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Voluntary Disclosure Program

Voluntary Disclosure / Tax Amnesty

If you have never filed all your income tax returns or have filed them incorrectly, this page is for you. And you don’t need a costly tax lawyer to assist you with this.

What is Voluntary Disclosure?

Revenue Canada’s Voluntary Disclosure program, commonly referred to as tax amnesty or tax pardon, is a fairness program that allows for taxpayers to voluntarily declare income and file returns that have never been filed or have been filed incorrectly.

This program waives civil penalties and avoids criminal prosecutions for those who are volunteering to act in accordance with their legal responsibilities, as under the Income Tax Act and Excise Tax Acts by reporting their affairs before the Canada Revenue Agency (CRA) begins any action or investigation.

Persons that use this program will pay the taxes owing and interest but penalties will be waived. As well, policies exist that acknowledge uncontrollable circumstances and can provide relief from interest in certain situations.

Non-residents are also accommodated and if they meet requirements, and can extend their submission of section 216 returns.

This program also allows for anonymous disclosure under the No-Name Policy, which protects the identities of the complying taxpayers.

No-Name Policy

If a taxpayer decides to keep his or her identify anonymous and confidential, he or she will be able to proceed with disclosure, free of prosecution for 90 days.

The 90 day period begins from the “effective date of disclosure,” which is determined by the date of a written voluntary disclosure submission or the receipt of a VDP-1 Taxpayer Agreement Form as received by the CCRA tax services office.

This period allows for the taxpayer to prepare and submit a complete disclosure without any CRA interference or prosecution. This anonymity is even applicable if the unreported income has been earned off-shore or through criminal activity.

Who Does this program apply to?

Tax amnesty can be applied in several scenarios including:

– Failure to report income
– Income with inaccurate or missing information
– Income earned off-shore or from criminal activity
– Not filed tax returns
– Improper expense claims
– Not remitted source deductions
– Neglecting to retain of a portion of a purchase price on the acquiring of assets from non-residents under section 116 of the Act.

Requirements for Voluntary Disclosure

Four conditions must exist for an individual to use Voluntary Disclosure:

1.The disclosure must be voluntary. If you are already being investigated, it is too late. You must initiate the disclosure and contact the Canada Revenue Agency before they contact you!

2.The disclosure must be complete and accurate. Previously pardoned penalties will be applied if a person reveals only partial information or provides information with material errors.

3.The disclosure needs to involve a penalty. If no penalty exists, declare and file as usual.

4.Disclosure must be information that is over one year old or, if less than one year, not simply employed as an attempt to use this program to file late and avoid penalty.

Legislative References for Voluntary Disclosure

The CRA has the legislative authority to waive or cancel penalties, in whole or in part, on a voluntary disclosure. The pertinent legislative provisions can be found in:

– subsection 220(3.1) of the Income Tax Act
– section 88 of the Excise Tax Act
– section 281.1 of the Excise Tax Act
– subsection 3.3(1) of the Customs Act
– subsection 126(1) of the Customs Tariff

VDP

Voluntary Disclosure / Tax Amnesty

If you have never filed all your income tax returns or have filed them incorrectly, this page is for you. And you don’t need a costly tax lawyer to assist you with this.

What is Voluntary Disclosure?

Revenue Canada’s Voluntary Disclosure program, commonly referred to as tax amnesty or tax pardon, is a fairness program that allows for taxpayers to voluntarily declare income and file returns that have never been filed or have been filed incorrectly.

This program waives civil penalties and avoids criminal prosecutions for those who are volunteering to act in accordance with their legal responsibilities, as under the Income Tax Act and Excise Tax Acts by reporting their affairs before the Canada Revenue Agency (CRA) begins any action or investigation.

Persons that use this program will pay the taxes owing and interest but penalties will be waived. As well, policies exist that acknowledge uncontrollable circumstances and can provide relief from interest in certain situations.

Non-residents are also accommodated and if they meet requirements, and can extend their submission of section 216 returns.

This program also allows for anonymous disclosure under the No-Name Policy, which protects the identities of the complying taxpayers.

No-Name Policy

If a taxpayer decides to keep his or her identify anonymous and confidential, he or she will be able to proceed with disclosure, free of prosecution for 90 days.

The 90 day period begins from the “effective date of disclosure,” which is determined by the date of a written voluntary disclosure submission or the receipt of a VDP-1 Taxpayer Agreement Form as received by the CCRA tax services office.

This period allows for the taxpayer to prepare and submit a complete disclosure without any CRA interference or prosecution. This anonymity is even applicable if the unreported income has been earned off-shore or through criminal activity.

Who Does this program apply to?

Tax amnesty can be applied in several scenarios including:

– Failure to report income
– Income with inaccurate or missing information
– Income earned off-shore or from criminal activity
– Not filed tax returns
– Improper expense claims
– Not remitted source deductions
– Neglecting to retain of a portion of a purchase price on the acquiring of assets from non-residents under section 116 of the Act.

Requirements for Voluntary Disclosure

Four conditions must exist for an individual to use Voluntary Disclosure:

1.The disclosure must be voluntary. If you are already being investigated, it is too late. You must initiate the disclosure and contact the Canada Revenue Agency before they contact you!

2.The disclosure must be complete and accurate. Previously pardoned penalties will be applied if a person reveals only partial information or provides information with material errors.

3.The disclosure needs to involve a penalty. If no penalty exists, declare and file as usual.

4.Disclosure must be information that is over one year old or, if less than one year, not simply employed as an attempt to use this program to file late and avoid penalty.

Legislative References for Voluntary Disclosure

The CRA has the legislative authority to waive or cancel penalties, in whole or in part, on a voluntary disclosure. The pertinent legislative provisions can be found in:

– subsection 220(3.1) of the Income Tax Act
– section 88 of the Excise Tax Act
– section 281.1 of the Excise Tax Act
– subsection 3.3(1) of the Customs Act
– subsection 126(1) of the Customs Tariff

Purchase Price Allocation

Section 68 of the Income Tax Act (Canada) (the “ITA”) allows the Canada Revenue Agency (the “CRA”) to determine the reasonable consideration for the disposition of a particular property. In TransAlta Corporation v. The Queen (2012 FCA 20), the Federal Court of Appeal (the “FCA”) helpfully clarified two important allocation principles for the purposes of section 68 of the ITA.

In 2002, TransAlta sold its regulated electricity transmission business to an arm’s length purchaser for the negotiated price of 1.31 times the net regulated book value of TransAlta’s tangible assets. The parties allocated the bulk of the 31% premium to goodwill. This allocation was a standard allocation of purchase price premium for regulated industries and was supported by valuation theory, audited financial statements and long-standing industry practice. The Minister reassessed TransAlta, pursuant to section 68 of the ITA to reallocate the premium to tangible assets on the basis that the practice by regulated industries of allocating purchase price premium to goodwill was unreasonable as it allowed the vendors to avoid recapture of capital cost allowance on its tangible assets.

