Finance Committee on Oct. 27th, 2014

[Terry Campbell, President, Canadian Bankers Association]

Thank you, Mr. Chair.

I am very happy to take part in today's hearing.

At the outset, before I get into my remarks, I would like to add the CBA's voice to the many thousands, millions, of voices across the country who have expressed deep regret, deep sorrow, at the shocking events that took place on Parliament Hill and the National War Memorial last week and in Quebec the week before. We join with all of you around this table in offering our condolences to the families of those victims.

I'd like to get into, very briefly, the recommendations we have made in our pre-budget submission. I do this in the context, obviously, and you've heard me say this before, that Canada has some of the best managed and capitalized banks in the world, banks that are among the best regulated and supervised. For seven straight years Canada's banks have been rated the soundest in the world by the World Economic Forum.

Of all the companies that Canadians have relationships with, few are more personal and more important than the relationship they have with their bank. Canadians look to their bank to safeguard their money, help finance a home or business, manage their savings and investments, and plan their retirement. Our public opinion research shows that Canadians recognize this. They trust and they value their bank. Overall, some 90% of Canadians have a favourable impression of their bank.

We contribute to the economy and the economic health of our country in many, many ways. We have authorized $940 billion in business lending, with some $200 million for small and medium-sized businesses. We provided $13.5 billion in dividend income to millions of Canadians through their pension plans, RRSPs, and direct share ownership. Banks employ more than 280,000 Canadians in communities all across the country.

That's the context of our remarks. Very briefly, I'll overview the recommendations we've made in our submission.

First, we support the efforts by federal and provincial governments to strengthen their fiscal positions by returning to balanced budgets while maintaining a competitive tax environment.

Second, we encourage the federal government to maintain its commitment to a competitive corporate tax rate. We encourage the provinces to aim at and maintain a 10% target corporate income tax rate. We also look to provinces, those that remain with this provision, to eliminate existing capital taxes on financial institutions and to refrain from instituting new capital taxes.

Third, we encourage federal, provincial, and territorial governments to continue to work towards a reduction of trade barriers between jurisdictions, both within Canada and internationally.

Fourth, we support the federal government's effort to have all provincial governments put in place legislation enacting a cooperative capital markets regulator as soon as possible.

Our final recommendation is around the government's efforts to promote financial literacy in Canada. Financial literacy is a priority for the government, as we know, and for members of Parliament, as it is for our industry. As I said just a moment ago, banks are an active and important part of the daily life of most Canadians. In fact, 96% of Canadians have an account with a financial institution. This means that millions of people turn to our industry every day for financial advice. Banks go well beyond this, and aim to be leaders of financial literacy activities in communities across the country.

For our part at the CBA, we take this responsibility very seriously. Tomorrow we will be unveiling our new financial literacy program for seniors. This is a free, non-commercial, non-partisan program. It will be presented to seniors groups by volunteer local bankers across the country. We want to offer tips and information to retirees or soon-to-be retirees about cash management. We want to offer tips and information about how to spot and avoid financial abuse. We want to prepare seniors to spot financial scams targeted at them.

We'll be sending information on our program to all of your parliamentary offices shortly, and I would encourage you to review that material. We'd like your help, actually, in promoting these programs to seniors groups, as we worked with you on our high school program, Your Money for Students. I would encourage you to get in touch with us, and if you are interested, we'll gladly work with you.

That is very briefly what we've recommended.

Thank you, Mr. Chair. I look forward to your questions later on.

[The Chair, Conservative, James Rajotte]

Thank you for your presentation.

We'll now hear from Mr. Dancey, please.

[Kevin Dancey, President and Chief Executive Officer, Executive Office, Chartered Professional Accountants of Canada]

Thank you. On behalf of Chartered Professional Accountants of Canada, thank you for the opportunity to appear before this committee today. Merci pour l'opportunité.

October 1 was an historic day for the accounting profession with the unification of CPA Canada and CGA Canada under Chartered Professional Accountants of Canada. When unification of the profession in every province is complete there will be over 190,000 chartered professional accountants in Canada.

My remarks today will focus on the theme of improving Canada's taxation and regulatory regimes. I will also address other themes put forward by the committee, including balanced budgets, fiscal sustainability, increased competitiveness and economic growth, and why this focus will benefit Canada and sustain prosperity for all Canadians.

First, strong management of finances is critical. We support the federal government's goal to return to balanced budgets and to restraining annual government's spending rather than increasing the overall tax burden.

