Cleaning Up Our Act (The Income Tax Act, That Is)

MR. STALDER:

Distinguished members and guests, ladies and gentlemen: Vespasian, father of the Flavian Dynasty in ancient Rome, built the Colosseum, the arena for the great games, where the plebs would get panem et circenses, bread and games. And just as in our present time, he had problems in gathering the funds to build it. The Canadian analogy would be the Olympic Stadium in Montreal. To get out of his dilemma, Vespasian had to scratch for taxes; he levied taxes on the street toilets. (Even today, these are called les Vespasiennes in France.) From good old Vespasian stems also the proverb non olet--it does not smell. The money, that is. Since all this "giving to Caesar what is due to Caesar and giving to the Lord what is due to Him" is such a delicate matter, we have sought the most capable of the accountants to report on whence it cometh and where it goeth.

Lyman Maclnnis is a member or chairman of boards, committees, councils, faculties, and foundations, which are involved in tax, appeals, discipline, PR, planning, auditing, editing, and professional conduct. His community involvement ranges from St. Joseph's to Our Lady of Perpetual Help. He has received awards and is a published writer. He is also an accomplished public speaker, having been heard on radio and TV, speaking mostly on money--that is, how to make and keep it--or on taxes--that is, how to get rid of it voluntarily. Ladies and gentlemen, please welcome our guest of honour, Lyman MacInnis, F.C.A., Partner of Touche Ross & Co. in Toronto and President of the Institute of Chartered Accountants of Ontario.

MR. MAC INNIS:

Mr. Chairman, ladies and gentlemen: The' Canadian Income Tax Act is an unmitigated mess! Now, before getting into examples to back up this claim, I'm going

to mention three facts that we must recognize in order to keep my comments in perspective.

First of all, we in Canada are subject to an income tax system that's based, in the first instance, on self-assessment. What that means is that it is up to you and me, as individuals, to determine how much income tax we owe, and when and how it must be paid. It is not like sales tax, where the rate is applied to a fixed amount (such as the price of goods) and included on an invoice, cash register tape, or restaurant slip. Nor is income tax like our property taxes, which the local government calculates for us and then sends us a bill telling us how much we owe. No. When it comes to income tax, as I have said, our system is such that the responsibility rests with you and me to determine how much we owe, and when and how it must be paid.

Secondly, for decades it's been a well-established rule of jurisprudence that income tax laws be written in clear, unmistakable language. This is so because it is a self-assessing system. The most quoted statement by a court in this respect says: "It is not enough to attain a degree of precision which a person reading in good faith can understand, but it is necessary to attain, if possible, a degree of precision which a person reading in bad faith cannot misunderstand. It is all the better if he cannot pretend to misunderstand it."

Thirdly, the cost of getting professional help in the preparation of a tax return, for the vast majority of Canadians, is not deductible for income tax purposes! To be able to deduct the cost of getting your tax return prepared, you either have to have business income or a substantial volume of investment income. So, the very people who most need help--the wage earner or the taxpayer with, perhaps, one T5 for interest or a bit of dividend income--cannot get a deduction.

O.K., so we've established the context. It's a fundamental of tax law that taxpayers should be able to understand the Act. Under Canadian law, it's our responsibility to correctly figure out how much tax we owe, and when and how it is to be paid. And, for most Canadian taxpayers, the cost of getting help with their tax returns is not deductible for tax purposes.

I started out by saying the Income Tax Act is an unmitigated mess. The reason I say that is because it is incomprehensible! Yet, you and I and every other taxpayer in this country are required by law to understand it. And if we don't, the cost of getting help is probably not deductible. And if we make mistakes on our returns, we may end up with the penalty of paying interest.

Let's look at some examples of this incomprehensibility. Now, I'm not going to pick out sections of the Act that deal with rare corporate reorganizations or the like. No! I'm going to deal with ordinary, everyday applications--things that affect ordinary, individual taxpayers.

Let's start with section 56(1)(s). As a matter of fact, if I want to be completely correct, in the Income Tax Act that's not a section at all. It's a paragraph. If it were just plain old 56--that would be a section. If it were 56(1), that would be a subsection. But, because it's 56(l)(s), that makes it a "paragraph" under the scheme of the Income Tax Act. And you have to know that in order to find your way through this mess. As well, before I can even quote you what paragraph 56(1)(s) says, you have to remember that section 56 itself begins with the words: "Without restricting the generality of section 3, there shall be included in computing the income of a taxpayer for a taxation year. . ." and you find that about five pages earlier than where paragraph 56(1)(s) begins. So, the whole quotation is:

Without restricting the generality of section 3, there shall be included in computing the income of a taxpayer for a taxation year, the amount of any grant received in the year under a prescribed program of the Government of Canada relating to home insulation or energy conversion by the taxpayer, other than a married taxpayer who resided with his spouse at the time the grant was received and whose income for the year is less than his spouse's income for the year, or the spouse of the taxpayer with whom he resided at the time the grant was received, if the spouse's income for the year is less than the taxpayer's income for the year to the extent that the amount is not required by paragraph 12(1)(u) to be included in computing his or his spouse's income for the year or a subsequent year.

Do you know what that says? That says that if you receive a home insulation or energy conversion grant you have to include it in income, unless your spouse has a higher income than you. If that is the case, then he or she has to report it. Now, can you imagine Aunt Harriet figuring that one out for herself? Yet, that's exactly the type of person who, under our law, has to figure that out for herself or himself or else incur a professional fee that is, in all probability, not deductible. It's even worse when you consider that you and I paid somebody to write that convoluted garbage. And, ladies and gentlemen, I assure you, that wording is typical. I did not, as I mentioned, pick out an obscure, limited-application section. That's a section that applies to everyday working people, widows, and orphans.