In determining whether an allocation of purchase price to a particular property is reasonable under section 68 of the ITA, the FCA provided the following guides: (1) an allocation of purchase price agreed to by arm’s length parties is an important (but not determinative) factor to consider and will be given considerable weight where the parties have strong divergent interests concerning that allocation and less weight where one of the parties is indifferent to that allocation or where both parties’ interests are aligned with respect to that allocation; and (2) the reasonableness test under section 68 of the ITA is not what the CRA believes is reasonable but rather “whether a reasonable business person, with business considerations in mind, would have made the allocation”.

In this case, the FCA concluded that the parties’ agreed allocation of the premium to goodwill was reasonable “precisely because of its compliance with industry and regulatory norms and its consistency with standard valuation theory for regulated businesses and standard accounting principles applied in such industries.” The taxpayer’s appeal was allowed

10-year limitation period

The Federal Court of Appeal recently released its decision in Bozzer v. The Queen, 2011 FCA 186. Since the introduction in 2004 of a 10-year limitation period for interest and penalty relief under subsection 220(3.1) of the Income Tax Act, the CRA has administered the provision as if the 10-year period for applying for relief expires on December 31st of the 10th year following the taxation year assessed (i.e., December 31, 2010 for taxation year 2000).

In a resounding victory for taxpayers, Justice Stratas rejected the Minister’s policy. In line with practitioners, who have argued that interest accrues continuously and that the CRA’s administrative practice has no “fairness” rationale, Justice Stratas accepted Mr. Bozzer’s position that the 10-year limitation period is the 10 years that end with the taxpayer’s application for relief, regardless of the taxation year of the principal tax debt.

However, CRA has not changed its administrative practice. The CRA has not yet expressed any official response to the decision and it remains to be seen if the Minister will appeal to the Supreme Court of Canada or ask the Department of Finance to legislate over the decision.

Farm Losses Revisited by SCC

On Friday March 23, 2012, The Queen v. John R. Craig was heard by the Supreme Court of Canada (SCC). This was the first opportunity for the SCC to revisit the issue of restricted farm losses since its decision in Moldowan v. The Queen, [1978] 1 SCR 480. In Moldowan, the SCC concluded that farm losses could only be deducted against other sources of income, without restriction, if farming or a combination of farming and some other source of income was a taxpayer’s chief source of income. This vague direction resulted in over 30 years of inconsistent decisions from the courts below.

Trust Residence

On April 12, 2012, the Supreme Court of Canada (SCC) released its decision in Fundy Settlement v. Canada (2012 SCC 14). This case was the SCC’s first opportunity to consider the appropriate test for determining the residence of a trust for tax purposes.

Prior to this case, it was widely believed that the residence of a trust was determined by reference to the residence of its trustee. This conventional wisdom had been challenged by the Minister of National Revenue in its assessment of the Fundy Settlement.

The lower courts agreed with the Minister that the appropriate test was not the residence of the trustee, but the corporate “central management and control” test (CMC test). In a terse 19 paragraph decision, the SCC agreed with the courts below.

The case was about a trust that had a Barbados-resident trust company as its trustee and Canadian-resident individuals as the beneficiaries. When the trust disposed of shares of an Ontario corporation, it remitted withholding tax to the Minister of National Revenue on account of the capital gain realized by the trust. The trust then sought to obtain a refund of the Canadian withholding tax on the grounds that the trust was resident in Barbados and, thus, exempt from Canadian capital gains tax under the Canada-Barbados Tax Treaty.

The Minister challenged this position, asserting that the trust was resident in Canada because the role of the trustee was limited and the Canadian-resident beneficiaries were actually managing the trust.

The SCC concluded that, as with corporations, the residence of a trust should be determined by the principle that a trust resides where its real business is carried on, that is, where the central management and control of the trust actually takes place. In reaching its decision, the SCC concluded that corporations and trusts are similar because the function of both is the management of property, and that the application of the CMC test to trusts would promote consistency, predictability and fairness.

The SCC did not reject the possibility that the residence of a trust could coincide with the residence of its trustee, but only when the trustee carries out the function of centrally managing and controlling the trust in the trustee’s place of residence. In the case of the Fundy Settlement, it was found that the Canadian-resident beneficiaries were managing the trust with the result that the trust was resident in Canada.

 

Attribution Case

On July 13th, 2012, the Federal Court of Appeal dismissed the Crown’s appeal in The Queen v Peter Sommerer (2012 FCA 207)

In 1996, Peter Sommerer’s father, Herbert Sommerer, created an Austrian private foundation of which Peter, his wife and children were beneficiaries. Peter then entered into an agreement with the foundation to sell it certain shares at fair market value. The foundation used part of its endowment money to pay Peter for the shares. The foundation later sold the shares and realized a capital gain.

The main issue in the case was whether subsection 75(2) of the Income Tax Act (Canada) should be interpreted to apply in the context of the fair market value sale of shares, such that the capital gain realized by the foundation could be attributed back to Peter.

The Crown argued that the capital gains realized by the foundation should be attributed to Peter because it was possible that the shares or property substituted for the shares (including the proceeds of their sale) might be distributed to him as a beneficiary. In other words, the Crown argued that subsection 75(2), which generally applies in respect of the settlement of a trust where the settlor is also a beneficiary, should also apply in respect of property that has been purchased by a trust from a beneficiary at fair market value.

The Tax Court of Canada found in favour of the taxpayer on the basis that subsection 75(2) could not apply to a beneficiary in respect of property sold to a trust at fair market value. The Court’s main conclusion was that “once properly unraveled and viewed grammatically and logically, the only interpretation is that only a settlor, or a subsequent contributor who could be seen as a settlor, can be the ‘the person’ for purposes of subsection 75(2) of the Act.”

A unanimous Federal Court of Appeal upheld the Tax Court’s decision. Since Peter was neither the settlor not a subsequent contributor (because the property was sold at fair market value), the Court held that subsection 75(2) did not apply to attribute the capital gains realized by the foundation to him.

T1135 Foreign Property and Income Reporting Requirements

T1135 Foreign Property and Income Reporting Requirements

In Douglas v. HMQ, 2012 TCC 73, a recent decision by the Tax Court of Canada (TCC) under the informal procedure, the TCC surprisingly accepted the taxpayer’s argument that the penalty imposed under subsection 167(2) of the Income Tax Act (Canada) should be waived for the late-filing of a T1135 form.

In this case, the taxpayer knowingly filed his T1 income tax return along with his T1135 nine months late. He assumed that his failure to file on time would not attract a penalty as he did not owe any taxes for the year. However, the Minister imposed the maximum penalty of $2,500 for the late-filed T1135.

