Finance Committee on Oct. 27th, 2011

[Wayne Marston, NDP, Hamilton East—Stoney Creek, ON]

Thank you.

[The Chair, Conservative, James Rajotte]

Thank you.

We'll go to Ms. McLeod.

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

Thank you, Mr. Chair.

It's a pleasure to be here on a beautiful sunny day.

I'd like to start with questions to the Edmonton Chamber of Commerce. I want to talk about the recommendations. We've had a number of people who have come to this committee. The ones who stand out dealt with the actual Income Tax Act. Could you talk a little bit about your recommendations number one and two and why they're so important?

[James Merkosky, Chair, Finance and Taxation Committee, Edmonton Chamber of Commerce]

The first recommendation dealt with timely assessment of tax returns. Really, this is about bringing tax certainty to taxpayers. Currently in the Income Tax Act, there's no requirement that a return be assessed within a specific period of time; it just says “with all due dispatch”. So practically speaking, the Canada Revenue Agency can take as much time as it wants before it assesses a tax return, which then starts the period for statute-barred. So it's a matter of bringing certainty to the taxpayer of when that statute-barred period will end.

If it takes a long time for a return to be assessed--granted, the taxpayer does earn interest on what's being held--small businesses can use that money in their businesses far better than the rate of interest they're earning on a refund. Those are the two key tenets: getting the cash back to taxpayers if there is a refund, and bringing tax certainty to when that statute-barred period will end.

The second one had to do with the intergenerational transfer. The key to this recommendation is that in upcoming years there will be billions of dollars of wealth transfer to the next generation. A major driver of the Canadian economy is small business. With the current tax structure, there are opportunities for tax to be levied where there's no cash on the table. Effectively, that could end up killing small businesses that are driving the economy in cases where they are transferring to the next generation. Our recommendation revolves around taking a look at these provisions to make sure we're appropriately taxing those taxpayers at the appropriate time.

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

You might have heard the conversation about the corporate tax rate. The government believes that a competitive corporate tax rate creates the jobs and the environment for success, which in turn creates the opportunity to pay for the social programs that we need and desire.

Having heard some of the conversations on corporate tax rates, can you share your perspective on this issue?

I'll ask the Edmonton Chamber of Commerce.

[James Merkosky]

My primary area of practice is cross-border tax. I deal a lot with the United States. One of the major advantages of the Canadian taxation system is that we have tax integration in Canada, meaning that if you earn a dollar personally versus earning a dollar in a corporation, and are ultimately paying that out to a shareholder, you pay about the same amount of tax. It doesn't matter which entity it's earned in.

At the end of the day, a corporate tax cut results in less tax overall for the individuals who are earning income from the corporations, be they individuals or corporations. So it's a bit of a misnomer to say that a corporate tax cut does not benefit individuals, because it does. The ultimate flow-through of that income is tax left to individuals.

The other key tenet is that “corporation” doesn't just mean big business. There are a lot of small businesses that drive the economy. As well, the corporate tax cuts flow down to the small businesses, and this helps the economy as a whole.

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

I'd like to go to BIOTECanada now. It's interesting to hear you talk about the challenges your industry faces. In the last few days we've been up north and we've been to British Columbia, where venture capital for high-risk mining activities seems to be easy to come by. Well, perhaps it's not so easy, but it wasn't deemed an issue.

Have you ever compared the two? You talked about the location and the density of products. Could you talk briefly about that?

[John Hyshka]

Because I'm in Saskatoon and we are becoming one of the capitals of junior and major mining companies, I get to have drinks with a lot of these executives, and we compare our industries. There are a lot of similarities. Junior companies are doing their stakes and trying to develop mines, and they are trying to find larger partners to commercialize their mining.

The advantage they have is, firstly, that Canada has had a history of mining, so our investors are more in tune in regard to the mining sector and the oil and gas sector. But they've also had the flow-through and other incentives that have enabled junior mining companies to raise capital a lot more easily.

There's a local investment banker in Saskatchewan called MGI. When you talk to them about doing a mining deal as opposed to a life science deal, they're always going to go with mining because they know that people are more familiar with the process of getting a return.

So there are advantages.

[The Chair, Conservative, James Rajotte]

Thank you, Ms. McLeod.

We'll now go to Mr. Giguère.

You have five minutes.

[Alain Giguère, NDP, Marc-Aurèle-Fortin, QC]

I have a question for the representative of the Edmonton chamber. Essentially, your principal request is for a new Carter commission, because I see the law at present as excessively difficult. It is so complicated. How can the modifications involve new opportunities for everyone to not pay the taxes...? Do you support a non-partisan Carter commission?

[James Merkosky]

I think it has been 40 years since the Carter commission was undertaken. A lot has changed in 40 years in terms of the economy in Canada and taxation.

What we're basically saying is, let's take a hard look at our taxation history, because really, what happened in 1972 was that some strong recommendations came out and major tax reform occurred. Over the years, things have, piecemeal, been added to and deducted from this existing tax frame. Why not take a look at it now and see if we can come up with a more efficient, straightforward, understandable, and fairer tax system?

A good tax system provides Canada with a competitive advantage over other countries out there. Again, I work in cross-border tax and when I compare the Canadian tax system to the United States, it's far better. Why not take it that step further?

[Martin Salloum]

Just to be clear, we weren't talking about what we can tinker with in the tax system. We're talking about a review from the ground up.

[Alain Giguère, NDP, Marc-Aurèle-Fortin, QC]

Thank you.

