29 April 2017

The CPA Ontario merger will finally be implemented

Interestingly, the merger is taking place as part of the 2017 Ontario Budget, and appears as Schedule 3 of its implementation bill. Apart from a mention in the budget document and a media release from CPA Ontario, I find no mention of it anywhere else. Perhaps that is because the unification agreement adopted three years ago, together with a fair bit of nationwide advertising, has dampened the passions that abounded during the several years before. However, our legislation is finally going through, leaving only the Northwest Territories and Nunavut as the final laggards.

Upon Royal Assent, the Chartered Professional Accountants of Ontario Act, 2017 will contain several provisions that are unique, in comparison to implementation legislation adopted in other jurisdictions:

  • The governing Council and officers of the Institute of Chartered Accountants of Ontario become the governing Council and officers of the new CPA Ontario. This is because the ICAO has been operating under the business name of CPA Ontario since the adoption of the unification agreement in 2014.
  • CMAs and CGAs will finally become full members of CPA Ontario. Until now, they had only been associate members of the ICAO.
  • The Certified Public Accountants Association of Ontario, which had been inadvertently abolished in July 2007 and which had been the ICAO's previous shelter for protecting the initials "CPA" in Ontario, is acknowledged only in a transitional provision that effectively provides for the transfer of the CPAAO's assets and liabilities to CPA Ontario. This effectively bypasses the law relating to escheats, but there is no provision for reviving any of the former provisions to save whatever other actions may have taken in the past ten years.
  • The disciplinary provisions extend not just to current members, but also to those whose membership has ceased due to resignation or revocation, and this covers memberships in the predecessor bodies of CPA Ontario. This is subject to a two-year limitation period from the time the event occurred. Although not specifically stated, any consequential court proceedings would be circumscribed by the limitation periods found in the Limitations Act, 2002.
  • As of the date of the 2018 Annual General Meeting, the Council will no longer be prevented from passing bylaws that would have the effect of preventing a member of a predecessor body from having "access to any aspect of the accounting profession" that they may have had through such prior membership. I am puzzled as to the rationale of this provision, or what potential effect this might have.

There are some provisions in the bill that I find highly surprising, in that parliamentary draftsmen are normally more diligent in their deliberations and more elegant in their results, and I wonder how much consideration of the wording really happened before this was brought forward:

  • There is an unusually expansive definition as to who may not call themselves an accountant. No individual who is not a member of CPA Ontario may "take or use a [protected] designation ... or initials ..., whether alone or combined or intermixed in any manner with any other words or abbreviations."  This appears to have been included because a failed attempt by CGA Ontario to bar the use of the CGMA (Chartered Global Management Accountant) designation in Ontario. It may also explain why "certified public accountant" was not specifically included as a protected designation in this bill in order to rectify the 2007 repeal of the former CPA Act. It still constitutes an extraordinary attempt to block other accounting bodies from establishing a foothold in the Province.
  • Interestingly, while the Act "does not affect or interfere with the right of any individual who is not a member of CPA Ontario to practise as an accountant", "[n]othing ... affects or interferes with the right of a person to use any term, title, initials, designation or description identifying himself or herself as an accountant, if the person does not reside, have an office or offer or provide accounting services in Ontario." This is a "cut and paste" from the previous Acts governing the predecessor bodies that was originally intended to prevent turf wars happening amongst themselves, and I wonder why this was preserved in the current bill.
  • There is no statutory definition for "accounting services", unlike what has been achieved in other jurisdictions. A definition for "public accounting services" exists in the Public Accounting Act, 2004, but that only covers a portion of what "accounting services" would encompass as a whole. That in itself will lead to problematic litigation in future.

What are "accounting services"?


It might be worthwhile to recap what constitutes "public accounting services" in Ontario. Under the Public Accounting Act, 2004, they constitute:

  1. Assurance engagements, including an audit or a review engagement, conducted with respect to the correctness, fairness, completeness or reasonableness of a financial statement or any part of a financial statement or any statement attached to a financial statement, if it can reasonably be expected that the services will be relied upon or used by a third party. Such engagements may or may not include the rendering of an opinion or other statement by the person who is providing the services.
  2. Compilation services, if it can reasonably be expected that all or any portion of the compilations or associated materials prepared by the person providing the services will be relied upon or used by a third party, but they do not include compilations that contain a notice in prescribed form that provides that any assurance given by the person is limited to the accuracy of the computations required in order to complete the compilation.
Therefore, "public accounting" in Ontario covers audit, review and compilation engagements, other than compilations accompanied by a prescribed "Notice to Reader". This begs the question as to what scope "accounting services" would cover in a more general sense. An idea as to a more comprehensive definition of "professional accounting" can be found in the BC Act:

