Finance Committee on Sept. 21st, 2017

[The Chair, Liberal, Wayne Easter]

Thank you all.

Turning to questions, if we can hold it to five minutes each, we'll get eight in.

Mr. Grewal.

[Raj Grewal, Liberal, Brampton East, ON]

Thank you to the witnesses for coming today.

I think it's a testament to our democracy that Dan Kelly and Toby Sanger can sit right beside each other and have a passionate discussion about the government's proposed tax changes.

I want to start off with Portia and Mark. You mentioned the TFW program. I want to get your feedback on how the government can improve that, because changes have been made. We understand that there's a labour shortage in Canada, and there are challenges with that. Could I get your opinion really quickly on what we can do to make the process a little bit easier?

[Portia MacDonald-Dewhirst]

I have a few thoughts on that. Certainly, one would be an interdepartmental advisory council so that the different departments can work together to prioritize agriculture. The temporary foreign worker program started in the agriculture industry. It's the biggest user of the program, and the use of the program is quite a disjointed process right now. It's quite confusing for employers to use. There really is a need for some kind of overview and research into the program in order to consolidate it and streamline it so that it works for this industry, for primary production and for processing.

[Raj Grewal, Liberal, Brampton East, ON]

Thank you. I appreciate your feedback. We'll definitely take it back to the ministers in charge to make sure that for next season it's more accessible, more transparent, and results-oriented, because we need to ensure that we support our local farmers. When they benefit, all of Canada benefits as well.

Mr. Kelly, I really appreciate your presentation and your slide deck. It takes me back to my business school days. One thing I found interesting was to wonder about the methodology by which your questions were asked in your survey. If you ask a small business owner.... I go back to my corporate law days. The number one thing I too would complain about is taxes, because I had my own business and wanted to make more money at the end of the day.

Just give us a bit of the methodology on the basis of which these facts are being presented to us.

[Daniel Kelly]

The sample size, I believe, was almost 9,000 businesses, in a survey that was done over a couple of days. It was an online survey of our membership.

Because many businesses aren't particularly familiar with the details of these proposed changes, we provided a two-page backgrounder, which we had passed by tax professionals to ensure that the information was accurate. We put it in front of our members and also provided direct links to the federal government's consultation paper in case they wished to find out more. We then asked the questions. The questions themselves are worded exactly as they are on the slide.

I get the concern that no business likes to pay taxes. That's absolutely true. Business owners and Canadians in general complain and grumble about the taxes they are paying. This, though, is a little bit different—

[Raj Grewal, Liberal, Brampton East, ON]

Let me cut you off.

[Daniel Kelly]

—and that's why we wanted to share the data, as we have.

[Raj Grewal, Liberal, Brampton East, ON]

I appreciate that. I'm sorry; it's not to cut you off, but my time is limited. Can you send us the two-pager?

[Daniel Kelly]

Absolutely, yes. We're happy to do so.

[Raj Grewal, Liberal, Brampton East, ON]

Send it to our committee. It would be great to look at.

Toby, thank you so much for reiterating that there's a lot of misinformation going about outside about the proposed tax changes, and I want to highlight the word “proposed”, because there is a government consultation going on.

Let's go back to why we're here for budget 2018.

Toby, what do you think is the number one thing that the Government of Canada can do in budget 2018 that can further economic growth for all Canadians?

[Toby Sanger]

As I mentioned in the presentation, I think it's increased investments in areas such as child care. I'm really glad that the government made that commitment in the last budget, but I think most people agree that it wasn't enough, that it's going to cost a lot more to have an accessible, high-quality, and affordable child care program. Quebec has had a great experience with it.

That's one area. There are two other areas in health care. One is a pharmacare or drug prescription program, which could save money, actually, reducing costs by controlling the costs of medicines. Then third, much more needs to be done in terms of residential care, a seniors strategy. I'm very glad to see the CMA emphasize that as well.

[Raj Grewal, Liberal, Brampton East, ON]

Do I have a little more time?

Thank you, Mr. Chair. You're very generous with my time today.

