Ottawa plans to eliminate tax exemption for farm property insurers, amend anti-money laundering laws

The federal government said Wednesday it is proposing to eliminate a tax exemption introduced in 1954 for insurance carriers providing property insurance for farming and fishing properties.

In its budget document, the ruling Liberals suggested they want to give the Financial Transactions and Reports Analysis Centre of Canada (FINTRAC) the authority to share information with Canada’s military.

“With the increased sophistication today of the Canadian financial sector, insurance companies-including mutual companies-are well placed to effectively underwrite farming and fishing risks,” the ruling Liberals stated in their budget document for 2017-18 fiscal year, tabled March 22 in the House of Commons.

Section 149 of the federal Income Tax Act essentially stipulates that an insurer is exempt from paying income tax if the insurer covers “property used in farming or fishing or residences of farmers or fishermen.”

The exemption “was introduced in 1954 to encourage the provision of insurance in rural districts,” the federal government said in the budget document released Wednesday.

The budget document “states that it includes measures that close perceived tax loopholes, improve tax relief for the middle class, and eliminate tax measures that are considered by the government to be ineffective and inefficient, and to disproportionately benefit the wealthy,” law firm Osler Hoskin and Harcourt LLP said on its website.

The ruling Liberals are also promising changes to Canada’s money laundering and anti-terrorism laws.

With the passage in 2000 of the Proceeds of Crime (Money Laundering) and Terrorist Financing Act, the federal government established FINTRAC, which aims to detect “unusual patterns of transactions that resemble money laundering or terrorist financing activity.”

The law imposes reporting and record-keeping requirements on several categories of businesses, including life insurance companies, brokers or independent agents and securities dealers.

Among the transactions that must be reported to FINTRAC are transfers of $10,000 or more in cash or by electronic funds transfer, in a single transaction or in multiple transactions over 24 hours.

FINTRAC can share information with several organizations, including Canadian Security Intelligence Service and the Egmont Group of Financial Intelligence Units, which includes the United States Treasury Department’s Financial Crimes Enforcement Network (FinCEN) and Britain’s National Crime Agency, among others.

In its budget document tabled March 22, the Liberals say they plan to table legislation amending the law such that the list of organizations who could receive information on “financial intelligence related to threats to the security of Canada” would include the Department of National Defence and the Canadian Armed Forces.  The government also suggested it would table legislation to “support more effective intelligence on beneficial owners of legal entities.”

In 2015, the Security of Canada Information Sharing Act – tabled by the Conservative government that was in power until October of that year – was passed into law. Federal institutions may now share information with certain other federal institutions when the information they are sharing pertains to “activities that undermine the security of Canada, including in respect of their detection, identification, analysis, prevention, investigation or disruption.”

The organizations with whom that information can be shared include the Department of National Defence, the RCMP, Canadian Security Intelligence Service, Communications Security Establishment, Canada Border Services Agency, Canada Revenue Agency and FINTRAC.

In February, 2015, the Supreme Court of Canada struck down part of the Proceeds of Crime (Money Laundering) and Terrorist Financing Act.

In its ruling in Canada (Attorney General) v. Federation of Law Societies of Canada, Canada’s highest court found that Section 64 of the law “is of no force or effect,” and that Sections 62 , 63  and 63.1  “should be read down so that they do not apply to documents in the possession of legal counsel or in law office premises.”

The law requires “lawyers to identify persons and entities on whose behalf they act as financial intermediaries,” Mr. Justice Thomas Cromwell of the Supreme Court of Canada wrote in Canada (Attorney General) v. Federation of Law Societies of Canada. “In summary, a lawyer must verify the identity of persons or entities on whose behalf the lawyer receives or pays funds other than in respect of professional fees, disbursements, expenses or bail. There are detailed rules about how to do this verification upon receipt of $3,000 or more.”

A British Columbia court had ruled in favour of the Federation of Law Societies of Canada, which argued at the time that several sections of the violated the freedom, under the Charter of Rights and Freedoms, against unreasonable search and seizure.

The law stipulates that “where a lawyer claims a document in his or her possession is subject to solicitor-client privilege it cannot be examined or copied,” Justice Cromwell wrote. “However, this provision requires the lawyer to seal, identify and retain the document and to claim privilege in court within 14 days. FINTRAC has the authority under the regime to disclose to law enforcement information of which it becomes aware under the search provisions if it suspects that it would be relevant to investigating or prosecuting an offence arising out of a contravention of the verification or record keeping obligations.”

The law authorizes “sweeping searches of law offices which inherently risks breaching solicitor-client privilege,” Justice Cromwell found. “These provisions wrongly transfer the burden of protecting solicitor-client privilege to lawyers. Nothing requires notice to clients and a client may not be aware that his or her privilege is threatened. There is no protocol for independent legal intervention when it is not feasible to notify a client.”

In its budget document for 2017-18, the federal government said Canada’s anti-money laundering and anti-terrorist financing laws “are regularly reviewed to ensure they meet the objectives of detecting and deterring money laundering and terrorist financing activities, while balancing rights under the Canadian Charter of Rights and Freedoms and privacy concerns.”