The TCC noted that although a judge-made due diligence defense should be used sparingly, the facts in this case justify such application to waive the T1135 penalty. The Court found that the taxpayer acted reasonably in believing that there would be no penalty since no taxes were owing. Notwithstanding that subsection 167(2) imposes a strict penalty, the TCC held that it would be unfair to penalize the taxpayer in these circumstances.

This decision suggests that a taxpayer may have recourse through the TCC for late-filed T1135 penalties when the taxpayer has exercised “all reasonable measures” to comply with the Income Tax Act.

Canada’s Federal 2012 Budget

Canada’s federal Finance Minister, Jim Flaherty, delivered his 2012 Budget themed “Jobs, Growth and Long-Term Prosperity” on Thursday, March 29, 2012. The Conservatives have been in government since 2006, but this is the Conservatives’ first Budget while holding a majority in the House of Commons in almost twenty years. There is a commitment to reduce government spending and return to a balanced budget in the medium term after 2014-2015. There are no tax rate changes for individuals or corporations, but there are significant tax and other policy changes.

The following is an overview summary of the Budget’s proposal to highlight the most significant changes. We strongly encourage you to review the balance of this release to learn more details on the Budget provisions affecting you. This overview groups the changes targeted at:

  • Businesses and corporations;
  • International businesses;
  • Individuals;
  • Charities and charitable giving; and
  • GST/HST and customs duties.

BUSINESSES AND CORPORATIONS

Tax and other announcements impacting businesses and corporations:

  • There are no new changes to corporate income tax rates. The general rate will decrease from 16.5% to 15% in 2012 as scheduled. The small business rate will remain at 11% as expected.
  • The Budget has added greater flexibility to the rules for corporations paying and designating “eligible dividends” subject to a reduced personal tax rate in the shareholder’s hands. Corporations will be able to designate a portion of the dividend, rather than the full amount of the dividend, as “eligible”. The Minister of National Revenue will also be able to accept a late-election within three years after the dividend was paid if the CRA feels it would be just and equitable to do so. These rules will apply for dividends paid after March 29, 2012.
  • In December 2011, the Prime Minister signaled that changes to the government’s approach to incentives and assistance for technological innovation could be expected in the Budget. The new policy will place less reliance on the tax credits available under the Scientific Research and Experimental Development (“SR&ED”) program and provide increased direct support from new and existing Federal programs.
    • $1.1 billion over five years will be allocated to directly support R&D and technology innovation initiatives.
      • This will include a doubling of the contribution to the Industrial Research Assistance Program, amounting to an additional $110 million per year.
      • A new Western Innovation Program has been introduced to provide financial support for innovative small and medium-sized enterprises in Western Canada.
      • $500 million will be allocated to increase private sector investments in early stage risk capital and support the creation of large scale venture capital funds.
      • SR&ED Investment Tax Credits (“ITCs”) and deductions under the Income Tax Act will be pared back. It appears that most qualifying Canadian-Controlled Private Corporations (“CCPCs”) will be modestly impacted. Large corporations, public corporations and foreign-owned corporations will be more significantly impacted by the tax changes.
        • The general ITC rate will be reduced from 20% to 15% on January 1, 2014. The enhanced rate for ITCs available to qualifying CCPCs will remain at 35%.
        • The existing rules for refundable tax credits will not be affected.
        • Eligible expenditures for ITCs will exclude capital expenditures made after 2013 including those used “all or substantially all” for SR&ED activities and “shared-use” capital assets and leased capital assets. The portion of amounts paid to a third party contractor attributable to capital assets will also be eliminated after 2013.
        • Only 80% of contract payments to third parties will be eligible for ITCs starting on January 1, 2013.
        • The proxy amount intended to estimate overheads for ITC purposes will be reduced from 65% to 60% of direct labour costs in 2013 and 55% in 2014 and subsequent years.
        • Capital expenditures will no longer be 100% deductible in computing taxable income in the year of acquisition. Normal tax depreciation rules will apply.
  • The 10% corporate Mineral Exploration and Development Tax Credit for pre-production mining expenses will be phased out. The credit for exploration expenses will be reduced to 5% in 2013 and eliminated in 2014. The credit for pre-production development expenses will be reduced in 2014 and 2015 and eliminated in 2016.
  • New prohibited investment and advantage rules are being introduced to prevent Retirement Compensation Arrangements from being used in non-arm’s length transactions.
  • Excessive contributions to Employees Profit Sharing Plans will be subject to a special tax payable by a specified employee (who has a significant equity interest in their employer or does not deal at arm’s length with their employer). The excess amount will generally be 20% of the specified employee’s salary received in the year. The special tax will be computed at the highest marginal tax rate applicable to the province of residence of the employee. This change is effective immediately subject to transitional rules for existing obligations.
  • The Budget introduces a new tax avoidance measure to restrict or deny an increase (referred to as a “section 88 bump”) in the cost base of the partnership interest on a winding-up of the corporation or a vertical amalgamation with its parent corporation where the partnership owns non-capital property (such as certain intangible assets and inventory) and its fair market value exceeds its cost amount. The bump is reduced to the extent it is attributable to the unrealized gain on the non-capital property. This change is effective on March 29, 2012 with some transitional provisions.
  • Additionally, the seller of a partnership interest to a non-resident will lose capital gains treatment on the gain on the sale of the interest effective on or after March 29, 2012 (subject to transitional rules) unless the partnership is carrying on business in Canada through a permanent establishment in which all of the assets of the partnership are used.
  • There will be increased penalties and an annual tax shelter registration requirement to encourage tax shelter registration and reporting.
  • The biggest popular cultural impact may be the elimination of Canada’s one-cent coin or penny. The production of the penny will stop in fall 2012. When the pennies run out, businesses are to round transaction amounts to the nearest 5 cents. Pricing and bookkeeping adaptations will be required to round cash transaction amounts to the nearest 5 cents.

INTERNATIONAL BUSINESSES

Significant international tax changes include proposals impacting inbound and outbound business transactions:

  • The thin capitalization rules restrict a foreign-owned Canadian corporation (generally a controlled subsidiary, but the foreign ownership may be as low as 25%) from deducting excess interest expense where it has debts owing to specified non-resident shareholders and the debt-to-equity threshold is exceeded. These rules will be tightened for taxation years that begin after 2012.
    • ·The 2:1 debt to equity threshold will be reduced to 1.5:1.
    • ·The thin capitalization rules will be extended to a Canadian-resident corporation which is a member of a partnership with debts from specified non-resident shareholders of the Canadian corporation.
    • ·The denied interest expense will be treated as a deemed dividend paid to the non-resident and will be subject to withholding tax of 25%, unless reduced by a treaty. Certain US entities may find they do not have the treaty protection they presume they have.
    • ·There will be relief provided to prevent double taxation where the interest income is included in the foreign accrual property income of a foreign affiliate of a Canadian resident corporation.
  • The benefit conferred by a Canadian corporation to a non-resident by way of an inappropriate transfer price used in a transaction with a non-arm’s length non-resident will be treated as a deemed dividend paid to the non-resident and will be subject to withholding tax of 25%, unless reduced by a treaty.
  • Where as part of a “debt dumping” or surplus stripping transaction, a non-resident parent of a Canadian corporation transfers shares of another foreign corporation to that Canadian corporation to take advantage of Canada’s favourable foreign affiliate rules, the value of shares transferred can be considered a deemed dividend paid to the non-resident and will be subject to withholding tax of 25%, unless reduced by a treaty.

