Tax predictions for 2014

Good tax planning shouldn’t be “last minute” . . . it should be done year round

By Kim Moody
and Roy Berg
Moodys Gartner Tax Law LLP

CALGARY, AB, Jan 4, 2014/ Troy Media/ – Toward the end of the year, tax practitioners tend to flood the blogosphere with “last minute tax tips” but we prefer to take a different approach because good tax planning shouldn’t be “last minute” . . . it should be done year round.

Furthermore, those able to anticipate tax changes are favourably positioned to plan their affairs accordingly, and in a proactive manner. Before Jay Leno introduced his “Headlines” comedy bit and before David Letterman introduced the “Top Ten List”, Johnny Carson appeared on stage in an outrageous costume and used his mystical powers of premonition as Carnac the Magnificent. In an ode to the King of Late Night, we give you “Carnac the Magnificent” and an assembly of the following tax predictions for 2014.

1. Canada will implement a tax preparer registration system

The Canada Revenue Agency (“CRA”) has been musing about bringing a tax preparer system to Canada for some time now. It would appear that its objective is to try to weed out the unsavoury tax preparer and to protect the public. I believe that it is about time for its introduction in Canada. Other countries, such as the United States, have had tax preparer registration systems for quite some time. While the U.S. registration system is currently being challenged in the Courts, most commentators believe that such challenge is only a short term hiccup. What remains unknown is exactly how and when Canada will introduce its registration system. Will tax preparers need to complete exams to be able to get initially registered? Will there be ongoing professional development requirements? This appears to be a closely guarded secret but our prediction is that Canada’s registration system will be introduced in concept in 2014. We also predict that Canada’s registration system will not be modelled like that of the U.S. We believe it will initially be simpler. Stay tuned.

2. Canada will execute an intergovernmental agreement with the U.S. to administer the U.S.’s Foreign Account Tax Compliance Act (“FATCA”)

Canada is home to many U.S. citizens. Such people have very laborious tax filing requirements, given the fact that the U.S. is only one of two countries in the world that taxes on a citizenship basis. Can you guess the other one? If you guessed Eritrea, you guessed right! Many U.S. citizens resident in Canada have only in recent years become aware of their filing requirements. Accordingly, the prudent non-tax compliant U.S. citizen has been diligent about getting their tax filings caught up. The U.S. has introduced a number of voluntary disclosure programs and a “streamlined” filing procedure in an effort to encourage such people to get back into the system. However, there are also many non-tax compliant U.S. citizens who are “playing ostrich”, purposely not filing or doing “quiet disclosures“.

That’s what FATCA is about. It is a massively broad piece of U.S. legislation that became law a few years ago. Overly simplified, it imposes U.S. filing obligations on foreign financial institutions and non-financial foreign enterprises. In Canada, there have been a lot of complaints and open musings about whether or not Canada should or can comply (privacy and constitutional issues). However, let’s not kid each other, Canada will comply with FATCA. The Department of Finance is currently negotiating an intergovernmental agreement with the U.S. regarding how Canada will comply with FATCA. Expect such agreement to be completed soon with implementing legislation to be introduced to Parliament shortly thereafter.

Regardless of what you think about FATCA, all right-minded people will agree on two things: First, Canada must implement an intergovernmental agreement with the U.S. because without doing so Canadian banks and other businesses will be placed in the unenviable position of being forced to deal directly with the IRS on its implementation.

Second, Canada can’t afford to be exempted from FATCA’s reach. One of the purposes of FATCA is to force transparency in the banking system and, ostensibly, catch bad actors. If the U.S. were to exempt Canada from FATCA (which it would never do) all the bad actors FATCA was designed to catch would flock to Canadian banks and businesses.

FATCA is scheduled to become effective July 1, 2014 although there have been a lot of people requesting that the U.S. delay the implementation date to 2015 or later. Our prediction is that FATCA will not be delayed. Accordingly, time is running out for the non-compliant U.S. citizen. In fact, the IRS openly mused recently that once FATCA is implemented that perhaps their voluntary disclosure programs may be redundant. Non-tax compliant U.S. citizens and their advisors need to be ready.

