Finance Committee on March 5th, 2013

[The Chair, Conservative, James Rajotte]

I call this meeting to order. This is the 108th meeting of the Standing Committee on Finance. We are televised, colleagues.

Our orders of the day, pursuant to Standing Order 108(2), concern the subject matter of Bill C-48, An Act to amend the Income Tax Act, the Excise Tax Act, the Federal-Provincial Fiscal Arrangements Act, the First Nations Goods and Services Tax Act and related legislation.

Colleagues, for the first hour we have again officials from the Department of Finance. We are also very pleased to welcome the Minister of State for Finance, the Honourable Ted Menzies.

Minister, with your officials, welcome back to the committee for the first hour. I understand you have an opening statement, and then we'll have questions from members. I do want to welcome you. Perhaps you can introduce your officials as well. I understand there are three Edwards at the table today. I don't know if you were named after Edward the Confessor or Edward I.

[Ted Menzies, Conservative, Minister of State (Finance)]

Thank you.

I don't know that we're going to start numbering, but it is a rare event to have three Edwards sitting at the end of the table. Edward Short is with me, as well as Ted—or Edward—Cook and Shawn Porter. I will be leaning heavily on them, because as you all know this is very technical. We understand it on the surface. We understand the reasons for doing it, but these individuals will be able to explain how we are actually doing this and the depths of it.

Mr. Chairman, if I can, I first want to thank all of the members of the finance committee for undertaking this important consideration of Bill C-48, the Technical Tax Amendments Act.

I will start with relatively short remarks, as I would like to leave as much time as I can for questions from the members of the committee to me and my departmental officials here today.

Prior to beginning those remarks, I would like to pause for a moment to express my gratitude and thanks, as well as those of Minister Flaherty, to both the chair and all the members of the finance committee for their hard work in recent months. To begin with, I'd like to recognize the committee for completing its annual pre-budget consultation hearings and for tabling such a comprehensive report this last December.

In addition to the consultations conducted by me and the Minister of Finance, this committee's proceedings and report are key components of how we all ensure that Canadians from all across this country have the opportunity to provide their input into the federal budget. As in previous years, the recommendations from the finance committee's report will help guide us in the development of that budget.

On another note, I want to applaud the committee for tabling its report this past February on potential opportunities for our government to help boost charitable giving in Canada. As we review this comprehensive study of ways to support Canada's charitable sector, I congratulate the committee for undertaking this landmark study and for consulting so thoroughly with charities from coast to coast to coast.

Now I'll move on to the matter at hand, this Technical Tax Amendments Act. As the name suggests, this legislation is fundamentally very technical. Nevertheless, it has important implications for taxpayers, both individuals and businesses.

Indeed, today's legislation actually represents over a decade's worth of miscellaneous tax amendments that have long been backlogged and that are important to Canada's taxation system. It's a backlog that has festered and grown, as Parliament has not passed technical tax legislation for over a decade, despite previous attempts in recent parliaments, including those by our government.

The backlog has grown to such an extent that numerous groups have urged Parliament to act. In fact, the Auditor General of Canada, after careful examination, recommended in a recent report that this situation needed to be addressed. I will quote from her report from 2009:

Taxpayers' ability to comply with tax legislation depends on their understanding of how the rules apply to their own circumstances.... Uncertainty about how the law should be applied can also add to the time taken [as well as the] costs incurred by tax audits and tax administration.

Our government wholeheartedly agrees with that statement, and that's why we've been working extensively over the past few years to clear this decades-long backlog. During that time, we've held numerous public consultations on these amendments, allowing Canadians to provide feedback before the formal introduction, to allow any issues or concerns to be dealt with in advance.

With that far-reaching consultation process now complete and the legislation introduced, we move to the next stage in this long journey, and that is the examination and the study by Parliament.

I truly believe that all parliamentarians recognize the need to work together in a cooperative manner to conduct the detailed yet timely study that this legislation deserves.

The Certified General Accountants Association of Canada is a strong and vocal proponent of addressing this technical tax backlog, as members of this committee will recall from their numerous appearances before you. Let me quote from them regarding today's legislation:

By tabling this legislation, the government is taking concrete action to deal with the backlog of unlegislated tax proposals.... The new bill will provide more certainty to Canadian taxpayers and lessen the burden of compliance.... With unlegislated tax measures, taxpayers and professional accountants must maintain their records and forms—sometimes for years.... This uncertainty and unpredictability places an enormous compliance burden on taxpayers, businesses, professionals and their clients.

With that background in mind, let me highlight certain aspects of the legislation, specifically those related to closing tax loopholes, something that may be of interest to the committee given your current study on tax evasion and tax havens.

