Bill C-2 (Historical)

An Act to amend the Income Tax Act

This enactment amends the Income Tax Act to reduce the second personal income tax rate from 22% to 20.‍5% and to introduce a new personal marginal tax rate of 33% for taxable income in excess of $200,000. It also amends other provisions of that Act to reflect the new 33% rate. In addition, it amends that Act to reduce the annual contribution limit for tax-free savings accounts from $10,000 to its previous level with indexation ($5,500 for 2016) starting January 1, 2016.

[François-Philippe Champagne, Liberal, Saint-Maurice—Champlain, QC]

Mr. Chair, I would like to clarify for my colleague Mr. Caron that it isn't a lack of organization. Rather, it was the desire of committee members to conclude the study of Bill C-2 and, given the dates we're looking at now, to have the minister appear before the committee as soon as possible. So it isn't a lack of organization. It's to ensure the important work related to Bill C-2 is finished.

Once the study of Bill C-2 is finished, the first possible date on the calender for the minister and committee members is April 20. Everyone is aware of the MP's motion, we know about it. But we want to make sure that we finish the study of Bill C-2. As soon as we're done with that, the minister will appear with official representatives from her department. The first possible date is April 20. There is no other agenda but transparency and having the minister come as soon as possible, taking into consideration the work that this committee must do, which is to conclude the study of Bill C-2.

[Phil McColeman, Conservative, Brantford—Brant, ON]

I'd like to remind the chair that I have somewhat introduced my motion, in parallel to this motion, for the minister to come on main estimates as well. Whatever the minister is contemplating for this amount of time spent on Bill C-2, I'm asking through my motion that she come on main estimates as well. Usually, that would be an hour each.

[Guy Caron, NDP, Rimouski-Neigette—Témiscouata—Les Basques, QC]

Pretending that we absolutely must study Bill C-2 immediately doesn't make sense because Parliament has already voted on the ways and means motion. The measures in Bill C-2 are already in effect. Our current efforts to ensure that the minister can appear within a reasonable timeframe is not an attempt to postpone or delay the study of Bill C-2. We support having the minister appear before us on April 21, and then we will continue to study Bill C-2 and prepare the report that we had proposed.

Once again, why, despite the fact that we have known about the situation for at least 48 hours, was the minister not informed in advance and why are we still waiting for an answer to find out when she might come? It's not as if the motion had been a surprise; it wasn't. She knew about it because she mentioned it yesterday in the House.

One last thing. She made some comments on March 10, and she should explain them. According the motion, she could appear as late as May 20. If the questions are about responsibility and transparency because of her comments about the fact that there was an amnesty or not in the KPMG matter, they should be answered sooner rather than later. We should be concerned about this and be trying to get answers about what motivated that statement.

[Francesco Sorbara, Liberal, Vaughan—Woodbridge, ON]

We all want to know the answers in terms of what has happened and the stories that have come out. Mr. Caron, I think our objectives are the same. We want to ensure that Canadians have confidence in our tax system, that everyone is paying their fair share, and that there are no sweetheart deals or anything like that going on.

I think it behooves us to continue studying Bill C-2. The minister has responded that she is available to come to the committee prior to May 20. Thank you.

[Francesco Sorbara, Liberal, Vaughan—Woodbridge, ON]

Yes. Thank you, Mr. Chair.

I think it behooves the committee to continue our work on Bill C-2. With regard to the motion, it was discussed amongst ourselves that we would like the minister to appear. Now we've contacted the minister and we've received feedback that the honourable minister will be available before May 20.

[Guy Caron, NDP, Rimouski-Neigette—Témiscouata—Les Basques, QC]

Thank you very much.

Since I don't have much time, I will get right to the point.

Mr. Macdonald, I love the options you presented. They are alternatives to what is in Bill C-2, which proposes reducing taxes for the second tax bracket and increasing taxes for the first tax bracket. As you said, taxes are being increased for 0.8% or 1% of the population and being distributed among 25% or 30% of the population by neglecting the remaining 70%.

Do you agree?

Mr. Alexander, do you dispute the assertion that the changes in tax rates that are being presented in Bill C-2 basically affect only about 30% of the population among the highest incomes, and are doing nothing, basically, for 70%?

[The Chair, Liberal, Wayne Easter]

I was going to suggest that we are on Bill C-2, but it does relate. You mentioned the budget.

Go ahead, Mr. Ball.

[Bruce Ball, National Tax Partner, BDO Canada LLP, and Member, Tax Policy Committee, Chartered Professional Accountants of Canada]

All right, thank you. On behalf of the Chartered Professional Accountants of Canada, I wanted to thank you for the opportunity.

