Ethical application of the Income Tax Act

I’ve been in discussion with some very interesting people in the last several months. Privately accountants nod their head in acknowledgement and slap my back in support of the effort I’ve displayed in applying ethics to the income tax act. However, as several have asked “…what does the income tax act have to do with ethics?...”. It is a very interesting topic, especially amongst accountants. Placed as bluntly as that, reactions usually vary from philosophical interest to “deer in the headlights”. Applying ethics to the Charter of Rights and Freedoms is a given. The Federal Accountabilities Act is a shoe-in for an ethics discussion, but the income tax act? The longer a person’s been in the profession the more it appears wasted effort. It’s wasted because the act is so complex and produces such conflicting results, not the atmosphere that fosters feelings of security, justice and equality all results of solid ethics.

I read a couple articles lately that show examples of this. There was an article in “The Bottom Line” http://www.thebottomlinenews.ca/index.php?section=issue page 19 by writer Vern Krishna titled “Law consistent in its inconsistencies”. Without going through details (which are pretty amazing as well as complex) it discusses the outcome of a court case similar to the one I described on December 19, 2008 Singleton vs Canada. Without me drawing to much attention to a different case I’d just like to quote the writer’s final statement of the supreme courts decision “… Westminster prevails over GAAR, except in the circumstances where GAAR prevails over Westminster…”. It was a clear example of the “super complexity” and circular reasoning/results within the income tax act.

There have been many people who have stated that accountants refuse to publicly fight for their “clients”. They too often assume “all accountants just work for the government anyway”! These are the people who believe that the income tax act is a “black and white law”. They believe it is clear what is allowed and clear what is NOT ALLOWED! Thinking they know the white they accuse accountants of painting things black. This may be a serious misrepresentation of the industry… note the vague terms.

The income tax act has over two thousand pages that are added to it every year. For every concrete rule there are several (if not many) concrete… or vague exceptions. The more complex a deduction, generally, the more clarity is lost to various interpretations, as in the English spelling Rule: I before the E… except after c… or in seize… height… either… foreign… It becomes so weird that you can choke on the exceptions and be forced to use the Heimlich maneuver.

Accountants generally like systems and predictable rules. The economy generally likes systems and predictable rules. The income tax act is not friendly to either unless accountants refuse to navigate the plate of spaghetti exceptions. Some accountants assume one primary rule: the fewer exceptions used the more assurance there is of compliance. Better to err on CRA’s favor than to risk explaining your string of exceptions.

GIVEN THIS… the application of per-diem to the trucking industry can be too much of an “exception” to too many accountants even though it is based on sound ethics and applications historically allowed within the income tax act.

If CRA can twist a very flexible act into a contradictory tool of discrimination rather than a guideline, ethics means NOTHING! The bottom line would be… don’t stand in the way of the judge, jury and executioner. Stay quiet!

Who is going to pay an accountant to defend this income tax application? Both an honest and reasonable question! Few, if any, individual operators will pay to have their accountant go before the Supreme Court. Few, if any, individual accountant will pay their own way to go before the Supreme Court.

So why do I write what I write? Why not just apply it and be happy to grow my firm?

I need time to explain my reasoning. Let me give you a hint. It has to do with political will!

See you on Thursday!

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