Finance Committee on Oct. 27th, 2014

[Mike Allen, Conservative, Tobique—Mactaquac, NB]

Thank you very much, Mr. Chair.

Thank you to our witnesses for being here today.

Ms. Yalnizyan, I appreciate your comments as well and I feel very thankful I'm here to ask questions today.

I will start with Ms. Reynolds from Restaurants Canada because it was a little bit, listening at the end, like you were on helium and you were trying to finish so fast around some of the payroll tax suggestions you were going to have. You did cover—to Mr. Chan's question—your thoughts on the year's basic exemption. It seemed, I think, that there was more. You were going very quickly.

Were there more things you were talking about from the EI side? And based on the year's basic exemption, can you indicate to us what the cost of that would be to the EI fund for that initiative?

[Joyce Reynolds]

It would depend on whether you matched the year's basic exemption in the Canada Pension Plan at $3,500, or if you started more modestly at $2,000, which is the level of the tax credit right now. So it would be somewhere around $1.2 billion.

[Mike Allen, Conservative, Tobique—Mactaquac, NB]

Were there other initiatives in mind when you talked about payroll taxes, especially on the EI side? When you talked about restructuring to make it less regressive, were there other items you were thinking about there?

[Joyce Reynolds]

Well, our key concern is.... Because we are such a labour-intensive business and because it's such a significant cost for our members, we're looking at ways to make it not so taxing for our members to hire more young people. We're the number one first-time job provider of any industry in the country.

As we discussed previously, there are some regions of the country where we have real challenges in finding anybody to work in our industry. Then we have other regions of the country where we know there are young people who are reaching the age of 25 who've never held a single job. We typically play the role of providing those all-important soft skills to those people who want a springboard to the larger labour force.

Those people who are reaching the age of 25 who've never held a single job have a lot more difficulty than those people who have gained experience working as students and teenagers in our sector, and we'd like to hire more.

[Mike Allen, Conservative, Tobique—Mactaquac, NB]

Thank you very much.

Mr. Mahaffy, I have a couple of questions for you.

One comment you made concerning pension innovation and modernization was to urge the government to consider funding flexibility as a necessary priority given Canada's mortality rates. We've had some presentations in previous committee meetings that have talked about changing the RRIF rules and those types of things. Is that what you're referring to, or are you talking about other things?

[Scott Mahaffy]

To a degree, yes, that is what we're talking about. In addition, I can't speak to this with a great deal of expertise, but I want every option explored. I think we need to consider many different ways in which to encourage Canadians to save through different policy alternatives, especially in the pension framework. I think we need to consider the pension regulations much more carefully when we're looking at the bigger picture. I think they're often forgotten. I think income tax and pension regulations are at odds at times. I really think taking a much more harmonized approach when we look at savings, whether they are retirement savings or pension savings, needs to be done.

[Mike Allen, Conservative, Tobique—Mactaquac, NB]

Do you have specific suggestions that your association could table with the committee?

[Scott Mahaffy]

I do not at this time. I'll be happy to take this back to discuss with my colleagues and present something in the near future, point by point.

[Mike Allen, Conservative, Tobique—Mactaquac, NB]

In the very near future, if you could. That would be very helpful.

One thing you also talked about was removing the consumption tax on investment services. I wonder what the practicality of that is. Do you know what the cost of that would be? How risky would that be?

I share with you that we also have accounting fees for doing taxes. All those are subject to tax as well. By removing one, aren't you suggesting we remove all the others? If so, does that not start us down a very slippery slope?

[Scott Mahaffy]

I believe it would be for someone else to maybe argue that we remove all of the others. In terms of the absolute quantum we'd be discussing, I can't speak to that right now.

What we are suggesting, however, is that that consumptive behaviour will occur; this is simply deferring it for the future. To reduce or eliminate the taxes in those areas will give Canadians more money to reinvest, have greater retirement savings, and be able to consume at the time of retirement, perhaps for their families to help put their children or grandchildren through university, and the taxes can be effective at that stage.

[Mike Allen, Conservative, Tobique—Mactaquac, NB]

Mr. Magrath, when you talked about the red tape reductions at CRA especially, what are some of the major initiatives that you see from red tape reductions at CRA that have paid the most benefit to the tax executives? Which logical steps would you see as being next? You talked about one in terms of settlement on risk-based litigation; that obviously would be one. What would you see as others that would leverage on what we've already done in CRA, because there have been many, many different things done?

[The Chair, Conservative, James Rajotte]

There's one minute remaining in the rounds.

[Paul Magrath]

On that front there are a couple of things that we've addressed in our paper around, again, electronic filing requirements and broadening that to include some of the tax forms that are currently filed manually, and maybe filed manually even though your basic tax return gets filed electronically: the T106 form on reporting transactions with foreign related non-residents as well as the T1134 forms. Again, making those electronic would save a lot of the extra work that we're doing in completing those and having them submitted, and also obviously for CRA because they would be receiving those and doing statistical analysis based on those.

