accord with its uderlyig policy itet, a seior TPB represetative may issue a comfort letter advisig of their itetio to recommed to the miister of fiace a appropriate techical amedmet to the legislatio. Taxpayers (ad their advisers) geerally rely o comfort letters issued by the Departmet of Fiace i proceedig with trasactios ad i preparig tax returs although accoutig stadards may require certai firms to idetify i their fiacial reports that a legislative amedmet is required to support the tax positio that the firm has take. The cra will also rely o these comfort letters, either to assess tax i accordace with the policy articulated by the Departmet of Fiace or, i certai cases, to susped a assessmet of tax pedig eactmet of the particular chage.

5 the process for makig tax policy i caada 1035 Govermet Departmets ad Advisory Bodies with a Role i or Resposibility for Tax Policy Formulatio Primary Resposibility for Formulatig Tax Policy The Departmet of Fiace is resposible for formulatig federal tax policy. The departmet develops policies ad provides advice to the govermet with the goal of creatig a healthy ecoomy for all Caadias. Activities iclude the followig: aalyzig ad desigig tax policy ad carryig out the related research ad evaluatio; recommedig policy ad legislative chages to the miister of fiace; plaig ad preparig the tax portio of the federal govermet s budget; draftig amedmets to the tax statutes ad related regulatios; cosultig provicial govermets regardig tax policy ad legislatio; egotiatig tax treaties ad tax iformatio exchage agreemets with foreig govermets; cosultig with stakeholders; ad egotiatig tax admiistratio agreemets with aborigial govermets, ad tax collectio ad sales tax harmoizatio agreemets with provicial govermets, as well as makig paymets pursuat to these agreemets. Resposibility for the Admiistratio of the Tax System The cra is the agecy resposible for the admiistratio of the federal icome tax. I additio, the cra admiisters the persoal icome tax of the territories ad all provices except Quebec; the corporate icome tax systems of the territories ad all provices except Quebec ad Alberta; the federal goods ad services tax (gst) i all provices except Quebec; ad the provicial sales taxes of the five provices that have adopted the harmoized sales tax (hst), which combies the 5 percet federal gst with a provicial compoet whose rate is set by the provice. I geeral, Quebec admiisters the Quebec sales tax (the qst, its value-added tax) as well as the gst/hst i Quebec. Quebec etered ito a sales tax harmoizatio agreemet with Caada i March 2012, the terms of which require that the qst be harmoized with the gst o a goig-forward basis. British Columbia, Maitoba, ad Saskatchewa admiister their ow retail sales taxes. (Alberta does ot impose a provicial sales tax.) The cbsa collects applicable federal ad provicial sales tax at the border. Taxpayers are geerally required to self-assess their icome taxes payable (if ay) ad to report them i aual returs (siged declaratios) filed with the cra.

6 1036 caadia tax joural / revue fiscale caadiee (2013) 61:4 The cra reviews these returs ad may reassess taxes payable. The tax law cotais authority for the cra to review the records of taxpayers that are relevat to the determiatio of their taxes payable, ad also provides certai collectio powers ot available to ordiary creditors. Taxpayers are etitled to a iteral review withi the cra of the amout of tax assessed ad have a further right of appeal to the courts (i the first istace to the Tax Court of Caada, the to the Federal Court of Appeal, ad fially, with leave, to the Supreme Court of Caada). The Role of Advisory Bodies ad Parliametary Committees From time to time, expert committees ad advisory paels are appoited to advise the govermet o specific issues or i respect of specific areas of tax. Examples i recet years iclude the Advisory Pael o Caada s System of Iteratioal Taxatio, the Expert Pael for the Childre s Fitess Tax Credit, the Expert Pael o Fiacial Security for Childre with Severe Disabilities, the Techical Advisory Committee o Tax Measures for Persos with Disabilities, ad the Techical Committee o Busiess Taxatio. 2 I additio, parliametary committees issue reports that may provide iput for ogoig policy developmet. Recet examples iclude reports of the House of Commos Stadig Committee o Fiace o tax evasio ad the use of tax haves, 3 ad o the use of tax icetives to ecourage charitable givig by Caadias. 4 Recommedatios of these committees ad advisory paels are seriously cosidered ad i some cases implemeted by the govermet. For example, a umber of recommedatios of the Advisory Pael o Caada s System of Iteratioal Taxatio have bee implemeted. 2 The fidigs ad recommedatios of these various paels ad committees ca be foud i the followig reports: respectively, Advisory Pael o Caada s System of Iteratioal Taxatio, Fial Report: Ehacig Caada s Iteratioal Tax Advatage (Ottawa: Departmet of Fiace, December 2008); Caada, Report of the Expert Pael for the Childre s Fitess Tax Credit (Ottawa: Departmet of Fiace, October 2006); Caada, A New Begiig: The Report of the Miister of Fiace s Expert Pael o Fiacial Security for Childre with Severe Disabilities (Ottawa: Departmet of Fiace, December 2006); Caada, Disability Tax Fairess: Report of the Techical Advisory Committee o Tax Measures for Persos with Disabilities (Ottawa: Departmet of Fiace, December 2004); ad Caada, Report of the Techical Committee o Busiess Taxatio (Ottawa: Departmet of Fiace, April 1998). 3 Caada, House of Commos, Tax Evasio ad the Use of Tax Haves: Report of the Stadig Committee o Fiace, 41st Parl., 1st sess., May Caada, House of Commos, Tax Icetives for Charitable Givig i Caada: Report of the Stadig Committee o Fiace, 41st Parl., 1st sess., February 2013.

