Canada’s Budget Modernization Will Cause Headaches for Tax Pros

The Canadian government’s plan to modernize its budgeting process, including moving the annual release of the Canadian federal budget to the fall, may have good intentions. However, improving the lives of Canadian tax professionals doesn’t appear to have been among them.

This seemingly innocuous change of date may create some headaches in the Canadian tax community.

The annual Canadian federal budget is, among other things, traditionally the vehicle by which the government announces the most significant tax changes that will be made in the year, and tax professionals always closely watch the event for new developments.

Until now, the budget has normally been released in the February through April time period (though there have been a few exceptions). This spring timing was convenient from a tax practice perspective.

Having tax announcements come early in the calendar year meant there was significant time to consider the new tax rules before they needed to be reflected on tax returns for taxpayers with typical Dec. 31 tax year-ends.

With a fall budget, there will be much less time for reflection. The government’s practice of only describing many tax changes at a high level in the federal budget, with detailed legislation following later once the Department of Finance had been able to draft it—sometimes many months later—will exacerbate the timing concern.

If the government continues to follow a similar practice with a November or December federal budget announcement, fully worked-out legislation likely wouldn’t be available by the time that year-end tax compliance decisions about any newly announced rules needed to be made.

The government could try to mitigate this issue by front-loading more of the legislative drafting work to allow more complete legislation to be released along with the annual budget. But this won’t always be possible.

The details of unannounced future tax changes can be highly confidential and market-sensitive information, which the government will want to restrict to a small circle of individuals, limiting the ability to mobilize legislative drafting resources in advance.

The government also often solicits feedback from the tax community as part of the drafting process, which obviously can’t happen before the public announcement.

The government also could shift more tax announcements to occur independently of the budget, but it may be difficult for the government to provide a clear fiscal picture of the coming year without describing the taxes that will fund it.

We understand that the budget “lock-up” for the upcoming budget (where tax professionals can obtain advanced access to the budget while remaining incommunicado) will only last three hours, significantly shorter than usual. Whether that reflects a smaller volume of budget announcements, or an increased expectation about how quickly the locked-up professionals can digest them, remains to be seen.

A November or December federal budget would be particularly tough for Canadian tax professionals, as it will land it what is already normally the busiest stretch of the tax year—which along with the normal flow of work, includes year-end transactions, major conferences, holidays, and other events.

As always, it will be advisable to avoid carrying out any major Canadian transactions on budget day itself (Nov. 4), and taxpayers may want to budget for increased volatility in their year-end planning, in light of changes emanating from the federal budget.

This article does not necessarily reflect the opinion of Bloomberg Industry Group, Inc., the publisher of Bloomberg Law and Bloomberg Tax, or its owners.

Author Information

Ian Caines is partner at Davies Ward Phillips & Vineberg, focused on domestic and international income tax law.

Sabina Han is partner at Davies, focused on Canadian commodity tax matters.

Michael Kandev is partner at Davies, focused on transactional taxes.

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