Evidence of meeting #106 for Finance in the 42nd Parliament, 1st Session. (The original version is on Parliament’s site, as are the minutes.) The winning word was businesses.
A video is available from Parliament.
12:25 p.m.
Family Physician, As an Individual
I'd say yes. As I mentioned, within physician structures there is inequity between those incorporated and those not. For various reasons, about 40% of physicians are not incorporated. That compares with the vast majority of Canadians, who are not incorporated.
12:25 p.m.
Partner, Tax Services, MRSB Group
To that I would say that there are many reasons to incorporate a business. The lower tax rate, in order to be able to fund expansion and working capital, is clearly one of the reasons and incentives that past governments encouraged and wanted.
I don't want to call it a loophole. I want to call it an incentive.
12:25 p.m.
As an Individual
My understanding and perspective is that private individuals who are able to privately incorporate enjoy a significant financial advantage over those earning comparable incomes who are not similarly able to incorporate.
12:25 p.m.
Chartered Professional Accountant, Trust and Estate Practitioner, As an Individual
I'm sorry, I want to clarify the question.
Was it just in general? Are there corporate benefits to tax savings from incorporating?
12:25 p.m.
Liberal
Greg Fergus Liberal Hull—Aylmer, QC
I just want to know whether there are some inherent advantages in the system as it exists today for those who are incorporated as distinct from those who are not, who include, of course, salaried persons.
12:25 p.m.
Chartered Professional Accountant, Trust and Estate Practitioner, As an Individual
Yes, there are.
12:25 p.m.
Liberal
Greg Fergus Liberal Hull—Aylmer, QC
Thank you very much to all of you for responding to that question.
My other question, which may give you a little bit longer to talk about it—and some of you already started to do so—is whether that is fair.
Mr. Paquet, you have the floor.
12:25 p.m.
Full Professor, School of Management, Economics Department, Université du Québec à Montréal, As an Individual
As mentioned earlier, there is unfairness when similar situations are treated differently by the taxation system. The issues put forward by the government in this regard are relevant.
Once again the point is not to jeopardize the competitiveness of companies, nor to prevent them from investing in subsequent development when it is very important that they do so. There are certainly concerns around exceptions that must be looked at. Fairness is an important element, but it should not be seen as inimical to efficiency, because we want to encourage Canadians to create businesses that will grow and make our economy even more dynamic.
12:25 p.m.
Family Physician, As an Individual
I'd like to say it's not incorporation that is the problem we've talked about. There are various reasons why someone might incorporate. I would just say that from the perspective that I'm speaking from as physicians who are higher income earners and often use benefits from a corporation to defer taxes, to pay less taxes, to have a higher income.... That's the angle I've been coming from, it's not incorporation necessarily that's the problem; it's using methods to decrease your tax burden when you are already quite a high-income earner.
12:30 p.m.
Partner, Tax Services, MRSB Group
I would say in any tax system there are going to be some who are taking advantage of certain things and that maybe was not intended, but I believe for the most part the current system is working. As I mentioned before, I do think that's really why a comprehensive review of the system to deal with any of those types of inequities would be appropriate.
12:30 p.m.
As an Individual
My view is that I obviously don't think it's fair, and not only that, I'm not convinced that the current tax regime is delivering value to the economy. For example, if the policy intent is to retain earnings in a corporation so as to expand that active business, something like passive investment does not achieve that policy objective. It's merely a mechanism to shelter from tax or defer tax on income going to that individual who's incorporated as opposed to using that money to expand the active business and thereby, arguably, benefit the economy.
September 26th, 2017 / 12:30 p.m.
Chartered Professional Accountant, Trust and Estate Practitioner, As an Individual
I think in 80% of the cases, yes, it's absolutely fair. I think there are some types of corporations where it's not fair and I think to look at corporations in isolation is also unfair. Individuals who have losses can use their losses against all sources of income. Companies, when they have a loss, those losses are trapped inside the corporation, so we could have this debate about what's fair and which way or the other, but I think tax incentives for corporations to grow capital, to provide capital for corporations, is fair.
12:30 p.m.
Liberal
The Chair Liberal Wayne Easter
Thank you, all.
I turn now to Ms. Raitt.
Welcome back to the committee.
12:30 p.m.
Conservative
Lisa Raitt Conservative Milton, ON
Thank you very much, Mr. Chair, I appreciate it.
This question is for Dr. Dutt.
I share a common birthplace with you, Cape Breton Island, and this past weekend, Dr. Dutt, I was in Nova Scotia and I actually attended the Doctors Nova Scotia town hall, which was attended by over 400 physicians. What I learned there was that there's a serious concern of the physicians in Nova Scotia about the effect on patient care and health care that will come from these tax reforms, these tax changes, being put into place.
You gave a stat that about 60% of doctors are incorporated. Doctors Nova Scotia tell me that 75% of Nova Scotia doctors are incorporated and it's important for this reason, when they surveyed their membership, they found that 451 doctors out of 864 who responded said that they would consider moving away from Nova Scotia.
