The Joint Committee on Taxation of the Canadian Bar Association and CPA Canada made a submission to the Department of Finance on the EIFEL proposals that were first announced in the 2021 federal budget. Draft legislation was released on these proposals on February 4, 2022. The Committee’s submission covers several technical issues, as well as concerns with respect to timing and the lack of grandfathering rules.
On timing, the proposals apply to taxation years beginning on or after January 1, 2023 (as originally announced in the 2021 federal budget), even though the release of draft legislation was delayed. Typically, technical legislation related to budget proposals is released in the summer or early fall of the same year. Without a change, the timeframe for affected taxpayers to deal with the new EIFEL rules has been significantly reduced. Therefore, the submission recommends deferring the implementation of the proposals so that affected taxpayers have time to properly incorporate the new rules.
Avoidance of Tax Debts
The Joint Committee on Taxation (JC) (Canadian Bar Association and Chartered Professional Accountants of Canada) made a submission in response to the government’s consultation on the draft legislation released on February 4, 2022, relating to the Avoidance of Tax Debts.
These proposals were first conceptually introduced in the 2021 federal budget. Based on the budget commentary, the JC has drawn the following conclusions on the proposals, which are tied into key recommendations:
- the proposals are aimed at complex plans or schemes that are designed to circumvent the rules in section 160 (i.e. a purpose test)
- the proposals are not intended to create a results test (i.e. a series of transactions or events that impair the Canada Revenue Agency's (CRA's) ability to collect a tax debt) where there is no evidence of an intention to establish a plan or scheme to achieve the result that arises
- the penalty should apply to those who devise and/or promote the plan or scheme that is designed to circumvent section 160, and not to those who unknowingly participate in, or implement, such a plan or scheme
The submission highlights examples of where the proposals can be read as extending beyond these legislative purposes, and provides recommendations on how the rules can be more narrowly focused.
For example, the submission looks at the use of holding company structures used for asset protection purposes. In such a situation, if a tax debt goes unpaid, it would result from external factors and not from steps taken for asset protection. As a key recommendation, the JC believes that the proposed penalty should only be implemented where there is a clear intention to frustrate or circumvent section 160 at the time the transfer of property occurs and not a results test related to other events. You can read the details of the submission online.