Evidence of meeting #109 for Finance in the 41st Parliament, 1st Session. (The original version is on Parliament’s site, as are the minutes.) The winning word was process.
A video is available from Parliament.
Conservative
Mark Adler Conservative York Centre, ON
How long does the process take from the time you obtained that letter? Would it be a week, a month, six months...?
Conservative
Mark Adler Conservative York Centre, ON
Okay. So it's prioritized; it's triaged.
And once it is obtained.... Is everything in abeyance until the letter is obtained, in terms of...? Say there's tax owing. Then what?
Partner, Tax, KPMG
Probably, yes. You may be looking at other options, but.... You don't shut everything down, but you're—
Conservative
Mark Adler Conservative York Centre, ON
Yes, but this is clearly no way—by comfort letter—to run a tax collection system.
Conservative
Partner, Tax, KPMG
Well, no, when you get a comfort letter, the hope is that it would be enacted at the next available opportunity. So you'd only get a six-month lag, but—
Conservative
Partner, Tax, KPMG
The technical amendments may still not be enough to solve the business problem—business issues that arise and are not really onside. This would solve a lot of other comfort letter issues, non-urgent ones.
Conservative
NDP
Raymond Côté NDP Beauport—Limoilou, QC
Thank you very much, Mr. Chair.
I thank all of the witnesses for being here today.
I thank Mr. Hickey in particular for having been able to meet us, in spite of the difficulties that he faced. I would like to thank you as well for your heartfelt plea. I hope that my colleague, Mr. Adler, didn't take it as crocodile tears. That would be very unfair of him.
Obviously, considering the conditions in which we must work and the timelines that we have to deal with, we must focus on some very precise matters.
I am turning to you, Ms. Presseault. I am particularly interested in the issue of restrictive covenants, defined in section 195 of Bill C-48. I had the privilege of being able to ask other witnesses about it in previous sessions.
In an article on tax strategy taken from the September-October 2005 issue of CGA Magazine, on the subject of restrictive covenants, one can read that these new rules lack clarity and are too complex to be actually used. It mentions unexpected traps and missed planning opportunities for taxpayers.
There have however been some changes since then. Do you still have the same opinion of restrictive covenants?
Vice-President, Government and Regulatory Affairs, Certified General Accountants Association of Canada
Thank you for your question, Mr. Côté.
Unfortunately, I am not the person who is best able to answer your question about section 56.4 of the Income Tax Act. You would have had to invite the author. However, I am sure that the experts at the table will be able to answer your question.
Partner, Tax, KPMG
Is the question whether it's difficult to plan, with the restrictive covenant rules in proposed section 56.4? Is that the question?
It's difficult to plan, I guess, with a lot of sections in the Income Tax Act, but I think that over 10 years and with the various amendments and so on, while the rules are still not perfect, people are comfortable with the way they are intended to operate and are able to work with them and plan with them. Everything can always be better, but I think this is adequate for the time being.
NDP
Raymond Côté NDP Beauport—Limoilou, QC
Perfect.
I'll come back to you, Ms. Presseault, because your group calculated the cost of the tax system's complexity for the economy. That was a very interesting piece of information. When one wishes to serve the public interest, this type of cost needs to be reduced, not to mention the complexity that this means in terms of planning and activities.
The number represented approximately 2% of Canada's gross domestic product. As for restrictive covenants, I won't get you to perform a long analysis. It can be noted, however, that there were many cases before the courts dealing with this matter. Did the 2% figure that you calculated include the costs of legal proceedings in which the government is involved?
Vice-President, Government and Regulatory Affairs, Certified General Accountants Association of Canada
The cost that accounts for 2% of GDP is a statistic that was mentioned during the Summit on Tax Simplification which we held last December. Some of our participants identified costs related to it. If I am not mistaken, it is a number that was presented by the Fraser Institute. It represents the overall cost. I assume, without having verified it—but I can get back to you on it—that it also includes government-related costs.
