Finance Committee on Sept. 27th, 2017

[Greg Pollock]

Absolutely. We will share many examples. We have provided a lot of those examples to date already, but we certainly will do that.

I did see that report. I haven't read the full report myself, but I certainly have seen the highlights of the report. One thing we're finding troubling is that many of the tax experts—and there was just reference to some of them a moment ago—have very different points of view as to the implications of these changes. If that is the case, then I think we really need to pause for a moment, step back, and look at all of these reports that are coming out. I think we should be doing that. We need to understand each other's point of view. When we do that and understand that, then I think we'll be in a position to move forward.

Certainly, many of the tax experts we're relying on—and they are CPAs, at the end of the day, most of them—are very clear that there are many examples of private businesses where the owner of that business.... I'm thinking of a particular case right now where the owner is a woman, not a man, but you know, we—

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

Right, but in fairness, I'm not asking for anecdotes; I'm asking for data. That's what this report....

I too know business owners who are women, but what I'm talking about here is that it says the vast majority of income sprinklings are headed by male income earners. I appreciate the fact that you know women business owners, but we're talking about the data, and the overwhelming data is this.

I just need to move on. If you can provide that, I'm happy to read it, just as I've read this.

[Greg Pollock]

Yes, we will. Thank you.

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

Mr. Ball, you talked about the stagnation of the economy. In this same report I'm referring to, it says that, basically, 0.3% of all Canadian families are likely to see more than $1,000 in tax savings from income sprinkling, but that this one loophole costs the federal government approximately $280 million and the provinces $110 million.

What do you say, sitting on the same panel, where there's a request for $100 million for a five-year innovation fund for mental illness and mental health, when you see that this one loophole, affecting 0.3% of all Canadians, could more than pay for the type of innovation in mental health and mental resources?

The drain on the economy, I think, was said to be $51 billion, the cost to the economy for mental health and mental illness. Do you not think adding tax fairness and redistributing this type of money back into the federal coffers could pay for things that save $51 billion to our economy?

[Bruce Ball]

Well, there were a number of things there. The one thing I do want to highlight, though, is to make it clear that we're not talking about just the wealthy, I guess, when we're concerned about the proposed changes. I'd have to agree that we believe it applies across the income spectrum. I think higher-net-worth families are benefiting from it, for sure, but there are also families that aren't and have been using income sprinkling as well.

Taking a step back from that, I think—

[The Chair, Liberal, Wayne Easter]

Ms. O'Connell.

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

I'm sorry. My question was, is it worth the cost when you aren't able to pay for that when it affects so few people?

[Bruce Ball]

That's—

[The Chair, Liberal, Wayne Easter]

That's where your question will end.

[Bruce Ball]

Yes, and I'll sum up really quickly.

What we're calling for is a comprehensive review of the tax system. Part of that would be looking at the fairness in terms of taxpayers and also trying to make sure that the tax system is as simple as possible. That would be our answer: we believe that it's to take a look at the tax system overall and make sure it is producing fairness.

[The Chair, Liberal, Wayne Easter]

That ends that question.

The bells are ringing. Because we're close to the chamber, we usually agree to continue. Is there unanimous consent to continue until about 10 minutes to six?

[Some hon. members]

Agreed.

[The Chair, Liberal, Wayne Easter]

Okay.

Mr. Kmiec, you have five minutes.

[Tom Kmiec, Conservative, Calgary Shepard, AB]

Thanks to all of you for coming in.

I'm going to start with Mr. Ball and continue with Mr. Pollock.

We're talking about data, so I'm going to continue on that point. I have the letter of the Coalition for Small Business Tax Fairness, which now includes more than 70 national organizations, both business and professional associations. In their letter, they say the minister is suggesting that his proposal would not affect small business owners “with incomes under $150,000”. Now, I have power point presentations from Moodys Gartner and other tax law consultancies, people who care about tax administration, not tax policy—they say they make a difference between the two.

Can either of you gentlemen tell me that you have any data that shows the minister is correct and that none of these tax changes will affect persons who earn $150,000 or less?

[Bruce Ball]

The question is, do we have any data that shows that it does not? No, we don't have any data that would say it does not. Also, anecdotally, we've heard that it will in some situations.