7 the process for makig tax policy i caada 1037 Resources Devoted to the Formulatio of Tax Policy Professioal ad Other Staff The tpb curretly has approximately 160 staff, icludig both professioal ad support staff. As of April 1, 2013, the active staffig complemet for the tpb was as follows: Seior Assistat Deputy Miister s Office... 7 Persoal Icome Tax Divisio Tax Legislatio Divisio Sales & Excise Tax Divisio Busiess Icome Tax Divisio Itergovermetal Tax Policy, Evaluatio ad Research Divisio The majority of the professioal staff of the tpb are ecoomists ad other social policy professioals. The Tax Legislatio Divisio ad parts of the Sales & Excise Tax Divisio are staffed primarily by lawyers ad accoutats. Most of the ecoomists o staff have a graduate degree, ad a umber of the professioals i the tpb have graduate degrees i tax, busiess, or public policy. Typically, ew staff are hired through uiversity recruitmet or from other braches of the Departmet of Fiace or other federal departmets, rather tha as experieced hires from the private sector. New staff are traied as tax policy professioals withi the tpb. Private Sector Cosultats Depedig o the ature ad complexity of the issue, advice from the private sector may be sought to esure that all possible cosideratios associated with the cotemplated policy chage are looked at. This is particularly relevat whe the cotemplated policy chage has the potetial to sigificatly affect market trasactios or stakeholders i a particular segmet of the ecoomy. Temporary Secodmets from the Private Sector The tpb arrages for the secodmet of private practitioers to fill seior roles withi the brach o a as-eeded basis. For example: A seior tax parter with a major accoutig firm recetly joied the Departmet of Fiace uder the federal govermet s executive iterchage program ad acted as director of the Tax Legislatio Divisio for almost two years. A parter from aother major atioal accoutig firm has joied the Tax Legislatio Divisio uder the same program, to work o foreig affiliate issues. O the sales tax side, accoutats ad a lawyer from major atioal firms have assisted with the examiatio of the gst/hst treatmet of fiacial services.

