Finance Committee on Nov. 2nd, 2011

[Hoang Mai, NDP, Brossard—La Prairie, QC]

Thank you very much.

Mr. Macdonald, you spoke about part 9 infrastructure. We've been telling the government we need to invest in infrastructure. Can you tell us why part 9 is not sufficient? We've also been proposing having the gas tax fund indexed. Can you tell us the advantages of having more investment in infrastructure?

[David Macdonald]

Definitely. Certainly one of the proposals is to index the gas tax. I think I was proposing something much bigger, which is that particularly in the uncertain times in which we find ourselves, the Canadian government is uniquely placed because of its low debt load to be much more proactive than other governments can be in terms of buffering the effects of the great recession that continues to drag on.

One of the major benefits of infrastructure investment today through the gas tax or through other mechanisms is not only reduced unemployment but also a longer-term economic growth. The Canadian government today can borrow at unprecedentedly low interest rates while at the same time employing people who are in fact unemployed, and at the same time, because of the slack in the economy, will likely not see an increase in inflation. It's actually an ideal time for us to start to whittle down the infrastructure debts that we built up over the last 10 to 20 years by under-investing in infrastructure.

[Hoang Mai, NDP, Brossard—La Prairie, QC]

We've also been telling the government not to just go ahead with corporate tax cuts that are not specific and then we have the companies not reinvesting the amount. Could you maybe expand on this? If we were to help those companies invest in greener technology, for instance, or greener energy, how would that benefit the economy?

[David Macdonald]

I think one of my concerns with the decline in the general corporate tax rate is that it doesn't target tax cuts to actions. It doesn't matter whether a company invests in the economy or creates jobs, they get the corporate tax cut; it doesn't make any difference. If we target those to manufacturers, just generally towards more capital spending--whether it's green or not, frankly, but more capital spending at all, or job creation for that matter--you get a much bigger bang for your buck and it would be much more accountable, I think.

[The Chair, Conservative, James Rajotte]

Thank you, Mr. Mai.

I'll go to Mr. Adler.

[Mark Adler, Conservative, York Centre, ON]

Thank you, Chair.

In reflecting, I think I understand now where Mr. Macdonald may have misunderstood. We were comparing apples and oranges. What I was saying was that since the end of the recession Canada has had the largest employment growth in the G-7 countries. That's what I was referring to, so I think I understand where the confusion may have arisen.

I simply wanted to get that on the record.

[The Chair, Conservative, James Rajotte]

Okay, thank you.

We go to Ms. Glover now, please.

[Shelly Glover, Conservative, Saint Boniface, MB]

I want to take a moment to thank you as well for coming. I'm learning as I'm listening, as well, so I appreciate that you've come, and we're here with open minds.

I will be asking you a question, Mr. Koeller. I will be asking you to repeat the line that you mentioned before, so this will give you a second to group your thoughts.

Before I ask my questions, and I'm speaking from the heart, Chief, I want to take a moment to thank you very much for your service. I have worked very closely with firemen over the 20 years I was a police officer. We lost two very special firemen in February of 2007, who I knew very well. Tom Nichols and Harold Lessard died in a house fire in my riding, a home that is owned by a good friend of mine. I do want to pay homage to them while you're here and acknowledge that you all put your lives at risk for us and we cannot thank you enough.

This is a small measure, but I do want to assure you that the government does take what you do to heart and we take it very seriously. Minister Flaherty, for one, is committed to making sure, if he can, that he does everything in his power to help you.

Having said that, Mr. Koeller, help me understand how you think the line you were referring to would change the act.

[Dale Koeller]

The proposal I would make is simply to target what I understand the abuses to be. I think there's some concern that companies, MICs, were investing in companies that weren't at arm's length to the managers or the major owners, so they were perhaps benefiting by finding a way to get heavy profits into their RRSPs as a loophole.

[Shelly Glover, Conservative, Saint Boniface, MB]

So the line is to...?

[Dale Koeller]

The amendment I'm suggesting?

[Shelly Glover, Conservative, Saint Boniface, MB]

Yes.

