Evidence of meeting #110 for Finance in the 41st Parliament, 1st Session. (The original version is on Parliament’s site, as are the minutes.) The winning word was c-48.
A video is available from Parliament.
NDP
Murray Rankin NDP Victoria, BC
Were you thinking about the lack of resources for the Canada Revenue Agency or perhaps a difficulty in retaining personnel, etc.? Is it possible that might be contributing to that lack of compliance you refer to?
Moodys LLP Tax Advisors, As an Individual
I can't recall the blog you're referring to exactly, but in general I would suggest that, yes, there are probably significant under-resources.... Let's try that again. You just can't staff everything to catch all the abuse.
I don't know if I answered your question.
NDP
Murray Rankin NDP Victoria, BC
I think in another blog, you referred to, or Moody's Tax Advisors talked about, a deduction against Canadian tax for the vast amount of professional fees paid to the IRS offshore voluntary disclosure program, and you argued that there ought to be this deductibility. Can you speak to whether Bill C-48 addresses your concerns?
Moodys LLP Tax Advisors, As an Individual
No. Bill C-48 doesn't address that whatsoever, and I wouldn't expect it to.
Can I just address one question you had? Proposed subsection 237.3(17), which is what Mr. Tremblay is talking about, does carve out solicitor-client privilege. I'm a little puzzled as to where the issue is. Having said that, I'll just throw that out to you.
Conservative
The Chair Conservative James Rajotte
Thank you.
You've got about 10 seconds, Mr. Tremblay, if you want to respond.
President, Federation of Law Societies of Canada
I have just one response. In proposed subsection (17), the privilege belongs to the client. Subsection (17) forces the lawyer to make an assessment as to whether or not one portion of his consultation is covered and the other portion is not covered, and all of that without his client knowing about it. That is an impossible situation for a lawyer.
Conservative
Conservative
Dave Van Kesteren Conservative Chatham-Kent—Essex, ON
Thank you all for being here.
Sometimes we tend to think that a bill like this is pretty dry. I think as we've mined into it we've started to see how fundamentally important it is that we pass this thing.
I'm interested. Mr. Moody, you talked about a business transaction and how that slowed down commerce. We had a witness here last week, I believe it was, who gave an example of an American entrepreneur who had come into this country, had done very well, and then wanted to sell his business and move. Of course, when that type of transaction is made, the money starts to flow and things start happening.
I'm wondering if you have examples of that happening, where commerce has stopped because of laws that aren't clear, so clients stop in their tracks.
Moodys LLP Tax Advisors, As an Individual
Yes, and I'll give you a live example from about five years ago that comes to the top of my mind. I'll pick my favourite topic again, the restricted covenant proposals.
We had a transaction whereby a client was selling his business to an American company for I think it was in the $100 million range. It was a private business, and some non-compete agreements had to be granted by the individual who owned the company. In this particular case, and these were the early days of the draft legislation, a bunch of elections had to be filed if you respected the draft legislation. The U.S. counsel involved, who represented the purchaser, didn't understand what this meant to them. We insisted that if you're going to respect the draft legislation, you've got to sign it. Anyhow, to make a long story short, the deal died simply because of that.
Conservative
Dave Van Kesteren Conservative Chatham-Kent—Essex, ON
I've argued this as well. I understand. I think we've talked at length about the fact that there's a necessity to create legislation because people are going to cheat. But for the most part, I would argue—and I want to get your opinion on this—that most corporations and most individuals want to pay their taxes, not necessarily because they want to pay their taxes, but because they want to get it done. They don't want to be told—and I've had this happen personally—later on, a year or two later, that the government has made a little bit of a different ruling here. It's kind of like having the sword of Damocles hanging over you.
Is this the sort of thing that this legislation is going to correct, so that companies and individuals know that, yes, they've paid their taxes, they can go on, they can reinvest, and they can start to do the things that business people do? Is that a correct assessment?
I would just give it to you, Mr. Moody, and maybe Mr. Boehmer will want to add to that.
Moodys LLP Tax Advisors, As an Individual
I think it's a contributing factor. As my panel members have already agreed, it's important to get certainty. This goes a long way to getting that certainty and to keeping business moving.
Partner, Canadian Tax Practice, Ernst & Young
We're certainly aware. I have one particular example on the go in which if a taxpayer transfers a particular asset on which there is an advanced income tax ruling based on an outstanding comfort letter and included in Bill C-48, the accounting treatment is very odd. It would give rise to recording all of the tax in the financial statements. When Bill C-48 is passed, that liability that arises in the financial statement will be reversed based on what the law actually will be. It's a very anomalous result, and it has stopped the taxpayer from going ahead and completing the transaction.
Conservative
Dave Van Kesteren Conservative Chatham-Kent—Essex, ON
Finally, Mr. McCallum was talking about tax simplicity and simplifying the code. Is that a realistic objective, or is the answer that we just continuously do these sorts of things maybe on a timely basis? Can we have tax simplicity? Is that something we can achieve?
I leave that open to whoever wants to jump on that one.
Moodys LLP Tax Advisors, As an Individual
I'll jump in.