3. A tax designation is coming to Canada

Some countries around the world offer a credible and recognized tax designation for certain qualified persons who specialize in advising on tax matters. For example, the UK (and now a number of other countries) offers the Chartered Tax Advisor (“CTA”) designation through the Chartered Institute of Taxation. Last week, the Canadian Tax Foundation sent a note out to its members giving them advanced notice that in early January 2014 it would be polling its members to get their views on whether or not a specialized tax designation has a place in Canada. This is not a new topic. For example, the Canadian Institute of Chartered Accountants studied such a topic approximately 12 years ago but ultimately abandoned it.

A lot has happened in the last 12 years though, and it appears that some stakeholders are studying it again. With the pending merger of the accounting profession into one body under the Chartered Professional Accountant (“CPA”) brand, this also adds an interesting element. For Canadian tax specialists who believe that a separate designation has more pros than cons, 2014 will be an interesting year.

4. Intellectually disingenuous debate on the morality of tax avoidance will linger

Suffice it to say that I believe that this issue is likely not going away anytime soon. Hopefully politicians, journalists, academics, tax administrators and others who believe that tax avoidance is immoral will be open to a more well-rounded debate in 2014 rather than simply relying on the logically non-attackable position that people should pay their “fair share”. Of course people should pay their “fair share” but what is “fair” is in the eye of the beholder.

However, the continued desire for tax transparency by tax administrators around the world will likely cause tax return preparation and planning to become much more laborious than it already is. For example, Canada’s introduction of its revised T1135 form to report certain foreign property has caused fits amongst accountants who are preparing to file tax returns for their clients for the 2013 tax year. My prediction is that complicated filings to “improve tax transparency” will continue to be introduced during 2014.

5. The 2014 Federal Budget will be the most interesting on record as parliament seeks to close tax loopholes

It’s a little early to start speculating on what will be in 2014 Canadian Federal Budget (likely to be introduced in March 2014). However, it is likely that the “closing tax loopholes” theme will continue. The Standing Committee on Finance released its report The Future We Want: Recommendations For the 2014 Budget earlier this month and it is worth a read to get some hints of possibly what is to come.

6. Tax simplification will occur ONLY when modern economies become less complex, which will not be next year

Tax simplification has received a lot of press recently. In addition, certain countries have responded to calls for tax simplification by introducing formal offices. For example, the UK has introduced an Office of Tax Simplification. While I believe that certain provisions of the Income Tax Act in Canada could be abolished, amended or streamlined in a way that simplifies it for a certain tax audience (like very small business owners), the idea that the Income Tax Act could be reduced to a small number of pages like it was in its infancy is fantasy.

The simple truth is that society in general, and modern economies in particular, have become very complex and tax legislation is responsive to such complexity. Indeed, as mentioned above, as Parliament seeks to eliminate loopholes the Act becomes more complex. We don’t believe that life will become simpler anytime soon and thus tax legislation will continue to respond with unfortunate complexity. Notwithstanding, anytime a system can reduce unnecessary complexity or redundancy then that is positive. Watch for tax simplification to become a more hot button topic in 2014.

Kim Moody is a tax advisor with Calgary-based Moodys Gartner Tax Law LLP.

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6 Responses to "Tax predictions for 2014"

