Canadian Tax Shelter Penalty Overreaches, TEI Tells House of Commons.

Draft legislation imposing personal liability on employees for making "false statements" or omissions that reduce the company's tax liability violates longstanding principles of corporate law and sound tax policy, TEI Treasurer J.A. (Drew) Glennie told the Canadian House of Commons Standing Committee on Finance on May 30. Mr. Glennie urged that the proposed legislation be withdrawn or substantially revised. Mr. Glennie was accompanied to the hearing by John M. Allinoitte, chair of TEI's Canadian Income Tax Committee, and Jeffery P. Rasmussen, TEI Tax Counsel.

The draft legislation, captioned Misrepresentations of a Tax Matter by a Third Party, was released by the Minister of Finance on September 1, 1999, and included in a Notice of Ways and Means introduced in the House of Commons on December of that year. The proposed bill would exact penalties of 50 percent of the amount of the corporate tax understatement from corporate employees for simple errors and omissions shown on their employers' income and excise tax returns.

In written comments filed three weeks before the hearing, the Institute elaborated on its continuing concerns about the draft provisions, especially the onerous penalty amount and the potential for improper administration of the penalty. "The aim and scope of the draft provisions are overbroad," TEI stated, "and will have unintended consequences that will undermine compliance with, and administration of, both the Income and Excise Tax Acts." The Institute explained that, under the draft provisions, all corporate employees whose job duties affect financial and tax reporting could be liable to Draconian penalties as a result of acts or omissions involving "indifference" -- whether collectively or individually -- that are beyond...