8 1038 caadia tax joural / revue fiscale caadiee (2013) 61:4 Cosultatios with the Public ad Tax Professioals Cosultatio Process The miister of fiace egages i a series of cosultatios with members of the public prior to each budget. The House of Commos Stadig Committee o Fiace also holds pre-budget hearigs ad presets a report o these hearigs. I additio, the govermet egages i public cosultatios o specific issues. Examples of recet public cosultatios o tax issues iclude the followig: Scietific research ad experimetal developmet (sr & ed) tax icetive program. I October 2007, the Departmet of Fiace ad the cra issued a cosultatio paper ad ivited submissios o how the sr & ed tax icetive program could be made more effective for Caadia busiesses ad how it could be desiged to play a eve greater role i fosterig a more competitive ad prosperous Caadia ecoomy. 5 No-residet trusts. A cosultatio was completed i 2010 pursuat to revised proposals for the taxatio of o-residet trusts ad foreig ivestmet etities outlied i the 2010 federal budget. 6 The cosultatio cosisted of a pael of experts commetig o detailed proposals. Reportig of tax-avoidace trasactios. The 2010 budget released for cosultatio a proposal that avoidace trasactios that met certai bechmarks be required to be reported to the cra. 7 Taxatio of corporate groups. The 2010 budget aouced that Caada was explorig ew rules for the taxatio of corporate groups, such as a more formalized system of loss trasfers or a form of cosolidated reportig. 8 A discussio paper was released i November 2010 ad commets were ivited. 9 Employee profit-sharig plas (epsps). As aouced i the 2011 federal budget, 10 the govermet udertook cosultatios for the purpose of reviewig the existig rules for epsps. As part of these cosultatios, the Departmet of Fiace ivited commets o the rules that apply to epsps See Caada, Departmet of Fiace, Tax Icetives for Scietific Research ad Experimetal Developmet: Cosultatio Paper (Ottawa: Departmet of Fiace, October 2007). 6 Caada, Departmet of Fiace, 2010 Budget, Budget Pla, March 4, 2010, at Ibid., at Ibid., at Caada, Departmet of Fiace, The Taxatio of Corporate Groups: Cosultatio Paper (Ottawa: Departmet of Fiace, November 2010). 10 Caada, Departmet of Fiace, 2011 Budget, Budget Pla, Jue 6, 2011, at Caada, Departmet of Fiace, Cosultatios o the Tax Rules for Employee Profit Sharig Plas, August 30, 2011 (

9 the process for makig tax policy i caada 1039 Registered disability savigs plas (rdsps). I October 2011, the Departmet of Fiace aouced that it was udertakig a review of rdsps, to esure that such plas are meetig the eeds of Caadias with severe disabilities ad their families. 12 The review sought public iput o a umber of matters that are crucial to the success of rdsps, icludig access to pla savigs, pla termiatio, ad the admiistratio of the rdsp program. Life isurace policyholder taxatio. The 2012 federal budget proposed chages to the life isurace policyholder taxatio rules ad aouced a related cosultatio with key stakeholders. 13 A cosultatio paper was released to a idustry workig group o May 31, tpb officials discussed the proposals outlied i the paper extesively with idustry represetatives. Cotigecy fees related to the sr & ed tax icetive program. As aouced i the 2012 federal budget, 14 the govermet udertook cosultatios o cotigecy fees charged by sr & ed tax preparers to determie whether these fees dimiish the beefits of the sr & ed tax icetive program to Caadia busiesses ad the ecoomy. As oted earlier, tax legislatio is geerally released i draft form for public commet before it is itroduced i Parliamet. Writte commets are solicited, ad may be provided by either mail or . Meetigs are also ofte held with stakeholders, either i relatio to particular measures that affect a particular taxpayer or group, or, i the case of iput provided by orgaizatios such as the cba-cpa joit committee or the Tax Executives Istitute, o most or all of the measures put forward i the particular package of draft legislative proposals. Parliametary committees, of both the House of Commos ad the Seate, hold hearigs o proposed tax legislatio as part of its passage by Parliamet. tpb staff have regular meetigs with stakeholder groups such as the commodity tax committees of the Caadia Bar Associatio ad the Chartered Professioal Accoutats of Caada, ad the Tax Executives Istitute. Issues Cosidered Suitable for Public Cosultatio Public cosultatio ca be particularly useful i the followig circumstaces: Where ew policies are proposed, cosultatios may reveal uiteded cosequeces or, alteratively, may reveal a gap i the policy. With policies that may be sesitive or cotroversial, cosultatios may provide a opportuity to explai cocers that might be addressed i the legislatio. 12 Caada, Departmet of Fiace, Cosultatio o Esurig the Effectiveess of Registered Disability Savigs Plas, October 2, 2011 ( #Esurig). 13 Caada, Departmet of Fiace, 2012 Budget, Budget Pla, March 29, 2012, at Ibid., at 71.

