I’ve often said – and most recently in a published article (see pages 58-59) – that taxation is not for the faint of heart.  There’s a reason why Albert Einstein is often quoted as saying that the hardest thing in the world to understand is the income tax.  I think he was correct.

The Income Tax Act (the “Act”)  is, by far, the largest statute (and likely the most complex) in Canadian law.  I think it’s fair to say that the average Canadian thinks that most accountants (who dominate the practice of taxation in Canada despite the fact that the interpretation of the Act is a legal function – and not an accounting function) understand tax.  The simple truth is that the vast majority of Canadian accounting professionals have only a very basic understanding of income tax law.  This can be a real problem when general accountants dispense taxation advice to clients who simply don’t understand that such an accountant is likely not qualified to provide income tax advice.  I wrote about this very problem in my book that I published Making Life Less Taxing in 2020.  It’s the public that ultimately pays the price for this when such advice turns out to be incorrect.

I’ve long been an advocate that Canada needs a tax designation.  This would help the public identify who are truly tax specialists and those who are not.  It would also reward younger accounting and legal professionals who put in the work to truly understand the Income Tax Act, its inner workings, related case law, administrative positions and continued efforts to keep up-to-date.  Practicing taxation is truly a specialist career if done correctly and, again, new practitioners who put in the effort should be recognized for such efforts.  A tax designation does just that.  Other jurisdictions – like the UK and Australia – long ago introduced the Chartered Tax Advisor (“CTA”) for these very reasons.

Canada, however, has had a choppy history of trying to introduce a tax designation.  The most recent legitimate effort – roughly 10 years ago – was led by the Canadian Tax Foundation (which I am a former Chair) which investigated the merits of introducing a tax designation.  The effort failed when various constituent groups did not agree on the need for a tax designation.  There was a similar result approximately 20 years ago with a group led by the then Canadian Institute of Chartered Accountants.

In the meantime, Canada continues to release incomprehensible new tax legislation.  It’s left to the tax specialist community to interpret and assist the general accounting, legal and taxpayer community to apply such legislation. In my view, the system is very close to a tipping point of massive non-compliance in a number of areas of tax law.  Put simply, if taxpayers and their advisors (and even tax specialists) have a hard time understanding new legislation, it can and will lead to non-compliance.  The system then breaks down.

One new set of rules that is about to be passed into law is the so-called “mandatory disclosure rules”.  While the rules that will be passed have improved slightly from their original proposals, they are still very complex, broad and onerous.  In addition, non-compliance can lead to significant penalties for taxpayers and their advisors.  Such penalties could be financially ruinous for tax professionals who do not diligently comply.  While every profession / job comes with risk, these new rules are already causing younger professionals to pause and wonder whether or not a tax advisory career is for them.  Combine this uncertainty with the simple fact that the accounting profession is experiencing a significant decline in the number of new entrants into the profession and people leaving the profession (again, the accounting profession dominates the practice of tax in Canada) and this is worrisome.  The Wall Street Journal recently highlighted such a decline and the problems it is causing in two articles accessible here and here.

So where does all of this leave us?  While the above is only skimming the surface on a multi-faceted and complex topic, Canada needs to start talking about this.  The taxpayer community – and in particular the business community – can ill afford to have long-term problems trying to adhere to complex tax legislation by not having available talent to help comply or properly plan.  Some obvious agenda items that need to be part of a discussion include:

• Recognition that taxation is a special and unique area of law and accounting that deserves recognition by way of a tax designation.  Such a tax designation, implemented properly, would go a long way to help new professionals be recognized for their efforts and help protect the public so they are properly informed as to who is qualified to assist them in their taxation affairs.  Such a discussion should also come with the recognition that tax compliance and advice is not the sole domain of the larger accounting firms; there are many small firm tax practitioners that are very capable and thus their voices should be heard just as loud and as clear as the larger firms despite the fact that large firm members are much more voluminous than smaller firms; and

• A commitment by the government of Canada that it is long overdue for comprehensive tax review and reform.  While Canada has had limited review and reform in its recent past, the last whole-scale effort to comprehensively review Canada’s taxation system was 61 years ago when The Royal Commission on Taxation was appointed.  It took four years to review and study before releasing its landmark recommendations in a six-volume set.  Such recommendations were vigorously debated but ultimately it led to taxation reform (with some of its recommendations adopted, altered or outright rejected) that was implemented on January 1, 1972.  A lot has changed since the 1960s and 1970s and it’s time to review it.   

A key objective of comprehensive review / reform should be to simplify many aspects of our taxation system (to encourage compliance) and increase the number of qualified tax advisors who are able to advise Canadians on taxation matters without increasing their financial risk to being such advisors.  In other words, we need to increase the population of qualified and visible tax advisors so as to benefit our country as a whole.

Without concrete action, I’m concerned that the slow-moving train (of incomprehensible new tax legislation being released, a significant decline in the number of accountants entering the profession, no visible recognition of who qualified tax professionals are and such new professionals being concerned about the financial risks to being a tax professional) will eventually crash in a horrible wreck.  The wreck will obviously not be for the benefit of Canada.  We need to get ahead of this slow-moving train, apply the brakes and quickly build a new track so the train can get on a better and more productive route.