Finance Committee on March 19th, 2013

[Lorne Shillinger]

I have the same comment. It's preserving the integrity of the tax system and it's time to get this bill passed.

[Brian Jean, Conservative, Fort McMurray—Athabasca, AB]

Have any of you experts here at the table heard of anyone speaking against passing Bill C-48? Is there any legitimate opposition to it?

[Kim Moody]

Not really, just small little nits here and there.

[Brian Jean, Conservative, Fort McMurray—Athabasca, AB]

All right. Thank you very much.

Those are all my questions.

[The Chair, Conservative, James Rajotte]

Thank you, Mr. Jean.

Mr. Côté, you have the floor.

[Raymond Côté, NDP, Beauport—Limoilou, QC]

Thank you very much, Mr. Chair.

When I listen to my colleague Brian speak, it reminds me of when I was on the Standing Committee on International Trade. We would object to free trade agreements because they contained measures we did not agree with, not because we were opposed to free trade.

Coming back to you, Ms. Alepin, I found your presentation very enlightening. I was especially interested in what you said about the blatant contradiction as regards the provisions that will come into effect under Bill C-48 . They make a lot of sense, as you pointed out at the beginning of your presentation, but they conflict with the double taxation avoidance agreements between two countries. All of that is very interesting.

Right now, we are studying tax havens. At the end of the day, however, the real problem probably isn't the fact that people are trying to evade taxes but, rather, that the state is giving them the mechanisms to do so, or taking contradictory approaches.

Under this study, we have examined the issue of transfer prices because that is another serious problem. As you told my colleague Ms. Nash, the real problem, when all is said and done, is that the government is working against itself by signing these non-taxation agreements.

[Brigitte Alepin]

When I read Bill C-48 as it relates to all the measures the Canadian government is putting forward to address the taxation of Canadian multinationals, one thing is clear. On the one hand, the government really seems to want to end a form of tax fraud involving tax havens. It is targeting taxpayers, ordinary citizens who are not respecting the tax system by putting their money in tax havens. My sense is that the Canadian government wants to crack down on that practice.

On the other hand, however, when it comes to tremendous corporate and personal wealth, the government seems to want to create a legal way to exempt the super wealthy from paying taxes. There seems to be a two-tiered system to deal with the whole matter of tax havens, international transactions and so forth. If you're not a multinational or you aren't super wealthy, the government is watching you, given that a multitude of rules can be applied to stop your aggressive tax planning tactics. But if you're in the opposite position, the government seems to want to make it easier for you not to pay taxes. The upstream loan rules set out in Bill C-48 are an example of the government contradicting itself.

[Raymond Côté, NDP, Beauport—Limoilou, QC]

I have to say that your work has been very helpful as part of our tax haven study. Thank you very much.

I would now like to move on to Mr. Laforest. I found your presentation quite informative. I, too, did a short stint as a self-employed worker before I was elected. It's not an experience I remember fondly, tax-wise. I have to say it was unbelievably complicated.

When you talked about how the tax system treated self-employed workers in terms of their Quebec parental insurance premiums, you likened it to a hybrid formula based on the treatment of salaried workers. What you said about the deduction of the amounts paid under section 60(g) struck me.

[The Chair, Conservative, James Rajotte]

Thirty seconds left.

[Raymond Côté, NDP, Beauport—Limoilou, QC]

I have barely 30 seconds left. I talk a lot, Mr. Chair. Thank you for telling me how much time I have left.

How open do you think the Canada Revenue Agency is in this respect? Do you think it should make the correction to bring Quebec in line or should it be the opposite?

[Stéphane Laforest]

The tax treatment of those contributions must be adapted to what was done in Quebec, but contributions to the Quebec Parental Insurance Plan began on January 1, 2006. Taking into account the comments made by those who are also here, I can say that the bill follows a process that is complex and very slow, but that needs to be done correctly. When you look at the measures specific to the tax treatment of Quebec Parental Insurance Plan premiums, you see that, had they been treated in a separate bill, this issue would have been resolved long ago.

Section 118.7, as it appears in the brief, covers tax credits that are strictly applicable to salaried workers, and not entrepreneurs, as far as premiums paid go, including employment insurance premiums. That is the section in which a portion of the Quebec Parental Insurance Plan deduction is being incorporated. That goes against not only the purpose of the section, but also against the very nature of business income.

[The Chair, Conservative, James Rajotte]

Thank you very much.

We'll go to Mr. Adler, please.

[Mark Adler, Conservative, York Centre, ON]

Thank you, Mr. Chair.

I'm delighted to see all of you here this morning.

I would like to begin by commending Mr. Moody on mentioning Adam Smith, and I would highly recommend The Wealth of Nations to my friends in the NDP. It's not only far more enjoyable reading, but far more practical reading than the Marx and Engels reader. I would encourage you to head to your nearest bookstore and pick up a copy.

Conceptually speaking, this bill is about tax fairness, as you have indicated, Mr. Shillinger. Since 2006 our government has closed about 50 tax loopholes, and as a result we have been able to bring in about $2.5 billion more annually.

I put this to Mr. Boehmer first. Could you comment on this bill more as a bill trying to achieve tax fairness and tax consistency and stability in the marketplace, as opposed to just a run-of-the-mill tax bill?

