Sunday News Roundup 22.06.19: CSSB, Supreme Court tax dissent, vax policies and more Canadian accounting news
Wrapping up the odds and ends from the past week in Canadian accounting news
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TORONTO, June 19, 2022 – The major news this past week in the Canadian accounting profession was the creation of yet another accounting standards organization known as the Canadian Sustainability Standards Board (CSSB). The announcement was made by Financial Reporting & Assurance Standards Canada (FRAS) and mutually approved by the Accounting Standards Oversight Council (AcSOC) and the Auditing and Assurance Standards Oversight Council (AASOC).
Have we already lost your attention? Well, the Globe and Mail did a decent job of establishing the basic facts, which are as follows. Back in November 2021, the International Sustainability Standards Board (ISSB), a new global disclosure standards body, awarded one of just three global hubs to Canada, to be established in Montreal. A review of accounting standards governance and structure was already underway by the Independent Review Committee on Standard Setting in Canada (IRCSS), which ultimately recommended establishing a homegrown sustainability standards board, that will “work in lockstep” with the ISSB.
In other words, a made-in Canada solution in which the global standards will be adapted to the Canadian marketplace, similar to IFRS. According to the Globe, the CSSB will review global standards “to make sure they are appropriate for the Canadian market,” with its “high concentration of resource-extraction companies as well as its large number of small and medium-size enterprises.”
The process was not without its critics (see: Everyone should have a say on the future of green accounting). But the most insightful analysis comes from the Ivey Business School’s Centre for Building Sustainable Value, which warns: “The more Canadian sustainability standards diverge from the international versions, the more the overall power of global standardization will be diluted.”
Otherwise, it’s just more greenwashing, similar to the “softer approach” of the Canadian Securities Administrators, for Canadians that still seem themselves as hewers of wood and drawers of oil. And now, on to the rest of the news from the world of Canadian accounting.
MNP tax planning case decided with dissent in Supreme Court
An accounting firm and its client agree on a planning strategy based on current interpretation of tax legislation. Later, the Tax Court issues a decision with a different interpretation, and the client now owes taxes, due to a reassessment by the Canada Revenue Agency. The CRA and the client fight the reassessment all the way to the Supreme Court of Canada. Who wins?
This past Friday, the Supreme Court of Canada ruled in an 8-1 decision that principles of equity and tax law prevent companies from reversing their transactions. “Taxpayers should be taxed based on what they actually agreed to do and did, and not on what they could have done or later wished they had done.” There was a dissenting opinion which we will get to later.
Way, way back in two 2008, two companies based in British Columbia each retained the same tax advisor (MNP) to protect their assets from creditors without incurring income tax liability. In each case, a holding company was incorporated to purchase shares in an operating company, a family trust was created with the holding company as a beneficiary, and funds were loaned to the trust to purchase shares in the operating company.
The operating companies paid dividends to the trusts. They, in turn, claimed a deduction in respect of those dividends. The effect was to move $510,000 from Rite‑Way to a family trust, and $2,085,000 another family trust, without income tax being paid. But after the plans were implemented, the Tax Court of Canada, in another matter, interpreted the applicable tax legislation differently than was commonly accepted by tax professionals and CRA.
So the CRA reassessed the trusts’ returns and imposed unanticipated tax liability. The trusts petitioned for the equitable remedy of rescission of the transactions leading to and including the payment of dividends. No such luck. Not only did the Supreme Court rule in favour of the Attorney General but ordered the trusts to pay the Crown’s legal costs.
Now to the lone dissenting opinion. Justice Suzanne Coté, a former corporate litigator appointed by the Harper government, has a reputation as a dissenter and is no stranger to tax disputes. "Unfairness results when the CRA reverses a long-standing interpretation and then seeks to reassess a taxpayer retroactively," wrote Justice Suzanne Coté. The applause you hear is coming from Canadian accountants and tax lawyers.
If you're wondering about MNP, the Court ruled that MNP advised their clients about the plan and its risks, which was correct at the time it was given, and a claim against MNP would not be an adequate remedy. But the details are interesting. The reason why MNP and its clients did not request an advance tax ruling on the plan "was more than clear," said the Court, because the CRA’s interpretation had been consistent and was undisputed — until it wasn't.
Vaccinations: Don’t Ask, Don’t Tell
As cases of COVID-19 continue to drop, Canadian companies (and governments) are relaxing vaccination and masking mandates, and that includes accounting and professional services firms. This past week the Toronto Star and Canadian Press reported that several of Canada’s major accounting firms are dropping vaccine requirements. Deloitte Canada was the first of the Big Four to lift its vaccination policy, followed by PwC Canada, then EY Canada and KPMG Canada this month.
How this may affect the companies these firms audit is still unknown. EY Canada, for example, says its employers may still be asked to disclose vaccination status if requested by clients. And now, on to the rest of the news from the past week in Canadian accounting. All this comes as accounting firms are trying to entice staff back into the office in a tight labour market using both the stick and the carrot.
Death and taxes
Described by some as “a giant of the tax profession,” former Chief Justice of Tax Court of Canada Donald George Hugh Bowman died earlier this month. His obituary in the Globe and Mail combines his professional accomplishments with a striking portrait of the man himself.
Before becoming a lawyer, Bowman worked a series of blue collar and middle class jobs, which must have informed his tax opinions or at least his broader outlook. One hopes that at least a few of the current justices on the tax court have similarly well-rounded backgrounds. A highly recommended read.
Wagepoint now integrates with Xero
Wagepoint, the homegrown payroll solutions platform, now offers its customers (including Canadian accountants) the opportunity to integrate with accounting platform Xero. Launching this week in the Xero App Store, the new integration uses Single Sign-Up, allowing customers to use their existing Xero credentials to quickly connect the two products and create a powerful tech stack they can trust.
According to Shrad Rao, CEO at Wagepoint, "Wagepoint customers love Xero! We've tracked Xero for a long time, mainly because our companies are so customer-centric – which is just business-speak for 'we are both mildly obsessed with making our customers happy.'"
EY to updates its technology platform
Ernst and Young announced a $1 billion investment in audit technology this week. According to Going Concern, “firms quick to adapt the coolest toys immediately set themselves apart in the otherwise homogenized Big 4 experience,” and the investment could be a game-changer in both audit quality and retainment of staff. The current EY cloud based global audit platform, EY Canvas – the current EY cloud based global audit platform, apparently doesn’t paint a pretty picture.
With interest rates soaring, these cherished personal finance rules are invalid (Globe and Mail)
Opinion: High and hidden taxes driving up the pump price (Glacier Media)
Kirk Simpson exits Wave three years after sale of landmark Toronto software company to H&R Block (Globe and Mail)
Taxpayer hit with a TFSA overcontribution penalty takes the CRA to court (Financial Post)
By Canadian Accountant staff.