Finance Committee on Oct. 27th, 2014

[The Chair, Conservative, James Rajotte]

You have just under two minutes.

[Dave Van Kesteren, Conservative, Chatham-Kent—Essex, ON]

I'm going to give you another quick question.

Would Canadians be on the hook for banks that fail as are the customers in Cyprus? What's it called—a buy-in or something?

[Terry Campbell]

It's a bailout, or bail-in, actually.

[Dave Van Kesteren, Conservative, Chatham-Kent—Essex, ON]

Do we have any laws that would make that happen in this country?

[Terry Campbell]

That is not a scenario that could happen in Canada, quite frankly. In fact, there was a lot of confusion when Cyprus happened, because bail-in was a new concept. The federal Department of Finance has put out a paper on bail-in, which makes it very clear that no depositors and no taxpayers would have to step up in the extremely unlikely case that a Canadian bank would fail. Debt would be bailed in as capital.

[Dave Van Kesteren, Conservative, Chatham-Kent—Essex, ON]

I'm sure a lot of Canadians would like to hear that.

I want to talk about invest industries. I want to go to your number one proposal. How much money do you feel is locked in, and what would that result in, do you feel, if we released this capital?

[Brian Parker]

It's anecdotal and it's hard to give you hard facts. When I was asked to come down here, I talked to a number of colleagues in the industry and said, “You know, this is the proposal the investment industry is putting forward. What are your clients saying?” When I talked to a retail broker, he said, “You know, I've got clients sitting on a million dollar capital gain in this stock. He should sell it, but he doesn't want to. He doesn't want to pay the tax.” You have enough of these conversations.... I don't know what the answer to the question is. I don't know what the number is, but it's a big number.

[Dave Van Kesteren, Conservative, Chatham-Kent—Essex, ON]

Just to be clear, we're talking about investments that are locked in so people don't want to pay the taxes.

[Brian Parker]

They don't want to sell. Maybe they should sell, maybe they know they should sell, but there will be a big tax paid if they do.

[Dave Van Kesteren, Conservative, Chatham-Kent—Essex, ON]

Compares to how much money—

[Brian Parker]

I don't have the number.

[The Chair, Conservative, James Rajotte]

Thank you.

If you want to provide that or if you have any further information, you can always provide it to the committee.

[Brian Parker]

Okay.

[The Chair, Conservative, James Rajotte]

Thank you.

For the last round, Mr. Leung, please.

[Chungsen Leung, Conservative, Willowdale, ON]

Thank you, Mr. Chair.

Thank you to the panel members.

Prior to entering politics, I worked in many parts of the world. I have also looked at corporations both in the public sector as well the public corporations versus private corporations that have fared very well internationally. Returning back to Canada, it appears to me that we are in a very over-regulated regime, over-regulated to the point that we almost have to hire full-time accountants and lawyers for tax compliance and for regulatory compliances. I just want to drill down a bit on the simplification of our system and where we could be internationally competitive for attracting international investment dollars.

If I could sort of conjecture, some of these may have to do with standardizing reporting. Rather than having our reporting so complex that our financial accounting and our tax accounting have to be reconciled, is there some way that could be done? This has to do with our philosophy of taxation.

In one country I worked in, they had uniform invoices. There's no way that you can create an invoice of whatever, you always have a uniform invoice so that the tax department knows exactly what is the expense and what is the revenue at all times.

For certain businesses, I think, depending on the business sector, we would achieve a better efficiency by going back to the cash basis of accounting rather than the accrual basis of accounting.

I certainly share with you that we've come a long way since the 1966 Carter commission and then the 1972 Tax Act. It was implemented when I started my public accounting career. As we we move 40 years from now and look back, I think we need to rethink some of that, as you suggested.

I'd like to hear your comments on that, starting with Mr. Dancey first, on the four issues that I've touched upon.

[Kevin Dancey]

Sure.

Let me give you a couple of topside observations.

You know, you talked a lot about working around the world, seeing businesses around the world. When you came back to Canada, you saw that the regime was complicated in Canada in terms of a business operating in Canada that wants to operate around the world. One thing in terms of the tax side of that is, I would refer you back to the international tax panel that was created by the Department of Finance in 2008. Peter Godsoe, former chair of the Bank of Nova Scotia, was the chair of that group, and I was the vice-chair of the group. That panel had a lot of recommendations that we believe would have led to a super regime for the operation of entities in Canada that wanted to operate around the world. Some of those recommendations have been implemented; a number of them have not. I think that those recommendations from that 2008 report are all valid today in terms of simplifying the operation of entities that are based in Canada that want to operate abroad.

The second point I would make in terms of just simply compliance with Canada, interaction with the government in Canada, which is really back to the reporting in terms of XBRL, this standardized business reporting would be a mechanism through which entities could provide their information to the government, and that information could be used for many purposes by the government. It would be much more efficient and be much more effective. This is a recommendation that I know that this committee has endorsed in the past, and we would encourage you to recommend it again. It has been implemented in other countries, for example, Australia, with some good savings.

So those are two thoughts that I would give back to you on your observations.

[Chungsen Leung, Conservative, Willowdale, ON]

Mr. Baker, have you any comment on that?

[Albert Baker]

Yes. I can start by saying that complexity is relative as well. It depends upon which countries around the world we are comparing it to. If we compare Canada to the U.S., for example, I'd say Canada is in pretty good shape relative to the complexity.

On some of the other suggestions you made about standardizing some of these things we have, such as financial reporting and financial accounting, it seems that some countries have just taken that and used it in their tax regimes.

To me, it comes back to the tax policy. That's a simple regime, but there are a lot of nuances in accounting. Accounting isn't easy. For accounting purposes, some instruments are treated differently from their legal nature. Given that, it would be very difficult in Canada, from my perspective, to have a regime that simple without having some adjustment for it to actually reflect the policy objectives we want to achieve.

Cash accounting, for example, which you mentioned, is perhaps a simpler regime, but if indeed the financial reporting continues to be on an accrual basis, it would require some adjustment, plus there would be a cost to that, I think, because that likely would be a deferral for a lot of companies. From a policy perspective, I think there would also have to be a look at what the financial cost of that would be to the government in terms of revenue.

[The Chair, Conservative, James Rajotte]

Thank you. We're bumping up against the time. Is there a brief question or comment?

[Chungsen Leung, Conservative, Willowdale, ON]

Would we need to go to an internationalized equivalent in compliance in order to simplify our international...?

[The Chair, Conservative, James Rajotte]

Do you have a brief response?

[Albert Baker]

That would achieve it.

[The Chair, Conservative, James Rajotte]

Thank you.

Colleagues, thank you.

I want to thank all of our witnesses on this second panel. It's been an excellent three-hour panel. Especially given what happened in this room, the other room opposite, and the hallway last week, it has been an especially wonderful time to have a very robust discussion here at the finance committee.

I also want to thank many of you for your member organizations' contributions to the funds for the two soldiers' families. I really appreciate it. On behalf of all committee members, I want to thank you for that.

Thanks to all of you, colleagues. We'll see you tomorrow.

The meeting is adjourned.