Exploring The Ethics Of Tax Planning In Canada

Tax professionals such as accountants, tax preparation specialists, and Canadian tax attorneys must adhere to a strict set of professional ethics. These individuals are subject to the ethical standards of their profession not only when calculating taxes, but when providing guidance to individuals or businesses on tax planning in Canada. The experienced tax attorneys with Jeremy Scott Law take these ethical standards into account in every financial analysis and recommendation. To seek legal tax planning advice for your enterprise, call (902) 403-7201 today and schedule a consultation to discuss your business tax planning and compliance needs.

What Are the Professional Ethics in Tax Practice?

Attorneys follow a different set of ethical guidelines from Chartered Professional Accountants (CPAs). CPAs must follow the profession’sCPA Code of Conduct (“Code”), also referred to as the Rules of Professional Conduct. This document addresses each CPA’s obligations to their clients, peers, and colleagues, and lays out expectations for CPAs regarding:

• Objectivity
• Professional standards of behavior
• Client confidentiality
• Professional competence and skill
• Due care and integrity

Canadian tax attorneys also have a code of professional ethics to which they must adhere. The Federation of Law Societies in Canada lists aModel Code of Professional Conduct, specifying the manner in which licensed attorneys in Canada should conduct themselves, the details of solicitor-client privilege, and requirements for attorney-client interactions.

Some highlights from the Code include:

• Establishing standards for integrity, including adhering to standards for trustworthiness and avoiding possible behavior that could create a sense of distrust with clients or the general public
• Encouraging attorneys to grow the profession through commentary and professional publications or exchange of information
• Establishing an expectation of competent service to all clients, including timely response, levels of service, and applying the law to all relevant facts

Whether you are seeking professional tax-planning services for yourself or your business, it is critical to work with a tax professional who takes their ethical obligations seriously. Their commitment to ethics means that your own tax preparation will be completed according to both the letter and the spirit of Canadian tax laws.

What Is the Primary Ethical Theory for Canadian Tax Professionals?

Ethical conduct on the part of each individual reflects on the overall conduct of the entire profession. Licensed accountants and tax attorneys alike should ensure that their advice serves the interests of their clients while adhering to current laws governing tax planning in Canada.

Tax systems can be complex, and some practitioners may find themselves struggling to navigate the profession’s gray areas. According to a 2016 article published in the Journal of Business Ethics, the concepts of Deontology and Consequentialism can be most accurately applied to ethical tax preparation, both on the part of the tax attorney and that of the client.

What Are Deontology and Consequentialism and How Do They Apply to the Ethics of Tax Planning?

Determining whether an action is morally right may be judged using a “categorical imperative,” a test of whether an action may be universally agreed to be moral or immoral. When put into practice, the question may sometimes be posed as, “Does the end justify the means?”

Philosophy in Professional Guides to Conduct

Tax professionals seeking to apply either of these to tax planning or preparation on behalf of their clients may look at the ends: “Does this tax strategy or other action serve my client’s interests best?” and then determine if the means to get there fall within accepted professional standards, such as avoiding aggressive or abusive tax planning strategies.

Generally speaking, the professional standards set by the CPA Code of Conduct and the Model Code of Professional Conduct reflect a consensus that any ethical or philosophical theory applied by tax professionals should avoid a mindset of “the ends justify the means.” Tax attorneys should provide clients with advice and due diligence that advances the clients’ interests, but should avoid unethical or overly aggressive strategies that fall into the morally ambiguous penumbras of tax law.

Professional Ethics and Obligations to Clients

Another consideration of the ethics and moral philosophy of tax planning concerns the wishes of the client. Some clients may ask for certain actions that may skirt the letter or spirit of the law. How does an ethical tax attorney respond? At times, a CPA or tax attorney abiding by the ethical standards established for their profession will find themselves obligated to reject clients’ requests. Telling clients “no” can feel like a risky maneuver, but, in general, business owners and managers who value fair dealing can understand that a tax professional’s adherence to ethical standards ultimately serves their interests by keeping their tax planning in compliance with relevant Canadian tax laws.

What Is Considered Ethical Behavior for Canadian Accountants?

Ethical behavior for Canadian accountants focuses on providing advice that is tailored to the client’s best interest, working with the client to achieve their financial goals. However, in the course of providing this advice, the tax professional must also follow current Canadian tax laws. If your tax professional does not take their ethical and legal obligations seriously, you, as the client, could end up under scrutiny from the Canada Revenue Agency (CRA), possibly owing fines or back taxes.

The confidentiality of the attorney-client relationship is also paramount. Tax attorneys (and, by extension, any legal support staff employed by the tax attorney) must preserve the confidentiality of their clients, releasing information only as directed by the client or as required by Canadian laws. When you work with an ethical tax planning attorney, you can rest assured your private information remains private.

Professional Ethics and Canadian Sales Taxes

Canada employs a two-tiered sales tax system comprised of GST, at the federal level, and PST, TST, or HST at the provincial or territorial level. Provinces that have opted to “harmonize” their sales taxes with the federal GST charge businesses a single, unified amount, although the percentage of sales revenue charged varies according to the amount levied by the province. Business owners in these provinces need calculate only a single tax to account for both federal and provincial sales taxes, while Canadian entrepreneurs in non-harmonized provinces and territories must calculate two separate sales taxes, in addition to any local sales taxes imposed by a municipal government.

Across Canada, the complexities of the “zero-rating” system, the criteria for tax exemptions for some goods and services – and the circumstances under which they apply to certain businesses – and the advantages, but also compliance requirements, attendant on the calculation of input tax credits, all serve to make Canadian sales tax an important focus of ethical obligation and conscience for tax professionals. Canadian accountants and tax attorneys are often tasked with assessing their clients’ eligibility for tax exemptions, identifying the goods and services that fall into a “zero-rating” category, and accurately calculating the number of input tax credits their clients can claim. Given the high stakes, for clients, of even small errors in sales tax assessments, and the fact that sales tax questions become even more complicated when a business operates in multiple provinces or territories, there is little wonder that tax professionals in Canada devote considerable thought and energy to continually reviewing the latest sales tax guidance from the CRA and watching their clients’ accounts for any sign of a misstep in sales tax compliance.

What Are Some Ethical Issues That a Tax Preparer Must Consider When Filing Taxes?

The CRA looks askance at certain aggressive tax preparation strategies or pushing legal limits. The agency makes a distinction between “abusive” or aggressive tax planning and acceptable strategies tax attorneys may create for their corporate clients.

The CRA encourages Canadian tax attorneys to consider the spirit of tax laws, rather than attempting to skirt their legal limits. The CRA notes that certain tax strategies may be a deliberate attempt to avoid paying the required tax amount, and therefore, these arrangements may violate Canadian tax law. Part of a tax attorney’s job is to ensure that any tax planning strategy for their corporate clients follows both the letter and the spirit of Canadian tax laws. An ethical professional can help a business owner reduce their tax burden through smart tax planning strategies without placing their client in potential trouble with the CRA.

Do You Need Professional Legal Tax Advice?

The tax attorneys at Jeremy Scott Law are committed to adhering to the highest levels of professional ethics for tax planning and preparation. Ethical tax planning embraces comprehensive tax advice and legal services, including preparing purchase agreements, reviewing your entity’s tax efficiency, and completing due diligence on behalf of your business. Call (902) 403-7201 today to schedule a consultation for tax planning in Canada.