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Taxpayers DO have the right to remain silent

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A taxpayer-friendly unanimous Federal Court of Appeal ruling came out this week in MNR v Cameco [2019 FCA 67]. At issue was whether or not the Minister (through the CRA) has the authority to compel oral answers to oral questions from taxpayers or their employees.

In his ruling, Justice of Appeal Rennie stated “…the Minister does not have the power to compel a taxpayer to answer questions at the audit stage…”, however, it may be in the best interest of the taxpayer to provide reasonable answers to reasonable questions in order to expedite the process. The full entire ruling can be found and read here

This ruling simply re-confirms, that even in an audit, you (and your staff) have the right to remain silent, and that the Minister’s powers are limited to physical evidence.

An exception to this is you are required to provide assistance in locating and providing that physical evidence, which may need to be orally.

Personally, when dealing with a very large number of taxpayers on our own office, we want to be certain that the file that the CRA is talking about is the same file in front of us. As such, we are a firm believer in the Canadian Home Builders’ Association motto that is ironically supported by the Government of Canada: “Get it in Writing.”

I am not advocating answering no questions, as the Minister (CRA) still has the ability to issue reassessments, thereby shifting burden of proof to the taxpayer further to disprove the reassessment.

I am, however, advocating at a minimum to get those questions detailed, and in writing. This will help to provide clarity and allow for proper thought in your answers as opposed to stating something with unintended consequences.

Here is a little example of what happens when you don’t get it in writing: in my dark-side days as a field auditor with the (then called) CCRA, we used to ask prying questions that the taxpayer had no idea they were answering.

For example, in one particular circumstance I was reviewing a file where it was suggested that the taxpayer was doing under-the-table cash jobs. This meant I would have to be creative in figuring out the taxpayer’s cost of living, and ruling out other sources of income.

Meeting in a quiet restaurant in a small Saskatchewan town, I was eventually able to have the taxpayer relaxed enough to think that we were having a normal conversation. Just a couple of ‘Riders fans that aren’t a fan of Ottawa, but hey, I have a job to do. When the taxpayer started complaining about the government, I joined in:

“Hey, I hear you. I’m not some suit from Ottawa. I’m from Regina. I mean both the feds and the province already get enough out of me from tax on my smokes.”

I don’t smoke.

The taxpayer didn’t know that, but the anger was timely because the province had just raised up the cigarette tax the previous year so packs were well over $6 a pack.

“Yeah I know”, the taxpayer said, “I smoke a pack a day”.

Music to my ears as a tax auditor, the taxpayer just told me that they need ($6 x 365) = $2,190 of after-tax income just to feed their cigarette habit.

I continued, “That’s terrible! Between getting our money on that, and getting it at the casino, it’s just crazy how much they make it hard to enjoy our weekends.”

“Yeah, I don’t win nuthin’ at the casino either,” the taxpayer stated.

To me I heard ‘I didn’t have any non-taxable casino winnings. In fact, the taxpayer likely had lost money in the year. This means the taxpayer needed to have more disposable income to gamble.’

The conversation continued for a good 30 minutes. Once I was armed with more knowledge of the taxpayer’s lifestyle and spending habits, I went to work. Bank statements, receipts, mileage information, fuel costs, type of vehicle, etc.

We would use information tools not only from Statistics Canada for price of fuel in different regions, we would also use websites like www.fueleconomy.gov that provide different estimated fuel consumption based on type of use and mileage going back to cars from the 1980s. Then we work backwards to see if the numbers made sense with respect to the taxpayer’s vehicle and costs.

When it was all said and done, I used the results of our conversation against the taxpayer. When I was finished, I found over $30,000 in an income variance between the taxpayer’s living costs and change in net worth compared to what was reported. Not only that, but the taxpayer had already backed themselves into a corner because of the questions that were answered which I had documented.

My guess is that in conclusion, the taxpayer thought they should have got the questions in writing instead of meeting me at a restaurant.


