Finance Committee on Nov. 17th, 2014

[Gerald Keddy, Conservative, South Shore—St. Margaret's, NS]

Thank you.

[The Chair, Conservative, James Rajotte]

Thank you.

Thank you, Mr. Keddy.

Colleagues, I think we'll be moving to five-minute rounds.

We'll move to Monsieur Caron.

You have five minutes.

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

Thank you very much, Mr. Chair.

I want to thank the witnesses for joining us.

I will spend most of my time with Ms. Tedds.

Thank you for your presentation. I recall that you talked about other types of tax credits. So you know the tax system well.

Regarding the children's fitness tax credit—and I want this to be clear for everyone watching us—is the $500 currently allocated the maximum tax credit people can claim? Is that correct?

How much does a family have to spend on or invest in fitness programs to receive that $500 maximum?

[Dr. Lindsay Tedds]

The $500 is the maximum amount of expenses they can claim, and that translates into a $75 tax credit.

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

So a family currently cannot receive more than $75 in tax credit. Is that right?

[Dr. Lindsay Tedds]

When they raise it to $1,000, the maximum tax credit becomes $150.

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

Okay.

You said that, for the most part, families with a higher income claim that tax credit. Low-income or even middle-class families won't necessarily change their behaviour to spend up to $1,000 on fitness. Is that right?

[Dr. Lindsay Tedds]

That is correct. More than half of the households claiming it have household incomes of $100,000 or more.

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

In 2011, the Frontier Centre for Public Policy published a study based on data from 2007, 2008 and 2009. According to that study, families with an income of $50,000 and over claimed up to 71% of the money available—the amount people could claim in tax credits.

[Dr. Lindsay Tedds]

That study has been superceded by a 2013 study that was published in the Canadian Tax Journal. It is based on tax filer data and is far more accurate than the data that was put together by the Frontier Centre for Public Policy. The 2013 data is far more accurate because it's based on tax filers.

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

That applies to this tax credit, but there are other tax credits that target only a small segment of the population.

How have those tax credits developed over the previous years to reach this stage?

[Dr. Lindsay Tedds]

That's a really good question. It certainly isn't based on principles of economic tax policy design and implementation.

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

Thank you.

You recommend that the government help families by providing them with much more significant tax cuts. The idea is

to broaden the tax base rather than pinpoint some measures that haven't proven their efficiency.

[Dr. Lindsay Tedds]

There are certainly two approaches you can have to this. If you want broad-based tax relief, it would be through the statutory tax rate system: let's reduce taxes. If you want to target low-income households specifically, the better way to do it is through regular, targeted payments, and the best design we have of those kinds of payments is the CCTB. That is at least clawed back for high-income households, is well targeted to low-income households, and gives them money every month to be able to support their expenditures.

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

Thank you very much.

I am concerned by the fact that we are moving towards regressive measures such as this one. My colleague Nathan Cullen also talked about income splitting.

The income tax system is fairly progressive in the sense that there are different tax brackets for different income levels. However, if we look at the tax system as a whole—including sales taxes, various tax credits, various measures and corporate taxes—would you say that the current tax system is a progressive one? Is it not more of a flat tax system? What I mean is that, generally, all forms of taxation are similar for all segments of the population.

[Dr. Lindsay Tedds]

The studies I am aware of that have looked at all taxes combined have all shown that the system is marginally progressive, though leaning toward flat.

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

In other words, all the regressive measures integrated in the Income Tax Act contribute to the flattening of the overall system.

[Dr. Lindsay Tedds]

Some of the measures in this particular bill are leaning toward rectifying tax treatment of loopholes that are exploited by wealthy individuals, so I wouldn't say that everything in this act then pushes up toward a flat-tax system, but we have, in fact, designed a tax system overall that is marginally progressive and leaning toward flat, and that's probably something that we need to take a look at.

I will echo the calls from the chartered accountants that we do need a study of our tax system, and we do need tax reform.

[The Chair, Conservative, James Rajotte]

Okay, thank you.

We'll go to Mr. Allen, please.

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

Thank you very much, Mr. Chair, and thank you to our witnesses for being here.

I'd just like to start, Mr. Kennah, and ask you a quick question. I did read your brief and I did find it interesting. I think even in one place in your brief you talked about the company that covers the wire with rock is still exempted under that.

When I read that, I said, gee, I must check this out. I think in some cases the changes that were being proposed were released in a technical tax amendment package back in 2013 for public comment. I'm just wondering, were you aware of that, and did you comment on it?

[James Michael Kennah]

We weren't aware of it, so we didn't have a chance to comment on it.

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

Okay, so you weren't aware of that. I just wanted to check that. Thank you.

Mr. Ball, I want to follow up on the questions that Mr. Keddy asked with respect to the trust. With the changes that are in this bill, how does that differ with what was previously in this legislation? What was the outcome in the transfer of these trusts before the legislative change was made as opposed to now?

[Bruce Ball]

I go back to my example again, which was me setting up a trust for my spouse and there's a capital gain at the end of the day.

Under the current rules before the law changes, the trusts would be liable to pay tax on the capital gain. Then that would reduce the amount that's available for the residual capital beneficiaries. That's probably a more appropriate answer, because they're the ones getting those assets and the gain accrued on those assets they're getting.

I know that some people had asked for the ability, though, to take advantage of tax attributes of the deceased spouse, say, their deceased wife's tax return. As I said, I think it would be very appropriate to be able to allocate some of that gain to that final tax return for her, but only where it made sense, not as a mandatory thing.

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

You said you made some comments. You suggested to allow the transfer to the estate, or something of that nature. Was there any take-up on that suggestion or was there any specific suggestion made?

[Bruce Ball]

I don't like to discuss discussions specifically, but it was mentioned, it just wasn't agree to. That's probably the best I can say.