Finance Committee on Sept. 28th, 2017

[Alexandre Boulerice, NDP, Rosemont—La Petite-Patrie, QC]

Thank you, Dr. Marcoux.

Mr. Burello, thank you for your very enthusiastic presentation. I have two questions for you.

First, people like Mr. Wolfson or Mr. Roberts told us that most of the repercussions of the government's proposals that we are looking at right now are going to affect only a small portion of small businesses or family farms in Canada because most of them did not have the income to make it very advantageous for them. Your association, as well as others, has the view that there would be a very broad impact on all of the people you represent. These are two incompatible visions.

What are your thoughts on that?

[Eddy Burello]

First of all, as I said, for all private corporations, their owners, death and taxes are inevitable.

[Alexandre Boulerice, NDP, Rosemont—La Petite-Patrie, QC]

When?

[Eddy Burello]

Right now. I haven't figured out a solution to avoid that.

Right now what I do know is that when owners of private corporations pass away, the rules under sections 84.1 and 246.1 are adversely affecting them because they'll pay double the tax. Our system today allows for the elimination of one tax, which is rightfully so. Private owners of private companies should only be expected to pay one. That affects all private companies. There's not a subset; all of them are impacted by that rule.

I'm not so sure about the statistics; I'm not a statistician. I would tell you that all of our 150,000 private company family businesses are going to be impacted by this rule.

[The Chair, Liberal, Wayne Easter]

Thank you, all.

I'll turn to Ms. O'Connell.

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

Thank you, Mr. Chair.

Mr. Marcoux, I'm really interested in your testimony in particular, because you talked about the health of the economy. Yesterday we heard testimony that mental health issues, for example, cost our economy $51 billion, and the ask was relatively small in comparison to that.

It has been stated over and over again that, if the money in these corporations is actually used for the business, nothing changes with these proposals. Yet you said this is going to stifle growth and services. The changes to these policies apply only to situations where money is removed for personal income tax reasons. I'm very curious to know how you think this is going to stifle growth and services, when the only change and the only impact is on personal income taxes. If the money is actually used and invested in the business, then there is no actual change.

My real question to you is this. We've been hearing more and more from doctors who disagree with the CMA's position. I'm wondering if you might be out of touch with your members. Do you actually think your members like the idea that tax policy—this is similar to Mr. Boulerice's question—should replace fair compensation, and are you actually now advocating for greater inequality among your membership? If you look at the chart that Mr. Wolfson provided, you see that in Ontario doctors are provided a greater benefit than maybe in other provinces. We've seen certain doctors who are on hospital lists that have no risk for collection, they don't employ anyone, but if they're a private corporation they can divert and pay less income tax. Even general practitioners don't have that same option because they would have to pay out in different ways.

Are you worried that you might be contributing to greater inequalities among medical professionals? You're advocating for a system that, even amongst your own members, even among doctors, doesn't have the same access for all to this type of diversion of taxes.

[The Chair, Liberal, Wayne Easter]

I think the analyst gave Mr. Feeley the chart there, because I don't think he had a copy of it.

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

Thank you.

[The Chair, Liberal, Wayne Easter]

Go ahead, Mr. Marcoux.

[Dr. Laurent Marcoux]

I would just answer that we have a great variety of practices in our profession. There are doctors in research, doctors providing service, and that's why not all doctors are incorporated. About 66% of doctors are incorporated, and that supports their practices. That we know. Incorporation supports their practices.

What we also know is that there are unintended consequences. We have some examples from the past. In 1992 when we lowered the enrolment of students at university by 10%, it had a big consequence for the future. We lost so many doctors, four graduations each year, for many years. It took a long time. When we make changes in taxation—we are talking about tax changes here—we don't know the consequences. Doctors are coming from outside Canada, very expert doctors. We need them here. What will happen with our very expert doctors here? Will they leave?

They are in demand everywhere in the world. They stay here because this is their country and their patients are here, but sometimes there's a lack of trust and they could leave. The consequences are not to be neglected.

