I am writing to update you on the CBA’s efforts to oppose the proposed elimination of “billed-basis accounting” (BBA) for lawyers and to thank you for providing us with “real life” examples of how the proposal would affect different practice and client groups.
Since I last wrote, we have had meetings with Finance Canada officials to clarify the intended scope and application of the BBA proposal and to raise our serious concerns with respect to the following:
Impact on Access to Justice
While we recognize the Government’s goal of “tax fairness,” the practical effects of the BBA proposal may, absent certain safeguards, reduce access to justice for many Canadians.
We explained that contingency fees, class actions and other types of deferred-payment arrangements increase access to justice by allowing people who have been wronged – and would otherwise not be able to afford it – to seek justice. The BBA proposal may require lawyers to pay tax on income that will not be realized for several years, if at all. This would make it virtually impossible for many to take on certain clients and would render many practices unsustainable. This is particularly true in the areas of personal injury, consumer protection, medical malpractice, family law, wills and estates and collective First Nations issues.
Uncertainty on How to Value WIP
We are seeking clarity from Finance Canada on the following:
- What type of “deferred payment” agreements - contingency, class actions, other - would be exempt from the valuation of WIP?
- What elements will be included in the “cost” of WIP?
- Will “partner/owner” work be excluded from the “cost” of WIP?
- Longer transition period for implementation than the two years currently in the proposal
Disproportionate Impact on Women
We indicated that the BBA measure may have a disproportionate impact on female clients. With the existing income differential between women and men, it is fair to extrapolate that Canadians of modest means may be disproportionately female.
Next Steps
We have been asked to provide written submissions and will produce a technical brief through the Joint CBA – CPA Canada Taxation Committee. We will also develop a policy submission detailing the particular impacts of the proposal on lawyers and our clients. Next steps will be developed once the written material is provided.
It is worth noting that the first Budget Implementation Act was tabled on April 7 and did not include the BBA measure. Because the second Bill is expected in the fall, this gives us more time to influence the final proposal.
In the meantime, we encourage you to continue sending us your thoughts on how this could affect you and your clients. We need to demonstrate the impacts with factual examples.
I will keep you posted as matters evolve.
René J. Basque, Q.C.