Cory G. Litzenberger, CPA, CMA, CFP, C.Mgr is the President & Founder of CGL Strategic Business & Tax Advisors; you can find out more about Cory’s biography at http://www.CGLtax.ca/Litzenberger-Cory.html

CEO | Director CGL Tax Professional Corporation With the Income Tax Act always by his side on his smart-phone, Cory has taken tax-nerd to a whole other level. His background in strategic planning, tax-efficient corporate reorganizations, business management, and financial planning bring a well-rounded approach to assist private corporations and their owners increase their wealth through the strategies that work best for them. An entrepreneur himself, Cory started CGL with the idea that he wanted to help clients adapt to the ever-changing tax and economic environment and increase their wealth through optimizing the use of tax legislation coupled with strategic business planning and financial analysis. His relaxed blue-collar approach in a traditionally white-collar industry can raise a few eyebrows, but in his own words: “People don’t pay me for my looks. My modeling career ended at birth.” More info: https://CGLtax.ca/Litzenberger-Cory.html

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Frontier Centre for Public Policy

Christmas: As Canadian as Hockey and Maple Syrup

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From the Frontier Centre for Public Policy

By Gerry Bowler

Well, they’re at it again. A year after a Canadian Human Rights Commission position paper labeled Christmas “discriminatory” and an example of “colonialist religious intolerance”, an Alberta public school has cancelled a winter concert because marking Christmas isn’t inclusive enough. The principal of Whitecourt’s Pat Hardy Elementary stated, “Not all students celebrate Christmas, and their families may or may not choose to have them participate in the Christmas concert. Other families celebrate Christmas as a religious holiday but do not want children engaging in the non-religious parts such as Santa, Christmas trees, etc.” It was suggested that a spring concert might be more inclusive, presumably on the theory that no one gets too worked up about the vernal equinox.

The principal’s actions are scarcely news; for years schools and public officials have been reluctant to stage any activity around the celebration of the Nativity. “Christmas concerts” have been relabelled or cancelled; “Christmas trees” have been termed the “Holiday Tree.” Or a “Care Tree.” A “Multicultural Tree.” A “Tree of Lights.” A “Community Tree.” A “Winter Solstice Tree.” A “Grand Tree.” A “Special Tree.” A “Family Tree.” The “Annual Tree.” A “Festive Bush.” A “Unity Tree.” A “Culture Tree.” Activists in Saskatoon objected to city buses displaying a “Merry Christmas” wish; a Toronto judge ordered a Christmas tree removed from the courthouse lest it makes non-Christians feel unwelcome; inspired by the American school that mandated that the lyrics to “Silent Night” be changed to “Silent Night, mmm, mmm, mmm, / All is calm, all is bright, mmm, mmm, mmm”, a principal at an Ottawa school excised the C-word from the ditty “Silver Bells”. Thus: “Ring-a-ling, hear them sing; Soon it will be a festive day.”

There are several ways of dealing with this perennial issue. One is to remove religion from the public square altogether – that would certainly suit the secular fundamentalists – another is to play the majoritarian card and insist that since Christians outnumber other faith communities their will should hold sway. Some might want to dilute any mention of Christianity from the season while others might wish to include every other religion’s holy days on the school calendar.

I have a solution to this seasonal dilemma. It is to adopt the attitude taken by leaders of racial and religious minorities in Canada when asked if they are offended by mentions of Christmas. Their invariable answer is, of course not, Christmas is an integral part of Canadian culture.

Christmas is indeed Canadian, as native to our land as Hockey Night in Canada, Stompin’ Tom Connors, or pineapple on pizza. It has been Canadian longer than poutine, mediocre socialized healthcare, or the last time Toronto won the Stanley Cup. The Vikings who found a home in Newfoundland a thousand years ago likely celebrated Christmas, and there’s no doubt that the holiday has been observed for half a millennium by later European settlers.

Though a current American politician may regard Canada as the 51st state and a current Canadian politician may opine that we are a post-national entity with no core identity, Canada, over the centuries, has developed a unique Christmas culture. We have beautiful carols of our own – “D’où Viens-Tu Bergère?”, the “Huron Carol” (“Jesus Ahatonia”), the first ever written in a North American indigenous language, and J.P. Clarke’s 1853 “A Canadian Christmas Carol”– not to mention secular seasonal music such as “Voici Le Père Noël Qui Nous Arrive” by the legendary Mary Bolduc, the melancholy “River” by Joni Mitchell, Bob and Doug Mackenzie’s take on “The Twelve Days of Christmas” and the immortal “Honky the Christmas Goose,” as sung by Johnny Bower (the last Leaf goalie to win a Stanley Cup).