If, as you say, the job of the commission is to supervise, as was said, and the preparation of this commission is non-partisan, it makes sense that it's a good preparation for this: to indicate what is the new commission for fiscalité. Would you support this orientation?

[James Merkosky]

Absolutely. We believe that a good review would have to be non-partisan and, as Martin said, from the ground up.

[Alain Giguère, NDP, Marc-Aurèle-Fortin, QC]

Now my question is for the representative of the BIOTECanada.

Presently, many interventions on the question of R and D credits indicate three problems. The first is if you have the support of something like the province, municipality, or a university, you are fiscally penalized.

Second, for many important enterprises, you have a fiscal credit but not an immediate payment. You'd prefer a payment for the question of cashflow gestion.

The third problem is that--and it's difficult to mistake--you have problems of accessibility. You have a law, the legislators make a good law, and the public function gives one other orientation.... It is a surprise for me that you seem to indicate your support for these three requests of your friend.

[Cate McCready, Vice-President, External Affairs, BIOTECanada]

Mr. Giguère, I am sorry but it's not very clear. What are you referring to exactly?

[Alain Giguère, NDP, Marc-Aurèle-Fortin, QC]

Three problems have come to our attention. The government basically gives some large corporations a tax credit instead of sending a cheque.

There is another problem. As soon as a province gives you support for your eligible expenses, you have to deduct the subsidy from either university programs, the provincial government or the municipal government. What that does is discourage action.

Third, there is access. The legislation is clear. It identifies three criteria. You must show progress, a question to answer and scientific work under way. Unfortunately, officials bend the rules to reduce spending.

[Cate McCready]

That shows exactly how opportunities work. To have good governance, all government levels should work together to address the situation. What are the programs that can give, like the companies John was referring to this morning,

a more efficient opportunity for them to operate and benefit from the programs that are in place. Alignment of public policy is the largest challenge that industries like ours or small SMEs face. It's about those two levels of government, so that when you have initiatives at one community level or one provincial level, you are not penalized at another government level for that initiative.

We can see globally as it relates to our sector particularly, where biotechnology and life sciences have now been an economic catalyst, recognized by governments, and they're working to align their public policy incentives for exactly that goal. So it's an opportunity for Canada, I think, to look for.

[The Chair, Conservative, James Rajotte]

Okay. Merci.

We'll go to Mr. Adler, please.

[Mark Adler, Conservative, York Centre, ON]

Thank you, Chair.

Thanks to all the witnesses for being here today.

I'd like to begin my questioning with the Edmonton chamber. I really love these quotes in your third section on the simplification of the tax statutes. Two of them were extracted from two cases.

We were in Moncton a couple of weeks ago. One of the witnesses brought in the tax code. It was thicker than the Toronto phone book.

You know, no one here is calling for a Herman Cain kind of proposal, for that kind of simplification of our tax code, but you were right earlier when you indicated that there hasn't been a comprehensive review of our tax system since the Carter commission in 1972.

Having said all of that, there are some in Parliament who are calling for higher taxes and greater spending. I'd like your comments on that. There seems to be a misnomer that corporations are the Bay and King bank towers downtown and all the corporate heavies that hang out there. But most corporations in this country are small businesses, and I suspect that most of them in Edmonton would be members of your chamber.

Can you tell us what your members are saying about the importance of keeping corporate taxes low, on the one hand, and on the other hand returning to balanced budgets? The alternative is to go down the route of some of the European countries.

Can you talk a bit about what your members are saying?

[James Merkosky]

I think generally in the Edmonton chamber a lot of our members are basically saying that from a tax review perspective, it's time to review the tax system from the ground up. I don't think any of our members are opposed to paying tax. What they are opposed to is a tax system that is complex for them to understand. That's number one.

With regard to the trade-off you're talking about between spending and corporate tax rates, or tax rates in general, I think the view is that we can achieve both if we come up with a fairer tax system, one that is reviewed and that taxes appropriately, as opposed to basically trying to tax the taxpayer at source, on their income. Is there a better way of doing that?

[Martin Salloum]

I'll add that over 80% of our members and 80% of the business community in Edmonton are small businesses. Most of those have fewer than 10 employees. Comments about them flying around in corporate jets and buying toys would be kind of funny to most of them, if they were listening to that.

I think it's important to realize that there's only one taxpayer, and that taxpayer is the individual. When a corporation has a tax increase, they have a choice of decreasing wages, cutting employment, or increasing prices to the ultimate consumer. Corporations don't pay tax. Businesses don't pay tax. It's the individual, at the end of the day, who ends up paying. It has an impact on the economy.

You also referred to what was going on in the European Union. You know, economic certainty.... If you want to see a good example of what the opposite of that causes, you can look at the United States and at what has happened with their unemployment rate. Most of that is caused as a result of economic uncertainty.

[Mark Adler, Conservative, York Centre, ON]

I'm so glad you're saying that the corporations don't pay tax, because that's very true. They don't pay taxes.

There is one taxpayer, and that bird's feathers have been plucked. There's nothing left.

I'm glad you said that.

[Martin Salloum]

Just on the other side of it, I might add that we have not opposed increases to the minimum wage and those kinds of things. We also believe very strongly in having as many people as possible within the economy buying goods and services and being productive as well.

At the end of the day, it's a balanced economy that ends up winning.

[Mark Adler, Conservative, York Centre, ON]

Okay.

I have a quick question for the Canadian Association of Social Workers.

You indicated that we need a poverty reduction strategy in this country. Would you not agree that the best poverty reduction strategy is a strong economy?