47  (1) The practice of professional accounting comprises one or more of the following services:
(a) performing an audit engagement and issuing an auditor's report in accordance with the standards of professional practice published by the Chartered Professional Accountants of Canada, as amended from time to time, or an audit engagement or a report purporting to be performed or issued, as the case may be, in accordance with those standards;
(b) performing any other assurance engagement and issuing an assurance report in accordance with the standards of professional practice published by the Chartered Professional Accountants of Canada, as amended from time to time, or an assurance engagement or a report purporting to be performed or issued, as the case may be, in accordance with those standards;
(c) issuing any form of certification, declaration or opinion with respect to information related to a financial statement or any part of a financial statement, on the application of
(i) financial reporting standards published by the Chartered Professional Accountants of Canada, as amended from time to time, or
(ii) specified auditing procedures in accordance with standards published by the Chartered Professional Accountants of Canada, as amended from time to time.

(2) No person, other than a chartered professional accountant member in good standing, a professional accounting corporation or a registered firm that is authorized by the CPABC to do so, may provide or perform the services referred to in subsection (1).

(3) Subsection (2) does not apply to the following:
(a) a member who is not authorized by the CPABC to provide or perform the services referred to in subsection (1) or a student if the member or student is providing or performing the services referred to in subsection (1) under the direct supervision and control of a chartered professional accountant member in good standing, a professional accounting corporation or a registered firm that is authorized to provide and perform the services referred to in subsection (1);
(b) a person performing a service for academic research or teaching purposes and not for the purpose of providing advice to a particular person;
(c) an employee in relation to services provided to her or his employer or in her or his capacity as an employee of an employer that is not a registered firm;
(d) a person providing advice based directly on a declaration, certification or opinion of a chartered professional accountant member in good standing, a professional accounting corporation or a registered firm that is authorized to provide and perform the services referred to in subsection (1);
(e) a person providing bookkeeping services, consulting services or income tax return preparation and processing services that do not purport to be based on the standards of the Chartered Professional Accountants of Canada;
(f) a person acting pursuant to the authority of any other Act.

Given that BC's Act has been in place for two years already, it is surprising that this wording, with necessary modifications, was not included in the Ontario bill. Perhaps this could be rectified before passage of the bill, but I think that would be highly unlikely given the lack of interest of the current provincial Government in wanting to manage the parliamentary timetable at the Legislative Assembly. In addition, time allocation procedures that are sometimes invoked with respect to Budget bill debates may not allow for discussion as to why certain decisions were taken on the wording, or on why implementation was inordinately delayed. The overarching debate will probably dwell on more high-profile aspects of the Budget, thus distracting attention from this matter. Let's see what develops.

21 April 2017

Nonresident and speculation taxes: the return of an idea

The Grits in Ontario have announced a nonresident speculation tax that will be effective as of today, 21 April 2017. We'll have to wait until next week to see the implementing bill's details, as the Legislative Assembly is currently in recess, but the announcement can be seen here. Briefly, it will charge a tax of 15% of the purchase price upon closing, and will cover the following real estate transactions:
  •  the transfer of land which contains at least one and not more than six single family residences,
  • being acquired by an individual who is neither a Canadian citizen nor a permanent resident of Canada, or by a corporation not incorporated in Canada or which is incorporated in Canada but is controlled in whole or in part by a foreign national or other foreign corporation not listed on a Canadian stock exchange, or is controlled directly or indirectly by a foreign entity for the purposes of section 256 of the Income Tax Act (Canada).
A foreign national who receives confirmation under the Ontario Immigrant Nominee Program to immigrate to Canada, or who is conferred the status of “convention refugee” or “person in need of protection” (“refugee”) under the Immigration and Refugee Protection Act at the time of the purchase or acquisition, or who purchases a property with a spouse who is a Canadian citizen, permanent resident of Canada, “nominee” or “refugee, will be exempt from the tax.

Tax will be rebated where the foreign national:
  • becomes a Canadian citizen or permanent resident of Canada within four years of the date of the purchase or acquisition;
  • is a student who has been enrolled full-time for at least two years from the date of purchase or acquisition in an “approved institution”, as outlined in Ontario Regulation 70/17 of the Ministry of Training, Colleges, and Universities Act; or
  • has legally worked full-time in Ontario for a continuous period of one year since the date of purchase or acquisition.