As a bit of background, I'm a member of CPA Canada's tax policy committee, I'm a national tax partner of BDO Canada, and I'm also a chartered professional accountant.

I did want to point out that the CPA designation is now, with the amalgamation, the single accounting and business designation in Canada. This was accomplished by the merger of the three legacy designations: CA, CMA, and CGA. We have over 200,000 members now.

One thing I wanted to make clear is that we do recognize that the government was elected in terms of a fairly specific platform, and the main tax changes I'm going to focus on were part of that. We do respect that and we do recognize that they received a majority.

Bill C-2 has three main important tax changes: the reduction of the middle-class tax bracket that's been discussed, the new top bracket, and the decrease in TFSA contribution room. From a more general point of view, what we really wanted to point out and talk about was the fact that when you do change the tax system it can have various effects, positive, negative, and maybe some unintended effects as well.

We wanted to talk at a more general level, I think, and reinforce that the tax system is a key lever in terms of ensuring that we have a business environment that remains competitive, that we attract and retain the best and brightest minds, and that we also achieve economic growth and prosperity. Our main message today is that it is difficult to talk about three pretty specific tax changes in isolation without considering the tax system as a whole.

Going forward, our key message today really is that before any other tax measures are introduced or changed, we'd like to see a review from top to bottom of the tax system. The review should focus on a number of important factors, with reducing complexity, improving efficiency, effectiveness, and competitiveness being some of the key factors.

We think such a review would actually benefit taxpayers, businesses, and the government as well, the goal being to make Canada the most attractive place possible in terms of a place to live, invest, and do business in. We think that this is squarely in line with the government's agenda for growth. We also think there's no better time than now to do it, for a few reasons, the main one being that there hasn't been a real review of the entire system for over 50 years. The last one was the Royal Commission on Taxation in 1966. Clearly things have changed a lot since then.

The other thing, and I think this has been recognized, is that the tax system now is actually very complicated. It's complex. It's difficult to understand. It's very labour-intensive to deal with, and there are inefficiencies and costs associated with that. In our summary we point out that the compliance cost, according to the Fraser Institute, is probably somewhere around $25 billion for taxpayers and businesses, and perhaps almost $7 billion for the government.

The third reason, really, is that we think there's a lot of support right now for a significant review of the tax system as well. We note in particular for four years now this committee has called upon the government to explore ways to simplify the Income Tax Act and the tax system. Just this past February, it was recommended that the government initiate a comprehensive review of Canada's tax laws with the objective of making the country's taxation system simpler, fairer, and more efficient.

We just can't support that enough.

We were also encouraged that there was reference in the 2016 budget to the government's intention to review the tax system, and we wanted to recognize the chair's recent comments as well that there's a need to look at taxation as a whole, including everything from consumption taxes to income taxes, and corporate taxes to boutique tax credits or tax breaks. Again, that's exactly where we sit and I think a lot of other experts do as well.

Getting into how such a review would work, we believe there should be a panel and it should be guided by the following principles: to keep tax rates as low as possible, the tax bases as broad as possible, and eliminate inefficiency or ineffective tax preferences. We also echo the comment made earlier that the rate is exceeding 50% in a lot of jurisdictions and that is getting fairly high to levels that haven't been seen for some time.

The next key thing when reviewing the tax system is to take a look at the tax mix, especially between income taxes and consumption taxes. We believe that Canada is out of step with the other OECD countries in terms of that.

We don't have specific comments on the TFSA, but we do have the comment that the tax system should not tax personal savings. There should be some sort of enhanced incentives to make sure that Canadians are saving properly for their retirement.

Another key objective, we believe, is to try to keep corporate rates as low as possible to maintain Canada's competitive edge, attract new investment, and create jobs. We also believe that a review should focus on a pro-growth approach that encourages innovation, productivity, and prosperity.

Finally, with regard to working with the provinces and territories, a lot has been done, but we still think more could be done in terms of a more coordinated approach that will benefit everyone.

Just to sum up, Canada needs a tax system that is built for the 21st century, not what, we think, is a patchwork of original rules, amendments, and fixes that have accumulated over time and can cause uncertainty and unintended results. With a four-year mandate, we believe that now is the best time to deal with this, to work on a tax review and possibly tax reform. We would call on the government to have the vision, commitment, and focus to move forward to it.

I would be happy to address any questions on these issues.

[The Chair, Liberal, Wayne Easter]

Okay.

Thank you, witnesses, for being patient, and we will tighten up the time a little. We will have 50 minutes for discussion.

We have Mr. Alexander with us from the C.D. Howe Institute. From the Canadian Centre for Policy Alternatives, we have Mr. Macdonald. By video conference from Toronto, we have Ms. Morris from the Canadian Association of Retired Persons, and also by video conference from Toronto, from the Chartered Professional Accountants of Canada, we have Mr. Ball.

