Finance Committee on Dec. 3rd, 2009

[Marlene Jennings, Liberal, Notre-Dame-de-Grâce—Lachine, QC]

Thank you, Mr. Chair.

I want to thank all the witnesses for being with us today.

I can't tell you how happy I am to meet you and to see that the Standing Committee on Finance is undertaking a study on this issue. I had the pleasure of working on this file with my Bloc Québécois and NDP colleagues as well as with my Liberal colleagues. We worked hard to make sure that the committee would look at this issue.

If I've understood correctly what everyone is saying, the phenomenon of self-employed workers or entrepreneurs is nothing new or temporary. It will continue and will continue to grow.

Mr. Fahey provided data to the committee, on behalf of his association. Unfortunately, I don't have the English version. On page 4, it reads as follows:

In fact, Canada has seen significant growth in self-employment over the last couple of decades, especially among those who incorporated. The 2006 census shows that while there was an 8.5% increase in employees between 2001 and 2006, there was an 18.6% increase in the incorporated self-employed during the same period.

If we look at data that has come out since the beginning of the recession, we note that there are even more people looking for entrepreneurial work.

I'm going to read something to you and I'm going to ask what you think. This is a motion that I gave notice of already in the House. I won't read it in full, because it takes up a full page.

(a) amending subsection 125(7) of the Income Tax Act to include a provision under which a business would not be defined as a "personal services business" if there were a clear "supplier-client" service contract in effect rather than an "employee-employer" contract, regardless of the number of workers employed by the supplier; (b) to amend the Income Tax Act to define a "supplier-client" service contract as one that (i) describes a specific deliverable that the supplier is to provide to the client and stipulates that under no circumstances do the parties intend to establish an employer-employee relationship, (ii) stipulates that neither party may have access to benefits provided by the other's human resources unit, including employee benefits, promotions, training, and career planning;

It goes on to read: "[to establish] a separate tax rate", etc.

I'm going to ask the committee members for permission to distribute this document—it is bilingual—to everyone, including the witnesses.

I know that you haven't seen everything. However, do you think this is something that the government should look at, in consultation with all the stakeholders, in order to see if this might be a solution?This is the 21^st century after all.

[Richard Fahey]

Ms. Jennings, without having read the text of the motion as such, the interpretation by the Canadian courts, be it the Supreme Court or the Federal Tax Court—is very clear. Essentially, there are provisions to deal with fraud or tax evasion.

However, this case is about the way industry imposes operating procedures. To my mind, when there is a contract—and there is a contract between the two—the contract specifically stipulates that it is not an employment contract, that it is a service contract between two corporate bodies. All our revenue agencies, both in Quebec and Ottawa, need to do is respect the contract. That is what they are refusing to do, because they reject the self-employed status.

[Marlene Jennings, Liberal, Notre-Dame-de-Grâce—Lachine, QC]

Would anyone else like to comment? If not, I have other questions.

[Fernand Garceau]

I want to comment.

At present, we know that interpretation bulletins regarding the act have been drafted. The interpretation bulletins contain a host of criteria.

Currently, the biggest problem with the act is the rule about "five employees" which is still in place and which puts self-employed workers at a disadvantage. As long as that rule is in place, the MRQ and the CRA will continue to have the authority to come looking for us, because that is how the act is written.

I believe the interpretation bulletins are useful, and they could clearly help us to resolve our problem more quickly. However, I think that in the longer term, the act must be amended and the rule about the "five employees" must be removed, because it truly discriminates against us. Currently, because of the "five employees" rule, we are treated differently from large corporations. They can do what they want. At present, they can change the interpretation bulletin, and in a year, because they might need more money, they can set up a new contract. We will end up facing the same problem.

[The Chair, Conservative, James Rajotte]

You have 30 seconds left.

[Marlene Jennings, Liberal, Notre-Dame-de-Grâce—Lachine, QC]

I will give others the floor.

[The Chair, Conservative, James Rajotte]

Mr. Laforest, go ahead.

[Jean-Yves Laforest, Bloc, Saint-Maurice—Champlain, QC]

Thank you, Mr. Chairman. I will be sharing my time with my colleague Mr. Paillé.

Thank you for coming and presenting your different points of view. They enable us to see that there is indeed quite a range in the understanding and definition of your different statuses, among other things.

Mr. Leblanc and Mr. Sabourin, you both talked about the definition. You also talked about the large companies that basically force the contractors they hire to be incorporated.

That goes back to what Ms. Jennings was saying. Shouldn't the solution involve those who are handing out the work who would make a statement regarding the details of the contract? In your view, shouldn't that be the approach? You put that forth as a potential solution.

[Patrice Leblanc]

[Editor's Note: Inaudible] we don't need to do that. It is clear that if the act were amended, that would not be necessary.

[Jean-Yves Laforest, Bloc, Saint-Maurice—Champlain, QC]

Mr. Garceau, you stated, for your part, that no work was being done under the table with your various clients, in terms of what you receive from them.

[Fernand Garceau]

That is correct.

[Jean-Yves Laforest, Bloc, Saint-Maurice—Champlain, QC]

You are presenting one point of view. I'm asking you the question, but it is also related to what Mr. Fahey was saying with respect to all members of the Canadian Federation of Independent Business.

