Thank you, Mr. Chair.
Good afternoon, committee members. Thank you for the opportunity to appear before this committee. My name is Kim Moody. I'm a chartered professional accountant and director of Canadian tax advisory services at Moodys Gartner Tax Law in Calgary. I have a very long history of serving the Canadian tax profession, with a variety of leadership positions.
Bill C-97, as you know, is a 367-page bill that contains measures that are both tax and non-tax in subject matter. Accordingly, my brief comments will be restricted to my practice area, which is tax, and specifically to the tax content or lack thereof of Bill C-97 as it relates to the March 19 budget.
From a tax perspective, there was some content in the budget that was good, like the changes to the specified corporate income rules; amendments to the change of use rules in section 45 of the Income Tax Act; and positive changes to the registered disability savings plans, although much more work needs to be done in this area especially as it relates to the use of trust for people with disabilities.
However, I believe that the budget and Bill C-97 are noteworthy for two broad reasons: one, what the budget and Bill C-97 do not contain, and two, the journalism tax incentives. Accordingly, I'll restrict my comments to those.
What do the budget and Bill C-97 not contain? The first thing is targeted and broad measures to deal with competitive concerns. While some have argued vigorously that the accelerated tax depreciation numbers for M and P equipment and certain green equipment and accelerated first year depreciation claims introduced in the fall economic update have solved or gone a long way to competing with our U.S. friends who are benefiting from a massive package of tax reforms, I would argue strongly that is not the case.
I live and see it every day with Canadian private businesses scrambling to remain competitive. Many are expanding their businesses into the U.S. and bringing capital with them. After 11 months of the government saying it is not going to respond in a knee-jerk fashion to U.S. tax reform, the fall economic statement measures, which introduced accelerated depreciation measures, were disappointing.
As Jack Mintz and Philip Bazel wrote in the Canadian Tax Journal last month:
Overall, a much deeper corporate and personal tax reform was needed to deal with the many competitiveness issues raised by the US tax reform for Canada. Accelerated depreciation focused only on a narrow set of issues, and not necessarily the right ones.
I agree. Many were waiting for additional measures in the March 19 budget, only to be disappointed again. There was nothing. To be clear, the package of tax reform measures released by the U.S. is historical in its breadth and in its impact to U.S. businesses. By any measure, including my anecdotal experience with my firm's clients, it is significantly impacting in a negative way Canadian businesses' ability to remain competitive.
Corporate and personal tax rate reductions should have been at the top of the list of considerations for competitiveness responses.
The second highlight-reel omission from the budget and Bill C-97 was the fact that there was no announcement with respect to the government taking the large initiative to undergo comprehensive tax review and reform.
As you know and I'm sure you've heard many times, numerous credible bodies like CPA Canada, the Canadian Chamber of Commerce and others have been requesting for a long period of time a fresh and comprehensive look at how Canada raises necessary revenues to provide good government. I agree. The last time Canada had a comprehensive review of its tax systems was the Royal Commission on Taxation, which released its landmark six volume report with recommendations in 1966 after approximately four years of studies.
I'm sure some of you were not even born when that commission released its report. I certainly wasn't. Such recommendations were studied and debated for a lengthy period following its release, and it ultimately was the impetus for many of the foundational changes introduced in 1972 tax reform.
While limited form studies—and an embarrassing attempt at reform that arose from the July 18, 2017, private corporation tax proposals—have been completed since 1972, nothing comprehensive has been undertaken since the royal commission. Accordingly, since 1972, our Income Tax Act has become a patchwork quilt of changes. However, a patchwork quilt can quickly become busy and complex, and there is no doubt that our current income tax statute is just that: overly complex and busy. It's time for a fresh quilt.
To those who say to be careful what we wish for or, worse yet, Canada is not ready for comprehensive tax review or reform, I say this: Canadians are a lot smarter and well-intentioned than you are giving them credit for. The average Canadian simply wants a tax system that works for all. It's time that this important initiative be undertaken and it was extremely disappointing that the budget did not address this.
Number two is the journalism tax incentives. As you know—and I won't repeat the budget measures because you all know them—these measures are horrible and a threat to our country's free press, given the likelihood that some of our country's media will likely be incentivized to receive these tax goodies and perhaps cater to big so-called donors.
As respected journalist Andrew Coyne stated in his March 20, 2019, article in the Financial Post about these measures, “There are any number of objections to the government getting into the game of propping up failing news organizations: that taking money from the people we cover will place us in a permanent and inescapable conflict of interest”, and he goes on to criticize. I very much agree.
Can you not see how dangerous this is and how littered with problems these so-called incentives are, as are having a so-called independent panel to pick winners and losers and using an overly complex tax system to administer these indoctrination instruments? Our charitable sector already has significant tax issues, as we heard from the first panel this morning, and is long overdue for a thorough review and rethink. These incentives will add a new class of charity that will no doubt compound these problems.
While I acknowledge that our country's journalism industry is certainly struggling and that Canadians need to have unbiased and truthful news articles provided to them, perhaps a thorough review of what other countries around the world are doing to try to protect, support and preserve this crucial industry should be done before these poorly thought-out proposals are implemented. It seems to me that the crucial aspect that has harmed our country's journalism industry tremendously is the fact that Internet giants such as Google and Facebook have sucked away tremendous advertising dollars from our country's newspapers without producing original content.
Is it time to target these companies like France has? France has recently proposed a 3% tax on the French revenues of Internet giants. When the proposals were released, the French finance minister stated that the estimated tax will raise about 500 million euros, but that should increase quickly. He also said the tax will not affect companies that are directly selling their own products online. It will mostly affect companies that use consumers' data to sell online advertising.
The French finance minister stated, “This is about justice. These digital giants use our personal data, make huge profits out of these data...then transfer the money somewhere else without paying their fair amount of taxes.” It's hard to disagree that there is a problem with Internet giants using personal data to then deploy online advertising. Beyond the obvious privacy concerns, such methods greatly harm our Canadian journalists.
Will a tax like that introduced by France solve the problems facing our country's journalism industry? Likely not. A Wall Street Journal article from last weekend highlights how dire the situation of the newspaper industry is in the United States. It seems to me that the Canadian industry is in similar dire straits. Accordingly, a targeted response that deals with the root causes of the industry issues is a better response.
With respect to the current journalism tax incentives in Bill C-97, these so-called incentives should have no place in our democracy.
Thank you for your time. I'd be happy to answer any questions.
