The decision of the government to make most fines and penalties non-deductible as business expenses is the culmination of a very long story and a major assist should (for better or worse) be given to the NDP. Almost 30 years ago (indeed, it was the first case we ever wrote about in the Post), the Federal Court of Appeal decided in the case of Day & Ross trucking that if a fine was incurred as a result of carrying on normal business operations, it could be deducted as a business expense. The tax authorities did an Interpretation Bulletin that tried to weave its way around the decision, but in practical terms the attempt had no real impact. Fines remained deductible. More than 20 years later, the same issue came before the Supreme Court of Canada, which in 1999, decided once again that in the correct business context, fines could be treated as a business expense. Almost three years after this decision, on April 22, 2002, the issue of deducting fines was raised in the Commons by Pat Martin, the NDP Member from Winnipeg Centre. Martin specifically made reference to fines paid by those breaching environmental laws. The then Minister of National Revenue, Elinor Caplan, said that the matter would be "reviewed." Since that time, we had almost complete silence on the topic. Now, in the March 23 budget, the government had this to say with regard to the proposal to make fines non-deductible. "This measure will apply to fines and penalties imposed by a government, government agency, regulator, court or other tribunal, or any other person having statutory authority to levy the fine or penalty in question. This will ensure, for example, that a business cannot deduct a fine levied under an environmental protection law." The reference in the explanation to "environmental law" is in fact the direct link back to the mini-campaign waged by the NDP in 2002. We were always cognizant of the public-policy rationale for not allowing fines to be deductible, though we also believed that the courts were completely correct in their interpretation of the law. Without actual legislation, we felt that in most business contexts, fines were deductible. It is hard to argue against this proposal. The idea that taxpayers should get a tax break for fines when they knowingly breached the law (and the decided cases involved knowledge, not simple oversight) never struck us as good tax policy. It has taken the better part of 30 years for the Department of Finance to act ... but finally they apparently put their minds to the issue. Those businesses that are prepared to break the law (by running overweight trucks on the highways, for example) in order to generate income more efficiently will now have to factor in the full price of non-compliance. It is a step forward.
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