Second, we acknowledge the government has introduced measures to lower taxes and made improvements to ease the compliance burden. However, more can be done. There has not been a thorough review of Canada's tax systems since the Royal Commission on Taxation in 1966. It's time for tax reform. In the past, this committee endorsed our recommendation that the federal government undertake a comprehensive review of Canada's tax system to reduce its complexities and inefficiencies. We ask the committee to again support this recommendation. We also recommend that the government appoint an independent expert panel to provide advice on options to streamline the tax system and, in addition, consider creating a permanent, independent tax simplification office—as in the U.K.—to review existing and proposed measures. Tax reform would improve Canada's international competitiveness, productivity, economic growth, and long-term prosperity.

Third, turning to Canada's regulatory regime, we know that red tape places an undue burden on business and stifles competition and growth. We believe that through the red tape reduction action plan and annual scorecard the government is off to a good start. But it can go further. We have raised a number of suggestions, including modifications to the T1135 foreign reporting form and the withholding requirements under regulations 102 and 105. We also recommend that standardized business reporting, namely XBRL, be adopted for use by businesses for all government filings. This would reduce the compliance costs for business, and would improve the government's data collection, resulting in cost savings. We were pleased that standardized business reporting was included in your recommendations both in 2012 and 2013.

Fourth, we are also encouraged by the government's commitment to financial literacy. Helping Canadians develop financial knowledge is critical to individual and societal economic prosperity and growth. Indeed, financial literacy is all the more relevant in view of the level of household debt. CPA Canada is an active participant in strengthening financial literacy through publications on money management, surveys and studies, education campaigns, and volunteer outreach initiatives in communities across Canada. We were very pleased to see Minister Oliver partner with us on one of these outreach initiatives last month and encourage other members to follow suit. This is not a partisan issue.

Fifth, Canada's prosperity is closely linked to economic opportunities beyond our borders. Canada's small and medium-sized enterprises play a vital role in boosting economic growth and diversifying Canada's export markets. CPA Canada supports efforts to negotiate trade agreements that eliminate barriers to the free movement of goods, services, capital, and labour, both internationally and within our country.

Sixth, on R and D, we remain committed to initiatives that can improve productivity and spur job opportunities, such as the patent box which rewards innovative companies through a lower tax rate on profits earned through the exploitation of patents in Canada. Our R and D focus needs to be not only on incenting scientific research in Canada but also encouraging businesses to commercialize and retain patents in Canada. A patent box regime will do that.

Finally, skilled professionals are vital to Canada's economic future. We appreciate the federal government's initiatives to quickly integrate internationally trained professionals into the Canadian labour market, initiatives where CPA Canada is working closely with both ESDC and CIC.

We look forward to working with you to promote long-term economic growth.

We thank you for your attention.

[The Chair, Conservative, James Rajotte]

Okay. Thank you very much.

We'll now to go Mr. Baker, please.

[Albert Baker, Global Tax Policy Leader, Deloitte]

Thank you.

Good afternoon. It's an honour and privilege to be here today to address this committee and to provide for your consideration on behalf of Deloitte some input regarding budget 2015.

Budget 2015 will provide the government the opportunity to continue its commitment to improving economic prosperity for Canadians. Canada has maintained relative stability despite the global economic challenges of the past number of years. We strongly support and applaud the government's focus on achieving and maintaining a balanced budget. We also applaud the approach that Canada has taken in recent years of reducing Canada's corporate tax rate to improve its competitiveness relative to other countries.

The specific topic that I'll be addressing today is around improving Canada's taxation and regulatory regimes. I will highlight the issues we raised in our August 2014 submission to this committee on this topic, which was supplemented by a prior submission that we did on May 9, 2014, to the Department of Finance.

Canada, along with pretty much of the rest of the world, is concerned with protecting its tax base. Tax revenue is needed in order to maintain the standard of living that Canadians enjoy while actualizing core Canadian values of quality education, health care, and human dignity, to name but a few. Plus, Canada has taken some unilateral steps to protect the tax base and has also been participating in the OECD's base erosion and profit shifting, or BEPS, initiative.

However, taxation alone is not the only element to ensure a well-supported Canadian society. Canada's competitiveness in terms of attracting inbound investment must also be protected. We are concerned that the anti-treaty shopping proposals contained in the 2014 budget will, if enacted in their current form, hurt Canada’s ability to attract such investment by being too far-reaching and creating significant uncertainty as to the tax consequences of inbound investment. As such, foreign investors may choose to invest elsewhere.

Since the announcement of the anti-treaty shopping proposals, we have observed that this uncertainty has negatively affected the investment decisions and may discourage inbound investment into Canada. Canada is a relatively small open economy that needs capital well beyond that which Canadian residents can provide.

