Evidence of meeting #57 for Finance in the 41st Parliament, 2nd Session. (The original version is on Parliament’s site, as are the minutes.) The winning word was knowledge.
A video is available from Parliament.
Conservative
Mike Allen Conservative Tobique—Mactaquac, NB
Okay.
I'm not going to put words in your mouth, but one of the comments you did say was that it's hard to say how some of these changes are going to play out. As we're looking at this and trying to balance the thoughts on each of these changes, if it's hard to say how it's going to play out, it makes it difficult for us to say whether we should entertain the change or not. Do you want to give any more background on that comment?
National Tax Partner, BDO Canada LLP, and Member, Tax Policy Committee, Chartered Professional Accountants of Canada
Sure. That comment was on the question about beneficiaries with disabilities. In the original elimination of graduated rates for testamentary trusts that was raised as a concern. We'd actually suggested a different approach in terms of maybe making the preferred beneficiary election a little broader. That's where I was saying it's hard to say how that one will play out.
In terms of the specific one that we just discussed, though, this spousal trust example, a lot of practitioners are fairly sure this isn't going to turn out very well. I think we have a lot higher sense of certainty around that one.
Conservative
Mike Allen Conservative Tobique—Mactaquac, NB
I hope you'll be using the same example the whole way through because it makes it a little easier for us to follow that, too.
Okay, thank you.
Mr. Carman, you also commented when you talked about the concerns of members. You talked about the portfolio investments, and maybe some of your portfolio advisers would make decisions they would not otherwise make. You're saying this legislation is maybe driving them to make decisions that may not be necessarily good for their portfolio. Is that what I heard you say?
Senior Policy Advisor, Taxation, Investment Funds Institute of Canada
That was basically the gist. The issue was that the 10% would have to be monitored constantly, and if you're about to go over that you might have to sell out of securities. It might be a very good investment but you wouldn't have any choice because otherwise you'd be subject to these loss restriction events.
Conservative
Mike Allen Conservative Tobique—Mactaquac, NB
Are there ways to handle that through regulatory measures or changes that would accompany this that could be just as effective?
Senior Policy Advisor, Taxation, Investment Funds Institute of Canada
Yes. We believe that using the National Instrument 81-102 rules, where it's just 10% upon purchase of the security, would take care of that.
Conservative
NDP
Murray Rankin NDP Victoria, BC
Thank you to all of the witnesses.
I only have a short amount of time. I'm going to start with Mr. Ball of the chartered accountants.
You used I think the word “unfair” twice, once in reference to the special purpose trust changes that have come in and another time on the changes to section 94 of the Income Tax Act as well.
Was there a public policy reason that you can discern for the fact that special purpose trusts are being taxed in the way you've described, where sometimes the wrong people are being saddled with the tax bill?
In the other context, not grandfathering, if I can call it that, the five years people had the expectation they'd have, were those policy choices, was it negligence, or just simply unfair?
National Tax Partner, BDO Canada LLP, and Member, Tax Policy Committee, Chartered Professional Accountants of Canada
I'll deal with the first part first.
My understanding is that they—“they” being the Finance people who developed the rules—wanted to prevent certain types of planning that was happening, and one of them was planning with Alberta resident trusts. They didn't want people to be able to have the income taxed in the trust. That was a valid concern.
I guess the flip side of that is that there are a lot of these trusts that are set up that aren't in Alberta, and they really aren't set up for tax purposes at all. That was the debate around that.
On the section 94 changes, we fully recognize that the government has the right to change the rules. It's its right, its ability. But at the same time, the non-resident trust rules had gone through a lot of change, and that five-year rule had remained at the end of the day and then was eliminated more recently. We just believe it's unfair. Where you rely on something that's an inherent part of the tax system and actually plan to be inside of it, you should get grandfathering in the situation.
NDP
National Tax Partner, BDO Canada LLP, and Member, Tax Policy Committee, Chartered Professional Accountants of Canada
There often is, yes.
NDP
Murray Rankin NDP Victoria, BC
I want to go, please, to Mr. Kennah of IT International Telecom. I guess my question is really simple. What you're here to tell us is a bit of a no-brainer, if I can use a technical term. I can't understand why you're here with this problem. Why did they change it? Was there a public policy reason? You must have spoken to somebody inside the ministry and made them very angry.
Co-President, IT International Telecom Inc.
What can I say? As I said, I think it's been included without people fully understanding what they were including. There may be an alternate reason that they put it in, but it affects us dramatically.
NDP
Murray Rankin NDP Victoria, BC
You don't know what that reason is and it was never communicated to you.
Did you have a dialogue with officials or political people?
Co-President, IT International Telecom Inc.
When we first saw it, as the gentleman mentioned, we had missed the cut-off period to comment.
Murray Rankin NDP Victoria, BC
There was no consultation at all, even though you're the only one affected. That's amazing.
Okay, that's enough. I only have a couple of minutes.
Professor Tedds of the University of Victoria, welcome to the finance committee. You talked about four studies involving the children's fitness tax credit that show how ineffective and poorly targeted that particular boutique tax credit is. You've also written about other boutique tax credits.
Are there studies that would talk about the efficacy of others, like the transit one for example, that you could refer to?
Assistant Professor, University of Victoria, As an Individual
Yes, all of these studies, while they're looking specifically at one or the other, indicate that because these boutique tax credits are all designed in the same manner, any of the results from one tax credit or another seems to apply more broadly.
There have been studies that have looked at all of them, and that assumption has borne out in the data so far.
NDP
Murray Rankin NDP Victoria, BC
Thank you.
As you were describing that particular fitness tax credit for children, I think you also said that only 15% of parents are going to benefit, and I think you said it goes mostly to those households with over $100,000 in income. Then you said, I thought, that it won't help to make it refundable. Did I understand that correctly, that with that change, it would not address the inequity and the inefficiency of the tax credit? Did I understand you properly?
Assistant Professor, University of Victoria, As an Individual
Yes, that's correct. The refundability just brings us down a little bit through the income spectrum, but it doesn't overcome the fact that the majority of the benefits still accrue to high-income households, and the households claiming the maximum amount of that tax credit are all high-income households. It lessens the regressivity slightly, but it doesn't eliminate the regressivity. It doesn't make it progressive by making it refundable.
NDP
Conservative
Conservative
Mark Adler Conservative York Centre, ON
Thank you very much, Chair.
Thank you all for being here this afternoon. I appreciate all your input.
I first want to address my questions to Professor Tedds. You're a professor of public administration, public policy, and as you know, governments have a number of tools at their disposal to influence behaviour, all the way from exhortation to compelling behaviour. The tax system is one of those methods on the spectrum of how to influence behaviour.
You had indicated earlier that you weren't in favour of what you called a boutique tax credit, speaking of the fitness tax credit. What would you have done differently from what we did, in terms of introducing this tax credit? The reason we did it, of course, as you well know, was to promote physical fitness among our youth. What would you have done differently had you been able to introduce such a policy yourself?