The last question is for Restaurants Canada. I think everybody at this table agrees about your members' contributions to the Canadian economy. One thing I want to make sure you understood is that the tax changes are on a going-forward basis, so if you can, communicate that proposed tax changes are on a going-forward basis and won't affect prior situations.

One thing you said that I was interested in knowing is that many families run restaurants, which is true. The proposal regarding income sprinkling won't take away the ability of a son or daughter or husband or wife to work at a business; there will just be a reasonableness test assigned regarding it. The details of that test have not been outlined yet, and that's why we're having consultations.

Democracy works best when we have this conversation. Hopefully, we'll come together on a new proposal. I just wanted to provide you with that information to pass on to your members.

I used to work at Pepsi. It was my first job, so I have a soft spot in my heart for your industry. Thank you so much. We'll look forward to reviewing the rest of your proposal.

[The Chair, Liberal, Wayne Easter]

Mr. Kmiec.

[Tom Kmiec, Conservative, Calgary Shepard, AB]

It seems there's a theme amongst many of the participants here, and from the previous one, too, that nobody seems to like these tax changes proposed by Finance Canada.

I'd like to start with Mr. Kelly, and then maybe move to Ms. MacDonald-Dewhirst and Mr. Wales. I have some questions about the TFW program, and also about the family farm and how some of these tax changes will affect their business model.

Mr. Kelly, you provided us some data here showing that your members—very significantly, 57%—say this will have a very significant impact on them. Can you tell us a little bit about what people have been saying to your organization? I've received probably, between emails and Facebook messages and people attending my town halls, well over 1,000. A lot of them have told me exactly.... Some of them have gone through the trouble of modelling what would happen if these proposals were all implemented in the format they are now, and some of them have gone in between and said, “If they don't do it this way...”, and so on. What have you heard from some of your members? What have some of them been saying that they will do to their individual businesses?

[Daniel Kelly]

The implications of these proposed changes are huge and far-reaching. The income-sprinkling provisions in particular are a source of much concern and anxiety on the part of business owners. While it's absolutely true, as Mr. Grewal said, that business owners will still be able to have family members employed in their business, the uncertainty that this will create, as to whether or not the CRA is going to come in and then ask them to justify how much they happen to be paying a spouse for formal and informal work in the workplace is quite considerable.

I think there is a lack of understanding in general among parliamentarians, among bureaucrats in the Department of Finance, as well meaning as they may be, as to what it is to work in a small business. The roles are not as clearly defined as they are in large counterparts or in the House of Commons. There are many informal roles that need to be considered. The CRA is not particularly good at determining what is an informal contribution, or the risk that a business family happens to be taking on.

The other big change, of course, is on the passive income side. There is great concern about the abilities of a business owner to reinvest their profits back into the business. Yes, there are business owners who are worried about these provisions from a retirement savings perspective, but I'd say the number one concern is whether or not these changes are going to prevent them from saving their profit, getting it taxed away at a much higher rate in the beginning, and not allowing them to reinvest and grow their firm.

I'll wrap up on this. I would be doing you a disservice to not let you know—I think you as parliamentarians know this right now—that there is a lot of anger about these changes. Some may say that it's because of misinformation. Some may believe that we are providing the misinformation, but there is a lot of natural anger because of the tone the government is using with respect to the promotion of these changes. While there was some softening of the language from government, from the leaders on this front in recent days, there seems to be a doubling down on that, including in the first question period, which is deeply worrisome. I think we can't underestimate the impact that's having on business owners feeling as though their government is abandoning them. I wish I could sugar-coat it, but that's where it is.

[The Chair, Liberal, Wayne Easter]

Mr. Kmiec.

[Tom Kmiec, Conservative, Calgary Shepard, AB]

I was going to ask about the TOSI rules, which are also called income sprinkling. I'm using information from Moodys Gartner, which is a well-respected, well-known Canadian tax law firm. There's a reasonableness test, and it looks at functions performed by the individual, assets contributed by the individual, risk assumed by the individual, and all historical amounts already paid to the individual. All of that will be considered in the reasonableness test.

The consistent thing I hear is that it's really broad and nobody really understands how that will affect their business when they're trying to prove to the CRA that they meet some of these requirements.

Has the CFIB or anyone else you know modelled what the potential expenses could be for firms?