10 1040 caadia tax joural / revue fiscale caadiee (2013) 61:4 Ofte, chages that are required to tighte existig legislatio take effect at the time they are aouced, i order to prevet reveue losses. I these cases, cosultatios occur after the aoucemet, ad geerally relate to techical issues rather tha the policy aspects of the tighteig chage. Cosultatios may be used to review the effectiveess of existig tax measures. Through the release of draft legislatio, the tax practitioer commuity is give a opportuity to commet o proposed amedmets addressig techical issues idetified by the tpb, the cra, or taxpayers ad their advisers. Timig ad Form of Public Cosultatio The stage at which cosultatio is carried out varies with the purpose of the cosultatio. For example, the cosultatio process may occur at a early stage ad provide the impetus for a tax chage (such as whe a parliametary committee studies a particular issue or the miister of fiace egages i pre-budget cosultatios); may be carried out to elicit views o a rage of optios, or o oe particular optio, to address a issue; may be carried out with respect to the implemetatio of a tax chage that has bee aouced by the govermet; or may occur o the release of draft legislatio for commet. The Departmet of Fiace s mai approach to formal cosultatio ivolves a ews release ad the postig of a cosultatio paper or draft legislatio o the departmet s website ivitig commets from iterested stakeholders. Cosultatios may also be i the form of iformal meetigs betwee tpb staff ad taxpayers, idustry groups, tax practitioers, or the other stakeholders. Effectiveess of the Cosultatio Process Cosultatios are useful for learig about ew policy ideas, for idetifyig issues associated with ew tax policies, ad for idetifyig techical issues with proposed legislatio. Cosultatios are also useful for idetifyig sesitive aspects of policies ad for explaiig govermet positios o policy issues. Other Issues Academic Research The tax policy commuity would beefit from more academic scholarship i the area of tax law. Caada has a limited umber of academics at uiversities ad other orgaizatios who focus their research o tax policy issues. Trasparecy The budget process ad the developmet of legislatio are geerally secret. Cosequetly, there are importat limits to the extet that iformatio is shared with

11 the process for makig tax policy i caada 1041 respect to the developmet of tax iitiatives. However, comfort letters issued by the Departmet of Fiace are made public, as are advace tax ruligs ad techical iterpretatios issued by the cra. The Departmet of Fiace ad the cra are both subject to the Access to Iformatio Act, 15 which may require the release of iformatio i certai circumstaces. The Role of Politics ad Politicias I the field of taxatio, oly the govermet ca itroduce a measure that would impose a ew or additioal tax. However, measures to reduce taxes may be itroduced either by the govermet, or by parliametarias as private members bills. 16 I additio to the House of Commos Stadig Committee o Fiace, the Seate s Stadig Committee o Bakig, Trade ad Commerce ad the Seate s Committee o Natioal Fiace study tax legislatio, ad tax issues more geerally, as part of their respective madates. The Role of Iteratioal Orgaizatios The Departmet of Fiace ad the cra are actively ivolved with the oecd at the workig-party level ad with the oecd s Global Forum o Trasparecy ad Exchage of Iformatio for Tax Purposes. As well, a seior represetative of the Departmet of Fiace sits o the oecd Committee o Fiscal Affairs. The Departmet of Fiace actively supports the work of the Iteratioal Moetary Fud ad the World Bak. The oecd model tax covetio 17 geerally serves as a model for Caada s tax treaties. The Role of Idepedet Tax Reform Bodies There are several o-govermetal orgaizatios i Caada that play a importat role i the developmet of tax policy ad the advacemet of tax reform: The Caadia Tax Foudatio promotes ad facilitates the study of, ad discussio about, Caada s tax system. Drawig its members from all braches of the tax commuity, i Caada ad abroad, the Foudatio is the predomiat Caadia orgaizatio i this area. Its publicatios iclude the Caadia Tax Joural, coferece reports, regular tax updates, ad moographs o a rage of tax topics. The cba-cpa joit committee acts as a exus for the tax practitioer commuity to preset cocers to the Departmet of Fiace. 15 RSC 1985, c. A-1, as ameded. 16 Audrey O Brie ad Marc Bosc, eds., House of Commos Procedure ad Practice, 2d ed., 2009 (Ottawa: House of Commos, 2009), Orgaisatio for Ecoomic Co-operatio ad Developmet, Model Tax Covetio o Icome ad o Capital: Codesed Versio (Paris: OECD, July 2010).

12 1042 caadia tax joural / revue fiscale caadiee (2013) 61:4 The Tax Executives Istitute represets corporate i-house tax professioals. A umber of idepedet thik taks, other research istitutios, ad professioal bodies (for example, the C.D. Howe Istitute, the Fraser Istitute, the Associatio de plaificatio fiscale et fiacière, ad the Uiversity of Calgary s School of Public Policy) publish work relatig to the ecoomics of taxatio ad other aspects of tax policy.