Finance Committee on May 8th, 2006

[Michel Dorais]

Mr. President, it's extremely hard to do international comparisons because the systems and the nature of the collection actions taken by other countries are very different from what we have here. We can provide the committee with some data on other countries, but I would discourage any direct comparison.

Let's put it this way: Canada is constantly invited to other jurisdictions to showcase the systems we have in place, and we've been chosen to chair the Leeds Castle Group, a new group of tax administrators involving ten countries, for the first year of its existence. So we're well out there.

[The Chair, Conservative, Brian Pallister]

How does the one cent cost for every dollar collected compare to ten or twenty years ago? Do you have any idea?

[Michel Dorais]

I do not have this answer, but we can look to see if we can provide it.

[The Chair, Conservative, Brian Pallister]

Please do.

Mr. McCallum, over to you.

[John McCallum, Liberal, Markham—Unionville, ON]

I think this was implicit in one of your answers, but I would like to make it explicit. I understand you're saying that the effect of the budget was to take the lowest income tax rate from 15% to 15.5%. Is that correct?

[Michel Dorais]

The effect of the 2004 budget, which was not voted by Parliament but will be included in the next budget, was to reduce it from 16% to 15%, then put it back from 15% to 15.5%, I think.

Brian, do you want to correct that?

[Brian McCauley]

The rate reduction that was introduced in the November economic statement saw the rate go to 15% for the 2005 tax year, and it was reintroduced as part of the recent budget. Also, the recent budget essentially established an end rate of 15.5% for the 2006 tax year.

[John McCallum, Liberal, Markham—Unionville, ON]

So I think you're saying yes, the effect of the budget was to go from 15% to 15.5%. Is that right?

[Michel Dorais]

From 2005 to 2006, you're right.

[John McCallum, Liberal, Markham—Unionville, ON]

So you're agreeing that the effect was to go from 15% in 2005 to 15.5% in 2006. Is that right?

[Brian McCauley]

As part of a broader package of tax measures, yes.

[John McCallum, Liberal, Markham—Unionville, ON]

So would you agree that when you go from 15% to 15.5%, most Canadians would understand clearly that in common parlance, it's an increase?

[The Chair, Conservative, Brian Pallister]

I'm glad we have this level of expertise here today to comment on that.

[Michel Dorais]

Mr. Chair, I'll let the member choose the words to express it.

[The Chair, Conservative, Brian Pallister]

Very good.

Are there any further questions, Mr. McCallum?

[Massimo Pacetti, Liberal, Saint-Léonard—Saint-Michel, QC]

Monsieur Loubier.

Mr. Dorais, I also intend to put the next question to Department of Finance officials. However, right now I'd like to briefly review for our enlightenment your Agency's practices.

You will recall that when Mr. Desautels was the Auditor General, he uncovered within the space of a few days two contradictory advanced rulings. These rulings authorized the sole owner of two family trusts totalling in excess of $2 billion to transfer these two trusts to the United States and eventually, to another country. We've now lost track of these two trusts.

I won't review all of the details, but the fact remains that this situation came to light and was carefully scrutinized by the committee over a period of two months. Both the Deputy Minister of Revenue and the Finance Minister appeared before the committee. They both had had a hand in these advance rulings, the second of which, if memory serves me well, was made on December 24 at 10:40 p.m.

How could an ordinary taxpayer have possibly attended a meeting about an advanced ruling on Christmas Eve?

The committee discovered that companies working in the field of tax planning, Revenue Canada and the Finance Department would all share their expertise with one another. Tax planning firms would loan an expert for one or two years to Revenue Canada or to the Department of Finance. Among other things, these individuals would be involved in the making of advanced rulings.Therefore, they were aware of specific rulings that had been made. Consequently, as we saw with the two advanced rulings, these individuals could, when they returned to their firm, help their clients benefit from certain tax breaks. They found themselves in a privileged position compared to others. They were familiar with tax rulings and interpretations, since they had spent time working in both departments.

First, I'd like to know if these types of exchanges are still taking place. Second, I'd like to know what kind of safeguards are in place to ensure the confidentiality of the rulings made, whether they are made in advance or not. What steps do you take to ensure that these rulings do not become known to tax planning firms that could use the information to help certain privileged clients, at the expense of taxpayers?

[Michel Dorais]

That's a very pointed question. It shows the member has a sound grasp of the fiscal challenges confronting the CRA. I don't have the information to answer your question at this very minute. Unless one of my colleagues can help me out, if you have no objections, I will jot down your question and forward a response to the committee.

[Yvan Loubier, Bloc, Saint-Hyacinthe—Bagot, QC]

By all means, take all the time you need to answer the question, Mr. Dorais. In my opinion, we need to follow up on this issue. This is the era of accountability and I know the current government is intent on dealing with this type of privileged transaction, which in some respects amounts to insider trading. Fundamental issues like this can have a significant impact on the tax base. I look forward to your response to my question. Next time, I'll likely continue with my analysis and no doubt, your answers will be more analytical as well.

[The Chair, Conservative, Brian Pallister]

Time is going too quickly. We'll just have time for perhaps two more questions.

I'll go to Mr. Pacetti first.

[Massimo Pacetti, Liberal, Saint-Léonard—Saint-Michel, QC]

Thank you, Mr. Chairman.

I don't know if anyone has already asked this question, but in the table on page 4-4, under the heading “ Items not required”, we see that contributions to the province of Quebec in respect of administration costs have increased from $115 million to $156 million. Is there a reason for this increase?

[James Ralston]

I believe the amounts that are being referred to are the payments made to the Province of Quebec for the administration of the GST in that province. Something has gone on that is basically a classification. The amounts were formerly shown as a contribution and that was consistent with the definition of a contribution provided by Treasury Board at that time.

Subsequently, there has been a redefinition of what constitutes a contribution. Although nothing has changed about the reality of what the Province of Quebec does and what we are funding, it is just that the accounting treatment no longer considers it a contribution; it's now considered part of our operating budget.

[Massimo Pacetti, Liberal, Saint-Léonard—Saint-Michel, QC]

It's comparable, and we're going from $115 million to $156 million. Even if you answer that, the next question is going to be how do we relate that to other provinces when the Canada Revenue Agency is administrating this? Is this a good deal, or how is it in comparison to other provinces?

We don't have much time, sir.

[James Ralston]

There is a formula that determines the amount of the payment. To address your concern, there is a capping element to the formula such that the intention is that the amounts paid to Quebec will keep the payments comparable to costs that would be incurred by the agency.

[Massimo Pacetti, Liberal, Saint-Léonard—Saint-Michel, QC]

Is it worth encouraging the same relationship with other provinces?

[Michel Dorais]

Quebec is the only province that has a full department of revenue, and I think that's the answer. Another province would have to equip itself with a full department of revenue to do the same thing.