INDIVIDUALS

Individuals will be pleased to hear that there are no increases in personal tax rates or changes to tax brackets. Significant personal changes:

  • The age threshold for Old Age Security and Guaranteed Income Supplement eligibility will be raised to 67 from 65 effective in 2023 with transitional provisions.
  • Several changes to the Registered Disability Savings Plan rules have been introduced, generally with effective dates after 2013, but some with immediate effect.
  • Employer contributions to a group sickness or accident insurance plan after 2012 will be a taxable benefit to the employee to the extent that the contributions are not in respect of a wage-loss replacement benefit payable on a periodic basis. Private health care plan contributions will still be non-taxable.
  • An extension of the 15% Mineral Exploration Tax Credit for individuals investing in flow-through shares to March 31, 2013 was also announced.
  • The parameters used in determining whether the investment income component of a particular life insurance policy is exempt from tax will be reviewed with a view to establishing new guidelines for policies issued after 2012.
  • The Overseas Employment Tax Credit currently provides a credit which effectively eliminates the Canadian federal tax on 80% of an individual’s qualifying foreign employment income up to a maximum foreign employment income of $100,000. The credit will be phased out over four years starting in 2013. The 80% will be reduced for 2013 and following years to 60%, 40%, 20% and eliminated for 2016.
  • As usual, there are modest extensions to the list of expenses eligible for the medical expense tax credit.

CHARITIES AND CHARITABLE GIVING

Tax changes affecting charities and charitable giving:

  • The Minister of National Revenue will be given the discretion to grant Canadian qualified donee status to a foreign charity involved in disaster relief or urgent humanitarian aid, or whose activities are in the national interest of Canada.
  • There will be a tightening of the disclosure rules relating to political activities by charities and increased enforcement of the boundary dividing allowable and non-allowable activities with a one year suspension of donation receipt issuing privileges when the line is crossed.

GST/ HST AND CUSTOMS DUTIES

GST/HST and customs duty changes:

  • The thresholds for eligibility for streamlined GST/HST accounting have been increased.
  • GST/HST relief has been provided on foreign-based rental vehicles temporarily imported by Canadian
    residents.
  • Measures are being introduced to assist with the consistent application of the Green Levy on fuel-inefficient vehicles.
  • Trade measures to support the energy industry have been introduced.
  • Travellers’ customs exemptions for Canadian residents bringing goods back to Canada have been increased effective May 31, 2012. The new 24 to 48 hour absence exemption will be $200 and the over 48 hour absence exemption will be $800.

Corporate

Eligible Dividends: Split–Dividend Designation and Late Designation

Currently, a corporation may designate a taxable dividend to be an “eligible dividend” (eligible for the enhanced dividend tax credit), if it notifies each shareholder in writing at or before the time the dividend is paid. A late designation cannot be filed. Where an excessive eligible dividend designation is made, the corporation may correct the designation by filing a valid election under which the shareholders accept that the excess is a separate taxable dividend, which is “other than eligible”. Failure to so elect will render the corporation liable to a special 20% tax in respect of the amount of the excess.

The Budget proposes to simplify these rules by allowing the corporation to designate, at or before the time it pays a taxable dividend, any portion of the dividend to be an eligible dividend. This proposal eliminates the need to pay separate eligible and other than eligible dividends.

In addition, the Budget proposes to allow a late designation of an eligible dividend if the corporation makes the late designation within three years after the designation was required to be made and the Minister considers that it is “just and equitable” to allow it.

These measures apply to taxable dividends paid on or after March 29, 2012.

Scientific Research & Experimental Development Program

An Expert Review Panel on Research and Development made a series of recommendations which called for a simplified and more focused approach. The Budget proposes the following changes to the SR&ED tax incentive program to make it simpler, more cost effective and predictable:

  • The general 20% SR&ED tax credit rate will be reduced to 15% effective January 1, 2014, pro-rated for taxation years which straddle this date.
  • The enhanced 35% SR&ED tax credit rate for eligible CCPCs will still be eligible on the first $3 million of qualified expenditures annually.
  • Effective January 1, 2014, capital expenditures will be excluded for property acquired, and to amounts paid or payable for the use, or the right to use, property, during any period after 2013. This measure will also apply to otherwise eligible contract payments to the extent that the payment is in respect of a capital expenditure.
  • The prescribed proxy amount, which is in lieu of itemizing overhead expenditures, will be reduced from 65% to 60% for 2013, and to 55% after 2013, pro-rated for taxation years which straddle the applicable calendar years.
  • With respect to expenditures incurred on or after January 1, 2013, only 80% of payments made to arm’s length contractors will qualify as SR&ED, down from 100%. The intent of this proposal is to parallel the tax rules with respect to payments to non-arm’s length contractors by excluding the profit portion where the contractor is at arm’s length.
  • Any capital expenditures included in the SR&ED contracted out will be excluded prior to the reduction to 80%. Consequently, SR&ED contractors will be required to inform the contract payers of these amounts.

Retirement Compensation Arrangements (“RCAs”)

The government introduced RCAs in the 1980s as a mechanism to allow employers to fund tax-deductible pension payments in excess of the tax-deductible amounts for Registered Pension Plans. An employer can make a tax-deductible payment to an RCA, provided that the payment is considered to be reasonable based on an actuarial calculation. An RCA is basically subject to a 50% tax on the contributions that it receives plus any income that it earns. The tax is refundable when the RCA makes payments to the employee. The refund is equal to the lesser of the RCA’s refundable tax or 50% of the payment. The RCA can also recover the refundable taxes when it realizes a loss by making a special election if the only assets of the RCA consist of cash, debt obligations or listed securities. This would typically occur if the RCA invested in debt of the employer. This situation might entitle the RCA to a refund of all or a portion of its refundable taxes. The existing rules with respect to allowable investments and prohibited advantages are not as restrictive as the rules related to registered plans such as RRSPs, TFSAs, etc.

The Canada Revenue Agency (“CRA”) has been investigating various RCA arrangements over the past number of years and is concerned about what it considers to be inappropriate structures involving RCAs. The Budget proposes to deal with these issues even though the CRA is still pursuing existing arrangements. The proposals are generally prospective.

