Finance Committee on May 8th, 2014

[Murray Rankin, NDP, Victoria, BC]

My second question is for Mr. Eljarrat.

Mr. Eljarrat, as you know, some provisions of the budget apply to the Canada Revenue Agency's Informant Leads Program. The government has announced cuts of $250 million and 2,500 positions at the CRA.

In an interview you gave earlier this year regarding the Informant Leads Program, you said that the country is experiencing this major culture shift because the CRA was ordered to recover as much money as possible when the downsizing occurred.

What do you mean by “culture shift”?

[Stéphane Eljarrat]

This is common practice in the United States when it comes to taxes. For a long time, various federal organizations, such as the U.S. Securities and Exchange Commission, have had well-established programs under which the information provided to help the authorities is paid for in an entirely prescribed manner.

In Canada, this is completely new. We have always had an anonymous lead program, but we have not had a system where people are paid, in a way, for doing Canada Revenue Agency employees' job. In such a system, people would build cases and be paid for that. Afterwards, the CRA could potentially recover some money.

The question that will arise is who is the most qualified to identify cases of international tax evasion. I think the Canada Revenue Agency employees are the best qualified for that task and have the necessary tools. Under this program, the government would be asking third parties to do that work. In addition, this could result in the CRA spending money on investigating pointless leads, since those third parties may submit poorly built cases.

Tax evasion is a complex issue. Everyone understands what tax evasion is and its criminal nature, but other cases will be fairly complicated.

So we are witnessing a culture shift.

[Murray Rankin, NDP, Victoria, BC]

Thank you.

How much time do I have, Mr. Chair?

[The Chair, Conservative, James Rajotte]

You have about two and a half minutes.

[Murray Rankin, NDP, Victoria, BC]

All right.

You talked to Mr. Adler, and I think Mr. Tonkovich talked about our 5% to 15% range for tax collected and for the tipsters, if I can say that. The Americans are 15% to 30%. But I think one of you—and I can't recall who—suggested that some of the OECD countries don't even do this. Do you know of any reason why they haven't chosen to follow that path? Do you know of any reasons why they don't share that policy?

[Stéphane Eljarrat]

I think maybe it goes back to the comment that was made earlier regarding the issue of culture. In some countries, especially in European countries, the whole aspect of whistle-blowing is something that is not very enshrined or very well looked upon. So I think culturally that's why it is different. In Canada I think we're moving closer to the U.S. model from that perspective.

[Murray Rankin, NDP, Victoria, BC]

Do you agree?

[Mark Tonkovich]

I would agree with that. I think it is a cultural point of view. I would comment that the United States has even more advanced systems than this in certain tax-related whistle-blowing contexts. In the customs context in the U.S., a whistle-blower would actually do some of the background work themselves and would file suit on their own behalf against the potential tax evader or avoider. Then the U.S. authorities, if they believe in the suit, if they agree with pursuing it, would take over the suit. So there's a range of involvement out there.

I do believe, as my colleague mentioned, that many, if not most, of the OECD countries do not have a system like this, and it probably is a cultural divide.

[Murray Rankin, NDP, Victoria, BC]

I will now have a question for Ms. Presseault.

Welcome. This will be one of your last presentations. You, of course, work with the Certified General Accountants Association of Canada, and as you know, the budget implementation act does not renew the small business hiring tax credit. CGAs are well aware of the impact of tax measures on small businesses, so I'd like to know what kind of financial impact you think terminating the small business hiring tax credit will have on small businesses. It seems to me it would come as a blow to them.

[Carole Presseault]

Thank you, Mr. Rankin, for your question.

Actually, it's not something we've looked very closely at. We try to refrain from looking at specific tax credits for the simple reason that, when we look at a taxification agenda, we're looking at trying to minimize and streamline taxes and see if there are other ways of putting money back into the pockets of entrepreneurs or small businesses that are not related to tax credits specifically or to targeted tax measures.

We were talking earlier about the costs. According to the Canadian Federation of Independent Business, we're looking at a cost to SMEs of around the same as the cost for compliance, which is about $6 billion. If you weigh that against the hiring tax credit, I think there has to be some balancing. How do you look at the tax system and make it more efficient and make it more fair in the sense that everyone pays their fair share, but on the other hand, it doesn't cost too much to comply with?

[The Chair, Conservative, James Rajotte]

Thank you.

Thank you, Mr. Rankin.

Mr. Leung, go ahead, please, for seven minutes.

[Chungsen Leung, Conservative, Willowdale, ON]

Thank you, Chair.

I wish to address my question to Ms. Presseault. Simply to set the frame of this, some 40 years ago I was in public accounting, one of the big fives. Subsequent to that I was also a director of a public corporation, so I have experience dealing with management reports and so on.

Throughout this entire period, this evolution of looking at how our tax act went, pre-1972, from a quarter of an inch to about two inches to the stacks of interpretation bulletins—FASB and IAS and so on—I think this is what kept more than one accountant employed.