Thank you for appearing, and we are now discussing the related order of reference of Bill C-2, an act to amend the Income Tax Act.

We will start with you, Mr. Alexander. My apologies for the delay.

[Guy Caron, NDP, Rimouski-Neigette—Témiscouata—Les Basques, QC]

Thank you, Mr. Chair.

I don't think we can have a debate and ask for a vote at the same time.

I would like to point out that we are supposed to hold a meeting to discuss the committee's work schedule. We have not done so yet. We were informed about what this would look like, but there has been no discussion on it. I think the members of the committee want to debate the issue. We will probably do so before the end of the meeting or at a subsequent meeting. I really want to discuss the length of time allocated to testimony and debate on Bill C-2. I agree with Mr. McColeman that we should discuss the first motions that were submitted and come back to this issue subsequently.

[Phil McColeman, Conservative, Brantford—Brant, ON]

Mr. Chair, I know this process has gone a little differently than normal when you're in the chair, having been in the chair before. I know we were notified that you had made the decision to proceed with this particular set of hearings, but it was also narrowly defined in terms of the number of days. I think, knowing that the committee is the master of its own destiny, that not one individual—not even the chair, if I can say that respectfully to you....

One of our desires in looking at Bill C-2 is to have other witnesses attend, which the time allocated would not allow for, because it was arbitrary. That said, I'd like the committee to consider extending the time frame for the study of this and allow for other witnesses.

Who am I thinking about who should be consulted at this committee? There are many different people in Canadian society who should be brought before this committee and have their views vetted on this particular bill.

I'm asking that before we approve any of the costs associated with this, we step back for a moment and say that the committee was not able to consider the time frames for a study of this and that we should be afforded the opportunity to consider the time frames and not truncate them for any reason to withhold testimony from other Canadians who may want to weigh in on this. There are probably groups, including first nations individuals, who might like to come before this committee to speak to this bill.

[The Chair, Liberal, Wayne Easter]

Thank you, members.

We had four, and we have three motions left. Normally the way we deal with them is in the order they came in unless, as happened in the previous meeting, we get one moved from the floor and get it dealt with.

First, before we go to motions, there's the request for the budget for the hearings on Bill C-2, of which I think everyone has copies. All the witnesses who were proposed and who wanted to come were accepted, I think. The various parties put their witness lists in. The total amount requested for the hearings on Bill C-2 would be $16,300. That includes costs of four persons from Vancouver, two from Toronto, one from Montreal, one from Calgary, and the ones here from Ottawa. This is laid out before you.

Does somebody want to move adoption of that budget, or is there any discussion?

Go ahead.

[Raj Grewal, Liberal, Brampton East, ON]

Thank you, Mr. Chair, and thank you for your testimony this morning.

I have a hypothetical situation for you, and hopefully you'll be able to answer it.

Assuming you're a family that's going to benefit the maximum from the middle-income tax cut, and in that corresponding tax bracket, let's say you made $60,000. You have two children under the age of six, and you're also going to benefit from the Canada child benefit. How much more money are you going to get because of Bill C-2?

[Phil McColeman, Conservative, Brantford—Brant, ON]

—330 divided by 365 is 90¢ a day.

Currently, there's a whole suite of tax changes that are occurring in the budget documents. I'm not here to ask you specifics on those because I know we're talking about C2, but it does relate to C2. As my colleague said over here, he brought up the child tax credit, which he used.

Is your department right now considering how families will end up or individuals or couples, the whole mix of the demographic, and how this will affect all of the changes made, meaning the taxes that are taken away that the budget has proposed and the new credits that are given, along with the changes in C2? Have you looked through the math in terms of whether this will mean more income or less income for certain categories of Canadians?

[Guy Caron, NDP, Rimouski-Neigette—Témiscouata—Les Basques, QC]

I agree entirely. However, someone who lives in Toronto or in a rural area will receive the same income tax reduction, depending on their salary. When we talk about the Canadian distribution, we are talking about an aggregate. I think that we can talk about taxpayers as a whole.

According to Statistics Canada figures, the average for the third income decile is $17,800 and that of the eighth decile is $52,600. If you include the 20% with the highest incomes and the poorest 20%, you could define the middle class as people who earn between $17,800 and $52,600. However, the income tax reduction in Bill C-2 really begins to apply around $45,000.

Once again, you can confirm what I am saying. We really reach the maximum income tax reduction as of the third bracket, that is to say the one that applies to people who earn between $89,000 and $90,000. Those people and those who earn up to $200,000 will benefit from the maximum income tax reduction.