Finance Committee on March 12th, 2008

[The Chair, Conservative, Rob Merrifield]

I think there's a difference. We understand it. Okay with that?

[Dean Del Mastro, Conservative, Peterborough, ON]

You should know what you're speaking about, Garth.

[The Chair, Conservative, Rob Merrifield]

With that, we'll ask the minister to open with a few comments and then we'll go into the questions and answers.

Mr. O'Connor, the floor is yours.

[Gordon O'Connor, Conservative, Minister of National Revenue]

I want to thank you for the opportunity to provide members with information regarding a remission order granted to certain former employees of SDL Optics Incorporated on October 25, 2007.

As has been pointed out, I understand the motion says SDL Optical, but I believe it means SDL Optics, and also refers to stock options when it actually involves stock purchase plans. These are important distinctions, as I did not recommend a remission order for a stock option plan at SDL Optical. If these assumptions are correct, then we can continue here today.

[The Chair, Conservative, Rob Merrifield]

Let's assume they are.

[Gordon O'Connor, Conservative, Carleton—Mississippi Mills, ON]

Okay.

To start, I would ask the members of the committee to remember that even though a remission order has been provided to certain individuals, I am still required to respect the confidentiality provisions of the Income Tax Act. I want to thank members in advance for respecting the limitations that this may place on my remarks here today.

I would like to provide members with a quick overview of how the remission process works and then continue with some details about the remission order for SDL Optics employees.

Remission orders are provided for under the Financial Administration Act.

Through the remission process, the FAA allows the Government to provide full or partial relief from a tax where it considers the collection of tax to be unreasonable or unjust, or that it is in the public interest to remit the tax.

It is a requirement under the FAA that every remission order be recommended by the responsible minister. It is then up to a group of ministers, usually Treasury Board ministers, to make a final determination on behalf of the government as to the merit of a remission request. If ministers agree that remission is warranted, they approve that remission and the Governor General signs the remission order.

One of the features of remission orders is that they are transparent. All remission orders are published in the Canada Gazette, where all Canadians can see them.

As the minister responsible for the Canada Revenue Agency, any tax remission orders coming from the CRA must be recommended by me. Since becoming Minister of National Revenue, I have recommended remission five times, including the order we are discussing today. I will make a few comments about this particular remission order.

There are some key factors that gave me cause to believe that relief was warranted. For starters, the individuals affected were employees of a company that offered a stock purchase plan, but a stock purchase plan with specific features. The SDL plan offered employees the opportunity to purchase shares at a discounted price. In other words, at the time they signed up to buy shares, the shares were priced below market value. As a result of this discount, these individuals were not entitled to a tax deduction that other individuals who participate in share purchase plans and stock option plans are able to claim.

The effect of this tax deduction is to have the employment taxed at a rate equal to the capital gains inclusion rate. It therefore has a significant impact on overall tax liability. That, combined with their financial circumstances--which members will appreciate I am not at liberty to discuss--provided sufficient cause for me to recommend relief.

Members of the committee may ask why this group of employees, and will remission be available to others in similar circumstances. My answer to you is that each remission request has its own specifics and is assessed on its merits. If a taxpayer has the same circumstances as SDL employees, I would suggest that they make a request to the CRA with the relevant facts of their case.

Beyond the remission order, our government is examining the circumstances that led to the situation faced by this group of employees. I've stated in the House of Commons that our government is conducting a review to determine if change is necessary. This will take some time, as I hope committee members will appreciate.

Canadians have every right to expect fairness and consistency from the federal government when it comes to their taxes. None of us expect to pay any more than what we have been fairly assessed, that is the hallmark of an effective and fair system.

As a government, we have based three consecutive budgets and our economic statements on tax fairness. Ensuring that our tax laws are fair and that we are not overtaxing Canadians is a major priority for our government.

Our government has also put in place a taxpayer bill of rights. The taxpayer bill of rights is a corporate policy direction introduced by my predecessor to guide the Canada Revenue Agency in service of our clients. The 15 rights range from service in Canada's two official languages, to published service standards, to consistency and fairness under the law. Governments must never lose sight of the fact that it is taxpayers' dollars that fund our programs and make governments work.

As a government, we must have the common sense to correct problems, even if it is amending minor amounts when government policy unintentionally hurts our citizens. That is what we did with this remission order, and that's why I stand behind it today.

Thank you.

[The Chair, Conservative, Rob Merrifield]

Thank you very much.

