Finance Committee on Sept. 21st, 2017

[Pierre-Luc Dusseault, NDP, Sherbrooke, QC]

Thank you, Mr. Chair.

We had firm intentions to discuss tax rules for private corporations. However, since I know Mr. Kelly may appear before us again next week, I'll focus on other topics related instead to e-commerce. This topic may affect both Mr. Kelly and Mr. Sanger. Mr. Sanger referred to e-commerce in his brief. I think e-commerce is a grey and black cloud on the horizon, and a much larger and blacker cloud than the tax rule proposals.

Mr. Sanger, I want to know whether you've studied the impact of e-commerce and the resulting loss of revenue for governments. This type of commerce isn't subject to the same regulations as retail stores, which are well-established, such as the small- and medium-sized businesses represented by Mr. Kelly. Have you assessed the loss of revenue? That's my first question.

[Toby Sanger]

I'm glad you raised that question. Our union actually represents a number of people in the media and broadcasting industry, both public and private. It has found that a lot of its business advertising dollars have gone outside of Canada, to Google, Facebook, and other companies that run e-commerce platforms.

I was glad the federal government introduced a tax—or applied the GST—to Uber. Most people don't realize it, but Uber is a massive tax avoidance scheme. It's based in the Netherlands and avoids tax on all different levels.

Most Canadians probably also don't know that GST and sales taxes are not applied to imports of digital services, so that can cover a whole lot of different e-commerce or online platforms. If the producer of that service is based in Canada in any sort of way, then the sales taxes and GST apply, so it's a clear bias against Canadian producers in this vast expanding area, and it's caused a lot of disruption in the broadcast industry. If somebody produces an app in Canada, that will be taxed—it's subject to GST and sales taxes—but if it's produced in some other country, it's not taxed, so it's a clear bias.

It's hard to get all those figures. You had a question about the impact of it. We figure there's at least $1 billion or maybe $2 billion in revenue. More importantly, we're losing jobs, and it's weakening Canadian businesses, so I hope this is something the government will also act on, and that the CFIB and others will be active on.

A lot of other countries have moved on this issue, and it's time for Canada to do so as well.

[Pierre-Luc Dusseault, NDP, Sherbrooke, QC]

That's the link I wanted to make with the small- and medium-sized businesses, which make up the fabric of our communities. These businesses talk to me a great deal about international competition and e-commerce. As I said earlier, this represents a much blacker cloud on the horizon and threatens Canadian jobs and businesses.

Mr. Kelly, do you have an opinion on the taxation of products that are sold online and that compete with Canadian businesses?

[Daniel Kelly]

Thank you, Toby, for your answer.

I agree that this is an area in need of review. It's a tax fairness issue that should concern the committee. There are several ways in which online players, particularly multinational online players based outside of Canada, have an advantage over domestic market players. In our view, that is unacceptable. All of these examples of foreign-based companies that can sell into Canada digitally and avoid GST, HST, and provincial sales taxes, need to be addressed.

The other major concern of course is that online retailers based in the U.S. will often ship products to Canada that will come and hit Canada, even though there is supposed to be a collection of import duties or GST/HST, especially when it's delivered by Canada Post, and that doesn't happen. That is deeply unfair. If you're trying to sell a pair of running shoes for 100 bucks and a big online player in the U.S. can have them shipped to you through Canada Post and avoid the 15% in Atlantic Canada or the 13% in Ontario, you're dead before you even start. That needs to be addressed, and addressed very quickly.

A final point on this is that it's very worrisome to us in the current NAFTA negotiations, because we know the U.S. is asking Canada to raise the de minimis figure to its number of about $800. That's $800 U.S., I'll add. If Canada comes anywhere close to that and raises it in the NAFTA negotiations—if this gets traded away—that would cause major pressures on Canadian retailers and Canadian merchants of all sorts. We urge the government that this is an important provision. We really think the government is doing a nice job in the NAFTA negotiations, but we really don't want to see this provision traded away as we secure the agreement.

[The Chair, Liberal, Wayne Easter]

We'll have to leave it there. I have five people who urgently want to get on the list, so we're going to cut you at three minutes. I want short questions and short answers.

Mr. Fergus.

[Greg Fergus, Liberal, Hull—Aylmer, QC]

Thank you, Mr. Chair.

First, I want to thank all the witnesses. It was very interesting.

My question is for Ms. O'Reilly Runte. It concerns the role played by the Canada Foundation for Innovation, the CFI, in science and research in Canada.

