Focus: Compliance efforts helping boost business

Nothing is certain in this world except death and taxes, which is good news for funeral directors and tax lawyers. And that certainty has meant tax boutiques are often conducting a brisk business even when other parts of the legal profession are struggling.

“We as a firm have not suffered significant dents in our business I don’t think ever,” says James Murdoch, managing partner of Thorsteinssons LLP, one of the largest tax boutiques in the country.

And some tax boutiques have been experiencing a boost in business thanks to more aggressive compliance efforts by government departments such as the Canada Revenue Agency.

Jack Millar, a partner at Toronto-based tax boutique Millar Kreklewetz LLP, says that since the province introduced the harmonized sales tax, commodity tax work has increased significantly.

“At the CRA, they have realized the significance of the GST and HST for government revenues,” he says.

Millar says that after the CRA formed a separate audit division just for the GST and HST, taxpayers have begun encountering more sophisticated audits from the federal department.

“There are more issues that are arising now whereas 10 years ago it might have been an issue that was overlooked,” he says. “And we see this having a direct bearing on business in terms of corporate business and therefore needing sophisticated counsel to assist with that.”

But even without increased audit activity, individuals and businesses have placed a greater emphasis on commodity tax.

“Whereas before businesses may have viewed the five-per-cent GST as a cost of doing business if they got it wrong, when it’s a 13-per-cent HST, obviously it has a very significant effect on your bottom-line profitability,” he says.

Murdoch says he has also noticed an increase in the number of clients coming through the door following an audit.

And according to Murdoch, the audit process has become more complex, making life more difficult for some taxpayers and leading to more work for tax lawyers.

“There is no question that the way audits are being carried out on the income tax side is leading to a lot of work,” he says. “They are asking for reams of information, they’re asking for a lot of co-operation by taxpayers, and they are creating a lot of work for people like myself.”

Whereas in the past people who had decided to appeal the finding of an auditor would be able to deal with the tax services office nearest to them, administrative appeals now end up at the location that has the least amount of work on its plate.

“And that drags out the resolutions,” says Murdoch. “Those changes that they’ve made to appeals — eliminating face-to-face meetings, moving files all over the country — have not been helpful from a taxpayer’s perspective.”

On the customs side, Millar says he has seen an increase in the number of compliance issues on the part of the Canada Border Services Agency as well.

“After 9/11, governments took more of their trade budget and put it into security,” says Millar. “But the pendulum has swung again and the trade compliance directorate of the CBSA has got more resources now.”

He notes some of the trends in the law have also worried some clients.

“The CBSA had lost a string of cases dealing with customs valuations, which meant that areas where they traditionally thought they could get additional duty were no longer available,” says Millar.

“But very recently, they’ve actually won a couple of very significant cases and now we see the CBSA compliance officials out there focusing on these new areas that are raising challenges.”

According to Millar, that has led to importers wanting to make sure they’ve got the right legal counsel dealing with customs issues.

“The volume of files has increased and has put even more of a premium on finding the right type of lawyers to help,” he says.

Millar is expecting new customs work to start coming in once the free-trade agreements Canada has recently signed with the European Union and South Korea come into force.

“There is going to be significant legal work once these free-trade agreements come into force,” says Millar, who notes he has already been hearing from European clients that are considering importing goods to Canada.

Murdoch says some of the biggest growth his firm has seen has been from personal planning tax work despite the fact that several big banks have been trying to get a piece of the pie.

“That’s been a very good business, and there’s seemingly no end to the demand,” he says.

Overall, Murdoch expects this type of work will continue to increase, partly because he expects governments to raise taxes.

“After an era of rates going down, we are now in an era of rates going back up,” he says. “And that will lead taxpayers to try to save taxes and that generates tax planning work.”

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