[Daniel Kelly]

We haven't. I think the data we have shared, though, shows the concern over the uncertainty that this has created.

We've been doing this for 46 years. When John Bulloch founded the Canadian Federation of Independent Business, it was to protect the small business corporate tax structures in Canada. One thing we've noticed in our experience, despite the intentions of the Department of Finance, is that whenever a set of policies or a piece of legislation gets to the Canada Revenue Agency, they are forced to define it, and it is often far bigger, far more serious than we hear about from the department itself. Then we can expect at least a decade, as these things wind their way through the courts, to help better determine the reasonableness test.

At minimum these changes, if they do nothing else, are going to create a decade of uncertainty for business owners, a decade of fear that the tax auditor is going to arrive. I don't think that's a helpful thing to do when the economy's just finally starting to show a few signs of life.

[Tom Kmiec, Conservative, Calgary Shepard, AB]

Do I still have some time, Mr. Chair?

[The Chair, Liberal, Wayne Easter]

You have time for one quick one, and then we have to go to the other side.

[Tom Kmiec, Conservative, Calgary Shepard, AB]

This will be short.

Mr. Wales, you mentioned the 220,000 family farms. I got to visit a honey farm in Neerlandia during the summer, and nearly everybody working on the farm was from Mexico—really hard workers. They had tried to hire people locally. They told me that the Canadian who lasted longest, except for the owners, the family who operated it, a young guy and his wife, lasted three days.

How do you deal with that? On the one hand, we're telling Canadians to get a great education, upskill themselves, and get into these very technical fields. We're also trying to find labour for our family farms in order to sustain them and keep them going. Obviously, two, three, four, or five people can't keep a large farm going. With these tax changes and with the labour issues.... The Province of Alberta has also brought in Bill 6, and started applying commercial rules to family operations.

What does that mean for the family farm? Between the labour costs and these proposed tax reforms, what does it mean for the family farm?

[Mark Wales]

Do I have an hour to answer the question?

[Tom Kmiec, Conservative, Calgary Shepard, AB]

We can talk after.

[Mark Wales]

That's fairly broad, but thanks for the question. It's really critical.

One of the challenges we face as farmers is that the Canadians we would like to employ typically do not live where the farms are. That's one of the first challenges we have. We don't have a lot of people available locally. The seasonal agricultural worker program, which was started here, has been around for over 50 years. It recognized that. Previously we had waves of immigrants come to this country, and typically they would go and work on farms. As they got older and retired, their children typically worked in town. We haven't had that in quite some time.

We're accessing every group in society we can in farms—women on farms, the indigenous community where they're nearby and localized. That's one of the things CAHRC has done. We've also worked with the organizations that are bringing in immigrants, trying to let them know that there are some good jobs on farms, and also with youth. This is one of the big concerns we have with these proposed changes. The group we are trying to attract back to the farm is generally the 18- to 24-year-old group. That aspect of the reasonableness test has us really concerned. Typically on a farm operation you may have no employees except at harvest time and planting time. Those are probably the two key periods in most farming operations. You may need the kids to come home. You may be working around the clock. You may be working under weather restrictions. You may have no employees the rest of the time, and yet the comment we've heard from Finance is that the expectation will be that if an 18- to 24-year-old is going to get remuneration, as dividends or whatever, they'll have to be employed kind of Monday to Friday or on a full-time basis year-round. That's not the farm type of employment. We are very seasonal, oriented to a very specific time period.

That's a challenge that we face. The intergenerational transfer issue obviously is huge, because probably three-quarters of those 220,000 farms change hands routinely. We're probably the one sector of the economy where that's the greatest issue. Most farmers are not getting any younger: $50 billion in farm assets is going to need to change hands in the not-too-distant future.

[The Chair, Liberal, Wayne Easter]

Thank you, Mr. Wales.

Before I turn to Mr. Dusseault, I would say to the Restaurants Canada folks that I know the small business discussion kind of derailed what you had proposed, but I went through your brief, and you have quite a number of recommendations in there. Could you at least tell us, of the seven or eight or nine that are in there, what your priority recommendation might be?

Mr. Dusseault.