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.
Conservative
Pierre Poilievre Conservative Carleton, ON
The question was about passive income, Mr. Chair. The member is going back to his PMO talking points—
Conservative
Liberal
The Chair Liberal Wayne Easter
The minister has the opportunity for equal time to answer and I'm going to give him that.
Mr. Minister.
Liberal
Bill Morneau Liberal Toronto Centre, ON
When those monies are invested back in the active business, then that will continue to be a significant advantage. That money left passively in the business is intended to be there in order to create the opportunity for future investments. If it's taken out, however, of course, it pays a tax rate which is a similar net tax rate to what someone might take when they have a dividend or salary from any other company.
What we're saying is that we want to make sure that we don't create an incentive for people to have an investment account inside their company that creates an advantage from those returns on those investments. The continuing small business tax rate on the profits inside the business—
Conservative
Pierre Poilievre Conservative Carleton, ON
Mr. Chair, he has had the same amount of time that I had.
Liberal
Bill Morneau Liberal Toronto Centre, ON
We see this as something that's going to take away an advantage for wealthy business owners that grows as that business gets bigger, but one that really will not impact the business that invests actively in their business, the business that takes money out of their business, or the business that is not able to take a huge advantage from significant investment returns on a retirement account inside their company.
Liberal
The Chair Liberal Wayne Easter
I'll have to cut you off there, Mr. Minister.
You have two more rounds coming on your side, Pierre.
Mr. Boulerice.
NDP
Alexandre Boulerice NDP Rosemont—La Petite-Patrie, QC
Thank you, Mr. Chair.
Mr. Minister, thank you very much for being with us today.
Obviously, as progressives, the New Democrats welcome any initiative that enhances fairness in the tax system. Some of the directions proposed in the documents presented move in that direction, and we recognize that, although we have some concerns about the impact this may have, particularly on farmers and some small businesses.
However, we believe the issue of fairness should be directed primarily at the wealthiest people, not those who have a family farm or a small convenience store around the corner. That's why we consider these consultations to be partial, incomplete. We have already asked that the whole tax system be assessed, including tax evasion, use of tax havens and certain loopholes.
In that regard, during the last election campaign, your party promised to “undertake a wide-ranging review of the over $100 billion in increasingly complex tax expenditures that now exist”. However, the proposed consultation today totally ignores the tax loophole for CEO stock options, which are often set up on Bay Street. But, collectively, it costs us $750 million a year. You made that promise, but you aren't following through. You have excluded it from the current consultations.
Why wouldn't we study this tax loophole, which is really very costly for us?
Liberal
Bill Morneau Liberal Toronto Centre, ON
Thank you very much for your question.
It is very important for us to consider how to have a fairer tax system. It's a very important goal.
As you said, our primary objective was to test the feasibility of that, which is very important.
More than two years ago, we explained that it was important to consider private companies because they offer the opportunity for the richest people to use tax planning that allows them to pay less tax.
Having considered this for one year, with the assistance of an expert panel, we concluded that it was very important to include these measures in our consultation paper. That is our goal right now. We want to find a way to improve our tax system in the most important areas that provide benefits to the richest.
It is important to listen to the comments, which is what I am doing. It is very clear that there are ideas to ensure that farmers and small- and medium-sized enterprises understand that our goal is not to try to change their situation, but to allow them to have a better situation in the future.
NDP
Alexandre Boulerice NDP Rosemont—La Petite-Patrie, QC
I have another question, Mr. Minister. I'll come back to my image, which many have shared: I have the impression that you are a funny fisherman who keeps the small fish and throws the big ones back in the lake.
As for the use of tax evasion and tax havens, your party voted in favour of the NDP motion to address tax avoidance issues in tax havens, which Statistics Canada states costs us about $8 billion a year in taxes and in unpaid taxes in Canada, which is considerable.
However, we don't understand why you signed a new agreement, for example, with the Cook Islands, which have a 0% corporate tax rate. So things are moving in the same direction as in previous years.
A lot of people are telling us that a change could simply be made to subsection 95(1) of the Income Tax Act and section 5907 of the Income Tax Regulations to ensure that income that returns to Canada following a deposit or transfer to a tax haven can be taxed and to collectively return money to pay for our social programs or infrastructure, among other things.
Why are you refusing to go in that direction?
Liberal
Bill Morneau Liberal Toronto Centre, ON
Thank you for your question.
We are maintaining an approach that considers the most important things, and this is very important.
Liberal
Bill Morneau Liberal Toronto Centre, ON
That's why we decided to allocate $1 billion more to the Canada Revenue Agency to root out tax evasion. This is very important and is under way.