Refunds of refundable tax

An RCA will still be entitled to a refund of its refundable taxes on a permanent erosion of the value of its assets, including prohibited investments, as discussed below. The Minister will examine the erosion of pre-budget prohibited investments or advantages to determine if a refund is reasonable in the circumstances.

Prohibited investments

A prohibited investment will include assets that are prohibited investments under the TFSA rules or debts of an employer where the employee (along with persons not at arm’s length with the employee) has more than a 10% interest in the employer. The RCA will be subject to a 50% penalty tax on any such investment made on or after Budget day. There are provisions to refund this penalty tax if the prohibited investment is disposed of by the end of the year following the year it was acquired or if the Minister decides that it is “just and equitable” to do so.

Advantages

A similar 50% penalty tax applies to an advantage. This tax will apply where an employee receives an asset at less than fair market value from the RCA, where steps are taken to erode the value of an asset in a manner that entitles the RCA to a refund of the refundable tax (referred to as RCA strips) or where there are non-commercial terms between an RCA and a non-arm’s length debtor which gives an advantage to the RCA.

If an advantage is related to assets acquired before Budget day, transitional rules allow the employee to include the amount of the advantage in income and the RCA to receive the appropriate refund of its refundable tax.

The employee is jointly liable with the RCA for the penalty taxes.

Employees Profit Sharing Plans (“EPSPs”)

The Budget proposes new rules to deal with excess contributions to EPSPs for “specified employees”. A specified employee is an employee who, together with persons not at arm’s length with the employee, has more than a 10% interest in the employer. The excess contribution will be the amount in excess of 20% of the employee’s employment income from that employer, excluding allocations from the EPSP, stock option benefits and normal employment deductions.

The employee will be subject to a special tax on the excess, computed at the combined top federal and provincial (excluding Quebec) marginal income tax rates. If the employee is not a resident of Quebec or another province, the deemed provincial rate is 14%. The employee will exclude the excess amount from income and will not be able to claim any other deductions or credits in respect thereof. In effect, this treatment will be similar to the “kiddie tax”.

The Minister will be authorized to waive or cancel the application of these rules.

Clean Energy Generation Equipment – Accelerated Capital Cost Allowance

The Budget proposes to expand Class 43.2 (50% per year accelerated CRA rate on a declining balance basis) with respect to waste-fuelled thermal energy equipment and equipment of a district energy system that uses thermal energy provided primarily by eligible waste-fuelled thermal energy equipment. In addition, this CCA class will include equipment that uses the residue of plants, generally produced by the agricultural sector, to generate electricity and heat.

Personal

Group Sickness or Accident Insurance Plans

Under the current legislation, employer contributions to a group sickness or accident insurance plan in respect of wage replacement benefits are not taxable benefits. The Budget proposes that contributions made after 2012 will be taxable benefits unless they are in respect of wage replacement benefits payable on a periodic basis. Benefits under the plan are also taxable if they are payable where there is no loss of employment income. If the employer makes a 2013 contribution in 2012 to avoid the application of these rules, the employee will recognize the taxable benefit in 2013.

Life insurance policies

Life insurance policies, as well as providing protection, often have a savings or investment component. The income that a life insurance policy earns is not subject to tax on a current basis if the policy is an “exempt policy”. Furthermore, the income is not taxed when received as a component of a death benefit. This provides an opportunity for taxpayers to avoid taxes using a life insurance policy as an investment vehicle.

There will be consultations to review the rules concerning the tax status of life insurance and to recalibrate the rules concerning the exempt status of life insurance policies. These new rules will apply to life insurance policies issued after 2012.

Tax Shelter Administrative Changes

The Budget proposes to encourage tax shelter registration and reporting by:

  • Modifying the calculation of the penalty applicable to a promoter where a person participates in an unregistered charitable donation tax shelter.
  • Introducing a new penalty for a promoter who fails to meet their reporting obligations with respect to the annual information returns.
  • Limiting the period for which a tax shelter identification number is valid to one calendar year for applications made on or after March 29, 2012.

Currently, there is a penalty to a promoter of an unregistered charitable donation tax shelter equal to the greater of $500 and 25% of the consideration received. The Budget proposes to increase this penalty to the greater of the amount determined under the existing rules and 25% of the amount asserted by the promoter to be the value of the property that participants in the tax shelter transfer to a donee. This measure will generally apply on Royal Assent.

The current penalty for not filing the annual information return on time is a maximum of $2,500. The Budget proposes an additional penalty if the promoter fails to file an annual information return in response to a demand from the CRA or fails to report in the return an amount paid by a participant in respect of the tax shelter. This additional penalty will be equal to 25% of the consideration received or the greater of 25% of the consideration received and the amount asserted by the promoter to be the value of the property that those participants can transfer to a donee.

This measure will apply to demands by the CRA to file an annual information return made after Royal Assent and to returns filed after Royal Assent.

Registered Disability Savings Plans (“RDSPs”)

The Budget proposes the following changes to RDSPs:

  • Certain family members, such as a spouse, common-law partner or parent, of a disabled individual will be allowed to become the plan holder of a RDSP as agent for an adult individual who might not be able to legally enter into a contract. This measure will ensure that individuals in all provinces and territories who might not be contractually competent and who do not have a legal representative may still benefit from RDSPs. This measure will apply from the date of Royal Assent until the end of 2016.
  • There is a current repayment rule which provides that all Canada Disability Savings Grants (“CDSGs”) and Canada Disability Savings Bonds (“CDSBs”) are required to be repaid if received within ten years of a withdrawal from the RDSP, the termination or de-registration of the RDSP or the RDSP beneficiary ceases to be eligible or dies. The Budget proposes to introduce a proportional repayment rule which would apply as opposed to the current 10-year repayment rule, unless the RDSP beneficiary ceases to be eligible or dies. This proportional repayment rule requires that only $3 of any CDSGs or CDSBs received in the prior ten years be repaid for every $1 withdrawn from an RDSP. Consequently, a small withdrawal from an RDSP would not necessarily require the full repayment of all assistance received in the previous ten years. This measure applies to withdrawals after 2013.
  • The current maximum and minimum withdrawals allowed from RDSPs are proposed to be changed in order to provide greater flexibility in making withdrawals and ensure that RDSP assets are used to support the beneficiary during their lifetime. The maximum annual limit for withdrawals from a Primarily Government Assisted Plan (“PGAP”) is proposed to be increased to the greater of the amount determined by the standard formula and 10% of the fair market value of plan assets at the beginning of the year. The minimum annual withdrawal requirement is proposed to apply to all RDSPs, not just to PGAPs. These measures will apply after 2013.
  • To provide greater flexibility for parents who save in a RESP for a child with a severe disability, the Budget proposes to allow the rollover of investment income earned in an RESP to a RDSP, where certain conditions are met, up to the beneficiary’s available RDSP contribution room. Consequently, the regular tax on withdrawals from the RESP and the 20% penalty tax, which would otherwise potentially apply to a lump-sum distribution of income from an RESP, would not be payable. However, additional CDSGs cannot be earned as a result of the rollover of this RESP income. The contributions to the RESP will be returned to the RESP subscriber on a tax-free basis and can then be contributed to the RDSP in the future, potentially earning CDSGs. This measure will apply to rollovers of RESP income made after 2013.
  • Currently, where a RDSP beneficiary ceases to be eligible for the Disability Tax Credit (“DTC”), the RDSP is required to be terminated by the end of the following year. This would result in the 10-year repayment rule applying and any remaining assets in the RDSP being paid to the beneficiary. The Budget proposes that a RDSP holder will be able to elect to extend the period during which the plan will remain open for four additional years, where a medical practitioner certifies that the nature of the beneficiary’s condition makes it likely that the beneficiary will be eligible for the DTC in the foreseeable future. This measure will apply to elections made after 2013. There is also a transitional rule which provides that RDSPs will not be required to be terminated until the end of 2014 where the RDSP would have been required to have been terminated prior to 2014 under the current rules.