Although some members on one side of this table might not agree with our government's low tax agenda, I think we would all agree on the need for tax fairness. That being said, everyone should pay their fair share of taxes, and the principle of tax fairness is important for a whole host of reasons, none more so than that it allows taxes to remain low across the board and not merely for a select few who abuse the system at the expense of hardworking, honest Canadians who do play by the rules.

Indeed, since taking office in 2006, our government has introduced over 50 measures to improve the integrity of the tax system by closing tax loopholes worth about $2.4 billion annually. In keeping with that principle and with our record, the technical tax amendments act of 2012 proposes to strengthen Canada's tax system by closing a number of tax loopholes and improving fairness for all Canadian taxpayers.

For instance, in order to help protect the integrity of the income tax system, this legislation contains various measures to address aggressive tax planning. A number of these rules are intended to frustrate those who would use aggressive tax avoidance transactions, including, for example, the rules concerning foreign tax credit generators, refinements to the application of the specified leasing property rules, rules to curtail loss trading on the conversion of income trusts to corporations, and rules intended to strengthen the integrity of the non-resident trust provisions. Today's legislation also contains measures to implement a more rigorous information reporting regime for certain transactions associated with schemes that are intended to avoid taxes.

This tougher reporting regime will help the Canada Revenue Agency get early disclosure and detailed information on transactions that present a high risk of abuse to the income tax system and assist the agency in challenging them if they are in fact found to be abusive.

As I said at the outset, I will make these remarks short, so I will stop there and open the floor in the time remaining for questions of the committee that either myself or these officials who are here to help me will be happy to answer.

In closing, let me sum up in a few short phrases why passage of this lengthy bill is important. It provides certainty for taxpayers, it makes compliance easier, and it improves tax fairness for all Canadians.

We welcome your questions.

Thank you, Mr. Chair.

[The Chair, Conservative, James Rajotte]

Thank you very much, Minister Menzies, for your opening statement.

We'll begin members' questions with Ms. Nash, please.

[Peggy Nash, NDP, Parkdale—High Park, ON]

Thank you, Mr. Chair.

Welcome to the committee again, Mr. Minister.

Welcome to the finance department officials again, and thank you for appearing here concerning Bill C-48.

Obviously, we support the goal of closing tax loopholes and making the tax system in Canada clearer and easier to understand for Canadians. As you know, this is a bill that runs almost 1,000 pages in length, so it makes for some weighty reading for the finance committee.

As you say, it's important that these technical changes be adopted so that there is clarity and certainty in our tax legislation.

I noted that CGA-Canada issued a press release with the introduction of Bill C-48, and it talked about the importance of adopting a mechanism that would set a limit, a date, to have modifications or changes adopted once they're brought into law. As you know, this bill includes changes, some of which are over a decade old, and certainly for some time professionals in the tax field have been clamouring for these changes to actually be put in law for the sake of clarity and ease of understanding.

What do you think about the recommendation of the tax professionals that there be a time limit set for tax changes so that they would be adopted in such a bill in a timely fashion, rather than letting them sit for more than a decade?

[Ted Menzies, Conservative, Macleod, AB]

Thank you, Ms. Nash.

Through you, Chair, I remember sitting at this committee for many appearances of the CGA and other tax experts, chastising us for not having accomplished this. Unfortunately, we sat in a minority Parliament for quite some time. In fact, from the day I was elected in 2004 until January 2011, we were in that situation. We attempted a couple of times; previous governments attempted a couple of times.

To set a deadline on it, I think, is a challenge because it all depends on the number of tax changes or improvements to the tax system. The officials will be able to elaborate on this.

We're in constant consultation with those people involved. These folks have had the opportunity to clarify points, to actually issue comfort letters, if you will, to some of the people who were caught up in limbo, if you want to use that term. The consultations have been effective. We think those consultations have been helpful.

We continue to move forward as quickly as we can with these, but there's a process involved. I don't think it's appropriate to set time limits on it at this time, but we welcome their suggestions.

[Peggy Nash, NDP, Parkdale—High Park, ON]

So you would differ with the CGA on this point in terms of having a mechanism that would require governments to pass changes in law within a certain timeframe.

[Ted Menzies, Conservative, Macleod, AB]

Well, we welcome their suggestion.

[Peggy Nash, NDP, Parkdale—High Park, ON]

I only have one minute left.

One of the areas that you have mentioned in your remarks and that was covered in this bill is the whole question of tax avoidance, tax loopholes. We're studying tax havens and tax avoidance, of course, in this committee. Something I would think a minister with your portfolio and others in your government would be interested in is some mechanism to determine, whether it's through some kind of spot check or sampling, what the gap might be between what we're collecting today and what the potential revenue is if we were to crack down further on tax havens and tax avoidance.