  1. Avatar
    NativeCanadian   January 4, 2014 at 10:48 am

    The FATCA Fact is simple. This new US law that  kept filing requirements on dual citizenship people (some even dual by birth alone) as a secret, was designed to entrap these people plain and simple. Any country that signs a deal with the US on fatca will be ruined financially. Why do you think Fatca was pushed back twice already? Other countries are seeing the destruction in Switzerland and learning of their fate if they sign. It is already proven the US will not gain enough financially with fatca to offset the costs of fatca so guess what?  They will tell other countries and it’s citizens to pay for it for them!  Every Canadian citizen will pay out huge amounts  for fatca’s implementation and even larger for the fines and penalties that the US will impose on them by this extra terratorial tax grab.  Even today, an article was posted in a Swiss newspaper showing the Swiss lawyers were “naive” and the US outsmarted them. Now Swiss people are doing a national referendum to overturn Switzerland’s agreement with the US. This is a simple tax trap as the US is desperate for money. Their government destroyed their people’s country and now, will take from other countries by force. Fatca will be forced on other countries by threat, not by agreement. It is easier for banks to lobby their governments to sign on and let the government do the dirty work. Fatca is an act of war and I think if anything will cause world war 3, this will be it. China and Russia have shown the door to Fatca, they are not stupid. At least China and Russia have support  and protection from the USA from their governments. Lets see if Canada does the same. NO TO FATCA!!!

  2. Avatar
    petrostelos   January 4, 2014 at 10:52 am

    Well, Jim Flaherty has also said that CRA will not collect for the IRS on Canadian citizens.  So dual citizens should consider that if they live in Canada they have much greater protection against the overreach of the United States than many other places in the world.  Also, Flaherty said that Canada would not enforce FBAR fines either.  If Canada signs an IGA it is just simply this: Canadians private information will now be part of the biggest snooping operation of the IRS and it will be a betrayal of the sovereignty of Canada by our leaders.

    Articles from the compliance industry are suspect.  They have their own self-interest involved and will collect off the backs of hard working Canadians.  There is another way.

  3. Avatar
    JeffSheldrake   January 4, 2014 at 11:23 am

    Canada may become FATCA compliant, but Canadian citizens should not have to comply.  Prediction – a dual US/Canadian citizen will mount a legal challenge to ‘carve out’ dual US/Canadian citizens out of FATCA denying the IRS of data.

  4. Avatar
    OnlyCDN   January 4, 2014 at 12:07 pm

    I would be interested in what amount of business Mr. Moody anticipates he will generate when FATCA comes into effect. He seems to know much more than most Canadians. Is someone in our government giving him inside information that is secret from the rest of Canadians? Persons affected and their families will be harmed financially by FATCA and also having been betrayed by their own Canadian government to be come  2nd class citizens.  How does Mr. MOODY feel About that? Oh, it is  nothing personal, just business making a profit.

  5. Avatar
    Lynne Swanson   January 4, 2014 at 12:08 pm

    Two of Canada’s top constitutional lawyers do not agree FATCA is inevitible. In fact, they have concluded changing Canadian laws for FATCA would be a violation of Canada’s Charter of Rights. Canadian Civil Liberties Association has also made a submission to Finance Canada in opposition to FATCA.

    Peter Hogg has literally written the book on constitutional law in Canada. He is the author of Constitutional Law of Canada, the textbook on the Canadian constitution used in law schools across the country.

    Mr. Hogg says reporting on Canadian citizens and residents living in Canada would violate Canada’s Charter of Rights and Freedoms.  He has recommended an IGA which would report on US residents with assets in Canada, which would not violate the Charter.  

    Mr. Hogg’s approach would resolve your fear of “bad actors” who would “flock” to some absurd Canadian tax haven. It would also protect the rights of Canadian citizens and residents.

    Some of us have consulted another prominent Canadian constitutional lawyer. We are prepared to pursue legal action is necessary to protect our rights as Canadians if it becomes necessary.

    It is unfortunate that professionals like you do not consider the fundamental rights of Canadians in providing your advice and instead promote more fear mongering.  
    As Petrostelos has stated, the Finance Minister has been clear CRA will not collect taxes or penalties for IRS for Canadian citizens and will not collect penalties for IRS for Canadian residents, even if they are not Canadian citizens. Canadian courts in the past have been clear that IRS has no jurisdiction in Canada.

    You can read Mr. Hogg’s assessment:

  6. Avatar
    Suki   January 4, 2014 at 12:34 pm

    FATCA is not a fait accompli.  To say that Canada must sign at IGA is a straw man.

    Your analysis of the situation makes be think you hope to make money as part of the compliance industry that is salivating in the wings.

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