Overseas Employment Tax Credit (“OETC”)

Canadian resident employees can currently qualify for a tax credit equal to the federal tax otherwise payable on 80% of their qualifying foreign employment income, up to a maximum foreign employment income of $100,000. In order to qualify, the employee must be employed outside Canada for more than six consecutive months and be employed in connection with certain natural resource exploration or exploitation, or construction, installation, engineering or agricultural activities.

The Budget proposes to phase out the OETC over four years, commencing with the 2013 taxation year. The 80% factor will be reduced to 60% for 2013, to 40% for 2014, to 20% for 2015 and to zero for 2016. Projects which were committed to in writing before March 29, 2012 will be grandfathered – the 80% factor will still apply for the 2013 to 2015 taxation years. The OETC will be eliminated in 2016 even for such grandfathered projects.

Medical Expense Tax Credit

The Budget proposes to add to the medical expense tax credit after 2011 blood coagulation monitors, along with associated disposable peripherals such as pricking devices, lancets and test strips, for anti-coagulation therapy, when prescribed by a medical practitioner.

Charitable Giving

Gifts to Foreign Charitable Organizations

Donations made to foreign charities are generally not eligible for tax credits to individuals or deductions to corporations. However, a foreign charity which receives a gift from the Canadian government may register as a qualified donee under the Income Tax Act and thus be eligible to issue an official donation receipt to Canadian donors.

The Budget proposes to provide the Minister with the discretion to grant qualified donee status to a foreign charity if the charity pursues disaster relief or urgent humanitarian aid, or its activities are in the national interest of Canada. This measure will apply to applications made by foreign charities on or after the later of January 1, 2013 and Royal Assent.

Charities — Enhancing Transparency and Accountability

Charities are required to operate exclusively for charitable purposes. However, a charity is allowed to engage in political activity provided these activities represent a limited portion of its resources, are non-partisan and are ancillary and incidental to its charitable purposes and activities. There is a concern that some charities may be exceeding these limitations.

The Budget proposes to increase the disclosure required by charities regarding political activities and to provide additional enforcement tools. Where a charity makes a gift to another qualified donee and the purpose of the gift is to support the political activities of the donee, the Budget proposes to consider the gift to be an expenditure made by the charity on political activities.

The Budget also proposes to grant the CRA the authority to suspend for one year the tax-receipting privileges of a charity which exceeds the limitations on political activities.

Lastly, the Budget proposes to allow the CRA to impose similar penalties where a charity provides inaccurate or incomplete information in its annual information return until the charity provides the required information.

These measures will also apply to registered Canadian amateur athletic associations.

International

Thin capitalization

In broad terms, these rules may restrict the deductibility of interest paid or payable, by a corporation resident in Canada, on debts owing to certain “specified non-resident shareholders” (“SNRS”). (SNRS are shareholders that own shares to which are attached 25% or more of the corporation’s votes or value.) After budget day, the debts in question will include a corporate partner’s share of partnership debts.

Currently, interest is not deductible on the portion of the debt (“tainted debt”) that exceeds 2 times the corporation’s equity. (For this purpose, equity is the aggregate of unconsolidated retained earnings, contributed surplus contributed by a SNRS and the paid-up capital of shares held by SNRS.) The budget proposes to decrease the debt ceiling to 1.5 times equity for taxation years that begin after 2012.

The rules have been extended, indirectly, to partnerships. After budget day, rather than disallow interest to the partnership, which would impact all partners, a corporate partner resident in Canada will be required to include, in income, an amount equal to its share of the interest incurred by the partnership on tainted debt.

After budget day, interest that is not deductible under these rules will be treated as a dividend paid to the non-resident, for withholding tax purposes. In this regard, special provisions will be enacted to avoid double tax; interest included in the “foreign accrual property income” of a foreign affiliate of a Canadian resident corporation will be excluded from the application of the new rules.

Foreign Affiliate Avoidance 

The Canadian income tax system provides a number of advantages to a Canadian corporation that earns income through a non-resident corporation that qualifies as its “foreign affiliate”. Subject to a business purpose test, where, after Budget day, a non-resident parent of a Canadian corporation transfers the shares of another non-resident corporation to the Canadian corporation in order to avail itself of these advantages and the Canadian corporation transfers property to the foreign parent, the value of the property transferred could be considered to be a dividend for Canadian tax purposes.

Intercompany pricing

If, after Budget day, a Canadian corporation is found to have conferred a benefit on a non-arm’s length non-resident (other than a “controlled foreign affiliate”) by virtue of an intercompany pricing arrangement, the amount of the benefit will be deemed to be a dividend paid for withholding tax purposes. If the non-resident, with the concurrence of the Minister, pays an amount back to the Canadian corporation, the Minister is empowered to reduce the deemed dividend and associated interest to amounts that the Minister considers appropriate.

Partnerships

Windup bump

In certain circumstances, the tax value of non-depreciable capital property held by a newly acquired subsidiary corporation can be stepped-up (or “bumped”) by combining the subsidiary and its parent corporation by way of a windup of the subsidiary or by way of a vertical amalgamation. The government is concerned that the tax value of ineligible property (such as depreciable property, eligible capital property or inventory) can be bumped, indirectly, by transferring it to a partnership formed for this purpose. Because an interest in a partnership is generally non-depreciable capital property, its tax value could then be bumped.

Subject to certain grandfathering rules, the bump to the tax value of a partnership interest may be restricted on windups or vertical amalgamations that occur on or after Budget day. The bump will be denied to the extent that the excess of the FMV of the partnership interest over its tax value is generally referable to the portion of that excess that is attributable to depreciable property, eligible capital property or inventory of the partnership.