[Dale Koeller]

The suggestion I would make is to exempt MICs under the current anti-avoidance rules, but add that MICs should not be able to invest in a company that is not at arm's length from one of the major owners of the company. By doing that we would get away from people stuffing their RRSPs, people getting money into their RRSPs that the government did not intend they should get there.

[Shelly Glover, Conservative, Saint Boniface, MB]

Right.

I understand what you're saying there, but we have another problem. Some are not doing that. Some are actually abusing it. And I'm so glad that you acknowledge that our attempts in this are genuinely to close the tax loopholes, which are harmful and abusive.

There are some who are not doing it that way. There are some who are actually trying to change the way they do business by not declaring salaries, for example, and being able to roll that into their RRSPs. By doing that, they get a tax break and a tax advantage, which was never what this was for. A registered retirement savings plan is for exactly that. It was never designed to be a corporate tax shelter in any way, shape, or form, or a salary tax shelter.

How would you fix that?

[Dale Koeller]

It could be a tough problem. It would be very hard to manufacture that, although people are creative, I'll give them that. I don't know of any circumstances, but I'd love to look at it and understand if we could close it.

MICs have to have a minimum of 20 shareholders, so for somebody to put their salary into the MIC, the rest of the shareholders are going to share that salary, that income, that benefit. That person isn't directly benefiting alone. Maybe--

[Shelly Glover, Conservative, Saint Boniface, MB]

Sorry to interrupt, but I have 30 seconds. I wish I could spend more time with you.

If you had another suggestion on how we might ease it so that it captures what we need to capture to eliminate the abuse and yet provide you and people in your situation with the amount of time to adjust, what would you say?

[Dale Koeller]

I really believe that MICs should be exempt from this rule. The change of the related parties, though, is also a big burden. Changing it from being counted as simply a wife, husband, and their minor children, and to include all extended family is quite difficult on MIC owners, I believe. That's part of the hardest problem we have, and taxing--

[Shelly Glover, Conservative, Saint Boniface, MB]

I get that, but it doesn't fix the other problem we have with the abuse.

[The Chair, Conservative, James Rajotte]

Ms. Glover, there is the next Conservative round if you wanted to start it. Do you need more time? I am going to follow up on this as well.

[Shelly Glover, Conservative, Saint Boniface, MB]

Okay. Very good, thank you.

[The Chair, Conservative, James Rajotte]

Mr. Koeller, I want to make sure I understand this rule. I obviously have sympathy for any small business organizations that are providing mortgages and providing income to individuals.

Corporations typically pay tax, and then there is a tax on the dividends that are paid out to shareholders. MICs operate differently. They don't pay any corporate-level tax. The profits are flowed through to the shareholders, and they pay taxes as described.

MICs are subject to only one level of tax, but the problem here that the Department of Finance has identified is that some individuals were exploiting the rules by putting the whole MIC in their RRSP or their RRIF. One of the things you said in your response to Ms. McLeod was “invest in our company”. That's the issue. People are using the very generous tax deduction for Canadians with respect to their RRSP, but it's not to invest in companies; it's to save for retirement. That is what the problem is here. I'm still unclear as to how your proposal actually addresses that problem.

[Dale Koeller]

MICs have a 35-year history of doing this. We are a creation of government. That part is operating the way it should. It is RRSP-eligible.

[The Chair, Conservative, James Rajotte]

MICs are, yes.

Do you agree with me that RRSPs were not created for this purpose? They were created for people to build up a retirement, but not to flow through to use to invest in companies as a way of avoiding tax.

[Dale Koeller]

I don't see any mischief going on, though. The profits, just like any other company, are being flowed through to the investors, as originally intended by the act. If the government is worried about the tax leakage on that, we should sit down with the department.

[The Chair, Conservative, James Rajotte]

I don't think it's the leakage. It's that people are using RRSPs for a purpose for which they are not intended, and they are getting a benefit that other Canadians are not getting. The issue is not with the MIC as a structure. The issue is with the MIC as it relates to those who are using their RRSPs. That is the problem. How does your amendment fix that problem, whereas the current legislative suggestions are not as good, in your view? How is your suggestion a better way of addressing that problem?