Would Canada be in its enviable position today if the CFI hadn't been created in 1997?

How should we fund the CFI again to make sure Canada takes its place in an international competitiveness context?

[Dr. Roseann O'Reilly Runte]

Thank you for the question.

Without the 10,000 projects supported by the foundation in the past 20 years, we wouldn't really be in the same position today. Across Canada, we can see universities, laboratories and communities that have benefited from changes resulting from the foundation's investments. The other day, when I was in Waterloo, the mayor told me that the city really wouldn't be the city it is today if it hadn't received the foundation's first investment in its economy.

You'll be happy that I'm the only person who hasn't come here to discuss taxes today. I'm not asking you to provide additional funding, but simply to regularize the amount you allocated in the past.

I'm also offering you a bonus. In the past 20 years, Canada has spent $7.6 billion on research. With the matching funds, the return has reached $18.3 billion. We can therefore consider it a lucrative investment for the country rather than an expense.

[The Chair, Liberal, Wayne Easter]

Thank you both, and yes, it does indeed at least make me happy.

Go ahead, Mr. Kelly.

[Pat Kelly, Conservative, Calgary Rocky Ridge, AB]

Thanks very much.

Mr. Kelly, I'd like to start with you. The research your organization has done is quite revealing, and it speaks to the significance of these tax proposals. I appreciate, in particular, your reminder of why the rate on small business taxes is lower in the first place and what's lost in this are things like the cost of compliance to be a small business operator. Many small business owners would spend two, three, four, or maybe five or six per cent of what would be their profit on just compliance, having access to professional accounting, to legal, and to all of these things. A lot of this is forgotten in much of the debate.

I spoke to one of your counterparts in your provincial association last week, who talked about the immediate effect of the uncertainty: business owners either reconsidering or cancelling expansion plans, accelerating retirement, moving assets out of the company into personal names now, triggering immediate short-term, one-time tax bonuses to the crown while contributing nothing further, once that's done, to expanding the economy.

Do you want to add anything that you've heard from your own members about the immediate effects of this?

[Daniel Kelly]

I meant to add at the beginning that we have to look at these changes in the context of the larger picture that we're facing in Canada right now. We are starting to see some bright spots in the economy, and I'm happy about that. I think that a lot has been done over the years to make that happen, but we have to remember that we just announced an increase in employment insurance premiums a couple of weeks ago.

Starting next year, there will be five straight years of carbon taxes or carbon pricing increases happening across Canada by provincial governments at the behest of the feds. Canada pension plan premiums will be increasing for five years, just the base premium, and then the threshold is going up for another two years. Then as a result of these tax changes we threw in this big mothball of uncertainty, as I've referred to it in The Globe and Mail. Provincial governments are coming to the table with huge increases in the minimum wage in three of Canada's largest provinces, labour law changes that will please Toby but very few others.

I have to ask, how many more shocks can small business owners take before they start doing some of the things that you've just described? I am deeply worried right now that a lot of small business owners are feeling absolutely beleaguered and wondering deeply about their future and whether or not they have a business to pass along to their children. You might claim that is an exaggeration, but I'm just hearing it so often from members of CFIB that I think I need to share it with you.

[The Chair, Liberal, Wayne Easter]

Thank you, Mr. Kelly.

Mr. McLeod.

[Michael McLeod, Liberal, Northwest Territories, NT]

I don't think it will be fair to go through the pre-budget consultations without talking about infrastructure, so in my three minutes, I'd like to get John Gamble to talk a little about his presentation and how he has talked about infrastructure being an investment that grows our economy. I come from the Northwest Territories. I want him to explain to the committee how developing northern trade and transportation infrastructure can enhance our region and our national productivity.

[John Gamble]

Canada's north has unique challenges: the sheer geographical distances, the environmental challenges, and it's on both fronts, both the private business infrastructure, from the extractive industry, the natural resource industry, as well as the quality of life infrastructure. By that I don't necessarily mean day care, but things like roads, civic buildings, transportation, and the ability to connect communities are phenomenally expensive.

In the north, many communities are burning bunker oil. You can imagine the paradox there is that they're going to get hit on one hand by the carbon tax, yet they are in a region that is probably the most threatened in all of Canada, so we need a way to connect them to the rest of Canada.

Some of the resources in the north are extremely important to us. We have a lot of people talking about a high-tech industry. We should be able to support a high-tech industry in the south, but it relies on precious metals. Our tablets and cellphones use many precious metals, and there are abundant resources in the north, but it's two to three times more expensive to access and open a mine within our own Canadian borders than it is for a mining company to go to Chile. We need to access those resources so we can support industries in the south but also leverage that opportunity to create connectivity in communities as well.

