www.lexisnexis.ca Vol. 32, No. 8 July 2016
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Sweeping power of CRA is rolled back by top court

New federal legislation restoring the tax man’s audit powers could follow the Supreme Court’s invalidation of provisions that purported to compel lawyers and notaries to disclose information to the Canada Revenue Agency (CRA), including their accounting records and clients’ names.

On June 3, seven judges of the Supreme Court of Canada unanimously declared unconstitutional — as against notaries and lawyers in their capacity as legal advisers — CRA’s sweeping regulatory power, pursuant to ss. 231.2(1) and 231.7 of the Income Tax Act (ITA), to require “any person” to provide information or documents for any purpose related to the administration of the ITA (the “requirement scheme”): Canada (A.G.) v. Chambre des notaires du Québec 2016 SCC 20.

That was then, this is now, KPMG tells Parliament 

The business and tax environments in Canada have undergone significant changes over the past two decades and actions taken in the late 20th century need to be viewed in that context, not necessarily by the standards of today, the House of Commons finance committee was told recently.

KPMG Canada tax partner Gregory Wiebe testified in the wake of reports over the past several months that alleged KPMG helped set up an elaborate offshore tax structure in 1999 which allowed a wealthy British Columbia family to avoid reporting more than $4 million of income from foreign investments. That money was earned from an offshore company in the Isle of Man, a self-governing British Crown dependency in the Irish Sea.

Accounting for intangible assets is once again making headlines, at least in the financial media. While the current accounting standards most in use — U.S. GAAP and IFRS — do deal with the issue, it seems they are rapidly falling out of step with today’s business reality.

“Intangibles have reached a tipping point,” says Baruch Lev, a professor of accounting and finance at New York University’s Stern School of Business. Although no comparable Canadian figures are available, he points out that “total investment of the U.S. private sector in intangibles surpassed US$2 trillion in 2014, while investment in tangible capital — things shown on balance sheets — is stuck at US$1.2 trillion.”

Hans Hoogervorst, who chairs the International Accounting Standards Board, is uneasy about the increasing use of non-GAAP measures in the financial statements of public companies. Speaking May 11 at the annual conference of the European Accounting Association in Maastricht, the Netherlands, Hoogervorst pointed to the widening difference between GAAP and non-GAAP numbers in financial reports. And he’s not alone.

“There is growing evidence showing increasing use of non-GAAP measures, and of these measures becoming increasingly misleading,” he said, adding, “More than 88 per cent of the S&P 500 currently disclose non-GAAP metrics in their earnings release. Of those releases, 82 per cent show increased net income and are clearly designed to present results in a more favourable light.”