Evidence of meeting #64 for Finance in the 39th Parliament, 1st Session. (The original version is on Parliament’s site, as are the minutes.) The winning word was income.
A recording is available from Parliament.
12:50 p.m.
Independent Consulting Analyst, As an Individual
I think I meant Ponzi. If I said “plansi”—maybe that's an interpretation problem.
12:50 p.m.
Conservative
12:50 p.m.
Independent Consulting Analyst, As an Individual
A Ponzi scheme, as we traditionally know it, is usually conducted by a rogue person who goes to the public and says he can pay you 12%, so you'll invest your $50,000, and then he'll go out and find other investors. He doesn't have the means to produce the 12% himself. Perhaps he has it in the bank at 4%. He'll get the extra 8% by collecting it from a new investor and paying it out to you.
It is our view that a substantial proportion of the business income trusts, and to a degree the energy trusts as well, have such a scheme. The only difference is that it has been orchestrated by the investment banks and the industry executives in a more reputable way.
12:50 p.m.
NDP
Judy Wasylycia-Leis NDP Winnipeg North, MB
Thank you, Mr. Chairperson.
There is a lot to say.
First, let me respond quickly to Don Francis, to say that I don't think it really matters who is related to Tommy Douglas. It certainly doesn't matter to me. I'm trying to do my job and speak up for Canadians everywhere, especially hard-working Canadians who want us to make the best decision in terms of good public policy. Tommy Douglas was a guy who ran balanced budgets for 17 years. He would have been the first to see this huge loss of revenue. Just like those following him, Gary Doer and Lorne Calvert, are doing today, he would have spoken in favour of the government's final decision and dealing with this runaway corporate gravy train, not in support of a flip-flop and a broken promise.
I want you to know, Don, that I haven't changed my mind. I've studied the issues. I don't think any critique will make you happy. We have the experts here, and that is what we have to rely on. We have good people like Dianne Urquhart. We have the C.D. Howe Institute. We have financial officials. We have every single premier and finance minister in this country, from all parties.
What I'd like to do is focus on two things. One is Dianne Urquhart's position around dealing with the question of deferred taxes and the impact on tax leakage. We need further clarification, because it keeps coming up.
Second, Mr. Poschmann, I appreciate what you said. I want to ask you this, because we'll deal with this later as we try to develop a report. It seems to me that an income tax credit, which is something that Mr. Mintz has favoured, is not helpful. It will cost a huge amount of money, probably $2.6 billion. I'm wondering if in fact this is a serious position on the part of C.D. Howe.
Perhaps Dianne, and then Mr. Poschmann.
12:50 p.m.
Independent Consulting Analyst, As an Individual
The proposed tax credit attempts to pay back the corporate business taxes to the people who own the corporations in their RRSPs. It's attempting to have both corporations and business tax, not withholding taxes in the form of business taxes. In my opinion, we're essentially reversing where we are on the income trust tax plan. It's also contrary to the treatment of master limited partnerships in the United States. They go the opposite way. When master limited partnerships are owned in an IRA, the shareholder has to pay a tax in order that they are not unfairly advantaged relative to the corporation. So I don't support the tax credit proposed.
If anything were done at all, it would be done the other way. It would be to find some way of record keeping for the dividends and the post-2011 distributions and give it the preferential tax treatment. That way there is less leakage to the government and it would achieve the same end. That's a policy decision.
12:55 p.m.
Director of Research, C.D. Howe Institute
The simple point is that in taxable accounts the dividend tax credit mechanism, as it exists, achieves good integration between corporate and personal taxes. It is imperfectly achieved within the tax-exempts, where common shares are not entitled to the gross-up and tax credit mechanism. Redressing that, as we talked about, is a way of being more neutral with respect to the treatment of holdings within pension funds. Yes, it would cost a certain amount of money. The way, however, to fund that over time is to ensure that the credit paid out lines up with the tax collected by the upstream corporation.
12:55 p.m.
Conservative
The Chair Conservative Brian Pallister
Thank you very much, madam.
We move now to the unfortunate lightning rounds that we have to use to give every member possible a chance to have an exchange with you. We'll move to two-minute rounds.
Mr. McKay.
12:55 p.m.