I think the corridor concept that has been proposed for over 50 years has a lot of merit. It's not an easy thing to do, but I think it will certainly bear a lot of fruit, because it might increase the efficiencies of trying to get these complex approvals through. It will allow you to reduce the footprint. You can negotiate treaties in one right of way and have that dealt with. You can manage wildlife crossings, and reduce the geographical footprint. I grew up in the south, and I didn't have my eyes opened until my adult life, but we in the south owe it to our fellow Canadians up there to allow them to be prosperous through economic infrastructure, and we need to leverage that to give them infrastructure that will give them the quality of life we have here.

In previous budget submissions we supported the Mining Association and its recommendations on levelling the field. We stand by those. We certainly commend you to consider starting the process to get a national corridor together, because it's only going to get more difficult as the years pass by.

[The Chair, Liberal, Wayne Easter]

Thank you, both. I'm sorry to have to cut you off.

Mr. Liepert, you have three minutes.

[Ron Liepert, Conservative, Calgary Signal Hill, AB]

I'll just make a couple of comments.

Thank you all for your presentations.

I think it's unfortunate that we had this whole tax thing come up when it did because, quite frankly, I'm only sitting in on this committee this afternoon, but I suspect this is a recurring theme.

[The Chair, Liberal, Wayne Easter]

We've missed you, Ron.

[Ron Liepert, Conservative, Calgary Signal Hill, AB]

I know you miss me, Mr. Chair. You'll miss me even more when I'm gone.

The unfortunate fact is that this is a pre-budget consultation and all we're talking about is one proposal that's been thrown out there by the Department of Finance.

I want to make a comment, and if any of you want to comment on my comment, you're welcome to. I want to come back to this comment that there's a lot of misinformation out there, which we hear all the time. I have some quotes here: farmers and physicians won't be affected by this, and small business owners won't be affected; only those making $150,000 will be affected. Bill Morneau made those comments. Then as we all know, the Prime Minister, in the election campaign, was quoted as saying that small businesses are nothing more than simply tax writeoffs.

Is there any wonder there's anger out there? Is there any wonder there's misinformation out there when we hear these kinds of comments? Then there's someone else in the room who recently said, “Whoever drafted [that proposal] doesn’t have a clue about the amount of effort that goes into being a small business or how it’s established.”

I'd just like to know if anyone would like to make a comment on this continued wording that's used by the government about how somehow we're all misinformed, that we don't know what's going on, that it knows what's going on, but we're all misinformed out here.

Dan, kick it off.

[Voices]

Oh, oh!

[Daniel Kelly]

Thank you for the soft lob.

[The Chair, Liberal, Wayne Easter]

Let's make it quick.

[Daniel Kelly]

I'll be very quick.

I think the dialogue would be enhanced significantly if we heard from the Minister of Finance or even the Minister of Small Business, that they now understand that these proposals will affect middle-income business owners and they are not prepared to allow that to happen.

[Ron Liepert, Conservative, Calgary Signal Hill, AB]

That's a good start.

[Daniel Kelly]

I think that would be a terrific start.

I also think it would be fair if we heard from the Minister of Finance or the Minister of Small Business and they said that, if there are instances raised with them where the rate of taxation on small business would be higher than that of other Canadians, they're not going to let that happen.

I further would suggest—and I've been thinking about this but haven't said this publicly—that if the minister is clear and sincere that businesses under $150,000 will not be affected by any of the three proposals, I'd like him to issue through a ministerial directive to the CRA, which is in the power of the minister of CRA's hands, to say that it will give a “get out of CRA jail free” card to any business owner who has under $150,000 a year in income.

[The Chair, Liberal, Wayne Easter]

We'll have to cut you there.

Ms. O'Connell, you have three minutes.

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

I have other questions, but I'll only have time for one.

Portia and Mark, my question is really in terms of agriculture. I know in the near term the labour shortage is pressing. Long term, how do we encourage more people to take up farming, particularly in college and university?

Not in my riding but close by, I have the University of Ontario Institute of Technology and Durham College. They're trying to become leaders in agriculture, hopefully, to promote future generations. Again, I get that your presentation was focused on your top priorities, but is there anything you can recommend to try to encourage the partnerships through colleges and universities to really encourage the future generations, not only in technology but workforce as well?