One Comment About Taxation – Artificial Intelligence and Tax

One of the areas that I find fascinating – and I’m experimenting more and more with – is Artificial Intelligence (“AI”) as it relates to taxation.  When Chat GPT was introduced to the world late last year, it opened the eyes of many as to how powerful AI can be.  In a short period of time, Chat GPT has improved immensely, although its accuracy and bias still has some wrinkles to work out. For example, I was working on a presentation last month and thought I would get Chat GPT to help me.  I asked it some basic questions on the topic I was presenting.  For the most part, the answers it provided were accurate, but there was a glaring error in one of the responses.  This should, however, improve over time as the engine learns.

One of the leaders in the tax and AI space has been Benjamin Alarie and his team at Blue J Legal.  Blue J has been working with AI and taxation – both in Canada and the US – for years.  With the introduction of ChatGPT, the Blue J team is preparing to release Ask Blue J.  Combine all that with the release of his new book, The Legal Singularity – How Artificial Intelligence Can Make Law Radically Better, one quickly realizes that AI is a significant game-changer in the taxation field.  It is mind-blowing to think of the possibilities.

When I engage with some tax practitioners about AI and tax practice, inevitably, someone will say: “we’re all going to be out of a job soon!”.  I don’t buy that.  But I do think that predictable issues or problems will be much easier to obtain an answer.

Scratching the surface, I think AI has the ability to:

• Obtain answers to predictable issues / problems quickly and accurately without the intervention of expensive talent;
• Quickly and accurately prepare necessary tax compliance based upon a known set of facts;
• Give basic advice on a set of facts and objectives;
• Interpret complex legislation;
• Draft instruction memos, letters and presentations;
• Help draft litigation materials and develop arguments;
• Etc.

When you spend some time with these early versions of AI, you quickly realize the power – good and bad – it has to transform the practice of tax.  Admittedly, I’m a neophyte compared to the talent at Blue J and others, but I intend to ramp up my knowledge quickly in this fast moving space.

I’d suggest you should too.

 

One Comment About Leadership – Challenge The Status Quo

More than 30 years ago, I was an articling accounting student at a Calgary-based accounting firm.  The experience was similar to drinking from a firehose: lots of learning in a short time.  One of the things that was very helpful for many articling students was that the prior year’s working paper file was always available for guidance.  When I finished preparing the current year’s working paper file, the senior reviewers would often ask me about particular issues in the file.  Early on, I was often tempted to answer such queries with “well, that’s how they did it last year…”.  But in the challenging field of accounting and tax (and I would submit most fields), such an answer is usually not the right one.  In fact, it’s a lazy one.  And it’s not usually a good answer to truly understand the issues at hand and learn.  The better approach is to try to understand the issue and objectively think about whether there is another path or answer to the issue that achieves the overall objective or goal.

For leaders, it’s been my experience that challenging the status quo is often a good approach to understanding issues and making progress on small or big objectives. For example, when I started practicing tax full-time after becoming a Chartered Accountant, I quickly realized that I lacked the legal training to fully practice tax.  When I mentioned that to peers, often the first response was that I should go back to law school (which I eventually did get admitted to law school later on in my career but I didn’t end up going…that’s a story for another time).  However, instead of going to law school, I wondered what it would be like for lawyers and accountants to practice together.  When I mused about this or called the regulators, the usual response was that multi-disciplinary firms were explicitly prohibited.  So, I started doing some research into the history, hurdles and opportunities for accountants and lawyers to work together.  The result was creating a unique set of firms – both accounting and law – that morphed into Moodys Tax / Moodys Private Client that works together for the benefit of the client.

Challenging the status quo isn’t easy.  But in my opinion, it’s a necessary attribute for effective leadership.

 

One Comment About Economics – Interest Rate Increases From The Bank of Canada

 The Bank of Canada was chartered in 1934 and is responsible for creating and carrying out Canada’s overall monetary policy.  It is supposed to be a non-political / non-partisan body.  Today, after the release of this newsletter, the Bank of Canada will announce whether it will raise interest rates for the 11^th time since March 2022 in its battle to try and quell a high inflationary environment.

From the Bank of Canada’s website:

The objective of monetary policy is to preserve the value of money by keeping inflation low, stable and predictable. This allows Canadians to make spending and investment decisions with more confidence, encourages longer-term investment in Canada’s economy, and contributes to sustained job creation and greater productivity. This in turn leads to improvements in our standard of living.

Canada’s monetary policy framework consists of two key components that work together: the inflation-control target and the flexible exchange rate. This framework helps make monetary policy actions readily understandable, and enables the Bank to demonstrate its accountability to Canadians.

As mentioned, the Bank of Canada has aggressively increased interest rates over the last 18 months or so in a battle to keep inflation in check.  Canada is not alone in the battle since many countries poured excessive amounts of money into their economies to deal with economic shutdowns that were a response to the COVID pandemic.  Whether or not economies should have been shut down as a response to the pandemic is a debate for another time, but suffice it to say that I was an early vocal critic of such a response.

As many economists will tell you, when there is too much money chasing too few goods, the result is inflation.  Most Canadians have experienced the negative effects of inflation with increased costs of almost everything including necessities like food, clothing, housing, transportation and education. Combine that with increased interest costs on mortgages and consumer debt and the result is that many Canadians are truly struggling financially.  Some politicians, like Ontario Premier Doug Ford and British Columbia Premier David Eby, have recently called on the Bank of Canada to halt any further interest rate increases, given the harm that many are feeling because of such increases.  While one can understand the politics behind such requests, the Bank of Canada’s monetary policy objectives to keep inflation low – as described above – is important since high inflation is also very damaging.  The Bank of Canada – like other central banks around the world – is in a very tricky predicament:  How much do they increase key lending rates to keep inflation in check without causing too much economic damage or a recession?

Perhaps the next time a federal or provincial government is tempted to spend money like drunken sailors, the lessons from our current environment and challenges will be remembered, thus resisting such urge.  Canadians will be thankful for such a response.

 

Bonus Comment – Quote From Journalist James Surowiecki About the Role of Central Bankers

“Of course, looking tough on inflation is part of any central banker’s job description:  if investors believe that inflation is going to get out of control, you end up with higher interest rates and capital flight, and a vicious circle quickly ensues.”

Yep…totally agree!

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