Finance Committee on March 7th, 2013

[Shelly Glover, Conservative, Saint Boniface, MB]

Very good. Thank you.

Mr. Vineberg.

[Michael Vineberg]

It would be helpful, but I do have a concern with respect to a sunset clause. I'm certainly mindful of the difference between our form of government and the American form of government. But when I see the mess the Americans have gotten into with sequestration, creating something where everyone would do everything so that it would not occur and yet it does occur.... At least now, with comfort letters, one has the virtual certainty that the comfort letters will eventually be adopted.

If, for the sake of argument, a comfort letter would only be outstanding for two or three years unless legislation was brought in.... Many deals are now done in Canada based on comfort letters, knowing that eventually they will be given effect to, and generally with retroactive application. If there was a possibility, because of a sunset provision, that this might be retiré, I wonder if the cure could be worse than the disease. But anything that could expedite Finance's drafting of the legislation and parliamentary review would obviously be helpful.

[Shelly Glover, Conservative, Saint Boniface, MB]

Thank you for your comments.

Thank you, Mr. Chair.

[The Chair, Conservative, James Rajotte]

Thank you, Ms. Glover.

Mr. Brison, please.

[Scott Brison, Liberal, Kings—Hants, NS]

Thank you, Chair, and thanks to each of you for helping inform our deliberations here this morning.

I want to start with a question to Ms. Presseault. You just said that what Ms. Glover has proposed in her motion is a step in the right direction, but it doesn't go far enough.

Are you proposing some of the approaches as would be in place in Westminster, as an example? Help inform us as to ways we could potentially—and I'm not saying not to adopt Ms. Glover's motion, but to potentially strengthen it.

[Carole Presseault]

As I said in my remarks, we looked at ways, and we've had discussions and consultations with a number of stakeholders, including officials and parliamentarians, on how we move forward this discipline. The endgame for us is having a discipline of bringing forward tax legislation on a regular basis, on an annual basis or every two years. That's our objective.

Then we have to go to the issue of how do we get there. We looked at what happens in other countries, and this is where we were attracted to this notion of a sunset mechanism, which would trigger bringing forward legislation or the legislation is deemed to never have been proposed. When we say “never have been proposed”, tax practitioners or tax professionals tell us that could create quite a mess.

But on the other side, there's quite a mess being created here. There's one measure contained in this bill that dates from 2002 and potentially could affect 18,000 taxpayers. It's with respect to donations. In this measure—and it went before the Federal Court of Appeal—the taxpayer was assessed, but the court established that the taxpayer had no appeal rights. It's a matter of fairness when this legislation is not brought forward. What the Federal Court of Appeal said in this matter is that there needs to be some form of retroactivity in terms of fiscal policy. That of course we accept. To be effective, there has to be some form of retroactivity. But the courts also said that doesn't take into account the length of time. The retroactivity assumes there is a limited amount of time.

[Scott Brison, Liberal, Kings—Hants, NS]

Mr. Vineberg, do you have...?

[Michael Vineberg]

I understand that it's Finance's policy, understandably, to ensure the presentation and the adoption of the budgets, generally speaking, in preference to technical measures. It's a question really of the parliamentary timetable. Obviously you can't have automatic adoption. Everything has to be adopted by Parliament.

[Scott Brison, Liberal, Kings—Hants, NS]

This is still a 1,000-page document that, even if it's not controversial, we are tasked with evaluating granularly in four days. Even if it's not controversial, do you think there's a risk that there's an erosion of our capacity to effectively enforce the power of the purse, as parliamentarians, in terms of the size of this? And in the general trend of omnibus legislation, do you fear that we're moving in the wrong direction, in terms of an erosion of the power of Parliament?

[Michael Vineberg]

Most of these provisions would have been presented previously. The proposed section 94 and section 94.1 measures have been before you and I think have been adopted in various iterations previously. There are relatively no significant provisions. Subsection 94(1) and section 94.1 are obviously significant provisions, but these have been studied before you I think at least three times previously, sir.

[Scott Brison, Liberal, Kings—Hants, NS]

Ms. Presseault.

[Carole Presseault]

I would tend to agree with you. I think the job, the mandate, of parliamentary committees is to scrutinize legislation and to ensure the legislation is the best possible. As stakeholders we can't scrutinize or go through a 1,000-page document. We have no one expert at that. It's difficult, on one hand, for parliamentarians to do their job and on the other hand for stakeholders to really do what we're supposed to be doing, which is giving you the technical value and technical input into the process. This is too big. This is just too big.

As uncontroversial as it is, there still is the basic principle of scrutiny.

[The Chair, Conservative, James Rajotte]

You have thirty seconds.

[Scott Brison, Liberal, Kings—Hants, NS]

What Ms. Glover is proposing could potentially help in this regard.

[Carole Presseault]

There's no doubt about that.

[Scott Brison, Liberal, Kings—Hants, NS]

Finally, just a comment. I find it curious that an organization representing accountants is pushing for tax simplification, but I commend you and your organization for that because I do think we need tax simplification and reform in Canada.

Thank you.

[The Chair, Conservative, James Rajotte]

Thank you, Mr. Brison.

Ms. McLeod, please.

[Cathy McLeod, Conservative, Kamloops—Thompson—Cariboo, BC]

Thank you, Mr. Chair.

Certainly we all acknowledge that this is a significant document. As we go through our briefing binder, I see many dates that go back to 2006, 2008, 2010. Certainly parliamentarians have had opportunities over these many years and through previous bills to scrutinize.

We've certainly heard debate back and forth in terms of regular updates, and I think regular updates are very important. Certainly since 2004, Parliament has gone through some fairly extraordinary times in terms of minority governments, which it hadn't in the past.