Obviously simplification is an admirable goal, and it's good media. Let's simplify the tax...the media often says “code”, but it's really the “act”. I think it comes at a price, though, and it comes at a price of fairness and equity. Is there room for simplicity? I would suggest there probably is, but do I think it's realistic? Nope, I don't, not in today's current environment. Commerce and the way we conduct business are way different from what they were when the Income Tax Act first came in, in 1917.
Conservative
The Chair Conservative James Rajotte
You're out of time, Mr. Van Kesteren. Did you want someone else to comment briefly?
Conservative
Chartered Accountant, Tax Expert, Tax Policy Specialist, Author, As an Individual
First off, I agree with Mr. Moody. We don't know whether the coming years will bring fiscal crises, but taxpayers are going to have to take a closer look at the Income Tax Act to determine whether it treats them in a fair, reasonable and equitable manner. The current Income Tax Act would make that impossible. It's even a bit tough to do that under Bill C-48.
In the short term, I don't think it's possible to simplify the act. We don't know what will happen in the medium or long term, since we don't know what the future holds or how tax laws will affect taxpayers.
Conservative
The Chair Conservative James Rajotte
Thank you.
Thank you, Mr. Van Kesteren.
Mr. Caron, you have the floor.
NDP
Guy Caron NDP Rimouski-Neigette—Témiscouata—Les Basques, QC
Thank you, Mr. Chair.
First, just to answer Mr. Adler, I've read The Wealth of Nations twice, not once. It's a very interesting book, but it makes more sense when it's read in conjunction with The Theory of Moral Sentiments, which Adam Smith also wrote. I suggest this reading as well to Mr. Adler.
I agree with Mr. Van Kesteren in that it's quite an interesting study. For parliamentarians, the topic is highly complex and occasionally incomprehensible. The bill is nearly a thousand pages long.
I want to pick up on something Mr. Adler asked Mr. Boehmer. Perhaps Mr. Moody and Mr. Shilinger can comment as well.
The government, which wants to pass this bill as quickly as possible, has asked a number of questions, including whether the bill should be passed immediately, without further delay. Would you recommend that Parliament or the committee not study these issues in detail, be it the content or the process used, in order to fast-track the bill? For the purposes of studying the bill before us, do you think the process matters, as regards both the content and the process followed?
Mr. Boehmer, we'll start with you.
Partner, Canadian Tax Practice, Ernst & Young
It's a very big bill and I think it's been studied a lot by a lot of people. As Mr. Shillinger mentioned previously, the Department of Finance has been open to consultation on a number of the provisions in the bill.
At this time it does make sense to get on and pass the bill, and if there are further technical amendments required, they should be made after the fact, at a later date.
NDP
Guy Caron NDP Rimouski-Neigette—Témiscouata—Les Basques, QC
The question I asked had to do with parliamentarians, the committee and Parliament. Although the bill has been studied by knowledgeable public servants, specialists and tax experts, even Mr. Moody acknowledges that it still contains elements that are largely incomprehensible.
Should we simply skip over the parliamentary process to pass the bill, as Canada Revenue Agency and Department of Finance staff see fit?
We understand this is important to your members and the Canadian public, but despite the time frame imposed on us, the members of this committee have a duty and a responsibility not just to study the content of the bill, but also to respect the process behind creating bills. I wanted more detailed information in that respect.
All of the witnesses we have heard from, those of you here today and those who have appeared before you, were extremely informative. In fact, we feel we should get more input to gain a better understanding of this highly complex process, the tax system.
Mr. Shilinger, would you like to start?
Chartered Accountant, Partner, KPMG
I would not change the parliamentary process of reviewing legislation at all. Whatever the process is of getting this bill enacted, stick to it, full speed ahead. Do not slow down the review process; that's critical to it.
I will echo comments made by the panel. I don't know if I would use the word “incomprehensible”. I will tell you that there are many parts of it, areas that I don't practise in, and we have specialists who spend their whole lives on that. I would say that the bill is highly technical and beyond the layperson. You're talking about complex areas of law that require people who have dedicated their lives to narrow provisions. The community has said, on all the various subject matters in this technical bill, that the fixes that are in it, the policy changes that are important to the government, are critical to be put through now.
NDP
Guy Caron NDP Rimouski-Neigette—Témiscouata—Les Basques, QC
Thank you.
Ms. Alepin, we talked about simplifying the system and coming back to elements of the legislation that already exist. We touched on the topic—and we won't have much time to discuss it further—but I would like to know how you think we, as parliamentarians, can study legislation that is over 3,000 pages long.
Chartered Accountant, Tax Expert, Tax Policy Specialist, Author, As an Individual
At this point, the government's limited resources, the highly technical nature of the bill, the fact that it applies to many, but not all, taxpayers, and so forth are all important considerations. Therefore, I tend to think it would be better to remove elements that clearly make no sense in order to pass the bill swiftly and move on to something else. At the same time, it would be advisable to make sure these situations don't happen again.
Outside these walls, some taxpayers are growing weary of watching us talk about a bill that everyone says they don't understand. So it's important to be watchful and keep that in mind as far as further analysis goes.