Finance Committee on Dec. 3rd, 2009

[Mike Wallace, Conservative, Burlington, ON]

Thank you, Mr. Chair.

I want to thank you for coming. I apologize, I will have to speak to you in English.

I'll be frank with you. I've been on finance for almost four years and this is the first time I have heard of the issue. Just for my education—we're all from the province of Quebec today—is this a Quebec issue or is it nationwide?

I will take an answer from anybody who can answer that question.

[Richard Fahey]

Mr. Chairman, certainly those present at the table today are all Quebec entrepreneurs.

[Mike Wallace, Conservative, Burlington, ON]

Right.

[Richard Fahey]

That is the issue we've been fighting in Quebec, here in Ottawa. I am convinced, though, that those same principles are applied elsewhere in Canada. Like you—you said you had never heard of the issue—we had never heard about the issue, and probably other self-employed have never heard of the fight that the computer industry self-employed are currently taking on in this respect. I would not restrict that to a Quebec issue. Yes, this is the presentation today, but I'm sure the CRA is applying the very same rules across Canada.

[Mike Wallace, Conservative, Burlington, ON]

When I looked at the bulletin, or the CRA booklet on the self-employed, I saw a section that reflects the province of Quebec. I just wanted an understanding of whether the issue you're dealing with comes out of that three or four columns or if it's nationwide.

[The Chair, Conservative, James Rajotte]

Mr. Wallace, Mr. Leblanc also wants to comment.

[Patrice Leblanc]

My understanding is that this is a national issue. We met Mr. Jolie from the ARC in the spring, and examples were given to the same effect.

Also, I wanted to mention to you that the criteria under which companies are defined as being personal businesses might differ in Quebec from Canada because of the Code civil. The definition of an “employee” in Quebec is different and there's a different test. That might be important to you as well.

[Mike Wallace, Conservative, Burlington, ON]

The reason I've asked, to be frank with you, is that I had an individual business myself and I never had any issues.

I want to be clear. I think there are a few issues that you've brought forward here today. Maybe through the interpretation I'm not catching that. I think Ms. Jennings' motion deals with one part of it.

I heard also--and I'll use training as an example--that if you're self-employed and you go to training yourself, if you're listed under the personal business category, you're not able to deduct that. However, if I were defined as a small business because I had five employees or whatever, I could deduct it. Is that correct?

I want to be clear on another issue I heard about so that I understand it, because we'll eventually have CRA people in front of us who I'll want to ask these questions to.

On the interpretation at present--we'll use the computer business as an example--if you're doing consulting in a computer company, let's say at a large credit union in Quebec.... They normally have an employee-employer relationship with the people who work there, but if you come in and do three months of computer consulting for them and you have a contract with them, how does CRA interpret it? What is the issue? I need to understand what that issue is.

If you're not able to deduct your expenses and so on while working for them, is the company, the credit union, able to deduct you as an employee? Is it going both ways? I need to know that.

[Richard Fahey]

There are two elements to your comment. There's one that Mr. Paillé raised as well.

On the implementation of computer programs, software, what we're talking about is a huge CRM--customer relationship management--enterprise resource product. They're huge financial monitoring systems and they take months and months to implement. Usually it's between one to two years of implementation for those big systems. In the example of the credit union, should it be implementing a CRM system, those self-employed computer industry specialists would work hand in hand with the employees but never be considered as employees and never have the benefits like the employees of the credit union, such as pension benefits and so on. Yet they're being considered employees from a fiscal tax point of view.

That's where the inequity is even greater. The determination for these guys is that they're considered employees, but the agency does not turn around to the credit union, or the big firm like Hydro-Québec, and tax them for payroll taxes. So the inequity is wonderful throughout.

That's why CFIB is defending those self-employed and entrepreneurs.

[Mike Wallace, Conservative, Burlington, ON]

There are always two sides to every story, and we haven't heard the other side yet, but would you say, in fairness to CRA, that they're applying the law as it's presented today, or do you think there are different interpretations in different areas?

[Richard Fahey]

The issue we have today is the interpretation of that provision. That interpretation can be different for this guy or that guy, or for me or somebody else. So it is an interpretation. That's the first element.

The second element is that they're going beyond the relationship stated between the parties. They're saying, “I'm a corporation; you're a corporation; we have a service agreement.” But the agency is saying it's not really a service agreement, that you're really an employee, without benefits from the employer, and on the other hand, no payroll taxes are being imposed on the big business.

[Mike Wallace, Conservative, Burlington, ON]

Thank you.

[The Chair, Conservative, James Rajotte]

Thank you, Mr. Wallace.

Monsieur Mulcair, s'il vous plaît.

[Thomas Mulcair, NDP, Outremont, QC]

Thank you, Mr. Chairman.

[Jean-Yves Laforest, Bloc, Saint-Maurice—Champlain, QC]

I'm sorry, Mr. Mulcair. I have a point of order, but I will be brief. I simply wanted to remind Mr. Wallace who said that he had never heard of this situation that I introduced a resolution in committee for us to address this issue. He told the witness... Mr. Menzies had gotten us a meeting with him.

[The Chair, Conservative, James Rajotte]

Mr. Laforest, this is not a procedural matter.

Mr. Mulcair, you have the floor.