[Tom Kmiec, Conservative, Calgary Shepard, AB]

One of the other claims that the minister has made repeatedly on these proposed tax changes is that they're not retroactive.

In fact, I have an example, including proposed section 246.1, of where capital dividend accounts would actually be affected. We had Mr. Lanthier before the committee. He is the former chair of the Canadian Tax Foundation. He said that in fact it will affect anybody beforehand.... It will affect estates and it will affect anybody. Death is not a loophole, as far as I know; it just happens.

Therefore, do you agree with the minister's statement that none of these changes are retroactive?

[Bruce Ball]

No, we believe there is retroactivity. One of the changes is the change that you mentioned. There are people who have engaged in planning to make sure they're not taxed twice upon death, and they're in a kind of limbo, because the provisions do have retroactivity in that respect.

[Greg Pollock]

I'll add a point to that as well.

Yes, there are the accountants who have been looking at these issues as well, but there are also lawyers who have been looking at it. They're examining the proposed legislation and then the potential legislation, because there are two parts to this. In a presentation I was at in Charlottetown back in the summer, clearly the lawyers were saying that there is retroactivity in some of these proposals. Certainly, there is not retroactivity in other parts of the proposals.

Again, this is the point that we find troubling. There's a lack of clarity. From our point of view, that's problematic.

[Tom Kmiec, Conservative, Calgary Shepard, AB]

Mr. Ball, I'm guessing that the CPAs, before the different associations merged into one organization—now your association—have been part of a lot of public consultations on tax changes and financial changes, and in CRA consultations.

There are 75 days to consult on this. I've heard it said repeatedly that this is the shortest consultation ever on a tax change. Is that true in your experience? Have you ever seen anything like this proposed by a public regulator?

[Bruce Ball]

I agree that it's a short consultation when you compare the amount of change that's been proposed as part of it. Some consultations are shorter, but they're mostly related to simpler issues, frankly. There has been a lot to deal with in 75 days. Our message is that there's just not enough time.

[Tom Kmiec, Conservative, Calgary Shepard, AB]

Mr. Ball, you said there was a growing disconnect between what the government is saying and what it is actually proposing, the meat and potatoes of the proposal, like section 246.1, which deals with CDAs, capital dividend accounts. There are other sections that others have mentioned, such as the section 88 and section 84 proposals.

Why do you think that rhetoric has diverged over time for the last few weeks? Also, what are you hearing from your members who are tasked with providing advice to their clients in this interim period? Obviously, people have to start planning right now for what may happen in the future. What are your members hearing, and what are they saying to you?

[Bruce Ball]

With regard to the disconnect part, the issue is that these are major changes in tax policy, so our position is that they really need to be treated that way. Again, that goes back to the 75 days.

Our members are having trouble because the provisions are so complicated, and some of them will be effective three months from now, such as the income sprinkling. The provisions you talked about before are already effective, and they are trying to figure out how to deal with situations there.

I think that, in addition to making sure things are grandfathered, you also have to make sure people have enough time to adjust their legal arrangements to correspond to the new rules.

[The Chair, Liberal, Wayne Easter]

Mr. Dusseault, you have five minutes.

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

Thank you, Mr. Chair.

I would like to thank all the witnesses for being here today.

I will start with Mr. Ball.

The positive aspect emerging from all the discussion on business taxation is the semi-consensus on a complete overhaul of the Income Tax Act.

What form do you think this complete reworking of the tax system should take? Should we proceed with a royal commission of inquiry, like the one over 30 years ago, or should we take a different approach? Should we start from scratch or should we start from the current taxation system?

[Bruce Ball]

In my view, our primary interest is to just make sure there's a thoughtful process, whether it's a royal commission....

A number of years ago, there was an international tax panel that reviewed the international rules. I don't think we're as fussed about how it's done, as long as it's a thoughtful and comprehensive review. Going in, you can't say if it's going to be a tweak or a major overhaul because I think part of the exercise is to see what's working and what isn't and to determine how much work there is to do. That's the first step of a review. I think we need to go into it with an open mind and see what we need to do.