I'd like to hear your thoughts about something quite simple. Can we go back to cash-base accounting, for one. If not, because we do have this issue of having to handle accruals, because government wants to be in there to make the system fair, we start having assets. One of the things that I think would really help us is to do a re-evaluation of assets across the board every 10 years, so we are now dealing with a base 100 every 10 years and we don't have to go back and deal with assets that are sitting in a closet that probably we have lost the original documents for.

On those two specific points, I'd like to hear your comments as to how we can simplify the tax act. I appreciate Mr. Allen's proposal to bring all these things up, because every time we go through a budget we wonder what's missing, and what's not missing. Let's simplify all that and do another evaluation.

[Carole Presseault]

There are some people in this room much better qualified than I am to answer those very specific questions you have, but certainly some of the ideas of going to cash-base accounting would simplify methods. But when we're looking at tax simplification, we do face how big it has grown. Not only has it grown, we talk about the uncertain part, the grey pages of the Income Tax Act being larger than the actual income tax.

We have about five ways of looking at it. I'm going to answer your question in a very circuitous manner. We're looking at a system that would be fair to all groups, efficient, the least cost to administer—we've talked about that—simple, and have clear rules.

Business is complex. When we talk tax simplification, we're not talking about making it simple in the sense of minimizing. Business is complex, and I look at some of the measures in this legislation, such as legislation regarding hospital parking. These are four or five clauses. These are complex issues. But there are simplified methods that we look at, and of course the certainty we talked about when we looked at clause 31, in terms of competitiveness when compared to other OECD countries.

I'm not answering your question because I can't, but I'm telling you about the five ways by which we would see a simplified tax system.

[Chungsen Leung, Conservative, Willowdale, ON]

I also wish to address an issue about tax havens, because I've dealt with Cayman, B.V.I., Tonga, Hong Kong, Singapore, Labuan, in my past history.

It seems to me if we keep taxes at the lowest we can, then Canada should be the tax haven itself. Therefore we wouldn't have to deal with any of these problems, because the only reason people use tax havens is to receive a lower tax jurisdiction.

We are already at 15%, one of the lowest tax jurisdictions, even compared to Hong Kong at 16.5%. Is there any benefit in harmonizing or at least getting the provinces to harmonize our tax system federally so that we can have one uniform tax system apply across the board for all of Canada?

Your comments, please, Mr. Eljarrat....

[Stéphane Eljarrat]

You're asking a very charged question. Coming from Quebec, I think it's a difficult question. But that being said, in general, harmonization is of course something that should be viewed in a positive light because it simply is helpful in the sense that we are in a global economy and Canada is competing with others. We need to make sure we have the most competitive tax system to encourage investment in Canada.

[Chungsen Leung, Conservative, Willowdale, ON]

Maybe in future Parliaments we should infer that.

Mr. Tonkovich, did you have a comment on that?

[Mark Tonkovich]

I agree. Harmonization is something to strive for. It will make the environment simpler. On the government's side, it will make administration easier, and cheaper, frankly.

However, I think we all know this can be a long set of discussions, and different provinces and different authorities will have different views on exactly where that harmonized system should sit.

[Chungsen Leung, Conservative, Willowdale, ON]

Mr. Chair, may I ask one more question?

[The Chair, Conservative, James Rajotte]

You have about two minutes.

[Chungsen Leung, Conservative, Willowdale, ON]

My last question has to do with the fact that in Canada we look at an entire tax pie. We now collect more taxes from individuals than we do from corporations. But if you look at other jurisdictions like, I believe, Taiwan, Hong Kong, and Japan, their idea is “no, it's harder to go after the individual for taxes, why don't we go after corporations?”, so that most of the taxes are at the corporate level. When it comes down to the individual level, there is a very high threshold like $25,000 or $30,000 that is exempt from tax.

Do you believe that would simplify the tax system? In other words, should we pick up more of the tax revenues from corporations rather than from individuals?

Ms. Presseault.

[Carole Presseault]

Well, it's about being competitive. It's about being competitive with other trading partners. It's about being competitive to attract businesses here that create jobs that employ taxpayers who pay taxes and put money back into the system. So I think those are important policy choices. Our associations have a position on that, but if you were to ask me what I thought, I think that's part of the discussion we have to have around what is the appropriate balance of the taxation, and whether everyone is paying their fair share and how we define their fair share.

[Chungsen Leung, Conservative, Willowdale, ON]

Mr. Tonkovich.

[Mark Tonkovich]

I don't think that there's a conclusive answer to any of this, but there's also the obvious theory that taxing corporations is really going to be a tax on their shareholders or on consumers. It all passes through. So I agree with my colleague that this is a complicated tax policy question. The goal has to be to make sure that we bring in enough revenue to keep the system running while making it as competitive a place for business to attract more investment from outside.

[Chungsen Leung, Conservative, Willowdale, ON]

Mr. Eljarrat.

[Stéphane Eljarrat]

I tend to agree on this, for sure. Canada wants to make sure that its tax system is as attractive as possible. Again, I'm repeating that we are competing in this global economy with other countries that are taking all kinds of measures with different points of view on different policies, but at the end of the day, we have to make sure that we keep on top and be attractive for foreign investment.