[Thomas Mulcair, NDP, Outremont, QC]

Thank you, Mr. Chair. First of all, I would like to thank all of the participants. I had the pleasure of meeting with a number of them on this matter. Before I begin, I would like to acknowledge and thank the interpreters who do exceptional work and make a significant contribution. My previous comments were based primarily on the frustration we experience when it is only francophone speakers who are asked to slow down. Nevertheless, we are always sincerely in full admiration of the work they do.

I would also like to say that this really points to a basic question of fairness. If we follow through with the proposed motion, as the NDP wishes, we would also draw the attention of government tax collectors to the real problem of fairness between those who provide work and those who perform it. If we have to reveal something that may be perceived as a way of getting around the law—you decide to do this by contract, but in fact you are an employee—there are consequences and there should be some for the employer, the one setting this up, if that is truly the problem.

Mr. Chair, should the committee adopt this motion, I believe it will produce a very desirable effect. I would also like to point out—and I would like to hear Mr. Fahey on this issue—that this is the subset of a growing labour problem today. I very recently met with a claims expert who works out of her home. There are no more offices, people are working with their laptop computers and BlackBerrys. We are living in a new world and our tax legislation is behind the times. We are talking about employment insurance and how to ensure that people in this situation will have access to it. I would like to hear Mr. Fahey on this matter. What does his group, the Canadian Independent Business Federation, think?

[Richard Fahey]

Mr. Chair, we are very clear about this matter. We spoke about this in our presentation. Self-employment is a reality of our economy stemming from globalization and job specialization. This is a growing reality today. Data from the 2009 labour force survey indicated that there were 2.8 million self-employed workers as of October 2009, and that this group considered itself—and this is important—to be entrepreneurs. They are the beginnings of the company, the SME and perhaps the major corporation of the future. This status of self-employed worker is, in many cases, transitory.

But I would like to caution you. We have observed that older self-employed workers, aged 45 to 64, are very experienced. They want to use this as a bridge to retirement and continue helping companies and providing services in their area of specialty. The informatics sector is watching today's debate and tomorrow the same principles will apply to building appraisers who are self-employed workers. It is the same thing.

[Thomas Mulcair, NDP, Outremont, QC]

Mr. Leblanc, you have had an opportunity to take a look at the motion that has been presented. I would like to ask you a fairly important question, since you are the one who is supposed to provide legal and technical advice.

Should the motion be adopted, would it provide a solution to the problem? It would be pointless to do all of this work if it did not provide an appropriate solution to the identified problem.

[Patrice Leblanc]

In my opinion, this motion is an excellent solution, although it does cover a wide range of issues. In my opinion, paragraph (c) is pointless—and I say this with all due respect for the work done by Ms. Jennings. If the company is not a PSB, a personal services business, the right tax rate will be used. Nevertheless, it seems to me that this is an excellent solution to explore.

[Thomas Mulcair, NDP, Outremont, QC]

Mr. Chair, I would like to repeat that the New Democratic Party will be supporting the motion, subject to a final technical verification. I have met with people. Aside from the technical, legal and legislative considerations, our analysis must give consideration to human beings and their families.

[The Chair, Conservative, James Rajotte]

Thank you, Mr. Mulcair.

Ms. Jennings, you have the floor.

[Marlene Jennings, Liberal, Notre-Dame-de-Grâce—Lachine, QC]

Thank you, Mr. Chair.

At the outset, I would like to thank my colleague Mr. Mulcair for supporting the motion I tabled in the House. On the subject of this motion, I would like to mention that my colleague, Ms. Hall Findlay, has raised two aspects that could be amended.

First of all, the second line of paragraph (c) states that there will be a "[...] a separate tax rate for self-employed workers equal to the tax rate for small businesses;". Ms. Hall Findlay is saying that, further to testimony we will be hearing from the Canada Revenue Agency with respect to the impact on income, this rate may be separate. Personally, I think that the rate should remain equal, but I am sensitive to the arguments raised by my colleague.

The second matter pertains to the third line of paragraph (d), where it says: "[...] a self-employed worker or an employee of another company [...]". She is suggesting that we replace this part with: "[...] an entity or company including a non-incorporated or sole ownership company [...]". Her wording is a little bit more complete.

I would like to go back to the issue of inequality and inconsistency in legislation. I find it very interesting that the Canada Revenue Agency can decide that the contract of an incorporated company is not valid—after all, it is not a court of justice—that the contract between the provider and another company is not valid, that the individual should be treated tax-wise as an employee and that these laws do not apply to large corporations.

The same company, who is now deemed to be an employee, is denied employment insurance because, according to the latter, it is not an employee. In addition, we are told that, according to the CSST—I would imagine there is not too much difference with the Canada Labour Code—it is, in fact, a company.

You will agree with me that, sooner or later, the government will have to review the Canada Income Tax Act in its entirety so that it reflects the reality of today's society with respect to the economy and companies. I see that several of you are in agreement.

I would like to ask another question.

Yes, Mr. Garceau?

[Fernand Garceau]

I would simply like to raise another issue.

Care must be taken to ensure that if paragraph (c) were amended to change the tax rate, if the tax rate were ever increased, that there be paragraph (f) which ensures that the amendment would apply retroactively from 2002. We have to ensure that none of the self-employed workers experience problems, because this measure would have an impact on a lot of people.

[Marlene Jennings, Liberal, Notre-Dame-de-Grâce—Lachine, QC]

Yes, thank you. That is right. I got the answer I wanted. Thank you very much.