Do you get the impression that undeclared work is a consideration for the various revenue agencies or the Canada Revenue Agency? Would their assessment of the number of people working under the table for large companies contribute to creating solutions like those they brought forth in 2006?

[Fernand Garceau]

I cannot speak for other specialties, because everyone knows that there is undeclared work happening everywhere. However, in our field, IT, it is impossible, especially because we work with large companies, because we work on large computer systems.

Earlier on, I was referring to equipment. The only thing we make use of is our brain power to be able to use... We use the equipment that is there, but it is thanks to our brain power that we operate things.

So, it is impossible for clandestine work to be happening in our field because we are always billing the client. Everything is set up in this manner. The same applies to our expenses, everything is there. For our part, undeclared work, as far as I'm concerned is non-existent, for sure. I would say that for most IT professionals, very little of that must be happening, if at all.

[Jean-Yves Laforest, Bloc, Saint-Maurice—Champlain, QC]

Are there other people doing the same work as you who have not been advised of the changes?

[Richard Fahey]

Certainly. Also, IT professionals are not the only ones being sued. Today, you are hearing the situation for people in IT because it is the most striking aberration, in our opinion, given the structure of our industry.

There are certainly other self-employed workers who are being denied self-employed status, who are considered employees and who are being assessed by revenue agencies. That is clear.

[Jean-Yves Laforest, Bloc, Saint-Maurice—Champlain, QC]

Are there some who avoid it? I'm looking at the issue from the other side. It is an issue of fairness as well.

[Paul-André Robitaille]

From an IT perspective, in our field, it's as though a sample had been taken. Personally, I'm a member of the Association québécoise des informaticiennes et des informaticiens indépendants, the AQIII, which is the largest in Quebec, I believe, representing over 1,000 self-employed professionals like myself.

When I talked about this, when it happened, people assumed that if I had been fingered by tax authorities it was because I had tried to pull something. The authorities cannot just show up like that. Listen, you! We need to talk. So, I was allowed to present my personal case to the AQIII board. From that point on the AQIII got involved because it realized that if I were considered guilty, it was possible that 95% of our members were, because my record as a businessman is exemplary.

[Jean-Yves Laforest, Bloc, Saint-Maurice—Champlain, QC]

Thank you.

Mr. Paillé.

[Daniel Paillé, Bloc, Hochelaga, QC]

On that point, other professions will probably end up in the mousetrap at some point.

I believe the problem was mainly due to having only one client, and not related to having five employees or less. From what I understand of your presentation these two aspects are the problem.

Given the fact that time has passed quickly, I also get the impression that we are facing interpretation problems, that the Quebec Revenue Ministry and the Canada Revenue Agency interpret the law in a narrow, strict and very conservative manner.

Do you not believe that some indication as to another way of interpreting the law could suffice? Is it necessary to change the legislation?

The problem I foresee, considering your situation, the notices of assessment you've received and the interest you have accumulated, is that you will all have gone bankrupt before any change is brought in, given the slow pace of government change. The tides move very slowly, if you will. That is what I fear.

Do not all answer at once.

[Jean-Pierre Mathieu]

With respect to the number of clients per year, when I met with revenue department officials and I mentioned, for instance, that I could have two clients at the same time, in other words work two days at one client's and three days at another's, I was told that there were employees working two days at one employer and three days at another, and that they were considered employees.

I asked another question wondering what would happen if I were to work three months for one client and have a four-month contract with another, and then another contract for the rest of the year. I was told that there were people who would go from one employer to the next over the year, and that they were considered employees.

No matter what we do, we are always being told that we are employees.

[The Chair, Conservative, James Rajotte]

Merci.

Mr. Sabourin has had his hand up for some time.

Monsieur Paillé, the time is up, but can we have Monsieur Sabourin and Monsieur Garceau, brièvement, s'il vous plaît?

[Mario Sabourin]

Briefly, these things aren't mutually exclusive, and nothing prevents you from doing both: you could ask officials to give people more leeway, and you could also bring in amendments. I quickly looked at the proposal we have before us, Ms. Jennings' motion; it seems excellent to me, and it could solve a number of problems.

I would also like to get back to what this gentleman was saying earlier on, in that some people are working under the table. Some are self-employed by choice. They decide to be self-employed, it is a choice, and they proceed. The information they receive, with respect to legislation, labour standards, the CSST, the Income Tax Act, and the definitions are not the same. It creates a problem for the revenue agencies. In other cases, it is the person offering work who finds a way for people who should be employees to operate as though they were self-employed. However, the fallout always affects the self-employed individual, never the person trying to conceal the situation.

[The Chair, Conservative, James Rajotte]

Thank you.

Mr. Garceau, briefly, if you will.

[Fernand Garceau]

Recently, I had a discussion with the CRA auditor, because I had losses in 2008 which I carried over to the year 2005. At some point in the discussion, I told this lady that it was very difficult to fight the government bureaucracy. She told me that their goal was to find new evidence against the self-employed group to establish a standard case and pursue assessments. It was clear based on her comments.

So, what is very clear is that they will come up with a second Carreau case. Obviously, there are only approximately 50 or so assessees today. They have put a stop to assessments and they are going to court. They will stall things until such time as they go to court. When that happens, they will move to the next step: assess the others and get them to pay.

[The Chair, Conservative, James Rajotte]

Merci beaucoup.

We'll go to Mr. Wallace, please.