Canadian Department of Finance responds to TEI's effective date concerns: retroactive legislation deemed sometimes necessary.

• Position: Includes related article on concerns regarding legislation - Response to article in this issue, p. 125

On March 13, 1996, the Canadian Department of Finance responded to Tax Executives Institute's letter dated February 26 concerning the effective date of tax legislation. (TEI's letter is reprinted elsewhere in this issue.) The text of the letter, which was addressed to TEI President Jack Skinner and signed by Paul Martin, the Minister of Finance, follows:

Thank you for your letter of February 16, 1996, further to the meeting between members of the Tax Executives Institute, Inc. and my officials on December 5, 1995. In your letter you raise concerns with the policy content of so called 'technical bills and the effective date for new tax legislation.

With regard to the policy ramifications of "technical bills," it can be difficult to distinguish between a technical change and a policy change. Any change to the Income Tax Act, even a very technical one, is likely to affect some taxpayers. Unfortunatenly, complexity of tax law requires that amendments be facilitated more frequently than just once a year in the budget. Technical bills are legitimate mate pieces of legislation and should be reviewed by all practitioners; there is no attempt to hide proposed changes. Indeed, the period between the announcement of changes and their introduction in Parliament as a Bill is intended as an opportunity for commentary on the new proposals.

With respect to your suggestion that the government delay the effective date of tax legislation until the date of Royal Assent, I am sure you will understand that such a practice would give tax advantages to sophisticated taxpayers, who would be able to respond to announced changes before they became effective, while ordinary taxpayers would be likely to be unable to plan in advance for tax changes. This would not only prejudice dice the treasury, but would also increase the fiscal demands on the populace as a whole. Further, most instances of retroactivity in legislation introduced through technical bills result from requests for accommodation from the tax community with regard to the structure of specific transactions which have already occurred. Such accommodation would not be possible if all legislation were stated to come into force only on Royal Assent.

Other instances of retroactivity occur to correct anomalies or inconsistencies, or in response to an unexpected outcome in a court case. The usual policy of this Department is for changes to the tax laws to be prospective in application. Decisions to include an...