We have unique Christmas foods – the taffy pull on St Catherine’s day, the tourtière of the revéillon, rapee pie, cipâte, butter tarts, Nanaimo bars, ragoût de pattes, “chicken bones,” and “barley toys.”

Though Santa Claus has his own Canadian postal code (H0H 0H0), we do not count him as a citizen, but we do have our own native Gift-Bringer in the form of Mother Goody (also known as Aunt Nancy or Mother New Year).

Canada can boast the first Christmas tree in North America, the custom introduced by Baroness Frederika von Riedesel whose husband Baron Friedrich Adolphus von Riedesel had brought 4,000 German Brunswicker soldiers in 1776 to protect Canada from American invasion. The first department store Santa was employed in Fredericton, New Brunswick, in 1869. Our post office issued the world’s first Christmas stamp in 1898. Eaton’s department store in Toronto staged the first Santa Claus parade in 1905.

Only in Canada can we see mummers of all sorts at Christmas – Janneys, Ownshooks, Fools, Belsnicklers, and Naluyuks; only in Canada do door to-door canvassers under the guise of “la guignolée” solicit donations to charity while singing a song threatening to torture the oldest daughter of the house.

So the next time objections are raised to the appearance of Christmas in the public square, simply state that it’s a long-standing Canadian custom, sanctified by time and universal practice, as deeply embedded in our culture as the red maple leaf. It’s what we do. Canadians do Christmas.

 

Gerry Bowler, historian, is a Senior Fellow at the Frontier Centre for Public Policy

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Business

Comparing four federal finance ministers in moments of crisis

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From the Fraser Institute

By Grady Munro, Milagros Palacios and Jason Clemens

The sudden resignation of federal finance minister (and deputy prime minister) Chrystia Freeland, hours before the government was scheduled to release its fall economic update has thrown an already badly underperforming government into crisis. In her letter of resignation, Freeland criticized the government, and indirectly the prime minister, for “costly political gimmicks” and irresponsible handling of the country’s finances and economy during a period of great uncertainty.

But while Freeland’s criticism of recent poorly-designed federal policies is valid, her resignation, in some ways, tries to reshape her history into that of a more responsible finance minister. That is, however, ultimately an empirical question. If we contrast the performance of the last four long-serving (more than three years) federal finance ministers—Paul Martin (Liberal), Jim Flaherty (Conservative), Bill Morneau (Liberal) and Freeland (Liberal)—it’s clear that neither Freeland nor her predecessor (Morneau) were successful finance ministers in terms of imposing fiscal discipline or overseeing a strong Canadian economy.

Let’s first consider the most basic measure of economic performance, growth in per-person gross domestic product (GDP), adjusted for inflation. This is a broad measure of living standards that gauges the value of all goods and services produced in the economy adjusted for the population and inflation. The chart below shows the average annual growth in inflation-adjusted per-person GDP over the course of each finance minister’s term. (Adjustments are made to reflect the effects of temporary recessions or unique aspects of each minister’s tenure to make it easier to compare the performances of each finance minister.)

Sources: Statistics Canada Table 17-10-0005-01, Table 36-10-0222-01; 2024 Fall Economic Statement

By far Paul Martin oversaw the strongest growth in per-person GDP, with an average annual increase of 2.4 per cent. Over his entire tenure spanning a decade, living standards rose more than 25 per cent.

The average annual increase in per-person GDP under Flaherty was 0.6 per cent, although that includes the financial recession of 2008-09. If we adjust the data for the recession, average annual growth in per-person GDP was 1.4 per cent, still below Martin but more than double the rate if the effects of the recession are included.

During Bill Morneau’s term, average annual growth in per-person GDP was -0.5 per cent, although this includes the effects of the COVID recession. If we adjust to exclude 2020, Morneau averaged a 0.7 per cent annual increase—half the adjusted average annual growth rate under Flaherty.