Sale of partnership interest to non-resident

Section 100 of the Act provides that a taxpayer’s taxable capital gain on the disposition of a partnership interest to a tax-exempt entity is increased to include the full unrealized gains inherent in underlying property other than non-depreciable capital property (such as inventory and depreciable property).

Subject to certain grandfathering rules, this treatment is extended to dispositions of partnership interests, after budget day, to non-residents. The new rule does not apply, however, if, immediately before and immediately after the disposition, the partnership uses all of its property in carrying on business through a Canadian permanent establishment.

Partnership waivers

Upon Royal Assent, a partnership will be able to designate a single partner to file a waiver of the three year determination limitation period, on behalf of all partners.

Miscellaneous Tax Credits

  • Subject to certain grandfathering rules, the 10% Mineral Exploration and Development Tax Credit available to corporations in connection with “pre-production mining expenditures” will be reduced and phased out by 2015.
  • The Mineral Exploration Tax Credit available to flow-through share investors has been extended through March 31, 2013.
  • Subject to certain grandfathering rules, the 10% Atlantic Investment Tax Credit for certain oil and gas mining activities will be reduced and phased out by 2015.
  • The Budget proposes to extend the Atlantic Investment Tax Credit to certain energy generation and conservation equipment acquired on or after Budget day for use in certain activities.
  • The 2011 Budget introduced a “temporary” $1,000 (maximum) credit against the increases, compared to 2010, in employment insurance premiums incurred by certain businesses. This credit has been extended for one year to employers whose employment insurance premiums were $10,000 or less in 2011.

Sales & Excise Taxes

GST/HST Streamlined Accounting Thresholds Increased

Effective for reporting periods beginning after 2012, the threshold for determining the eligibility of small businesses and public service bodies to use the Streamlined GST/HST Accounting methods will be doubled. The annual taxable sales threshold applicable for the Quick Method will increase to $400,000 of tax-included sales, from the present $200,000. The annual thresholds for using the Streamlined Input Tax Credit Method and the Prescribed Method for calculating rebates will be $1,000,000 of tax-included sales and $4,000,000 of taxable purchases.

Expanded GST Rebates For Books Given Away By Prescribed Literary Organizations

Where charities and qualifying non-profit literary organizations purchase printed books or audio recordings of books to give away, a rebate will be available for the GST or federal portion of the HST. This rebate will be applicable for purchases and importations after March 29, 2012.

Expanded GST/HST Health-Related Relief

GST/HST exempt status and zero-rating has been expanded to the following health-related supplies made after March 29, 2012 :

  • Specified non-dispensing health related services provided by pharmacists will be afforded exempt status. Drug dispensing services continue to qualify for zero-rating.
  • Supplies of corrective eyeglasses or contact lenses prescribed by an authorized individual (e.g. an optician) will be zero-rated.
  • The zero-rating of certain medical devices prescribed by a medical practitioner will be extended to supplies made on the written order of a registered nurse, physiotherapist or occupational therapist as part of their professional practice.

GST/HST Application on Foreign-Based Rental Vehicles

Effective June 1, 2012, to facilitate access to Canadian tourist destinations, GST/HST will be eliminated or reduced on temporary importations of foreign-based rental vehicles by Canadian residents.

Green Levy On Fuel Inefficient Vehicles

The Ministry of Natural Resources recently changed fuel consumption testing requirements. This Budget adjusts the application of the Green Levy to ensure that these changes do not impact current tax application. This measure will take effect with Royal Assent.

Duty Reductions On Certain Imported Oils

The Budget proposes to eliminate the 5% Most-Favoured-Nation duty rate on certain oils used as production inputs in refining and electricity production, effective for importations after March 29, 2012.

Increased Travellers’ Exemptions

Travellers’ exemptions for goods brought into the country by Canadian residents after May 31, 2012 have been increased as follows:

  • For absences of between 24 and 48 hours, the duty and tax-free exemption will be increased from $50 to $200.

For absences of more than 48 hours, the duty and tax-free exemption will be $800.

CA CMA CGA Merger

VISION FOR THE PROFESSION

To be the pre-eminent, internationally recognized Canadian accounting designation and business credential that best protects and serves the public interest.

GUIDING PRINCIPLES FOR UNIFICATION

The guiding principles provide the framework to unify the profession and achieve the vision.
Photo Accountants CA CMA CGA merger
The new profession would adopt the Canadian designation, Chartered Professional Accountant (CPA).
1

Evolution to a single designation

The new profession would adopt the Canadian designation Chartered Professional Accountant (CPA).
All current members in good standing would be granted this designation from their new CPA provincial body as CPA legislation is approved.
For a period of 10 years, all members using the new CPA designation would be required to use it in conjunction with their existing designations. No current member could use the CPA without identifying his or her legacy designation as follows:
• First and Last Name, CPA, CA
• First and Last Name, CPA, CMA
• First and Last Name, CPA, CGA
After 10 years, a member could choose to use the CPA designation on its own.

2

Continued use of existing designations

Existing members would retain their current professional designations.
No member would be automatically granted an existing professional designation of another body.
The national and provincial CPA bodies would be promoting the new CPA designation. Use of legacy designations on their own post-unification would be subject to provincial merger agreements and legislation.

3

Retention but no expansion of rights

-Unification would protect all existing rights of members, such as public accounting rights and rights under any existing Mutual Recognition Agreement, without granting new rights.
-The new CPA organization would negotiate on behalf of all members when entering into new Mutual Recognition Agreements.
-Any member not authorized to practise in a restricted area, such as audit, prior to the merger would be required to complete any necessary provincial programs to qualify post-merger.
Photo Accountants CA CMA CGA merger
The new national Chartered Professional Accountants organization would establish a certification program that draws on the strengths of the existing programs and would be at least as rigorous as existing programs.

4

The Canadian CPA Certification Program 

The new CPA organization would establish a certification program that draws on the strengths of the existing programs and would be recognized by members, regulators, global accounting organizations and the business community as being at least as rigorous as all existing programs. Detailed information on the developing certification program is available by clicking here.
HIGHLIGHTS OF THE CANADIAN CPA CERTIFICATION PROCESS
A CPA Competency Map would be designed to meet the needs of industry, government and public practice.
-An undergraduate degree and specific prerequisite courses in business and accountancy would be required for admission to the professional education program.
-A post-graduate professional education program would be developed nationally and delivered provincially/regionally. Key components would include:
Individual examinations and team-based evaluations throughout the program.
A comprehensive, multi-day final examination.
Rigorous practical experience that builds the relevant CPA competencies and is subject to quality control by the profession.
Meet or exceed all standards for education, assessment and practical experience set by the International Federation of Accountants.
Meet or exceed requirements for existing and future Mutual Recognition Agreements.
Bridging programs to meet required degree or course prerequisites for the professional education program so that entry into the program would be accessible to entrants coming from the work force and abroad and those with non-business degrees.
To meet the diverse needs of both employers and clients, a separate program would be developed for those who aspire to a career in accountancy, but not as a qualified CPA. This program would have distinct entrance, education and assessment requirements. A bridging program to the appropriate stage of the CPA certification program would be developed.
Photo Accountants CA CMA CGA merger
Post-designation specialty programs would be developed to offer CPAs the opportunity to enhance their expertise and advance their careers.