Dr. Dutt, you and I, coming from Cape Breton, both know one thing, that there is a serious problem with the lack of family physicians in Cape Breton. You know the outcry from the community and you know the emotion in the community over this, so I was very surprised to hear that your first recommendation, being a physician in Cape Breton, knowing the impact that will have on health care for Cape Bretoners, would be that you would say to the Liberal government to go ahead and implement these things.
I'm wondering if you can tell me why you think these changes will not have an impact on Cape Breton health care when your colleagues in Nova Scotia overwhelmingly say it will.
12:30 p.m.
Family Physician, As an Individual
I appreciate that you attended that meeting. I know it was well attended. I also do know that there were quite a few people there who do support the changes.
It is a difficult environment, I think, to try to bring some of those perspectives forward. I'll just say that, clearly, the sentiment there was against the changes, and I fully recognize that. As we've said in the letter, and I've tried to speak to, there are definitely concerns that physicians have about the system, and it's feeling as if tax policy is not the best way to address those concerns. That's kind of the main reason.
I feel as if coming from Cape Breton influences me even more, knowing the kinds of incomes that my patients have, knowing that I can have a pretty decent income. I work not too many extra hours. I work decent hours. I am on call and I do things that physicians do, but I earn much more than they do. I also recognize that, as physicians, when we're working in a low-income area, we need to look at that aspect also.
I will also say that, given that the medical associations came out so strongly against the changes, and I know because members asked them to, there hasn't been a space to put out surveys that ask if we support the changes. That was never a question on that survey. That's one thing: I think there hasn't been a space to bring that voice forward.
Last, I'd just say there have been many times throughout history when physicians have said that patient care will be harmed, and they'll leave the country or leave the province. There are already challenges to recruiting to small places, to rural places, to places where the pay might be lower than other provinces, and there hasn't been the evidence to show that the tax policy changes will exacerbate that. We've actually seen physicians coming from the U.S. to Canada in recent years, much less than physicians leaving Canada. That's not to say there won't be impacts, but I think it actually harms us when we are trying to negotiate for specific things in our provincial negotiations to make these kinds of threats now that may or may not come to be, because the tax changes likely will come to be, and when we want to try to negotiate for something else later, it gives us a weaker position.
12:35 p.m.
Liberal
12:35 p.m.
Conservative
Lisa Raitt Conservative Milton, ON
Thank you very much, Mr. Chair.
Mr. Soloman, thank you very much for coming today. I was also in Charlottetown on Friday actually, and I ended up having a chat with your partner, Lloyd Compton, who came to one of my town halls.
Mr. Soloman, what I understand from what I heard in Charlottetown is that the three main industries—and maybe the chair can correct me—are farming, fishing, and tourism. In fact, tourism is about 6.5% of the GDP. Eighty per cent of the people who work in tourism are small businesses. There are 1,300 fishermen who are incorporated in P.E.I., another huge number. Of course when it comes to farms, 98% are family-owned businesses. They're farm families.
Mr. Soloman, I'm wondering if you think this is going to have a disproportionate impact in Prince Edward Island, given the fact that the economy is so intrinsically tied to small business and the impacts this will have on small business.
12:35 p.m.
Partner, Tax Services, MRSB Group
Yes, certainly P.E.I.'s economy is very much private sector driven, so any changes that will impact the capital that's available for small business are going to have a very negative effect.
I can speak specifically to some of these businesses. All three of those sectors you mentioned are very capital-intensive businesses, with significant risk involved. Frankly, it is extremely difficult to, in many cases, have financial institutions that want to finance growth. These passive proposals.... I know people are saying if it's in a corporation, and it has this deferral.... But sometimes you can't just reinvest it in your business that day. You have to leave it in there for a period of time. Maybe you have to save up for an expansion or the right business opportunity.
It really will impact the P.E.I. economy. Any time you take that much capital out of the economy, it's certainly going to impact it.
12:35 p.m.
Liberal
12:35 p.m.
NDP
Pierre-Luc Dusseault NDP Sherbrooke, QC
Thank you, Mr. Chair.
I thank all the witnesses for their comments.
I will do what Mr. Fergus did earlier and ask a brief question in the hope that you can provide a yes or no answer.
I would like to know if we can begin with the obvious, regarding the possibility that businesses distribute revenue among the members of a family without any requirement that they contribute to the business.
Do you think, yes or no, that it would be appropriate or wise to put such a criterion in place? We may not agree on criteria and modalities, but would it be wise to put in place a requirement that family members contribute to a business so that income may be shared amongst them?
Mr. Weissman, you may answer first.
12:35 p.m.
Chartered Professional Accountant, Trust and Estate Practitioner, As an Individual
You want a yes-or-no answer. That's a hard one to give a yes-or-no answer to.
I think it is part of the government's platform. It was something that they were concerned about. I think it's a fair policy objective, as I said before, but I think it's important to have it based on some measurable, quantifiable measure of contribution, as opposed to a subjective test.
12:35 p.m.
As an Individual
No, I don't agree with income sprinkling in any form, but I would say on balance that if you're going to allow.... I do think it's important to narrowly define—and not leave ambiguous—reasonable contributions to the business by family members. Absolutely, family members who contribute to a business should be reasonably compensated, but I do agree that very clear criteria have to be set out.