Finally, in our opinion, two objectives must be pursued. First of all, the government must collect taxes owed to it. The English language expression, "secure the tax base", is a sound one. After that, the objective is for taxpayers to understand that the system is fair and equitable for everyone. Therefore, that is the balance the legislation is seeking to achieve.
NDP
Raymond Côté NDP Beauport—Limoilou, QC
The president tells me that I have one minute left.
I wish to question the witnesses further about restrictive covenants. It might be difficult to do that in less than a minute.
I spoke to other witnesses about the issue of companies' eligible goodwill pricing of capital assets. Could someone comment on the fact that Bill C-48 seems to have deliberately and explicitly excluded the goodwill restrictive covenants?
As an Individual
Thank you for your question.
I would just suggest, with respect to proposed section 56.4, that everyone, now that it's been through three or four iterations, knows what it stipulates.
The one area that perhaps could be looked at anew in the future is the problem—all of this derives from the Fortino situation—that if you have a company whose assets are being sold, and it's a family holding company and the non-compete is for only one of the members of it, the provisions really don't work that well. It's not the same as if the individual who gave it was also the principal shareholder. I would suggest that this is one area that in the future could be looked at.
Conservative
Conservative
Dave Van Kesteren Conservative Chatham-Kent—Essex, ON
Thank you, Mr. Chair, and thank you all for being here.
I want to wrap up some of our thoughts here. I'm going to give you my synopsis of this bill, and I want you to tell me if you think this is right. We're talking about the tax act itself, which is absolutely humongous. As we process those different changes we make, problems arise. These problems are identified by accountants and tax lawyers, by businesses and such. That is filtered down to MPs—MPs often get the message—but it's also filtered down to the people in the revenue department, our officials.
These are corrections. Mr. Vineberg, or it could have been you, Mr. Hickey, you talked about the uncertainty that exists. Last week I gave a personal case concerning my own business, where the government had a ruling that was in one of these limbo areas. They just arbitrarily came in, went to a number of us in the same business, and presented us with a huge tax bill. That can cripple a business if it's unstable or...nevertheless, it's something we can't have.
I tell my constituents that in this country we have the best system. There are no perfect systems, but this is as close as it gets, where we have many qualified MPs. But I would challenge anyone—with the possible exception of some really sharp accountants who have become MPs, for the most part a lot of this stuff is Greek to us, quite frankly. So we depend on you. We depend on great bureaucrats. The more I see of our bureaucrats, the more I'm impressed with the level of competence displayed. There are no partisans in bureaucrats. They couldn't care less whether it's a government that's.... They just do their job and they do it effectively.
You've all said—Mr. Hickey, it was in your recommendations as well—that this bill is something that absolutely must get passed. We all agree on that. I want to say, and I don't want to take the partisan side here, but it seems, even in this room, there is a willingness to pass this bill.
I challenge the opposition at this time, at least in this committee, to come out and say that we’re prepared to pass this bill.
What can we say to our folks back home, the people who elect us, when they say, “Well, isn't it your job to analyze this? Isn't it your job to scrutinize this before you pass it?” Can you give us some insight into how we would answer that kind of question? You're not a politician. You're not the member of Parliament for wherever you reside, but if you were a fly on the wall and you heard that conversation, if you had the opportunity to jump in, what would you say?
Mr. Vineberg, I'll start with you, then Mr. Hickey, and Ms. Presseault, and we'll go right down the line.
As an Individual
The Income Tax Act is certainly a very complex act. It's 2,882 pages, at least the most recent version. Presumably, there are other bills brought before you that are almost as complicated.
I think, fortunately, with respect to income tax, you have the byplay between the department and the outside tax community. These people say that these are basically non-controversial remedial issues and people don't have any significant problems. It's hard for people who try to do this on a daily basis to understand what's in every specific provision.
Conservative
Dave Van Kesteren Conservative Chatham-Kent—Essex, ON
There's an element of trust. Wouldn't you agree that in a free and open society, as we have, we have a very high level of trust? Don't you believe we have competent bureaucrats and we have people who...?
Mr. Hickey, go ahead.
