Does your tax adviser know the rules? Probably not

Kim Moody: The vast majority of Canadian accountants only have a very basic understanding of income tax law

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Practising taxation is not for the faint of heart. The Income Tax Act is, by far, the largest statute (and likely the most complex) in Canadian law. It’s fair to say many Canadians believe that most accountants understand tax. Accountants dominate the practice of taxation even though the interpretation of the act is a legal function and not an accounting function.

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However, the blunt truth is that the vast majority of Canadian accountants only have a very basic understanding of income tax law. This can be a real problem when non-specialist advisers dispense taxation advice to clients who rely on it, but don’t understand the advisers are likely not qualified to provide such advice. It’s the public that ultimately pays the price for this when such advice turns out to be incorrect.

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I’ve long been an advocate that Canada needs a tax designation to help the public identify who are truly tax specialists and those who are not. It would also reward younger accounting and legal professionals who put in the work to truly understand the act, related case law, administrative positions and continued efforts to keep up to date.

Practising taxation is truly a specialist career if done correctly and new practitioners who put in the effort should be recognized for such efforts. A tax designation does just that. Other jurisdictions — such as the United Kingdom and Australia — long ago introduced a chartered tax adviser (CTA) designation for these very reasons.

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Canada, however, has had a choppy history of trying to introduce such a designation. The most recent legitimate effort — roughly 10 years ago — was led by the Canadian Tax Foundation (which I am a former chair of) and investigated the merits of introducing a tax designation.

The effort failed when various constituent groups did not agree on the need for a tax designation. There was a similar result approximately 20 years ago with a group led by the then Canadian Institute of Chartered Accountants.

The usual cries, overly simplified, from the opposing side of introducing a tax designation are:

Senior practitioners: “I don’t need a designation … it will do nothing for my established career.”

Large firms: “Why would we pay for a tax designation and add costs when we already dominate the space? And it would help to legitimize our smaller competitors.”

General practitioners: “If I don’t get the tax designation, that would have a material and negative impact on my practice.”

There are other opposing arguments as well, but suffice to say that I’m not convinced. Ultimately, it harms the public when incorrect tax advice is provided from non-qualified practitioners at firms of all sizes.

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In the meantime, Canada continues to release incomprehensible new tax legislation. It’s left to the tax specialist community to interpret and assist general accountants, lawyers and taxpayers to apply such legislation. The system is very close to a tipping point of massive non-compliance in several areas of tax law.

Put simply, if taxpayers and their advisers (and even tax specialists) have a hard time understanding new legislation, it can and will lead to non-compliance. The system then breaks down.

Combine that with the material decline in the number of North American graduates from accounting schools and one wonders how many new tax practitioners will be entering the profession. Will the new practitioners replace the aging ones who are retiring? Today, it doesn’t look like it.

Where does all this leave us? The above only skims the surface on a multi-faceted and complex topic that Canada needs to start talking about. The taxpayer community — particularly the business community — can ill afford to have long-term problems trying to adhere to complex tax legislation by not having available talent to help comply or properly plan.

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There are a couple of obvious agenda items that need to be part of a discussion.

First, a recognition that taxation is a special and unique area of law and accounting that deserves recognition by way of a tax designation. Such a tax designation, properly implemented, would go a long way to help new professionals be recognized for their efforts and help protect the public so they are properly informed as to who is qualified to assist them in their taxation affairs.

The discussion should also recognize that tax compliance and advice is not the sole domain of larger firms; there are many excellent small firm tax practitioners, and their voices should be heard just as loud and as clear as their larger firm colleagues.

Secondly, the government should make a long-overdue commitment to comprehensive tax review and reform. Canada has had limited reviews and reforms in its recent past, but the last whole-scale effort to comprehensively review the taxation system was 61 years ago when the Royal Commission on Taxation was appointed.

A key objective of a comprehensive review/reform should be to simplify many aspects of our taxation system (to encourage compliance) and increase the number of qualified tax advisers who are able to advise on taxation matters. In other words, we need to increase the population of qualified and visible tax advisers to benefit our country as a whole.

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Without concrete action, I’m concerned that the slow-moving train of incomprehensible new tax legislation being released, a significant decline in the number of accountants entering the profession and no visible recognition of who is a qualified tax professional will eventually crash in a horrible wreck.

We need to get ahead of this slow-moving train, apply the brakes and quickly build a new track so the train can get on a better and more productive route.

Kim Moody, FCPA, FCA, TEP, is the founder of Moodys Tax/Moodys Private Client, a former chair of the Canadian Tax Foundation, former chair of the Society of Estate Practitioners (Canada) and has held many other leadership positions in the Canadian tax community. He can be reached at [email protected] and his LinkedIn profile is

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