[Greg Boehmer]

That's a very difficult question, in a sense. I think it is fair to say that businesses and corporations, and individuals for that matter, plan their affairs based on actual tax legislation. It's very clear that this legislation is aimed at fairness, that it does close a number of loopholes, and that it does broaden the base in certain circumstances. On the other hand, from a taxpayer's perspective, it has a number of relieving measures that really do help the taxpayer get through with a particular transaction. So it's a very welcome sight from that perspective.

The main issue, as I see it—and I'm sure some of the others here today would see it this way as well—is that when you have a change that's introduced and then it's changed and changed again, through various iterations, and it's reintroduced several times, it makes coming to a decision and an interpretation of a particular provision of the act very difficult.

I think enacting this, with all the potential shortcomings, is nevertheless a very good thing for the government to do.

Looking forward, I think additional amendments are obviously required, but perhaps at some point look at the statute and try to figure out if some sort of reform is necessary.

[Mark Adler, Conservative, York Centre, ON]

So passing this bill as expeditiously as possible would not only benefit taxpayers, both from the business community and individuals, but it would also help tax practitioners do their job.

[Greg Boehmer]

Absolutely, and it's not just our job; it's getting on with business for our clients.

[Mark Adler, Conservative, York Centre, ON]

Creating additional jobs, growth, and long-term prosperity in our country....

Mr. Shillinger, could you comment on the consultative process and how your clients view that entire process? We're known for being very consultative and reaching out before we come up with legislation that's introduced in the House—consulting almost to a fault. Could you comment on the degree of satisfaction among your clients, in terms of our consultative process and reaching out and getting their opinion?

[Lorne Shillinger]

It's an excellent question. Actually, it's been very much top of mind for us as well.

The initial announcement on Halloween in 2006 wasn't consultative. It would have been a shock to the system. Again, shutting down a sector is a policy choice.

The REIT community as a whole was greatly relieved that they were spared, and there's global precedent to keeping real estate investment and flowthrough structures—preserving that. The REIT community responded with relief that they were spared. Dealing with the technical material that followed months later...it was drafted quickly, and there were flaws in the draft legislation that made it difficult for the REIT community to actually follow the rules.

But the process continued. All of the professionals serving large REITs—the joint committee on taxation, the lawyers and accountants—made submissions to Finance. I know I was one of three people who flew up to the Department of Finance in the fall of 2006 to start our series of meetings with them. Those meetings were productive.

No one said no to us. It was a very healthy debate around taxpayers who just wanted to follow the rules, and making presentations to make those rules work with a modern REIT structure. A landlord who builds, develops, and rents to tenants, and who forms structure throughout the years, just wants to make the rules work.

The process was very good and healthy. We went back as different versions of the bill came out. There were flaws brought to their attention and they were addressed and fixed.

[The Chair, Conservative, James Rajotte]

Thank you.

Thank you, Mr. Adler.

We'll go to Mr. Rankin, please.

[Murray Rankin, NDP, Victoria, BC]

Thank you.

First of all to Mr. Adler, through you, Mr. Chair, I'd like to quote Adam Smith, who I read regularly:

...to feel much for others and little for ourselves, to restrain our selfish, and to indulge our benevolent affections, constitutes the perfection of human nature.

That's Adam Smith.

I'd like to ask a question of Maître Tremblay, if I could. You mentioned, sir, the reporting requirements that the B.C. Supreme Court found unconstitutional in respect of parallel legislation, and you indicated that the B.C. Court of Appeal is soon going to pronounce on that appeal. You said, I think, that there's a section of Bill C-48 that has the same effect. What I think you're saying is that if that Court of Appeal decision stands and is applicable across the country, we'll immediately have an unconstitutional section of Bill C-48. Is that what you're saying?

[Gérald Tremblay]

There's nothing absolute in law. I'm saying we're all in favour of speedy passage of this legislation. If we could avoid further litigation, a very minor amendment to proposed subsection 237.3(17) would close that possibility and I think would respect the integrity of the relationship between the client and his lawyer.

[Murray Rankin, NDP, Victoria, BC]

When you speak of lawyers, I recognize, of course, sir, that you're accountable to the lawyers and notaries of Quebec. What about tax advisers who are accountants? What about those advisers? Don't they have similar concerns? Wouldn't you expect there should be some similarity? I realize solicitor-client privilege is not applicable to other professions, although in Quebec there may be something in their profession's code that would be applicable.

Isn't this a little unfair?

[Gérald Tremblay]

The issue here is really professional privilege. I would say that in all “civilized countries”, the lawyer has always had a very special status because of what it is; the solicitor-client relationship is extremely important. I realize that it could be very embarrassing, too, for accountants. It may require some adjustments for them, too. But I speak for the legal profession. The legal profession has always been described as a foundation of our system.

[Murray Rankin, NDP, Victoria, BC]

Okay.

I'd like to ask Mr. Moody a question and demonstrate that it's not only my colleague Mr. McCallum who reads your blog. In The Bottom Line, I think you said:

One reason for the changes, and the complexity, is a feeling within government that there is a lack of compliance in certain tax areas.... There is a general feeling that there’s a whole bunch of abuse out there. The Department of Finance wants to capture that abuse as broadly as possible. As a result, rules are created that are often incomprehensible.

—to use the words you've used again this morning.

Are you speaking more of multinationals and large corporations, or are you thinking of individuals, or both?

[Kim Moody]

I'm thinking of everything. I think if mischief is perceived to be going on, one way of fixing that problem with respect to drafting legislation is to take a shotgun approach and try to kill everything that's perceived to be the abuse now and into the future.