It may come as a surprise to some of you that even though it's the Income Tax Act we're dealing with here, nowhere in it is "income" defined. It just sort of seeps in in various places, like perspiration seeps through pores in the skin.

On the other hand, when you look at something that is defined in the Act, perhaps we're lucky that no attempt has been made to define "income."

Let's take another example. And again, ladies and gentlemen, I'm going to select an item that affects millions of individual taxpayers at all levels of income-earning capacity and wealth--capital gains. It would be logical, if you're interested in finding out whether or not you've had a capital gain, to start by looking in the index. Look under "Capital Gains" in the index of, say, the CCH version of the Income Tax Act, and you will find, eventually, and I say eventually because there are about twenty subheadings before you get to "defined," you will find eventually that there are three sections of the Act listed after the word "defined" under the general heading of "Capital Gains."

Again, let us assume you are a logical person, so you start , with the first reference that is listed there. It's section 39. When you find section 39, you will also find that the fun is just beginning. Section 39 begins with a sentence that has 774 words, 28 commas, and 2 semicolons. Lincoln's entire Gettysburg Address had only 267 words in it! Section 39 has 7 subsections. It refers you to ten other sections of the Act, which in turn refer you to another forty sections. Section 39 also refers to a completely different law called "The Cultural Property Export and Import Act." And I'll bet you all have a copy of that sitting on your coffee table!

So where are we? In trying to find out what a capital gain is, we've already had to look at about fifty different sections of the Income Tax Act, and another completely different law. And if you get that far, the reality then hits you that section 39 only deals with the word "capital." To find a definition of the word "gain," you have to look at section 40. I'll spare us all that agony, because section 40 makes section 39 look easy.

You know, there's an old saying that an infinite number of monkeys using an infinite number of typewriters would eventually type all the great works. I think they've completed their first one. It's called the Canadian Income Tax Act.

And it keeps getting worse. Our entire Income Tax Act was '~ revamped back in 1972. That's really not that long ago, and that so-called "reform" of the Act was supposed to give us a well-thought-out, simpler tax system. Well, since 1972, there have been more than thirty major amending acts. There were 350 changes in 1980-81 alone. Two months ago; Finance Minister Marc Lalonde introduced the latest amending act--it had 133 amendments in it, most of them even more incomprehensible than what's in the existing Act! Let's take a look at an example of one of Lalonde's amendments, again, not some esoteric, corporate reorganization situation, but a provision that affects many, many individual taxpayers. This is only one of the proposed amendments to the section dealing with the taxable benefits arising from the use of a company car. I quote:

For the purposes of paragraph (1)(e) an amount that is a reasonable standby charge for the automobile for the aggregate number of days in a taxation year during which it was made available by an employer, or by a person related to the employer shall be deemed to be the amount equal to the product obtained when (a) where the employer or the person related to the employer owned the automobile at any time of the year, an amount in respect of its cost to the employer equal to the percentage thereof obtained when 2% is multiplied by the quotient obtained when such of the aggregate number of days hereinbefore referred to as were days during which the employer or the person related to the employer owned the automobile is divided by 30 (except that if the quotient so obtained is not a full number and exceeds one it shall be taken to the nearest full number or, if there is no nearest full number, then to the full number next below it), or ...

And it goes on for forty-nine more lines--which neither you nor I could stand right now. And that's just one of the amendments affecting taxable benefits from using a company car. About the only thing that amendment does for me is to convince me that the TTC may, indeed, be the better way.

And all of this, ladies and gentlemen, is in a law of our land under which we are presumed guilty until we prove our innocence. Yes, that's right! All Revenue Canada has to do is assess us and it's up to you and me to prove they are wrong. They have no obligation--except in very limited circumstances--to prove they are right! And we have that hanging over us in an Act that even tax professionals admit they have difficulty understanding.

Where are the civil libertarians when you really need them? I guess they're too busy trying to keep drunk drivers on the road and illegal immigrants in the country to be concerned about something as fundamental as the Income Tax Act.

But you know, ladies and gentlemen, there is a larger issue here than the fact that 99.99 per cent of Canadians can't possibly understand the law which requires them to pay more tax than any other law. The greater tragedy is this. There are 284 men and women sitting in the House of Commons in Ottawa who continue to enact this kind of legislation. Don't try to tell me that these people understand what they're passing. My guess is there aren't more than a handful who have any idea what the real effect is of the income tax laws they enact. We obviously had one Minister of Finance who didn't know.

This Act has simply got to be cleaned up! The wasted manpower and dollars spent in trying to understand it and comply with it--forget the waste in trying to get around it -. the wasted productive time and money spent in simply trying to comply with it is enormous.

So, what can we do about it? Well, here's one suggestion I think is worth considering. Forget about new tax systems, such as a flat-rate tax--although I'm strongly in favour of that concept--forget about whole new systems for now and do these two things:

1) put a hold on tax changes for a period of eighteen months to two years, so that we can get caught up with what's been happening to us over the last few years; and

2) rewrite the existing Act so that it can be understood by human beings with average intelligence.

Now, who can accomplish this? Well, politicians can. So, now the problem becomes: how do we get them to act? Well, one thing we know for sure about politicians is that they react to noise. If enough of us keep bugging our MPs about it, that might be a good first step. At the very least, let them know, that we know, that they're passing laws they don't understand.

The appreciation of the audience was expressed by Douglas L. Derry, First Vice-President of The Empire Club of Canada.