Dear Premier and Minister:

Re: Retroactive Legislation

The Ontario Bar Association wishes to protest, in the strongest possible terms, three measures included in the provincial Budget of May 18, 2004.

The Budget includes three proposals to enact legislation that is retroactive to 1990 or 1993:

Corporations Tax Act

Amendments are proposed to the definition of "current accounts payable" for capital tax purposes. These amendments respond to the court decision in QEW 427 Dodge Chrysler (1991) Inc., which held that current accounts payable include amounts owed to creditors and not just suppliers.

• Effective for taxation years ending after May 18, 2004, the definition of current accounts payable would be amended to confirm that it applies only to amounts payable to a supplier for purchases of goods and services.

• The proposed amendments would also clarify that liabilities incurred in connection with the purchase or trading of shares, bonds or other securities are not considered current accounts payable, effective for taxation years ending after May 19, 1993.

Employer Health Tax Act

Permanent Establishments

On April 27, 2004, the Ontario Superior Court of Justice ruled that Ontario-based professional sports teams should not have to pay EHT with respect to salaries paid to players and others for games played outside Ontario.

For greater certainty, it is proposed that the existing EHT legislation be amended to clarify that as long as a person reports to work at a permanent establishment in Ontario, all of that employee's remuneration is subject to EHT. The April 27, 2004 judgment will be appealed.

This measure would be retroactive to January 1, 1990.

Taxable Benefits

Employer Health Tax is calculated based on remuneration paid to employees. Remuneration includes all payments, benefits and allowances received or deemed to be received by an individual that are, by reason of section 5, 6 or 7 of the Income Tax Act (Canada), required to be included in the income of the individual for federal income tax purposes. Since the inception of the EHT, any amount that is subject to income tax under the above sections of the Income Tax Act (Canada) is remuneration for EHT purposes.

In order to preserve the integrity of the EHT base, legislation will be proposed to clarify that amounts included in an employee's income by reason of section 5, 6 or 7 of the Income Tax Act (Canada) continue to be taxable for EHT purposes. These amounts would include automobile benefits, low-interest employee loans, and employee group term life insurance.

This measure would be retroactive to January 1, 1990.

We understand that the Government is concerned about the loss of tax revenues as a result of contrary Court cases. However, the principles at stake, and Ontario’s reputation, outweigh the consideration for any such revenues.

These proposals place a basic tenet of tax policy is serious jeopardy. It is axiomatic in a free and democratic society that people are entitled to govern their affairs in accordance with the law. These proposals will retroactively change the law as it applies over more than a decade.

The proposals are abhorrent because they deny the rule of law and circumvent the role of the Courts in our society. In a time when you need to demonstrate good faith to the taxpayers of Ontario, you are instead sending the following unhelpful message: “We have a judicial system; you can appeal a Ministry decision that you do not like; but if you win, we will do an end-run around the Court — so the judicial system cannot be relied on.”

These proposals further convey the message that the people of Ontario are to be governed by bureaucratic whim. Never mind what the law says; the Government will ensure that tax is collected based on the Ministry of Finance’s administrative interpretation. This is a direct infringement of the principle of certainty in our tax system. Certainty is the cornerstone of a respected and sophisticated tax system, which we believe Ontario should preserve.

The Budget proposals use the terms “confirm” and “clarify”. With respect, they do not confirm or clarify anything. These proposals will change the law. They will strip taxpayers of an existing right to be governed by the legislation as enacted.

Put simply, these changes are unfair. The Legislature passes tax laws, and taxpayers read them and govern their affairs based on those laws. If there is a dispute over what the law means, we have a Court system to arbitrate the disputes. If the Government finds that the law is not what it would like it to have been, then by all means amend the legislation, but not retroactively. These proposals fundamentally violate the government’s duty to uphold the law in a fair manner. They undermine taxpayers’ confidence in the system and will discourage compliance, which is a key feature of our self-assessment tax system.

We note that similar retroactive legislation was recently enacted with the repeal of the Equity in Education Tax Credit. That repeal was made retroactive to January 1, 2003, even though the government was not elected, on a platform that included repeal of the credit, until October 2003. That retroactive legislation was equally objectionable, in that parents of children in private schools registered their children and paid tuition with the knowledge that the credit was available, only to have the credit removed retroactively.

We urge you to withdraw the proposal to make these three changes retroactive, and instead to make them effective as of Budget Day, May 18, 2004.

Members of our Taxation Law Section would be pleased to meet with you or your officials to discuss this matter further.

Yours truly,

Jonathan Speigel - President, Ontario Bar Association  
J. Milan Legris - Chair, Taxation Law Section