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On Sept. 25, 1962, a Royal Commission on Taxation was appointed by the federal government, headed by Kenneth Carter. It was on Feb. 24, 1967 – almost five years later – that the Commission tabled its report. The central idea of the Carter report was that the purpose of the tax system was to raise revenue equitably; to share the burden of the state fairly among all individuals and families. Specifically, "fair" meant taxing the wealthy more highly, and reducing the burden on the middle class. Sound familiar?

There was a historical and unprecedented debate on tax reform that took place in Canada between the tabling of the report in February, 1967, and the passage of the legislation three years later. The changes became effective Jan. 1, 1972, almost 10 years after the commission was established to make recommendations in the first place.

Why the lengthy process? The changes were significant. They represented an overhaul of our tax system. At the time, the Commission, Department of Finance, tax practitioners, academics, economists and Canadians at large recognized the impact that changes to our tax system would have on economic growth, the incentive for Canadians to work, to establish businesses, to invest and on the "brain drain" – a term used even at that time to express the tendency for intelligent, mobile Canadians to leave the country for greener tax pastures and higher incomes. The changes were serious stuff. A meaningful period of discussion was warranted. The proposals dominated public-policy discussion in Canada for several years.

Fast-forward to this week. Oct. 2 was an important day. It was the deadline for Canadians to submit comments on tax proposals put forth by the Liberals on July 18. While these proposals fall short of being as comprehensive as the 1972 reform, they do represent the most significant changes to our tax law that we have seen in decades.

Unlike the thorough discussion that took place in the 1960s, Canadians and their advisers have had just 75 days to comment on the proposals. Combine this with the fact the proposals were released in the dead of summer when half the country wasn't looking, a reasonable person may conclude that the Liberals don't really want much discussion about it all.

The 75-day period was enough time for thousands of submissions, many of which simply point out some of the problems with the proposals. Few of which, that I have seen, propose effective solutions. Why so short on solutions? Two reasons: First, the issues are complex. Even the Department of Finance is having a tough time figuring out how to solve some of the Liberals' concerns. "We're still struggling to find another approach to this," Brian Ernewein, general director of legislation in the department's tax policy branch told the Senate national finance committee on Tuesday in relation to some of the proposals.

Second, the Liberals have not been clear enough about their objectives. Oh sure, we understand they want to curb three specific tax-planning ideas. We also understand they want to take from the 1 per cent and give to the middle class. But the July 18 proposals raise plenty of questions about what the Liberals are really trying to achieve, because there are so many things about the proposals that don't make sense.

For example, are they concerned primarily about professional corporations (which seems to be the case) or all small businesses regardless of industry or income level? Does the government want to better enable all business owners to keep the business in the family, or are they content to see venture-capital firms, foreign conglomerates, or other outside parties buy these businesses? Do they want to provide special help to family farms? Do they intend to penalize savings inside a corporation even where that capital may be needed in, say, 10 years for the business? Do they want to stop income splitting for all business owners, or just the 1 per cent who are the highest income earners? I could go on.

If we had greater clarity on answers to these questions, and others, we could propose the best solutions for consideration. A 75-day consultation period on issues this complex, with so many unanswered questions, and that have the potential to significantly affect small businesses, their employees, economic growth, the incentive to establish businesses, to invest, the extent of "brain drain" and more, is completely inappropriate.

The Liberals should do what's right: Follow the lead of tax reform in the past and go slow to get it right. Make it clear to all the full extent of the objectives to be achieved and start a legitimate consultation period to get the best ideas possible from economists, tax professionals and Canadians at large.

Tim Cestnick, FCPA, FCA, CPA(IL), CFP, TEP, is an author and founder of WaterStreet Family Offices.

Finance Minister Bill Morneau says there is misinformation circulating about the likely impacts of Ottawa’s tax reform plans. The proposed changes have drawn criticism from those who use incorporation to reduce their tax burden.

The Canadian Press

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