Tax Quarry

(Department of Finance Press Release)

The Honourable Jim Flaherty, Minister of Finance, today announced that Canada’s new Government is keeping its promise to Canadians by delivering on its Tax Relief Plan. The measures below are part of the Government’s plan to deliver over $20 billion in tax cuts over the next two years, which is more than the last four budgets of the previous government combined.

These measures were part of the income tax measures that were proposed in Budget 2006 but not included in the Budget Implementation Act, 2006, which received Royal Assent on June 22, 2006.                                                                                                      

These measures are:

• The new Canada Employment Credit.
• The new Textbook Tax Credit.
• The new tax credit for public transit passes.
• The new deduction for tradespeople’s tool expenses.
• A complete exemption for scholarship income received in connection with enrolment at an institution which qualifies the student for the education tax credit.
• A doubling, to $2,000 from $1,000, of the amount on which the pension income credit is calculated.
• An extension of the $500,000 lifetime capital gains exemption, and various intergenerational rollovers, to fishers.
• The new Apprenticeship Job Creation Tax Credit.
• A reduction of the current 12 per cent small business tax rate to 11.5 per cent for 2008 and to 11 per cent thereafter.
• An increase, to $400,000 from $300,000, of the amount that a small business can earn at the small business tax rate, effective January 1, 2007.
• A reduction of the minimum tax on financial institutions.
• The legislative proposals are being released in draft form so that taxpayers have an opportunity to consider and comment on them before they are introduced in Parliament. To facilitate this review, detailed explanatory notes relating to the proposals are also being released.

As the panel of health and physical fitness experts appointed by the Minister of Finance to advise on the Children’s Fitness Tax Credit has not yet had an opportunity to report its recommendations, the legislative proposals released today do not include provisions to implement this credit. These measures will be incorporated in the legislative package to be tabled in Parliament.

Comments on the proposals are requested by September 22, 2006. Once the comment period is concluded, the Government will work towards introducing these measures in Parliament at the earliest opportunity.

The legislative proposals and explanatory notes released today are available free of charge on the Department of Finance website. Printed copies are available for $13 from the Department of Finance Distribution Centre at 613-995-2855. 

I recently attended a seminar entitled “The Anatomy of the Corporate Deal” at the National Bar Association's Convention and Exhibits in Detroit, Michigan.  The speakers on the panel for this seminar were Tamika Langley Tremaglio, Managing Director of Huron Consulting Group, Washington D.C.; Marc Sherman, Managing Director, Huron Consulting Group, Washington D.C.; and, Amy J. Conway-Hatcher, Partner in litigation practice at Morgan Lewis. 

The objective of the seminar was to explore the various types of corporate scandals and common investigation triggers and provide suggested approaches for damage control.  Tax fraud or unacceptable accounting and tax reconciliation practices were identified as major risks that could place a company at the forefront of a scandal.  This article will provide proposed responses strategies for handling this type of scandal. 

An investigation can be triggered by a number of things such as a civil lawsuit, a newspaper article, a whistleblower or at the instigation of an auditor.  Any allegations that challenge management integrity are material and should be investigated.  The level of detail of the investigation will depend on the level of management, the nature of the allegations and potential impact on the company.  Where information about wrongdoing is obtained from a “whistleblower”, this individual is expected to co-operate with future investigations into the scandal.  It is important to let this individual know that as general counsel, you represent the interest of the company and not the individual’s interests.  The individual has the right to obtain their own counsel to represent their interests.  Sometimes the first warning of trouble is the result of a FBI investigation when an agent contacts you to ask a few questions.  It is important to have a policy that provides guidance on how to respond to the Federal government inquiries.  It may be tempting to engage in a casual conversation with the agent, however, the panel advised that the employee or director should respond by stating that he or she would like to answer the questions but must speak to general counsel first.

Regardless of what triggers the investigation, a company should have a plan in place to assist with reducing the potential damage that may be caused.  The panel recommended having at least three people to contact during a crisis.  One panellist noted that the company’s auditors should only be contacted first if they are in the process of preparing financial reports to avoid misrepresentations in the report.  Otherwise, since auditors are likely to become more protective of their interests when they become aware that the company is conducting an internal investigation it is better to call someone else who will help determine the gravity of the situation and collect more information before reporting the issue to the company’s auditor.

When dealing with the audit committee, the Sarbanes Oxley Act (“S.O.X”) requires that a financial expert should be on the committee especially when the scandal involves financial issues.  Another thing to be aware of is the composition of any special committees that are formed to protect the interests of board members from allegations of wrongdoing.  Ensure that the board members who are the subjects of an investigation are not responsible for establishing this special committee.