1. What is the most significant change to your region/jurisdiction’s tax legislation or regulations in the past 12 months?
Changes in Canada over the last 12 months have been significant. These include amendments to the Canadian General Anti-Avoidance Rule (GAAR) framework, the introduction and expansion of mandatory reporting rules, enhanced trust reporting rules, certain limitations on interest deductibility, and global minimum tax. The landscape has changed dramatically, and amendments to the GAAR framework, in my view, have had the broadest impact on tax practitioners and taxpayers.
2. What has been the most significant impact of that change?
Changes to the GAAR framework and the introduction of an economic substance test permeate taxpayers of all sizes and industries and could bring about new complexities to the tax analysis of transactions. These changes potentially render obsolete some of the prior GAAR rulings issued by the taxing authority, which could lead to increased uncertainty. From a practitioner’s perspective, it requires analyses through a different lens than many are accustomed to.
3. How do you anticipate that change impacting your work and the market moving forward?
The new GAAR framework and its associated uncertainty will alter how advisers advise clients on their tax matters. Scrutiny and due diligence will likely increase when analysing the tax considerations of commercial transactions. It will be necessary for advisers to stay informed about any changes and amendments to the legislation, and it will challenge them to provide more innovative approaches to solving problems for clients. Similarly, it will require advisers to educate their clients on the added complexity and potentially the added risk in the transactions undertaken, and, in some cases, historical transactions that have been previously undertaken in the ordinary course may now have an added risk of the GAAR applying in this new environment.
These changes have already heightened the level of consultation in the tax community. Over time, and as the taxing authority issues more guidance and technical commentary, I expect we will find a new equilibrium as we navigate these changes.
4. How has this changed the way you offer tax advice?
As a matter of standard practice, before these changes, I advised clients on the potential application of the GAAR to any transactions undertaken. This will continue. If anything, the level of consultation regarding the GAAR has increased significantly in my practice. Generally, I find that clients are not comfortable with the current uncertainty, which can add an additional level of complexity to the evaluation of transactions and risk management associated with any assignment.
Through consultation, I help educate my clients on the new rules and advise them on how to align their tax position to the new requirements, which requires a different approach from previous strategies. While education has always been part of my role, I would say it is supersized now.
My role is still to help clients understand any implications for their business and recommend strategies that support their goals while also being compliant.
5. What potential other legislative/regulatory changes are on the horizon that you think will have a big impact on your region/jurisdiction?
Recent proposed amendments to the alternative minimum tax [AMT] in Canada, if enacted as drafted, may have an impact on the ultra-high-net-worth [UHNW] private client segment, where I predominantly work.
6. What are the potential outcomes that might occur if those changes are implemented?
Based on my analysis, the proposed changes, as currently drafted, to the AMT regime could have material impacts on the transactions undertaken for UHNW individuals and trusts; most notably in the areas of donation planning, planning for the divestiture of a business or material asset, and in personal migration planning. As a result, a more sophisticated approach may be required to properly evaluate the tax considerations of these events.
7. Do you think that change will have a positive effect on both your practice and the wider regional/jurisdictional market?
Learning and being challenged is one of the main reasons why this environment of constantly evolving tax legislation appeals to me so much. In addition, any changes provide an opportunity for increased interaction with both clients and colleagues, which I view as very positive and beneficial.
8. Are there any regulatory/legislative changes you believe should be implemented in your region/jurisdiction?
Our tax system is incredibly complex. I am not the first to suggest that a simplification of some of the rules would be welcome; however, I appreciate that it is very challenging to simplify while maintaining the system’s integrity. The recent changes have added complexity, even for small to mid-sized taxpayers, and have significantly increased compliance requirements. There should be a balance between the cost and burden of compliance and the revenue authorities’ desire for greater transparency, which is needed to safeguard the integrity of Canada’s taxation base.
9. How do you believe those changes would help improve the tax landscape in your market?
Simplifying some of the rules would help taxpayers better understand, and comply with, the rules, which could help reduce errors or instances of unintentional non-compliance. Furthermore, simplified rules may lead to more effective and transparent transactions, which could benefit both taxpayers and tax authorities in Canada.
10. How are issues surrounding the taxation of the digital economy affecting your work?
The digital economy makes it easier for organisations to operate globally. This is equally true in the UHNW client community. Capital is fluid and being invested worldwide. The taxation of the digital economy introduces complexities for high-net-worth individuals and their tax advisers, particularly when dealing with cross-border activities and emerging digital assets. Staying informed about international tax developments and collaborating with tax and legal tax professionals with experience and knowledge in digital taxation is crucial for navigating this evolving landscape.
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