We'll now open it up to questions and answers. We'll start with Mr. Turner, for seven minutes.

[Garth Turner, Liberal, Halton, ON]

Thank you.

Minister, thank you very much for coming here today. We appreciate your time and your statement. Thank you.

I have a few questions. As you may know, there are three current or former revenue ministers in this room, and all of us have been in a similar situation wherein taxpayers have asked for forgiveness for one good reason or another. Every time that happened to me, in the brief period I was doing it, the deputy minister would slap me down and tell me it was not a good idea. I understand that your deputy minister here did the same thing.

Very quickly, because our time is limited, you said in your statement that if taxpayers have similar circumstances to these employees, they should get in touch with CRA. It sounds like they may have a hopeful case. Can you just quickly give two or three points on which taxpayers, in what situations, should contact you?

[Gordon O'Connor, Conservative, Carleton—Mississippi Mills, ON]

In the circumstance I'm talking about, it involves stock purchase plans. The purchases would have to be below market value so that they could not take advantage of the capital gains deduction. And then we'd have to look at their financial situations and at what occurred.

[Garth Turner, Liberal, Halton, ON]

Do you have any idea how many taxpayers there are in that particular situation in this country?

[Gordon O'Connor, Conservative, Carleton—Mississippi Mills, ON]

No, I haven't.

[Garth Turner, Liberal, Halton, ON]

All right. Well, maybe you'll find out soon.

[Gordon O'Connor, Conservative, Carleton—Mississippi Mills, ON]

Maybe.

[Garth Turner, Liberal, Halton, ON]

You said that one of the two conditions, which you just spelled out, that you would take into account was the financial situation of the taxpayer. Is that correct? I notice that Sandra Woodward was forgiven $3.30 under this remission order. What was her particular financial circumstance that did not allow her to pay $3.30?

[Gordon O'Connor, Conservative, Carleton—Mississippi Mills, ON]

That's one of the reasons. It doesn't necessarily mean that in her case she couldn't afford to pay the $3. I can't get into all the details, but one of the factors is if someone didn't lose any money at all in this venture and ended up with net profits. That would be one of the factors we would have to look at.

[Garth Turner, Liberal, Halton, ON]

All right. I find that curious then, because Penny Taylor was forgiven $28.91, and there are others for relatively insignificant amounts. It strikes me that this is pretty dangerous when you're forgiving somebody $3.30, when your own deputy minister, I'm sure, told you that this opens up CRA and the Government of Canada to lawsuits from those people who may feel that they are in similar situations.

Has the Government of Canada established a contingency for lawsuits arising from this particular remission order?

[Gordon O'Connor, Conservative, Carleton—Mississippi Mills, ON]

As I said before, if people have the same circumstances, they can apply to CRA for a remission. Their cases will be considered. I have no idea if there is anyone out there with the same circumstances. If there is, the Government of Canada will look at them and deal with them as carefully as possible. I have no idea how many people are out there in the same circumstances.

[Garth Turner, Liberal, Halton, ON]

Thank you.

You rightly noted in your remarks that we have a taxpayer bill of rights--

[Dean Del Mastro, Conservative, Peterborough, ON]

Point of order, Mr. Chair.

[Garth Turner, Liberal, Halton, ON]

What is the point of order?

[The Chair, Conservative, Rob Merrifield]

Okay, let's hear if it's a point of order.

[Dean Del Mastro, Conservative, Peterborough, ON]

I would just ask that he direct his questions to the chair, and stop referring to the minister as “you”.

[The Chair, Conservative, Rob Merrifield]

That's fine. That's not a point of order.

Go ahead, Mr. Turner.

[Garth Turner, Liberal, Halton, ON]

The minister has clearly stated that our taxpayer bill of rights says that you have the right to have the law applied consistently. Do you feel that the law has been consistently applied because of this remission order? You just said that you didn't know how many taxpayers would be in a similar circumstance. So how can it be a consistent application?

[Gordon O'Connor, Conservative, Carleton—Mississippi Mills, ON]

As you know, as a former revenue minister, our whole tax system is based on voluntary disclosure. Each of us, and I think there are about 25 million or 26 million of us, submit our tax returns each year. The corporations, and I think there are 1.6 million corporations, do the same thing.

We, the government, do not go out and seek how many taxpayers there are or what their income is. The taxpayers report it to us. So any individuals, beyond this case, who feel that they are not being treated properly within the tax system have the right to approach CRA at no cost and have their cases reviewed.