Finance Committee on Sept. 28th, 2017

[Bill Morneau, Liberal, Toronto Centre, ON]

We absolutely know how important farms are to this country and to our food supply, and how important the continuity of the family farm is.

We've heard three things from farmers. We've heard that they want to be able to make sure they can keep their family members engaged in the business. Farmers' families are very engaged. We've heard that. We've heard that they need to be able to keep some money inside their corporation if they have one—not all of them have one—so that they may deal with a down year or the long-term purchase of a piece of equipment. Of course we've heard that it's really important to them to be able to pass their farm to the next generation.

We are listening to those issues. We want to ensure that all three of those issues are considered, because nothing in what we're proposing is intended to change the ability of a family member to work on the farm. Nothing is intended in any way to limit the farmers' ability to save for that investment, whether it be in the next crop or in a new piece of equipment. Nothing is intended to make it more difficult for the farmer to pass the farm to the next generation.

We will listen to these issues, and we will get it right so that those are not concerns. I hope that the farmers who are busy doing what they do right now can take those words and feel some comfort that we're going to get this right so that they are not a disadvantaged sector.

[Raj Grewal, Liberal, Brampton East, ON]

Thank you, Minister. That's going to give a lot of confidence to a lot of farmers across the country.

[The Chair, Liberal, Wayne Easter]

Very quickly—

[Raj Grewal, Liberal, Brampton East, ON]

Thank you, Mr. Chair. You are so generous with your time.

Minister, can you please confirm again because, in my humble opinion, there has been a lot of fearmongering across the country, that these proposals—and I try to emphasize the word “proposals” because that's what they are—will be implemented going forward and they won't be retroactive.

Another humble suggestion is that the Income Tax Act is very complicated and whatever we end up with, when legislation does come forward, make sure it is clear, fair, and predictable because we don't want to overly complicate things. That's the feedback we're hearing from the committee.

[The Chair, Liberal, Wayne Easter]

If you could give a quick answer too, Mr. Minister.

[Bill Morneau, Liberal, Toronto Centre, ON]

Just for absolute clarity, we're looking at how the system can work for the long term, so we're looking at future changes. On anything people have saved inside their corporations, the earnings off those savings are not going to be impacted.

The complexity of the tax system is a challenge for many Canadians and our goal is to make sure that we deal with this in a way that is understandable for people. For example, to the extent that families still want to have their family members get earnings from their businesses, we want to make sure that the ability for them to show that is happening is as clear and straightforward as possible. We're going to work to make sure that's the case.

[Raj Grewal, Liberal, Brampton East, ON]

Thank you, Minister.

[The Chair, Liberal, Wayne Easter]

Thank you both.

Minister, I would refer you to testimony that we had this morning from Mr. Lovell, an apple producer in New Brunswick. It was a very heartfelt, emotional presentation, in both the presentation and the answers to questions, on the perception that's certainly out there among the farm community on intergenerational transfers and a number of issues that Raj mentioned around this issue. Could your people definitely look at that?

Mr. Albas, we'll give you about five and a half minutes to balance it up.

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

Thank you, Mr. Chair.

Thank you, Mr. Minister, for coming in today.

Further to Mr. Poilievre's comments, have you read Animal Farm?

[Bill Morneau, Liberal, Toronto Centre, ON]

I read voraciously. That's a book I have read in—

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

Okay, in that case you would know exactly why many Canadians...because many Canadians have read Animal Farm and in it, one of the statements is “all animals are equal” and then there is a little subparagraph that goes under that which says “but some animals are more equal than others”. Mr. Poilievre has presented arguments in the House. He's presented them openly on his website. He's done that here today, by saying that you are actually creating different approaches to passive investments for different types of taxpayers.

Are some taxpayers or corporations more equal than others?

[Bill Morneau, Liberal, Toronto Centre, ON]

What we are clearly trying to do is to make sure that, as we look at the tax code, the system doesn't encourage behaviour that creates unfair outcomes and that doesn't enable the wealthiest to have bigger and bigger advantages as they get wealthier through advantages that aren't available to other middle-class Canadians.

Based on the evidence, we've identified what we understand to be some very big opportunities for people to plan their affairs and to defer much more tax than would be available for other Canadians. We think it's important to move forward. We think that it will enable us to make sure that our business sector is investing in their businesses and that people can have confidence that the system is fair.

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

Mr. Minister, again, when you do not acknowledge the criticisms, both in the public sphere as well as what happens in the House of Commons, and if you do not acknowledge that these things are there, you are perceived to not be listening.

Some people have described this consultation period that was dropped in the middle of summer as a “drive-by consultation” and people are angry. Are you proud of this approach you have taken or do you have some regret for it?

[Bill Morneau, Liberal, Toronto Centre, ON]

I'm happy to talk about the approach we have taken to tax fairness. We ran in 2015 saying that we saw that the increase in the number of Canadian-controlled private corporations was driven by the objective of some people to use them as tax-planning vehicles. In budget 2016, we identified the need for expert counsel in order to evaluate where those advantages were. Then we spent the better part of a year looking at what were the biggest opportunities for people for tax planning that were not available to others.

In budget 2017, we identified three measures that we think are critically important to look at and the outcome of that, of course, is where we are now. We have a consultation that's going forward and the good part about that is that we get feedback, so we have draft legislation for two of the measures we are talking about. We're getting feedback. There are important things that we're hearing that will allow us to make sure that we get this right.

We have a third measure—

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

Minister—

[Bill Morneau, Liberal, Toronto Centre, ON]

—that we don't have draft legislation for yet.

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

—when you don't answer the question, it gets people uptight and angry. Do you regret it?

[Bill Morneau, Liberal, Toronto Centre, ON]

Clearly, Mr. Chair, we are moving forward on an approach we think is really going to make an important difference—

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

Okay. Now in Kelowna, the Prime Minister said, “Speaking of tax changes, I want to be clear: people who make $50,000 a year should not pay higher taxes than people who make $250,000 a year.” We've had tax experts in front of this committee who say that cannot happen.

Minister, that's misinformation. Who's right here? Is the Prime Minister right, or are tax experts who work with Canadian small businesses every day, with our tax code, correct?

[Bill Morneau, Liberal, Toronto Centre, ON]

I'm happy to think about some specific examples. Here's a good one.

If you're in our country earning $230,000, and you are a professional, your tax rate would be about 36% if you're not sprinkling income to your family members. If, on the other hand, you're incorporated as a professional and you sprinkle income to a couple of adult children and your spouse, you'll end up with a 20.5% tax rate.

Let's think about what that means. That means for the person at the 20.5% tax rate, they'll take home at the end of year about $180,000 or more. The other person who's not sprinkling income to members of their family who aren't doing anything in the business will instead have about $150,000. These are inequities in our system that we know don't make sense.

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

Minister, your own document says the TOSI, the tax on split income rules—

[The Chair, Liberal, Wayne Easter]

Dan, you will get one more question.

Is that your complete answer, Minister?

[Bill Morneau, Liberal, Toronto Centre, ON]

I'm happy to have him ask more questions.

[The Chair, Liberal, Wayne Easter]

Okay, you have one more question.

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

In your own consultation paper, it says that CRA is not winning in court enough. On what you said about the TOSI rules—about adult children receiving—we already have rules in place that prohibit that kind of activity below age 18.

But I'd like to ask you one question.

After you did your press conference, the CEO of the Saskatchewan Chamber of Commerce said you owed small business in this great country an apology, because you branded many of them as tax cheats, as people who do not care about the rest of the country, and as somehow freeloading at the expense of others.

Minister, the floors is yours. Apologize if you feel it's the right thing to do.