Foreign investors have a broad range of opportunities as to where they will invest their capital. Thus, introducing Canadian tax policy changes—such as the anti-treaty shopping proposals—that create uncertainty and potentially reduce investment yields will undermine foreign inbound investment into Canada. To attract foreign capital, Canadian projects generally must support higher potential yields than comparative investments located in the home jurisdiction where the capital is. The U.S. is one of those sources of capital. This is a particular issue for the energy and resources sector, given the sector’s significant need for, and difficulty in accessing, capital.

Our detailed comments and recommendations are outlined in our May 9, 2014, submission to the the Department of Finance, which accompanied our submission to this committee. We're encouraged by the fact the Department of Finance announced at the end of August that it was not proceeding at that time with releasing detailed draft legislation regarding the anti-treaty shopping proposals; rather, it would await further work by the OECD in this area as part of the BEPS initiative.

On the topic of BEPS, the goals of the BEPS initiative, which is supported by the G-20, include the curtailing of international tax planning that is perceived to be inappropriate and increasing its transparency. We are supportive of Canada's participation in this international initiative.

The Canadian tax base must be preserved; however, we would offer some specific suggestions. Clearly drafted, specific, and targeted provisions are preferable to broadly worded legislative amendments that are subject to interpretation and thereby increase uncertainty. Canada must continue to encourage growth. We cannot afford to remove all tax features that might be perceived by some countries as challenging to those country's tax bases. While international cooperation is important, it cannot be at the expense of our own country's competitiveness. A balance must be struck.

In the context of the BEPS initiative as well as the domestic context, we would recommend that actions that could adversely impact competitiveness should not be undertaken unless Canada's trading partners are in fact implementing corresponding changes at the same time.

Thank you very much for the opportunity to make these comments.

[The Chair, Conservative, James Rajotte]

Thank you very much for your presentation.

We'll now go to Mr. Parker, please.

[Brian Parker, President and Chief Executive Officer, Institutional Sales, Acumen Capital Partners, Member, Investment Industry Association of Canada]

Thank you very much for the opportunity to present today. The Investment Industry Association was encouraged to put forward a member to discuss the challenges and opportunities facing the investment climate and our industry today. I appreciate that opportunity to join you from Calgary.

I'm the president of a small investment dealer that finances businesses from a variety of industries. The primary challenge we face in the post 2008-09 investment climate is a reduction in access to capital for smaller Canadian businesses. There are a variety of reasons for this, from demographics to risk aversion on the back of that financial crisis. Our industry association has seen a reduction of 25 boutique investment dealers through mergers or just ceasing business, and most of these dealers were focused on financing the smaller businesses.

The IIAC has been a proponent of a capital gains rollover to encourage investment, and there are investors that would be highly likely to be encouraged to put more money to work in smaller businesses. I've included a powerpoint presentation to give you a sense of what we do. We're a smaller dealer, and we use public disclosure financial statements to identify good companies and to finance them. Our view is that any inducement to encourage more public company investment increases the pool of potential opportunities for us to take it to the next level, and that translates to more jobs.

I touched earlier on investors being increasingly more risk averse; focusing on bonds, dividend-paying stocks, and cash; and avoiding the riskier and smaller speculative companies. These are the businesses that produce many of the jobs in our country.

I've also included, for illustrative purposes, three businesses where access to capital is not a problem, to give you a sense of how our business works. They are Alaris, Black Diamond, and Stella-Jones. I will walk through each one of them, but basically the story is the same. At a stage of somewhere around $100-million market capitalization, a dealer such as ourselves starts to get interested, to trade in the shares, to introduce it to institutional and retail investors. After that, a number of other brokerage firms will get involved. However, the point that's telling is that below that level, there are very few institutional or large retail investors that are prepared to finance these businesses.

I touched on how we finance these companies. We have retail brokers. We talk to their clients, institutional investors. If we're not prepared to finance a company, there are very few dealers in the country that will. We're one of the smallest brokerage firms out there. That highlights the gap we see as existing; it's generally below $100-million market capitalization.

That concludes my remarks. Thank you.

[The Chair, Conservative, James Rajotte]

Thank you very much for your presentation.

Colleagues, we'll begin again with Mr. Cullen.

We'll start with seven-minute rounds, and we'll go as long as we can.

[Nathan Cullen, NDP, Skeena—Bulkley Valley, BC]

Thank you to all of our witnesses.

I'll keep the questions short and we'll try to get through a number of them.

First of all, Mr. Campbell, thank you very much for your opening comments. It means a lot. My colleagues occupied this room in particular, and I was across the hall. The impacts of last week have had an effect on all of us, so thank you.

