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TEI Salutes Interest-Offset Budget Proposal in Canada.

On June 2, TEI submitted comments praising the Canadian government's recent decision to permit offsetting of interest on corporate tax overpayments and underpayments. TEI's comments, which took the form of a letter from TEI President Lester D. Ezrati to Minister of Finance, Paul Martin, commended the Canadian Government for including in the 1999 Federal Budget a proposal that will provide a measure of relief from an otherwise onerous interest assessment regime.

The letter notes that TEI has frequently criticized the inequitable features of the Canadian interest assessment regime, including the combined effect of the nondeductibility of interest levied on tax underpayments, the taxable nature of interest on overpayments, as well as the interest-rate differential between the two. "It is only right," Mr. Ezrati noted, "that, where a taxpayer owes one amount to the government and the government owes an offsetting amount to the taxpayer, interest should be imposed only on the net amount of the over- or under-payment." The letter continues, stating that, "when implemented, the proposal will recalibrate the balance between taxpayers and the government in respect of the proper measure of interest on tax re-assessments and thereby foster taxpayer confidence in the equity and fairness of the corporate income tax system." The letter adds that, while salutary, the budget proposal does not entirely address inequitable features of the interest assessment regime, including an anomalous situation posed during the 1997 TEI-Department of Finance annual liaison meeting agenda. (At that meeting, TEI submitted detailed calculations demonstrating how taxpayers can incur substantial interest charges even where a reassessment is made whose purpose is to wholly reverse a prior erroneous assessment by Revenue Canada.) TEI urged the government to continue its efforts to improve the fairness of the interest assessment provisions.

In other comments on the proposal, TEI said that the procedures for invoking the relief accorded by the provision seemed both administrable and fair. In addition, TEI said that the proposed effective date for the provision is confusing and urged its clarification. Under one interpretation of the proposal's effective date, the letter said, "the inequity of the current system would be perpetuated for years as corporate taxpayers would continue to incur excessive interest costs under the current regime until all tax liabilities associated with their pre-2000 taxation year returns are finally determined." TEI commented that this interpretation was likely not intended and urged the Department of Finance to clarify the coming-in-to-force provision to accord the benefit of offsetting of over- and under-payments of tax liability in respect of all taxable periods that are open for assessment or re-assessment for amounts owed by, or refundable to, taxpayers as of and after December 31, 1999.

The Institute's comments were prepared under the aegis of its Canadian Income Tax Committee, whose chair is John M. Allinotte. They are reprinted in this issue, beginning on page 284.
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Publication:Tax Executive
Date:May 1, 1999
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