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Reform Party Dissenting Opinion

to the

Standing Committee on Public Accounts


October 24, 1996




Respectfully submitted by:

Jim Silye, M.P.
John Williams, M.P.


The Reform Party of Canada files this dissenting minority report with reluctance. It was hoped that after the review and questioning of witnesses on Chapter 1 of the May 1996 Auditor General's Report, Committee members would reach a consensus and file a unanimous report. Unfortunately, all three parties drew different conclusions.

The Auditor General raised the issues of emigrant taxation of taxable Canadian property when exiting Canada and the advance tax ruling process in his audit of May 1996.

The majority report is fair in its comments concerning the steps taken by the Department of Finance to clarify the existing ambiguous tax legislation on emigrant taxation and closing the loopholes on the taxation of Canadian property upon the departure of a taxpayer from Canada.

However, when it came to critiquing what happened in 1991, the majority report fails or neglects certain facts and, thereby, draws very different conclusions than ours.

Under the section, Documentation, the report expresses concern about the lack of documentation but does not explain why. The paper trail in Revenue Canada was clear and ample, up to, but not including, the meetings of December 23, 1991, the day the final decision was rendered. No notes were made of several meetings that took place that day.

This final decision was a reversal of all the opinions documented prior to December 23, 1991, which clearly showed that Revenue Canada was opposed to a ruling in the taxpayer's favour.

Memoranda of December 18, 1991, and December 20, 1991, written by senior officials to the Deputy Minister of National Revenue advised him that the Department was unable to rule favourably. In fact, even the Revenue Canada Rulings Review Committee on December 12, 1991, decided that a favourable ruling should not be provided.

Due to the lack of minutes for the December 23, 1991, meetings where Finance and Justice apparently were able to resolve the policy issue and the legal issues, there is no evidence of contrary arguments considered and there is no bridging of the recommendations reached up to that date to provide an unfavourable ruling with other analysis and documentation. The Auditor General had serious concerns that the tax ruling on the transaction may have circumvented the intent of the law.

Furthermore, the evidence shows that to put the transaction "on side", Revenue Canada issued the favourable ruling upon the condition that the taxpayer provide a waiver and an undertaking not to invoke the tax treaty between Canada and the United States. This clearly shows that revenue Canada up to December 23, 1991, was correct in believing that the transactions intended to circumvent the law's intent. But what happened on December 23, 1991???

The Auditor General also raised the question: in light of the fact that the taxpayer had already completed part of the transaction, did the department officials violate policy on advance income tax rulings? Once a transaction is completed, Revenue Canada cannot give an advance ruling - because what's done is done.

The majority report tries to absolve department officials on the grounds of ambiguous legislation. Department officials claim that they were looking at proposed transactions. However, department officials admitted that an agreement was made with the taxpayer to bring the transaction "on side", in other words, re-working the transaction supported by a waiver and an undertaking by the taxpayer. This side agreement to the ruling only goes to prove that, in fact, the transaction had been completed and, therefore, it appears that an advance tax ruling was inappropriate and in violation of department policy, and should not have been given.

This ruling was a mistake on the part of department officials and unfair to subsequent taxpayers, particularly in light of the fact that the tax ruling was not made public for many years. Consequently, other taxpayers were denied knowledge of the department's actions and the benefit available to those who received the ruling. When the ruling was published, the requirement of the waiver and undertaking was withheld.

In our criticism of the department's handling of this incident, we are in no way imputing motive or questioning the integrity of the officials involved nor of any impropriety on the part of any official in making this ruling, but we do believe they erred in their final decision and that the decision-making process was flawed.

We believe that Revenue Canada, in consultation with the Department of Finance and the Department of Justice, should have informed the taxpayer that the ruling requested was not possible because the disposing trust had not been a resident of Canada for ten years prior to the disposition; therefore, the capital gains were taxable when the asset was transferred to another country.

We believe that Revenue Canada should not have ruled favourably in this case due to the fact that an undertaking and a waiver were required and made a condition of the ruling. Revenue officials knew the waiver was not enforceable. The side agreement is a contingent liability for future advance rulings because future taxpayers may demand the same arrangements based on precedent.

The real issue is the integrity and fairness of the tax system and, in this instance, department officials responsible for the final decision should be criticized for the following:

These factors are enough to raise concern that a special agreement between Revenue Canada and a taxpayer may allow department officials to inadvertently weaken the tax base and violate the basic principle that the right to tax or not to tax rests with Parliament.

In conclusion, we do not agree that the Auditor General's concerns have been fully addressed. The Government has clarified the legislation and removed the ambiguities through a Ways and Means Motion in the House of Commons, despite the Government's reluctance to examine what happened in 1991.

Ultimately, we must thank the Auditor General for drawing this matter to Parliament's attention - otherwise this clarification of the treatment of taxable Canadian property leaving the country may never have happened.

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