Liberal
John McKay Liberal Scarborough—Guildwood, ON
I didn't think I'd ever sit in a committee where the NDP complimented the C.D. Howe Institute.
12:55 p.m.
Some hon. members
Oh, oh!
12:55 p.m.
Liberal
John McKay Liberal Scarborough—Guildwood, ON
These are strange bedfellows.
Mr. Francis was referencing a document that has been all blanked out. I want to ask the Finance officials directly, yes or no, will you provide that document to the committee? Bear in mind the injunction of our chair that it's a very short answer, yes or no.
12:55 p.m.
General Director, Tax Legislation Division, Tax Policy Branch, Department of Finance
Mr. Chairman, I believe the question was answered previously with the letter from the deputy minister to the chair of—
12:55 p.m.
General Director, Tax Legislation Division, Tax Policy Branch, Department of Finance
I'm verifying the date, February 6. I'm saying that advice to this government or the previous governments was not something that we're proposing to—
12:55 p.m.
Liberal
John McKay Liberal Scarborough—Guildwood, ON
I take it that's a no.
Mr. Kinnear, your industry and maybe even your business itself have been described this morning as nothing more than a glorified Ponzi scheme. Could you respond to that?
12:55 p.m.
President and Chief Executive Officer, Pengrowth Corporation
Thank you.
Mr. Chair, the business that we have is based on sound fundamental principles. We invest in high-quality oil and gas fields in western Canada and also off the east coast of Canada. Our fund has been in business for over 18 years. As I mentioned earlier, we've consistently operated with the tax rulings from CRA with respect to the operation of this fund. It's been prudently financed. We receive cashflow from those properties on a monthly basis. We both pay distributions to our unitholders, cash distributions on a monthly basis, and we reinvest in property development in the sector.
The interesting thing there is that a number of the major companies now, instead of reinvesting—and there are huge amounts of capital required for our business going forward—are buying back shares. A number of the major multinationals are buying back their securities, whereas we are both making distributions to our unitholders and also making prudent capital investments. We're a world leader in Alberta in CO2 pilot-scale plants. We had one in Swan Hills last year, 22% owned. We had one this year at Judy Creek. We're very active in coalbed methane, new technology to acquire additional amounts of natural gas. We're a leader in enhanced oil recovery in our Judy Creek operations—
12:55 p.m.
Conservative
The Chair Conservative Brian Pallister
I'm sorry to cut you off, Mr. Kinnear, but I must.
Thank you, sir.
Monsieur St-Cyr.
12:55 p.m.
Bloc
Thierry St-Cyr Bloc Jeanne-Le Ber, QC
Thank you very much.
I have a question for Mr. Poschmann. The government has decided to tax income trusts, but the issue of real estate investment trusts has yet to be settled, in my view. Why would real estate investment trusts be tax exempt? If we believe on principle that the corporate structure should not be influenced by taxation, why shouldn't real estate investment trusts be taxed? Since you support the government's position, what is the rationale for this decision?
12:55 p.m.
Director of Research, C.D. Howe Institute
Merci, monsieur.
Merci, monsieur le président.
The simple answer is that the REIT is a little bit different in the sense that it's a passive investment vehicle. It simply did not come into existence in the same way as the modern business trust, or energy trust for that matter.
12:55 p.m.
Bloc
Thierry St-Cyr Bloc Jeanne-Le Ber, QC
I understand, but if they had been taxed much like other income trusts, what impact would this decision have had on their industry?
1 p.m.
Director of Research, C.D. Howe Institute
I would have to respond outside the committee framework on that. Thank you.
1 p.m.
Bloc
Thierry St-Cyr Bloc Jeanne-Le Ber, QC
I see.
Perhaps Finance Department officials can enlighten me on this matter. Why do the government's proposals not apply to real estate investment trusts?
1 p.m.
General Director, Tax Legislation Division, Tax Policy Branch, Department of Finance
I believe the considerations mentioned by Mr. Poschmann are relevant. It has also been noted that real estate investment trusts have largely obtained recognition internationally. The government of the day made changes explicitly for the purpose of facilitating real estate investment trusts in 1994, I believe. Together with the international norm that seemed to be developing and entrenching itself, that led to the decision to not apply the proposals to that sector.