That's why we've signed an agreement with our international partners to find a way to consider the erosion of the tax base and the transfer of profits, in other words, how companies can find a place where tax rates are lower, at a level that is not appropriate for companies. It is important.
That's why we have an agreement with our international partners on the common reporting standard. That way, we can consult accounts around the world to see how we can ensure that people pay their fair share.
So we're doing several things at once. It's very important to find the most important things, which is exactly what we're doing. The current measures are the most important, making it possible to see how the wealthiest manage their affairs in order to pay tax at a lower level than the rest of the country's citizens. We will continue along this path. We'll listen to the observations to ensure that we are taking the right approach.
It's very important.
Liberal
Liberal
Jennifer O'Connell Liberal Pickering—Uxbridge, ON
Thank you, Mr. Chair.
Minister, we've heard some interesting testimony on the tax proposals. I want to point out that the Canadian Centre for Policy Alternatives presented and also provided a paper. I am going to quickly read a point from it, “Nearly all of the families who benefit most from income sprinkling are headed by male income earners, which undercuts claims that the current loophole is positive for gender equality, and almost half of all benefits flow to the richest 5% of families”.
We also heard testimony this morning that I found very interesting. It was somewhat of a different take on gender inequality. This might not be verbatim, but one of the things said was that women were used to keeping a low-tax lifestyle, and that continuing these types of tax strategies would actually increase women's inequality and the 28% gender gap, in terms of encouraging income sprinkling, predominantly to women—if the majority of these corporations are headed by men and if their spouses are women—and that going forward with this would actually encourage that sprinkling to create that low-tax lifestyle, and wouldn't close the inequality and the gender gap.
Again, this is based on testimony I've heard, so I'm curious. Based on the information you and the department have received, can you address some of the claims that closing these loopholes would actually hurt women?
Liberal
Bill Morneau Liberal Toronto Centre, ON
Let me just start with a statement of the values of our government. We want to absolutely make sure that our time in office is one that is very progressive in terms of the ability of women to be successful getting into the workforce, to be successful in the workforce, and to have the ability to manage their lives in a way that enables them to do what they want to do in their careers at the same time as whatever other things they might want to do with their lives. This is a really important issue for us. We will not do anything that will, in any way, impede those overall goals.
For that reason, I am very much in listening mode to the kind of testimony you've heard this morning, but also to other testimony, because we want to make sure we get this right.
We started down this path knowing that the advantages that are available in these incorporated vehicles are ones that are benefiting, for the most part, wealthy Canadians, and benefiting them even more the wealthier and wealthier they get. We took a look at the impact on women, and we were of the view that these measures were not going to have a disproportionate impact on women, but we need to be sure of that, so we are listening.
The kinds of ideas that you heard this morning.... There are some issues. We are going to keep listening. We don't have all of the submissions in yet. We are going to make sure we've heard them all, and we are going to deal with this issue in a way that assures Canadians that our overall goals are met while we also have a tax system that's fairer.
Liberal
Liberal
Jennifer O'Connell Liberal Pickering—Uxbridge, ON
I'll quickly talk about some of the testimony we've heard in regard to the health of the economy. The CMA used that terminology, but yesterday, in our pre-budget consultations, we also heard that there are estimates that mental health issues, for example, can cost our economy upwards of $51 billion.
Could we be making better investments to provide health care and those types of services rather than trying to close some of these loopholes that benefit some of the wealthiest?
Liberal
Bill Morneau Liberal Toronto Centre, ON
Our goal, which we've been out talking to Canadians about, is to make sure that people have a fair system that they have confidence in and that it raises the required revenue for government in a way that's fair, so that we have the ability to make investments in places where Canadians want us to and don't leave the burden of those investments on people inappropriately.
The kinds of investments we've made in health care, the commitments we've made to the provinces to increase federal government health care spending, are important. It's going to make a difference. We know it's collaborative with the provinces. The kinds of investments we've made in mental health and in home care are important. We know Canadians see those as important goals.
The tax issue is one that underpins all of that. Making sure the system works so it's fair, but so it creates the business activity we want to create is also important. We have multiple things we need to do at the same time, and the starting point is having a foundational tax system that does not create advantage where none was intended.
September 28th, 2017 / 12:10 p.m.
Conservative
Pierre Poilievre Conservative Carleton, ON
Thank you, Mr. Chair.
Mr. Minister, have you sold your Morneau Shepell shares? If you have, what tax rate was applied to the earnings?
Liberal
Bill Morneau Liberal Toronto Centre, ON
I'm happy to say that my affairs were fully disclosed to the ethics commissioner, as required, and I continue to work with her to ensure that I am in compliance, which is important. I believe that's—