Concerning CRA creating an ombudsman that would allow us to have oversight from their perspective on the risk of litigation as well as provide us with a step in between the appeals and the audit function, I think would be a great help for taxpayers.

[The Chair, Conservative, James Rajotte]

Okay, thank you.

Thank you, Mr. Allen.

Mr. Caron, you have the floor for seven minutes.

[Guy Caron, NDP, Rimouski-Neigette—Témiscouata—Les Basques, QC]

Thank you very much, Mr. Chair.

I also thank all of the witnesses who are appearing before us today.

Mr. Magrath, I will start with you.

I have some difficulty with your third recommendation, the one that mentions that since the Canadian government has made some progress curbing base erosion and profit shifting, we should go slow or reduce the pace in adopting recommendations from the Organization for Economic Cooperation and Development. I have some trouble with that. The recommendations the OECD made in the context of its plan may not be perfect, but we have to follow them. They meet a need, particularly as we recover from the severe recession. There is a great need for international cooperation, especially at this time when it is so easy to move capital; in our digital era, it is becoming increasingly easy and quick to move capital from one country to another.

How can we believe that since there have been a few initiatives and some laws—which many feel do not go far enough, nationally—we should slow down international coordination, which is sorely lacking? I think that all of the experts, particularly after the severe recession, recognized that there was a need for coordination. Do you not think that although Canada has made some steps in the right direction, the need remains for cooperation at the international level?

Mr. Magrath, I would like to hear your comments on this.

[Paul Magrath]

My apologies, I missed the first part of the translation.

[Guy Caron, NDP, Rimouski-Neigette—Témiscouata—Les Basques, QC]

Your recommendation said that because some progress had been made in curbing base erosion and profit shifting so as to close loopholes, we should go slow in adopting the recommendations in the OECD plan. In my opinion, these things can take place simultaneously. We need international coordination. Why should we slow down the pace? We can analyze recommendations if we need to and adopt those on which there is a consensus, but we should not slow down the adoption of recommendations in an era wherein it is increasingly easy to move capital around and to do so quickly.

[Paul Magrath]

I agree that we need to look at all of the BEPS action points, and it's just a matter of considering the impact on the economy and the differing economic policy decisions being made by different countries around the world. Capital is very fluid, and capital is, as we've seen, being moved around the globe.

If we're looking at implementing policies in Canada, how does that impact our competitiveness and the competitiveness of our tax policies compared to, again, other places where that capital can flow? So it's not necessarily stopping the implementation; it is just making sure that we consider what the impact on the economy will be.

[Guy Caron, NDP, Rimouski-Neigette—Témiscouata—Les Basques, QC]

That is an argument that can be used by each one of the countries that study these recommendations. If the recommendations are adopted by all of the member countries, ultimately, then there is not necessarily any loss of competitiveness, since we are all going to have a level playing field. If we look at the argument that we have to examine the impact this will have nationally, that is to say the measures adopted by all of the countries, each country is going to do the same thing and there will be very little progress in international coordination.

[Paul Magrath]

Most definitely. TEI members are basically concerned with ensuring that we have consistent application and consensus among the OECD countries in the G-20 and that it is a fair and even playing field. Then at that point, the risks of double taxation and things along those lines would be mitigated.

[Guy Caron, NDP, Rimouski-Neigette—Témiscouata—Les Basques, QC]

Mr. Mahaffy, thank you for your presentation.

There is another way of looking at the sales tax on savings. It is not so much a sales tax on savings as a tax on the services offered by investment companies.

For instance, I suppose that the holder of a self-managed fund does not pay a sales tax. Nor is there a sales tax on premiums paid to the Canada Pension Plan or the Quebec Pension Plan. However, as soon as we go to a middle man, there is a brokerage fees tax.

I'm going to speak as the devil's advocate. For brokerage companies, one way of avoiding a tax on savings would be to absorb the sales tax. Could that be another possibility, rather than simply eliminating the sales tax? Because indeed, this is more of a tax on services than a tax on savings.

[Scott Mahaffy]

Do you mean in the sense that is there another alternative in any area or any industry that would replace the income lost if we were to remove the GST/HST on management fees?

[Guy Caron, NDP, Rimouski-Neigette—Témiscouata—Les Basques, QC]

Yes. What I'm saying is that you're saying it's a tax on savings. Another way of saying it would be to say that it's a tax on the service that's provided to the saver, which is from brokerage firms, for example.

[Scott Mahaffy]

To be clear, these are on investment management fees. We want to encourage—and I think everyone wants to encourage—Canadians to save for their retirement.

[Guy Caron, NDP, Rimouski-Neigette—Témiscouata—Les Basques, QC]

That's right.