Finance Committee on April 22nd, 2010

[Tim Wach]

As I say, different arguments can be made. The argument has been made that the risk profile is different between different debtors, between the government and.... If, for example, the corporation were to go out and borrow in the public markets, it would pay a higher rate than would the government.

[John McKay, Liberal, Scarborough—Guildwood, ON]

I suppose. I'm not quite sure that's the analogy you would necessarily draw.

What about if you analogize to the personal rates? If I owe the government money versus the government owing me money...?

[Tim Wach]

Then there would be a 2% difference.

[John McKay, Liberal, Scarborough—Guildwood, ON]

So it's either a 2% or a 4% difference that's resolved in favour of the government.

It seems to me we're getting into some interesting issues here. If I owe the government money, I'm only going to get a 2% premium, if you will. If my corporation owes the government money, it's a 4% premium.

[Tim Wach]

Correct.

[John McKay, Liberal, Scarborough—Guildwood, ON]

So if I'm practising law without incorporating, it's 2%. If I'm practising law with incorporating, it's 4%.

[Tim Wach]

That's correct, although I suspect in those circumstances the taxpayer can control where the debt or where the unpaid tax is.

[John McKay, Liberal, Scarborough—Guildwood, ON]

I have sat on this committee for a long time, but I haven't heard anybody come before this committee and say, “This is what we have to do here.”

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

We have a problem with 2%. Now it has become 4%.

[John McKay, Liberal, Scarborough—Guildwood, ON]

That's an interesting point.

Can I move on to another point? I didn't realize that from your briefing note.

[The Chair, Conservative, James Rajotte]

Mr. Pacetti, you have a question on this point.

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

Yes, a particular one. The example would be if I'm a corporation and I owe $100,000 on my income tax, but I'm waiting for $100,000 from my GST. If you have taken your time in refunding me for the GST, that would mean after a year, even though it's a net on my balance sheet, I would owe the government $2,000. Is that correct?

[Gérard Lalonde, Director, Tax Legislation Division, Tax Policy Branch, Department of Finance]

Well, before getting into that, there's some history behind this that I think would inform the committee.

The Auditor General had taken a look at a situation where it was—

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

I'm not so sure she pays income taxes, but anyway....

[Gérard Lalonde]

Well, I don't know if she does or not, but the issue was large corporations having money on deposit with the Canada Revenue Agency and obtaining interest on that accruing that the government has to pay at the treasury bill rate plus 2%. That means that for those moneys the Government of Canada would be paying more—

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

I'm sorry, Mr. Lalonde. I've read the report. You choose to make an adjustment for that. There are other things that we can also make adjustments for, for the Auditor General. I'm not so sure there are millions of businesses that plan their financing around sending extra money to CRA and then when they need it they can just ask for a cheque overnight. If there were a couple of companies that were doing it, good for them. I think the Auditor General got a little bit of press for that, but I'm not so sure I know of too many companies that can rely on that kind of financing.

My problem is that with the inefficiencies in the way the CRA works, I don't see how you can just not offset, because as I said, it's not uncommon for CRA to send a refund with many delays and meanwhile try to collect overnight. It could easily add up to a 2% difference over a period of time, especially since the taxpayer is not the one who controls when CRA is the one issuing the refunds.

[Gérard Lalonde]

Within the different types of taxes that apply, the tax law does apply a concept known as contra interest. So if you overpay and underpay, the interest charges and overages can be offset. They're offset on an even basis, so there's no differential there.

You're probably right that most corporations don't plan on leaving money on the table with the Canada Revenue Agency. That is appropriate, and it explains part of the impetus behind this measure. Most companies don't do that, for obvious reasons. If a company is looking for somewhere to place surplus funds, they can place them with a financial institution, in which case they would get a lower rate of interest than if they placed them with the Canada Revenue Agency. That's considered to be inappropriate. On the contrary, if a corporation goes out and borrows, they will pay a higher interest rate than they will when they place their funds.

Those are sort of normal business realities. They also apply with the CRA and the amounts the tax law requires they pay and charge in respect of overages and underages of tax payable.

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

Thank you.

[The Chair, Conservative, James Rajotte]

Mr. McKay, do you have further questions?

[John McKay, Liberal, Scarborough—Guildwood, ON]

It does stretch one's notion of basic fairness here. Little did I know that you could actually invest with the Canada Revenue Agency and make more money than you would at the bank. That's a pretty interesting idea.

On the surplus issue with pensions and things of that nature, obviously you're addressing a real issue here. I think it's quite significant. The effect of these measures, as I understand them, is that you move the surplus up to 25%. So on a defined benefit plan I could carry 125% of my liabilities, from 110%. Is that correct?

[Tim Wach]

Yes.

[John McKay, Liberal, Scarborough—Guildwood, ON]

That's the only question I have on that section.

[The Chair, Conservative, James Rajotte]

Okay.

Any other questions?

Mr. Paillé, you have the floor.

[Daniel Paillé, Bloc, Hochelaga, QC]

I want to continue with the rates of interest. You collect the same rate of interest from any individual or company owing money to Revenue Canada. It is always the same rate, the Treasury Bonds rate plus 2 or 4%?

[Tim Wach]

Yes.