 

We've been here before

 

The Land Speculation Tax

In 1974, Ontario imposed the Land Speculation Tax, which had a dramatic effect on a previous round of speculation. It had a short history, and was eliminated completely by 1979. The legislative history was as follows:
  • 3 June 1974: original imposition, retroactive to 9 April 1974, of a 50% tax on the capital gain of most real property;
  • 10 December 1974: technical amendments, together with a reduction of tax to 20%, after Ottawa refused to allowed it as a closing cost for purposes of calculating a capital gain under the Income Tax Act, all of which were retroactive to the original imposition;
  • 6 February 1975: further technical amendments retroactive to the original imposition;
  • 12 July 1977: various technical amendments, retroactive to 20 April 1977;
  • 24 November 1978: the tax ceased to be imposed as of 24 October 1977 with respect to transactions after that date, or which were in the process of being closed at that time. In addition, any statutory liens for tax liability not registered against title for any property as of 1 January 1979 were deemed to be discharged as of that date.
 Its scope was broad:
  • it covered the disposition of any real property in Ontario, other than
    • a mineral resource property, 
    • a principal residence, 
    • property less than 20 acres in size that was used as a principal recreation property,
    • property transferred from one family member to another,
    • property transferred to shareholders upon the winding up of a corporation in which more than 50% of the assets consisted of designated land,
    • a tourist resort, 
    • property upon which a building or structure was constructed (or where renovation occurred at a cost of at least 20% of the property's cost or fair market value), 
    • property disposed by a municipality, 
    • property acquired by statutory notice, or
    • property sold to the Crown or one of its agencies.
  • the proceeds of disposition consisted of:
    • the selling price of the property,
    • where transferred under the terms of an option, the total of the option price and the exercise value, or
    • the fair market value of any other type of disposition, but
    • transfer under the terms of a will was not included.
  • the proceeds were deducted from the fair market value of the property as at 9 April 1974, or at the selling price (or fair market value of the transfer) if acquired after that date, to arrive at the taxable value on which tax was charged.
  • a deduction was allowed for every 12 months the property was held, for the lesser of 10% of the starting value of the property or  the total of its maintenance costs and the closing costs upon its disposition;
  • where the land was used for farming, a further deduction of 10% of the starting value, calculated at compound interest, was allowed for periods preceding 9 April 1974 in which the property was held;
  • the liability for tax constituted a lien upon the property which did not need to be registered against title, which continued until the Minister issued a certificate that no lien would be claimed with respect to a specific disposition.
As noted at the top of this section, the effect was sudden and quite brutal, causing many deals to collapse. It was repealed at a time when mortgages shot upwards to over 20%, which proved to be a more effective damper on housing prices.

The Land Transfer Tax (nonresident rate)


This had a very interesting history.

At the same time in 1974, a rate of 20% was imposed on sales of real estate to non-residents occurring after 9 April 1974. In that regard:
  • a "nonresident person" was defined as:
    • an individual not ordinarily resident in Canada, or who, if ordinarily resident in Canada, was neither a Canadian citizen nor a permanent resident, and an individual ordinarily resident in Canada included those who had sojourned in Canada for 366 days in the 24 months preceding the transaction, those lawfully admitted into Canada for permanent residence, or members of the Canadian Forces, the foreign service or workers in an international development assistance programme required to be stationed outside Canada, including the spouses thereof;
    • a partnership, syndicate, association or any other kind of organization, where more than one-half of the members or in which beneficial interests of more than 50% of the partnership's property was held by nonresident persons;
    • a trust established by a nonresident person, or where nonresident persons held more than 50% of the beneficial interests in it; and
    • a nonresident corporation. being one where 50% of the voting rights were owned by nonresident persons or where 25% of the voting rights were owned by one nonresident person (or where direct or indirect control by one or more nonresident persons existed in such circumstances), or where more than one-half of the corporation's directors were nonresident persons.
  • such rate was also charged where a nonresident person held land in joint tenancy with a resident person, or where land conveyed to resident persons could not be readily distinguished from land conveyed to nonresident persons;
  • deferral or remission could be made where the Minister was satisfied that the land was being acquired for commercial, industrial or residential development with resale to persons who were not nonresident persons.
The scope of the tax was significantly restricted on 20 April 1977, when the nonresident rate was no longer applied to property designated under a zoning bylaw or order to commercial or industrial purposes, or was assessed for residential assessment, or was lawfully used or occupied for commercial, industrial or residential purposes. However, this did not cover land that was assessed or used for farming and agricultural purposes, woodlands, recreational land or as an orchard. The rate was finally abolished on 7 May 1997.

Then compared to now


The 1974 measures had a more pronounced effect, and were much broader in scope, when compared to the 2017 proposals. The newer ones appear to be tailored more for effect, and, dare I say, for pandering for votes in the coming 2018 election. It will be interesting to see what transpires in the coming weeks.