There is a question that you didn't touch on, but it's one I want to get to and then connect over to some of the other testimony we heard.

Is the tax regulatory burden on Canadian companies and individuals a concern for the CBA as it stands right now—the cost of submitting and complying with the tax regulations as they exist in Canada—both for companies and individuals?

[Terry Campbell]

My colleagues would probably be in a better position to address that.

We tend to focus on the overall architecture, but I do hear a lot about the administrative complexity being an issue. If you follow, for instance, the small business community publications, the CFIB, and you look at the top constraints to growth and to business, regulatory red tape, tax issues, and that sort of thing, are often high up there.

I do hear that, but I'm not really an expert in that.

[Nathan Cullen, NDP, Skeena—Bulkley Valley, BC]

I'm going to go to Mr. Dancey in just a second.

We'll see how uncomfortable this question is, and I'll let you judge.

The issue of pay-to-pay was raised in the throne speech last year and in the year prior to that.

[Terry Campbell]

Yes, sure.

[Nathan Cullen, NDP, Skeena—Bulkley Valley, BC]

It sounds now like the telecommunication companies that are submitting their bills to Canadians will not be under the new proposed laws.

This is something that New Democrats have advocated for. Banks are now on a voluntary system, not mandatory, as the telecommunication companies are.

How is your association rationalizing, justifying, that?

[Terry Campbell]

I think we deal with that by pointing out that banks do not and have not charged for issuing bills, credit card bills, or statements that show a balance owing. We haven't done that. We had entered into....

Given that it was a current issue, we have cemented that practice in a commitment, which is overseen, by the way, by the federal government's Financial Consumer Agency of Canada. Any commitment we enter into is overseen, and they report on progress.

So that comes into effect—

[Nathan Cullen, NDP, Skeena—Bulkley Valley, BC]

So just to summarize, you don't charge it right now and your commitment is to not charge consumers to receive their pay—

[Terry Campbell]

For the bills, that's right. And the FCAC will oversee.

[Nathan Cullen, NDP, Skeena—Bulkley Valley, BC]

Mr. Dancey, let's talk about trends in terms of complexity of the tax system in Canada. I want to combine the two, both personal and corporate taxes. Those two systems, I know, are different, but they have some overlap. Are we trending towards a more complicated tax system and higher regulatory burdens or are we trending towards a more simplified tax code?

[Kevin Dancey]

Well, I've been around the tax game a long time. I was the leader of a tax practice of a large firm. In one of my prior lives I was ADM tax policy in the Department of Finance so I came in front of this committee many times. It's really hard to actually peg if it's getting worse or better. It's still complicated; it always was complicated.

[Nathan Cullen, NDP, Skeena—Bulkley Valley, BC]

Excuse me, just to be clear on my question, it wasn't about worse or better. Are we trending towards more complexity or towards more simplicity?

[Kevin Dancey]

I understand. I was just turning the words around in terms that more complex would be worse. In some respects, there have been some good things that have happened. I think reduction, in terms of the corporate rates, the attempts to broaden the base, anything that reduces rates and broadens the base, is a good philosophical thing to do in terms of taxes.

Having said that, the system still is complex and the regulatory burden in terms of the compliance burden is still high.

[Nathan Cullen, NDP, Skeena—Bulkley Valley, BC]

To quote, as Mr. Campbell mentioned, CFIB and others, whom the government likes to quote a lot, peg that somewhere on last year's regulatory tax burden at somewhere around $10 billion to consumers and $31 billion to businesses of all sizes in Canada. As the government has moved towards what might be seen as a more politically favourable taxation system, these one-offs, what are sometimes called boutique tax credits, how is it we're not moving towards a more complex system?

I've heard from your members. This is why I'm a little bit confused by the answer that there has been a long-standing desire and concern that the regulatory burden is increasing. This is from the CFIB and it's from the chartered accountants in Canada—that it's only getting worse in terms of complexity, never mind the specific policies. You almost painted a picture that it was neutral, that it's always been complex and it's complex still.

[Kevin Dancey]

I think the red tape reduction panel has had some good successes, but as you said, more could be done. For example, just that comment on regulation 102 and 105.... In 2008 I was vice-chair of a panel on what Canada's international tax policy should be. We recommended changes to those regulations back in 2008. The American chambers of commerce made the same recommendation since that time and we still don't have changes to that particular regulation.

[Nathan Cullen, NDP, Skeena—Bulkley Valley, BC]

I may have said it, are we due for another Carter? The last time we properly looked at the tax code was 1966-1969.

[Kevin Dancey]

Right. And the world has changed a lot since.

[Nathan Cullen, NDP, Skeena—Bulkley Valley, BC]

You think?