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Miscellaneous updates: Alberta Budget, Supreme Court to hear new GAAR decision and other tidbits

The tax world moves quickly. This blog entry will highlight a few miscellaneous updates that are of relevance to most of our friends and clients.

2010 Alberta Budget

The 2010 Alberta Budget was released yesterday, February 9, 2010. From a tax perspective, there were no changes. Some tax practitioners had speculated that the Alberta Government might be forced to increase personal tax rates given the budget deficit that it currently faces. However, no tax increases (or decreases) were announced. As discussed in our blog entry of October 21, 2009 regarding Quebec’s take on fighting aggressive tax planning, Alberta appears to be concerned about aggressive tax planning as well. In their budget papers, the Alberta Government announced that it is dealing with aggressive tax planning by working with other provincial and federal jurisdictions to identify and pursue tax avoidance schemes. In addition, Alberta announced that it has increased its capacity to identify, audit and litigate these transactions. It will be interesting to see whether or not Alberta eventually follows the lead of Quebec in fighting aggressive tax avoidance.

Tax avoidance is a highly controversial topic. There are many people who believe that tax avoidance is legitimate tax planning. If the tax plan is technically sound, one could argue that the government should not be able to challenge such planning. However, if such tax avoidance violates the clear spirit and policy intent of the provisions of the Income Tax Act then many practitioners believe that fighting tax avoidance is a necessary duty of the government. From my personal perspective, I somewhat stand on the fence on tax avoidance. However, when certain advisors develop tax plans that are “proprietary” or are enveloped in secrecy or confidentiality agreements then this will often offend me since such plans should (client confidentiality issues aside)  be able to withstand transparency. There are many people who do not agree with me on this, but I have lived with this belief for many years. Stay tuned… this issue is far from over.

Supreme Court to hear appeal of Copthorne

The Supreme Court of Canada, on January 28, 2010, agreed to hear the appeal of Copthorne Holdings v. The Queen. The case involves the computation and utilization of paid-up capital (“PUC”). The Federal Court of Appeal had utilized the general anti-avoidance rule (“GAAR”) to prevent a possible double counting of PUC. This case will be of interest to many people given that the Supreme Court of Canada will again analyze the GAAR. The Supreme Court has not heard many GAAR cases and, therefore, the Court’s analysis will be of great interest to tax practitioners.

UBS tax affair update

Further to our January 14, 2010 blog entry, a recent Swiss Court challenge by a UBS account holder has put the UBS settlement with the US Government in doubt. See a news article that discusses the court decision. The Swiss Government appears to be committed to ensuring that the UBS settlement agreement gets approved. Again, stay tuned… this story has not yet ended.

United States propose transparency of uncertain tax positions

On January 26, 2010, the United States Internal Revenue Service (“IRS”) announced proposals that would require certain taxpayers to annually disclose uncertain tax positions in the form of a concise description of those positions and the maximum amount of US income tax exposure if the taxpayer’s position is not sustained. The IRS wants comments from the public on this proposal by March 29, 2010. Very generally and oversimplified, these proposals are intended to apply to companies who have assets of US$10M or greater.

Frankly, this is an astounding proposal! If enacted, it could potentially provide the IRS with a roadmap of all the potential tax issues in many taxpayers’ files! Wow!

Will Canada be far behind the US? Time will tell. While one can understand the desire for transparency, has the US taken this desire too far? The Canada Revenue Agency has gone as far as requesting auditor/accountant working papers. The accounting community was very concerned about such requests and the CICA established a task force. A good summary of this issue was released by the Canadian Tax Foundation in 2005. To my knowledge, no significant progress has been announced since that time. Again, stay tuned…

Olympics

Next week, various members of our firm are heading off to the Olympics to catch some of the events, including Canada’s first hockey game against Norway. We are all very excited about this once in a lifetime opportunity to see Canada’s Olympic team on home soil. Go Canada Go!!