It is ways and means.
Evidence of meeting #69 for Finance in the 40th Parliament, 2nd Session. (The original version is on Parliament’s site, as are the minutes.) The winning word was employee.
A recording is available from Parliament.
Evidence of meeting #69 for Finance in the 40th Parliament, 2nd Session. (The original version is on Parliament’s site, as are the minutes.) The winning word was employee.
A recording is available from Parliament.
1:20 p.m.
An hon. member
It is ways and means.
1:20 p.m.
Conservative
The Chair Conservative James Rajotte
I do need unanimous consent to proceed when the bells go. Do I have that consent?
Let me explain this. When there are bells, we have to stop the meeting, unless there is unanimous consent to proceed with the meeting.
1:20 p.m.
An hon. member
We'll come back after. We can't take a chance on this.
1:20 p.m.
Conservative
The Chair Conservative James Rajotte
There is no unanimous consent, so we will endeavour to come back afterwards.
1:25 p.m.
Conservative
The Chair Conservative James Rajotte
Colleagues, perhaps it would be better to have them back later. They could be 30-minute bells. That is the issue.
The meeting is suspended.
1:50 p.m.
Conservative
The Chair Conservative James Rajotte
We're back to meeting 69 of the Standing Committee on Finance. Thank you for your patience.
I have four minutes left in the question time for the Conservatives, and then we have a seven-minute round for the NDP, which will likely take us right to 2 p.m.
Ms. Block, please.
1:50 p.m.
Conservative
Kelly Block Conservative Saskatoon—Rosetown—Biggar, SK
Thank you very much, Mr. Chair, and thank you to our guests for being here with us this afternoon.
I heard you say in response to my colleague across the way that you do a complete analysis of the nature of the contract in order to determine the nature of the relationship. Could you tell me what criteria you use to determine that a business is a personal services business rather than a small business that is eligible for the small business tax deduction?
1:55 p.m.
Director General, Audit Professional Services Directorate, Compliance Programs Branch, Canada Revenue Agency
We look at four factors in trying to determine whether it's a PSB—in other words, whether it's an employee versus an independent contractor.
The first factor we look at is control. Control means we look to see whether the payer of the service controls the what, when, and where: what the worker does, how the worker does his business, and where he does his business. That's part of what we look at. We also look to see whether there is a subordination aspect to it.
The second factor we look at is the opportunity for profit or the risk of loss. So we look to see whether the independent contractor could make a profit. We look at things such as, is he able to negotiate a contract; can he have additional clients? In terms of the risk of loss, we look to see if he's bearing some of the risk associated with the work he does. Could his expenses be higher than his income?
The other factor we look at is the tools. Who owns the tools? Normally in an employer-employee relationship the tools are owned by the payer, so we look at that, at how much investment has been made in the tools and who is responsible. Who bears the risk for maintenance, insurance, cost of repairs, and so on?
Integration is the last factor we look at: to what extent is the work done by the worker integrated into the payer's business?
1:55 p.m.
Director, Technical Applications and Valuations, Audit Professional Service Directorate, Canada Revenue Agency
I would just add that it's a determination of whether you are considered to be an employee or self-employed.
In terms of whether that then leads to the designation as a personal services business, there are a couple of other factors to consider. The legislation says, if not for the corporation, you would have been considered an employee—those are the factors that Lucie just talked about—but also, you or someone related to you has to own more than 10% of the shares of that corporation, and if you don't have more than five full-time employees throughout the year, that then signifies that you are a personal services business.
1:55 p.m.
Conservative
1:55 p.m.
NDP
Thomas Mulcair NDP Outremont, QC
Merci, monsieur le président.
Mr. Adams, earlier you told us that under the employment insurance legislation a company such as CGI that had hired a bunch of people as independent contractors, once they're determined to have not been and they have to pay taxes as individual employees and not as independent contractors, CGI, which never paid its employment insurance, under existing legislation won't even have to pay it back. So there's a retroactive effect with regard to the employee but not the employer. Is that your testimony before this committee?
1:55 p.m.
Director General, Income Tax Rulings Directorate, Legislative Policy and Regulatory Affairs Branch, Canada Revenue Agency
No, I think that's unclear. If CGI had engaged a number of independent contractors, unincorporated entities, and it was subsequently determined that they were--
1:55 p.m.
Director General, Income Tax Rulings Directorate, Legislative Policy and Regulatory Affairs Branch, Canada Revenue Agency
You started with independent contractors.
1:55 p.m.
NDP
Thomas Mulcair NDP Outremont, QC
But I'm asking you about an incorporated entity. My time is limited, so please answer that question.
1:55 p.m.
Director General, Income Tax Rulings Directorate, Legislative Policy and Regulatory Affairs Branch, Canada Revenue Agency
On your question, if CGI engaged a number of corporations to perform services and it was subsequently determined that those corporations were personal services businesses, there still would not be any EI implications for CGI.
1:55 p.m.
NDP
Thomas Mulcair NDP Outremont, QC
Right. So the employees can get hit retroactively but not the employer. That's your testimony.
1:55 p.m.
Director General, Income Tax Rulings Directorate, Legislative Policy and Regulatory Affairs Branch, Canada Revenue Agency
No, they are not employees. CGI engaged--
1:55 p.m.
NDP
Thomas Mulcair NDP Outremont, QC
If they're not employees, how come you're taxing them retroactively as such?
1:55 p.m.
Director General, Income Tax Rulings Directorate, Legislative Policy and Regulatory Affairs Branch, Canada Revenue Agency
No, we're taxing them as...their corporations are personal services businesses. It didn't undo the corporate form. It didn't characterize them as employees.
1:55 p.m.
NDP
Thomas Mulcair NDP Outremont, QC
No, that's not germane. The question is, the employer has made money by saving on employment insurance deductions at source qua employer. The employee is now being told that even though they were incorporated, you've determined--somehow you managed to put the Quebec Civil Code in there--there's not a link of subordination, so you're going to pay your taxes going back for many years and the employer's not even going to get banged out for his EI.
Now we're going to go to you, Madame Bergevin. CGI was receiving a subsidy of at least $10,000 per year per employee to install itself in certain sectors of the City of Montreal. To achieve those subsidies, CGI had to prove they were indeed employees, otherwise it would lose those subsidies. So they were getting it both ways, and the employees were taking it both ways.
The employees are now getting banged out because they created a corporate structure to allow them to do that work, but CGI, with all its resources and connections and contacts, was able to convince the government to maintain them as employees so that CGI could get its tens of millions of dollars a year of subsidies, and yet the people who just testified in this room and who are still sitting here, and their families, are getting banged out because they're no longer considered to be, properly speaking, independent contractors, and they are employees because of that.
The reality is, and that's why it comes up in the rest of Canada--how come we don't see this anywhere else? It's because of those subsidies that CGI put that many human beings in that position. How come you didn't investigate that? How come you only go after the employees and you never go after the employer?
2 p.m.
Director General, Audit Professional Services Directorate, Compliance Programs Branch, Canada Revenue Agency
I can't speak to this case because I don't have all the facts, first of all, and I don't know exactly what transpired. I'll be honest, I don't know that I have a full understanding of your question as it relates to CGI and what they needed to do to get la subvention.
2 p.m.
NDP
Thomas Mulcair NDP Outremont, QC
Different places were set up by the Government of Quebec--Cité des multimédias was one of them--where companies that were in the computer sector could get a subsidy of at least $10,000 per employee. Of course, they had to make the determination that they were indeed employees and not independent contractors, because otherwise they wouldn't qualify for the subsidy.
