Finance Committee on Sept. 20th, 2017

[Jennifer O'Connell, Liberal, Pickering—Uxbridge, ON]

Yes, but that's why we're here. This is the point of the testimony.

If we get recommendations then we can put them forward. You also said that you didn't appreciate ramming it through. But there isn't legislation, it's a consultation. Where you're sitting here today, instead of your testimony being on growth, which was the request of the committee—and I get it, that the concern would be that growth could be impeded if your members feel that these are unfair—but the process we're doing here today is recommendations. Nothing is being rammed through. You have the opportunity to put testimony on the table.

In income sprinkling, you used the example of a son working in the business, legitimately so, and how could anyone possibly deal with CRA and legitimize that work? But how can people who aren't incorporated, whether they hire their son or a kid they've known forever, justify the expense of the employee through paying them an income? The Minister of Finance has said that a family member legitimately working in the business can continue to do so. Couldn't they simply justify that as a legitimate employee by paying them just like any other business owner would?

[Hendrik Brakel]

I think the challenge is when you look at the definition of “reasonable”. A spouse or a family member in a business doesn't just do one thing. They do a little bit of everything. They do a little bit of marketing. They meet with customers. They clean up. They answer the phone. They help write the reports. It's difficult to say what's the appropriate salary level for that. If you're paying a family member $60,000 and CRA assesses the value of their labour at $30,000, how do you go back and prove it?

We've heard different things from business owners and accountants who say they have been successfully able to prove it under reasonableness tests. But other times, it's really hard. Poor CRA, how are they supposed to enforce this? It's a tough one.

[Jennifer O'Connell, Liberal, Pickering—Uxbridge, ON]

When legislation comes forward then, the recommendation would be to see what that actual definition is and then tell us if you think that's good or not.

In your membership, amongst individuals who are incorporated, if someone was, say, a single mother who has two children who are 13 and 14 versus a single woman who has two kids who are 19 and 20, one can sprinkle income to the 19- and 20-year old but the other individual who is incorporated cannot.

Do your members feel that's fair even amongst entrepreneurs and small business owners?

[Hendrik Brakel]

I think the overwhelming majority of restaurants and farms in this country have family businesses where the family member, the spouse and the kids, are really genuinely contributing to it. I think what we're concerned about is if CRA is going to unleash an army of auditors on this. Finance says they're going to raise $250 million by tightening up the rules on income sprinkling. They're going to have to tax $1 billion of salaries. They're going to have to audit hundreds of thousands of businesses.

[Jennifer O'Connell, Liberal, Pickering—Uxbridge, ON]

I appreciate that.

[Hendrik Brakel]

Okay.

[Jennifer O'Connell, Liberal, Pickering—Uxbridge, ON]

I have limited time but my question was amongst those two scenarios. I started my first job when I was 16. If I worked for an incorporated individual or if my parents were incorporated and I worked there—they didn't, I don't have that scenario—hypothetically, the 16-year-old can't have income sprinkled to them but an individual can sprinkle income to a 19-year-old.

So amongst your members, do they feel that's fair even amongst entrepreneurs?

[The Chair, Liberal, Wayne Easter]

You're out of that limited time.

Mr. Brakel.

[Hendrik Brakel]

I think you have a point. There's a fairness issue there for sure.

[Jennifer O'Connell, Liberal, Pickering—Uxbridge, ON]

Thank you.

[The Chair, Liberal, Wayne Easter]

We'll go to Mr. Albas and then Mr. Picard. That will close up this session.

[Dan Albas, Conservative, Central Okanagan—Similkameen—Nicola, BC]

I'm just going to maybe take off from where MP O'Connell had left it.

That's why we have the tax on split income, TOSI, rules as they are. If you actually look at the consultation paper your minister has put out, he actually says we're just not winning enough of these cases. So, again, what's reasonable to the CRA and what's reasonable in someone's case is going to have end up being defined by court, which is a very long and expensive time.

If you remember, the Auditor General recently did a report, I think it was this spring, saying there's a huge amount of time wasted right now as people go slowly through our tax system.

I have to say, Mr. Brakel, I've never heard the word “poor” and CRA in the same sentence. I'm sure there are some officials somewhere who are finally saying, here's someone who understands us.

I'm going to go to Mr. McKenna.

Mr. McKenna, I'm from British Columbia. In British Columbia, we do have a carbon tax but there is no tax on jet fuel. It was specific because they didn't want to see business being moved to other jurisdictions that did not have such a tax, like the United States or Alberta. People would just say let's not buy fuel in B.C. , we'll stop in the United States and fuel up there because it's cheaper.

Now with this federal carbon tax even though the British Columbia carbon tax is exempted, your industry would still have to pay. Is that correct? Or is the federal proposal not to incorporate jet fuel?

[John McKenna]

Jet fuel is included.

[Dan Albas, Conservative, Central Okanagan—Similkameen—Nicola, BC]

I see.

[John McKenna]

Federal tax would apply if the provinces don't have a tax themselves. If they have a carbon tax program, the federal tax is a backstop.

[Dan Albas, Conservative, Central Okanagan—Similkameen—Nicola, BC]

So we're in fact going to be pushing business down south then.

Is that correct?

[John McKenna]

Yes, we're doing that already in aviation considerably so this would add to it.

[Dan Albas, Conservative, Central Okanagan—Similkameen—Nicola, BC]

It's just another thing. So it's not just the rents and whatnot that are making consumers go down to the United States. It's us, we're doing this by these choices.

Is that correct?

[John McKenna]

Yes, indeed. If you look at the price of a ticket today, the flight part hasn't changed in 20 years. All the other charges have, including that.

[Dan Albas, Conservative, Central Okanagan—Similkameen—Nicola, BC]

Okay. I appreciate that. In British Columbia, we're going to have two carbon taxes then. There's going to be the provincial carbon tax and then there'll be the federal carbon tax to capture jet fuel. Is that correct?

[John McKenna]

Well, I think they're going to take it province by province. We asked that very question, and we did not get an answer to that.

[Dan Albas, Conservative, Central Okanagan—Similkameen—Nicola, BC]

Okay, so they have no answers. Maybe they haven't thought of it yet.

In relation to privatization, some of these airports were actually, at one point, municipal assets that were paid for out of civic taxpayers' funds and then through an arrangement with the federal government, they were eventually given over and basically held in trust. Kelowna is a case like that. Do you think that there is a possibility that an airport like Kelowna could be sold, despite it being really paid for by municipal taxpayers? That doesn't sound right.

[John McKenna]

I can't give you the example of Kelowna. Maybe Daniel could help me there.

[Daniel-Robert Gooch]

Kelowna is actually the only one that I'm aware of that's a national system airport that did come from municipal. It is a special case. We know consultations and work have been done on the file. Our understanding is that most of it has concentrated on the eight largest airports, of which Kelowna is not one.

[Dan Albas, Conservative, Central Okanagan—Similkameen—Nicola, BC]

Theoretically, that could be a possibility, though, if they are looking to get this asset class off their books and realize it so they can pay down some of their deficits. Maybe that could be in there. I don't know.