Evidence of meeting #109 for Finance in the 42nd Parliament, 1st Session. (The original version is on Parliament’s site, as are the minutes.) The winning word was system.

A video is available from Parliament.

On the agenda

MPs speaking

Also speaking

David Macdonald  Economist, National Office, Canadian Centre for Policy Alternatives
Stéphane Poitras  Associate Professor, School of Rehabilitation Sciences, Faculty of Health Sciences, University of Ottawa
Andrew Lovell  As an Individual
Guy Goulet  Professor of Taxation, Université du Québec en Outaouais
James Merrigan  Partner, Poole Althouse, As an Individual
Kathleen Lahey  Professor, Faculty of Law, Queen's University, As an Individual
Gary Sands  Chair, Small Business Coalition, and Senior Vice-President, Canadian Federation of Independent Grocers
Chris Roberts  Director, Social and Economic Policy, Canadian Labour Congress
Laurent Marcoux  President, Canadian Medical Association
Charles Lammam  Director, Fiscal Studies, Fraser Institute
Jennifer Kim Drever  Partner, Peace Region Tax Leader, MNP LLP
Eddy Burello  Partner, MNP LLP
Michael Wolfson  Professor, University of Ottawa, As an Individual
John Feeley  Vice-President, Member Relevance, Canadian Medical Association

12:25 p.m.

Liberal

The Chair Liberal Wayne Easter

Mr. Minister, your response.

12:25 p.m.

Liberal

Bill Morneau Liberal Toronto Centre, ON

Mr. Chairman, it's very important that we move forward in a measured way with approaches to our tax system that make sure it's fair. Our approach is to identify things that we think should be considered for the future, and that's what we're doing. The approach people have taken in the past is entirely legitimate. It's based on tax rules that exist.

We're saying that to make sure the system is fair for the long term, we can't allow advantages to grow and grow and grow, and that's what we're doing. What Canadians will see is an increased amount of investment in business across the country. The next generation of entrepreneurs will see a fair system that allows them to be successful, and professionals will have the ability to incorporate for the right reasons. That will benefit all of us.

12:25 p.m.

Liberal

The Chair Liberal Wayne Easter

The last questions will go to you, Mr. Fergus. You have five minutes, and we're done.

12:25 p.m.

Liberal

Greg Fergus Liberal Hull—Aylmer, QC

Thank you, Mr. Chair.

Minister Morneau, thank you for coming to this committee meeting, and thank you for your patience, I might say. You've demonstrated great patience today.

One of the things that I love about being a member of Parliament, and certainly what I love about being a member of the finance committee, is that it affords me an opportunity to learn about things that I would not have otherwise learned. Being a salaryman most of my life, I never had occasion to understand the different aspects of our tax system. My father, who was the sole breadwinner in our family, was in the same situation, so I just didn't have exposure to this.

I have two questions.

First, I'll ask you the same question I've asked other witnesses. Does the tax system we currently have offer advantages to those who are incorporated, as opposed to those who are not incorporated or who are salaried?

The second question is this, and please take the time to explain to me and perhaps to other members of the committee who might be interested in hearing this. What's the difference between the amount of money accumulated in a public corporation and that accumulated in a private corporation? Feel free to get into the weeds.

12:30 p.m.

Liberal

Bill Morneau Liberal Toronto Centre, ON

Considering those two issues, in the first issue around the differences in the tax situation of people with incorporated vehicles versus others, there are some important differences that are there because we are trying to encourage people to start small businesses. The idea that we have the lowest tax rate among G7 countries for small businesses—on average, 14.4% in this country—is an important incentive for people to start a business and take those profits and reinvest them in their business.

The fact that we have a lifetime capital gains exemption for small businesses—a lifetime capital gains exemption that's grown significantly to $835,000—is an important incentive for people to invest in their businesses. There are differences between people who are getting a salary—or people who are unincorporated—and people who are in business. Some of those advantages make really good economic sense. We're trying to encourage behaviour that we know will grow the economy.

But there are some advantages that don't actually, necessarily, encourage the kind of opportunity we want. We don't see as a benefit the idea that people can sprinkle income to adult family members who are not involved in the business just to lower their tax rate. We think other Canadians who don't have that advantage would not see that as one that is actually adding value to our economy. Going forward we're looking at whether that should be continued.

We see that the ability for people not only to have a low tax rate to actively invest in their business but also to create a retirement account inside their business means there's an advantage that isn't really about growing the business. It's about growing a retirement account. Now, I understand that for small businesses that vehicle sometimes makes sense, because sometimes people need the access to those funds on a fairly short time period. We understand that. That's something we've heard from small business and something we're listening to closely.

But for people who are building up a big retirement account just for that exclusive purpose.... We know that, up to about 150,000 dollars' worth of income, it really isn't an advantage for those people, because they can instead use the RRSP and the tax-free savings account vehicles. It's only an advantage for the people who have significantly more income. That's critically important for us to understand.

With respect to the differences between private and publicly traded companies, my experience being in both a private and a publicly traded corporation as a CEO is that what most businesses do when they earn profits is they reinvest them in their business to grow their business, and that's what we want.

When most businesses finish with their reinvesting in the business, they dividend that money out or give it out in salaries. If they are a small business, they pass it out. If they are a bigger business, they dividend it out. Sometimes businesses will decide to leave some money on their balance sheet for reinvestment in the business that isn't the next year. In that case—of course—they're not really doing it for the investment income. They're doing it to invest in their business. The goal they have, then, is to keep that money in their business so that they have a future opportunity.

We're trying to make sure those objectives continue to be possible—invest in your business at a low tax rate, keep money in the business for what's necessary—and also find a way for people to invest in their retirement that creates some sort of inherent fairness in that retirement system, whether they be in a small business, a medium-sized business, or a large business.

We believe all these objectives can be met. We know we'll need to listen to people—we are listening to people—to make sure we get it right. I'm encouraged that so many people are coming forward with ideas on how we can do exactly that.

We'll have much more to say as we finish the consultations and consider the input and how best to get to our objective: a fair tax system that encourages investment.

12:35 p.m.

Liberal

The Chair Liberal Wayne Easter

Thank you, Minister.

Thank you, committee members.

I think you're right. There will probably be much more to say on your last words there. Just so you know where this committee is at, we will be forwarding you the testimony that has been put to this committee this week, plus other submissions that will come in on the finance committee's submission button for this issue.

I would say that I think all that testimony was heartfelt. It's easy to recognize that there are a number of concerns out there. There is a lot of support for fair taxation, and I think the bottom line is that people want the government to get it right when they've finished at the end of the day.

That will be forwarded to your office sometime on Monday. With that, we really appreciate your appearance here today.

12:35 p.m.

Liberal

Bill Morneau Liberal Toronto Centre, ON

Thank you, Mr. Chair.

12:35 p.m.

Liberal

The Chair Liberal Wayne Easter

The meeting is adjourned.