Mr. Kingissepp, you had given us a really specific example of something that was important to your clients. I know it was a challenge to them. But what would have happened if that clause had simply sunsetted, gone away? What would those ramifications have been to your clients?

[Andrew Kingissepp]

Yes, it would have been a problem.

I tend to agree with the concern that Michael addressed. It's quite common in a situation like this to file on the basis of the proposed law when the written comfort is obtained from the government. In this particular situation, the spun-off company—just to answer your question and to give you a concrete example—was actually the subject of a takeover bid a few years later.

Had the original treatment of the spinoff been taxable, the cost basis for the Canadian shareholder would have been the fair market value at the time of the spinoff. But when the amendment applies, you get quite a different result. Instead, your existing cost basis is prorated. In the spun-off company, your adjusted cost base is lower.

In good faith, the shareholders have generally filed on the basis of having a lower cost base and paid more tax, in effect, on the subsequent sale—all in reliance on the amendment. If what had happened was that the amendment had later been yanked and pulled, then they would have been in a position of having overpaid their tax, and it might have been difficult, depending on when that happened, to have a remedy.

So when people plan based on an amendment and do their filings accordingly, and if, generally later, you yank that amendment away, it can create a bit of an administrative nightmare.

[Cathy McLeod, Conservative, Kamloops—Thompson—Cariboo, BC]

Mr. Vineberg, do you have any comments on that issue?

[Michael Vineberg]

I would share Andrew's view. Unfortunately, delay often has its cost to taxpayers. Most of the taxpayers we would act for who are waiting on comfort letters and the adoption thereof are waiting patiently.

I referred earlier this morning to clause 274. Let me share with you the example of a real person.

A high-tech whiz, an American, comes to Canada and creates several hundred jobs. Three years later, he sells 40% of the company.

By the way, many of the Canadian employees were given shares and made lots of money.

He goes back to the States and files his taxes. A year later, his auditors check and say, “You came to Canada with common shares, but you left with class A common shares. You have a tax problem.”

May I say that I didn't act for the gentleman at the time. This was 2006. Somebody gave him my name, and since 2006...sorry, 2007, I've been trying to expedite clause 274.

He goes back to the United States with considerable capital, but is forced to put almost every single dollar he has in a trust fund to support a letter of credit for his Canadian tax obligation—a Canadian tax obligation that's going to be wiped out by this.

He's a serial entrepreneur. He wants to go into new businesses. He has a new business. He would have wanted to maintain a significant equity position in this company, but he has been diluted on two occasions because he doesn't have any money.

Although we generally say that a comfort letter is a bar of gold, and that it will eventually have been adopted, he even asked me to see if he could find someone to whom he could assign his rights, who would take over his position, and he would give them 15% of the money that was coming back to him. He just needed access to his money.

Fortunately for him, and maybe for me, Bill C-48 was presented, and now he's eagerly—patiently, but eagerly—awaiting its adoption.

[The Chair, Conservative, James Rajotte]

Thank you.

Unfortunately, we are over time, Ms. McLeod.

We'll go to Ms. Nash, please.

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

Thank you, Mr. Chair.

Good morning to all the witnesses. Thank you for being here.

I'm sure Canadians have been eagerly awaiting these changes for I guess more than a decade, about 11 years now. Now we have a bill of 1,000 pages, and in all likelihood the changes themselves are not really controversial, because they're technical changes based on announcements already made by the government. I believe what is controversial is the fact that Canadians have had to wait more than a decade to get these changes made into law.

This has been raised with the witnesses, other witnesses who have been here, as well as with you. We also asked these questions to the Minister of State for Finance, and he said the reason these changes were not made on a more timely basis was that there were minority governments in place, and then the government, when it was a majority, was dealing with a recession—or I guess even before, when it was still a minority government—and later still dealing with the after-effects of the recession when it was a majority government.

Ms. Presseault, we have a Westminster parliamentary system, as does, obviously, the British government. Let me ask you how they would deal with a situation of minority government and recession if they had a sunset clause. Given that these changes are not controversial, in your mind are these things genuine concerns to the enactment of a sunset clause for technical tax changes?

[Carole Presseault]

We haven't looked at the evolution of technical tax legislation in Westminster according to the status of Parliament, whether it was minority, majority, or the rest. I think that question is moot. I think there is a legislative timetable, and there is priority, and it is up to government to put forward legislation, whether it is in a minority or a majority situation. It's up to Parliament to dispose of that legislation. I don't think it's a factor.

I understand that the parliamentary calender is busy, the weeks here are full, but that's the job at hand. We've heard that discussion for years now. We've been told by officials that the reason we can't bring forward legislation is that Parliament is in a minority situation. Bring it forward; it will give some comfort to taxpayers to know that the legislation is coming forward.

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

Given that all parties have indicated their support because these are technical changes, the issue of contention is the process around bringing forward these changes. For that reason, I don't understand why having a minority government would be seen as a rationale for delaying making these changes. Anyway, I'm not asking you to speculate.

One concern we also heard about a sunset clause—and there was discussion about an annual sunset clause, and I hear you proposing a two-year sunset clause, which gives a little more breathing room, and Mr. Vineberg raised it as well—is what if the unexpected happens? I'm trying to imagine if there's a way to have a sunset clause but with an escape valve. I raise that and wonder if that makes sense, or does that just negate the whole notion of a sunset clause? Do you think that is something that perhaps should be pursued? That there is a sunset clause: you don't bring these changes into law, you shouldn't have announced them, and therefore they will no longer be in force after two years, unless the sky falls.