Finally, Chrystia Freeland averaged annual growth in per-person GDP of -0.3 per cent during her tenure. And while the first 18 or so months of her time as finance minister, from the summer of 2020 through 2021, were affected by the COVID recession and the subsequent rebound, the average annual rate of per-person GDP growth was -0.2 per cent during her final three years. Consequently, at the time of her resignation from cabinet in 2024, Canadian living standards are projected to be 1.8 per cent lower than they were in 2019.

Let’s now consider some basic fiscal measures.

Martin is by far the strongest performing finance minister across almost every metric. Faced with a looming fiscal crisis brought about by decades of deficits and debt accumulation, he reduced spending both in nominal terms and as a share of the economy. For example, after adjusting for inflation, per-person spending on federal programs dropped by 5.9 per cent during his tenure as finance minister (see chart below). As a result, the federal government balanced the budget and lowered the national debt, ultimately freeing up resources via lower interest costs for personal and business tax relief that made the country more competitive and improved incentives for entrepreneurs, businessowners, investors and workers.

*Note: Freeland’s term began in 2020, but given the influence of COVID, 2019 is utilized as the baseline for the overall change in spending. Sources: Statistics Canada Table 17-10-0005-01, Table 36-10-0130-01; Fiscal Reference Tables 2024; 2024 Fall Economic Statement

Flaherty’s record as finance minister is mixed, in part due to the recession of 2008-09. Per-person program spending (inflation adjusted) increased by 11.6 per cent, and there was a slight (0.6 percentage point) increase in spending as a share of the economy. Debt also increased as a share of the economy, although again, much of the borrowing during Flaherty’s tenure was linked with the 2008-09 recession. Flaherty did implement tax relief, including extending the business income tax cuts started under Martin, which made Canada more competitive in attracting investment and fostering entrepreneurship.

Both Morneau and Freeland recorded much worse financial performances than Flaherty and Martin. Morneau increased per-person spending on programs (inflation adjusted) by 37.1 per cent after removing 2020 COVID-related expenditures. Even if a more generous assessment is used, specifically comparing spending in 2019 (prior to the effects of the pandemic and recession) per-person spending still increased by 18.1 per cent compared to the beginning of his tenure.

In his five years, Morneau oversaw an increase in total federal debt of more than $575 billion, some of which was linked with COVID spending in 2020. However, as multiple analyses have concluded, the Trudeau government spent more and accumulated more debt during COVID than most comparable industrialized countries, with little or nothing to show for it in terms of economic growth or better health performance. Simply put, had Morneau exercised more restraint, Canada would have accumulated less debt and likely performed better economically.

Freeland’s tenure as finance minister is the shortest of the four ministers examined. It’s nonetheless equally as unimpressive as that of her Trudeau government predecessor (Morneau). If we use baseline spending from 2019 to adjust for the spike in spending in 2020 when she was appointed finance minister, per-person spending on programs by the federal government (inflation adjusted) during Freeland’s term increased by 4.1 per cent. Total federal debt is expected to increase from $1.68 trillion when Freeland took over to an estimated $2.2 trillion this year, despite the absence of a recession or any other event that would impair federal finances since the end of COVID in 2021. For some perspective, the $470.8 billion in debt accumulated under Freeland is more than double the $220.3 billion accumulated under Morneau prior to COVID. And there’s an immediate cost to that debt in the form of $53.7 billion in expected federal debt interest costs this year. These are taxpayer resources unavailable for actual services such as health care.

Freeland’s resignation from cabinet sent shock waves throughout the country, perhaps relieving her of responsibility for the Trudeau government’s latest poorly-designed fiscal policies. However, cabinet ministers bear responsibility for the performance of their ministries—meaning Freeland must be held accountable for her previous budgets and the fiscal and economic performance of the government during her tenure. Compared to previous long-serving finances ministers, it’s clear that Chrystia Freeland, and her Trudeau predecessor Bill Morneau, failed to shepherd a strong economy or maintain responsible and prudent finances.

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