Do you have an opinion on that?

[The Chair, Conservative, James Rajotte]

Just give a brief response, Minister, please.

[Ted Menzies, Conservative, Macleod, AB]

I certainly have an opinion, and you're dead right. Why should most Canadians work hard to pay their taxes, pay an accountant to make sure they're paying their fair share of taxes, while other people are allowed to avoid them? I referred in my opening comments to some of the numbers. I'm sure that our officials, maybe in answer to a later question, might give us the numbers of the potential losses. I do applaud your work here at this committee.

[Peggy Nash, NDP, Parkdale—High Park, ON]

You've been unable to do so. Thank you for your comments.

[Ted Menzies, Conservative, Macleod, AB]

I guess it's hard to gauge what we're not getting.

[The Chair, Conservative, James Rajotte]

Thank you.

Thank you, Ms. Nash.

Mr. Hoback, please, it is your round.

[Randy Hoback, Conservative, Prince Albert, SK]

Thank you, Chair.

Thank you, Minister and your staff, for being here this morning. It's great to see you.

I guess it's been more than 10 years since we actually looked at tax amendments and what needed to be changed. If we look back over 10 years and the number of changes in our economy, that's pretty substantial. In fact, I think if I go back 10 years, I didn't have any grey hair. I know you didn't have any grey hair for sure; I don't think you do right now.

Where I want to go, Minister, is to talk to you about the backlog in the Auditor General's report from 2009 and how you went through the process of analyzing that report and coming forward with the government's response to the recommendations made in that report.

[Ted Menzies, Conservative, Macleod, AB]

Through you, Mr. Chair, we recognized that all along. In fact, when that report was tabled in 2009, we thought that would actually help move things along. It did highlight a number of problems that were raised.

It's for individuals, it's for your constituents that there's uncertainty, whether they're farmers or business people in your constituency. The tax preparers had to maintain all of these records. There's uncertainty, and I'm sure their advice to your constituents would have been that this was what they thought was actual. That was what CRA was advising them, but there was not enough certainty for them to take it to the bank, so to speak.

Certainly there was the inconsistency in the process. While I sat at this committee we had many accountants, as I say, who would come and say they needed us to get this done because it was creating more work. And when it creates more work for a tax professional, we know who pays the bills on that. It's the individual.

I don't know if our officials have any further comment. As I said before, it's given us an opportunity to actually reach out to these people who are affected by it and consult more.

Does anybody have any further comment?

[Ted Cook, Senior Legislative Chief, Tax Legislation Division, Tax Policy Branch, Department of Finance]

In regard to the department's response to the Auditor General's report, it's worth mentioning that there were two recommendations. The first was that the department should use an integrated and consistent process for recording, tracking, and prioritizing all technical issues for possible legislative amendment. The second recommendation was that the Department of Finance should develop and implement a plan to address the current backlog of necessary technical amendments, and it should regularly develop and release technical amendments, including those that arise from comfort letters.

As I indicated in our appearance last week before the committee, since then we have introduced a new database for tracking legislative amendments. That database has been subject to an internal audit at the Department of Finance and has been found to be fully functioning. With respect to developing and releasing new packages of technical amendments, additional packages have been prepared for ministerial consideration and in fact were released in November 2010, October 2011, and the most recent was released in December 2012.

[Randy Hoback, Conservative, Prince Albert, SK]

When you look at different changes in income tax or different programs brought out by governments—I'll use the one for self-employed individuals and the benefits they can now get through EI. Would those types of changes make that implementation easier or more effective?

[Ted Cook]

I believe the specific amendment you're talking about was the Fairness for the Self-Employed Act, back in 2009-10, which allowed certain EI benefits to be provided to self-employed people if they chose to opt into the system.

[Randy Hoback, Conservative, Prince Albert, SK]

There were maternity benefits and stuff like that, yes.

[Ted Cook]

Yes. So this is not one of our usual comfort letters. This is a consequential amendment to the Income Tax Act that is required to make sure people can get an EI tax credit for those premiums, and that measure is contained in this bill.

[Randy Hoback, Conservative, Prince Albert, SK]

Thank you.

Mr. Chair, I'll leave it at that.

[The Chair, Conservative, James Rajotte]

Thank you very much, Mr. Hoback.

We're going to go to Mr. McCallum. Welcome back to the finance committee.

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

Thank you, Mr. Chair.

[The Chair, Conservative, James Rajotte]

It's déjà vu all over again.

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

It's good to be back.

My first question is on a somewhat different topic. Today we heard that the federal government was going to cut a $2 billion transfer to the provinces for skills training and presumably use that money in its own way. I wonder if you could confirm whether that report is indeed true.