5

A single designation with specialties

-As in other professions like medicine and law, post-designation specialty programs would be developed to offer CPAs the opportunity to enhance their expertise and advance their careers.
-A number of post-designation specialties would be considered, such as tax, forensic accounting, strategic management, and public sector accounting.

6

Branding the CPA designation

-Early in the transition process, all branding efforts would focus on the CPA designation and there would no longer be any branding of the legacy designations.

7

Common code of conduct, regulations, and the practice of public accountancy

-A new, common regulatory framework reflecting the best practices of the existing organizations, including codes of conduct, practice inspection, disciplinary processes and an effective, nationally consistent public accounting regime would be developed.
-The new national CPA organization would be responsible for supporting standard setting in the profession.
8

Merged operations and governance

The operations of the participating bodies would be combined at the provincial and national levels.
The new combined provincial and national bodies would be overseen by new Boards of Directors that would include representation from each of the participating bodies.
Mechanisms to protect existing members’ rights (such as those under Mutual Recognition Agreements) would be included.

-The organizations in each jurisdiction would be responsible for securing any legislation required to combine the operations and move to a new CPA designation. These bodies would work collaboratively to obtain any required change.
Unifying the profession is a strategic response to the rapidly evolving environment and the resulting opportunities and risks facing the Canadian accounting profession.
Photo Accountants CA CMA CGA merger The CPA designation is emerging as the largest accounting designation around the world.

The Canadian Environment

Increasingly, accountants are working in the same practice areas but remain subject to different qualification processes, codes of conduct, inspection and disciplinary regimes operated under 40 different governing bodies.
The three bodies in Quebec, at the invitation of their government, have agreed to merge under the Chartered Professional Accountant designation.
The Association of Chartered Certified Accountants (ACCA) in the U.K., which is aggressively advancing a global expansion strategy that targets Canada, is legally challenging the CA profession’s legislated rights to the exclusive use of the name “Chartered Accountant” in Canada.

Global Alliances and Other International Developments

The global financial crisis has brought the regulation of the accounting profession under close scrutiny.
Photo Accountants CA CMA CGA merger A larger, more cohesive voice would ensure that the Canadian accounting profession continues to effectively influence international standard setting bodies and other global organizations.
The U.K. House of Lords is publicly calling for the amalgamation of the six U.K. accounting bodies, saying the fragmentation of the accounting profession there is inefficient.
The CPA designation is emerging as the largest accounting designation around the world. The CPA designation is used by more accountants than any other designation, with the current ratio of CPAs to CAs globally being 2:1.
The Institute of Chartered Accountants in England and Wales and the ACCA have both filed European trademark applications to control the Chartered Professional Accountant (CPA) designation.
The American Institute of Certified Public Accountants (AICPA) is aggressively seeking to expand its global footprint and is opening examination centres for the U.S. CPA exam outside of the U.S. In addition, the AICPA and the U.K.-based Chartered Institute of Management Accountants (CIMA) have announced a new jointly developed global management accountant designation.
Increasingly, other national and regional accounting bodies also are entering into alliance agreements to increase their individual and collective strength, relevance and influence. Examples include the Global Accounting Alliance and the Edinburgh Group.

The Risks of Continuing as a Fragmented Profession

Government mandating that we reform, and possibly dictating the terms of that reform.
Inability to respond efficiently and effectively to challenges from foreign accounting bodies or alliances operating in Canada.
If the profession does not unify it is possible that two of the existing bodies may merge, thereby potentially strengthening their position in the marketplace at the expense of the third body.

The CPA designation becoming controlled by one or more of the existing Canadian bodies — to the exclusion of the others.
Losing influence domestically and internationally if we do not speak with a single, strong voice.
Achieving our four unification objectives would result in benefits for members.

Best positions the profession to protect the public through the provision of a common certification program and a single set of high ethical and practice standards.
Enhances and protects the value of your designation in an increasingly competitive and global environment.
Contributes to the sustainability and prosperity of the Canadian accounting profession.
Governs the accounting profession in an effective and efficient manner.

A New Designation with Broad Expertise

Members would retain their current designation and add the Canadian Chartered Professional Accountant (CPA) designation, which would become the pre-eminent designation and business credential for professional accountants who work in every sector of the economy.
The Canadian CPA designation would represent a unique combination of expertise in all areas of accounting, including financial and management accounting, assurance and taxation. It would evolve into a globally recognized business credential in the areas of financial and strategic management, business leadership, and auditing and assurance competencies.
Steps would be taken so that members would have access to post-designation specialty programs.

Securing Rights to the Global Designation of Choice

Securing alignment with the most recognized global accounting designation would best protect the value of the Canadian profession’s designation in the long run.
Coming together under the Chartered Professional Accountant banner would align us with both CA and CPA, if either, or both, designations emerge as globally dominant.
Mutual Recognition Agreements would be maintained and expanded with the world’s most prominent CA, CPA and other significant bodies, facilitating members’ mobility globally.

Photo Accountants CA CMA CGA merger A fully unified profession would reduce the number of governing bodies from 40 to 14 and significantly simplify operations and governance.

Common Regulatory Processes

A new common certification program and a single set of high ethical and practice standards, common code of conduct and practice inspection and discipline processes would create a strong foundation on which to build the unified profession, and would be more efficient and effective.
Greater harmonization would enhance trust and confidence in the profession amongst employers and the public at large.
A common regulatory framework would enhance inter-jurisdictional mobility for all members.

Efficiencies and Economies of Scale

A fully unified Canadian profession would reduce the number of governing bodies from 40 to 14, significantly simplifying operations and governance, and reducing confusion in the marketplace.
Marketing dollars would be more efficiently used to support the interests of all CPA members.
Gains from increased efficiencies could be re-invested in:
• Enhancing member services, such as post-designation specialty programs and professional development.
• Creating new products that enhance members’ practices and career goals.
• Developing communities of interest and networking in the members’ many areas of activity.

A Powerful Organization with a Unified Voice

A single voice representing as many as 170,000 Canadian members would more effectively represent member interests with respect to domestic policy, legislation and regulatory issues affecting the accounting profession.
A larger, more cohesive voice would ensure the Canadian accounting profession continues to effectively influence international standard setting bodies and other global organizations.

A united force would be stronger and more effective in dealing with global alliances and other designations that are becoming increasingly international in scope.
As the Canadian accounting profession is provincially regulated, any decisions regarding subsequent merger proposals would be made provincially. Please contact your governing body for information regarding next steps in your province or region.