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

Right, but in fairness, sorry, my question was about the inequality among.... If you want to have the debate about leaving, I have some experience and I understand. To go to the U.S.... For example, doctors have liability insurance covered here. They have billing collected. They don't have some of these things elsewhere, so if you want to talk about those business cases, we can, but I'm talking about the inequalities.

Can you at least acknowledge that, among your membership, the highest income-earners certainly will benefit from these tax changes where others within your membership don't, and would it not be better to use this type of money that costs the federal government for investments in health care, and—to Mr. Boulerice's point—look at the structural issues of not using tax policy to determine fair compensation?

[Dr. Laurent Marcoux]

I wasn't on the first line for all the reasoning and the arguments that our member had. I have a feeling he may be more aware of what the answer was from our members when we did our survey on this.

[The Chair, Liberal, Wayne Easter]

Thank you.

Mr. Feeley,...quickly.

[John Feeley]

There was lots of diversity of opinion within the membership. We welcomed it and we're hearing it today. I think it results in a better policy decision and outcome.

Keep in mind that incorporation doesn't work for all physicians, necessarily. Also, it's important to note that the primary care medical infrastructure in Canada is owned and operated by physicians. They're investing in those practices every day, and it's hard to retain earnings to invest in their businesses. They do so, but the proposals could create a lot of uncertainty about what the outcome would be, because you can only take things out for retirement at the end of your career. You have to make investment decisions throughout that period.

[The Chair, Liberal, Wayne Easter]

Thank you. We're slightly over.

I would remind members that Mr. Lammam from the Fraser Institute is still there, I gather.

Are you there, Mr. Lammam?

[Charles Lammam]

I am.

[The Chair, Liberal, Wayne Easter]

We can't see you, but I remind members that you are available to answer any questions that people have.

We'll turn to Mr. Kmiec.

[Tom Kmiec, Conservative, Calgary Shepard, AB]

Maybe I'll start with Mr. Wolfson.

I have a quotation from you from an interview you did while in Alberta that there are more effective ways to organize Canadian farms away from the family farm. Can you comment and expand on that?

[Prof. Michael Wolfson]

As I said in response to Mr. Poilievre's question, I don't know what the pros and cons are.

The situation whereby one can have more than one million-dollar capital gains rollover—three, four, five of them—is one concern the finance proposals are addressing. If one had only one million-dollar rollover, that would have an effect, presumably, on heritabililty without more tax liability for a family farm.

As to your question, 90%—I was surprised when I looked at the numbers this past weekend—of farm businesses are incorporated. There are, then, already corporations.

The legal structures involved in farms are very complex. There may be one company that owns the machinery, another company or organization that deals with leased land. Unfortunately, we don't have the data to understand that. Whether one legal structure or another or a mix of legal structures is the most efficient way to organize this or that kind of farm, I simply don't know. I think it's an open question, one that merits some careful analysis.

[Tom Kmiec, Conservative, Calgary Shepard, AB]

You did an interview on September 7, 2017, on CBC's Alberta@Noon show and spent the whole show talking partially about the family farm, because you're credited with a lot of inspiration for the rules that will affect the family farm. Your work is being credited publicly by the minister and others as being the inspiration for it.

I agree with you that the tax law in this is complex. That's why there's MNP trying to interpret it on behalf of farmers. While they're busy working on their family farm, MNP is giving them advice on how they should structure their business in order to avoid unnecessary taxation and also be able to pass it down to the next generation.

You had a farmer phone in who said that farmers work their whole life to pass down their land. The kids work on the farm for little wages, knowing they will receive that land eventually, and these changes will potentially increase tax on a disposition of land to children. He said the family farm will be destroyed. He's talking about these proposals. He says this will result in more large-scale agri-farming—“Big Ag”, as he calls it—at the cost of the family farm.

Do you think he's correct?

[Prof. Michael Wolfson]

It's important to look at the whole transcript. It was a half hour that I was on. First, the entire show was not on family farms. That was maybe five or seven minutes of it. I think that same caller said, “By the way, my kids aren't working on the farm anyway.” He wasn't going to pass it on to his kids, you'll see, if you keep reading through the transcript.

[Tom Kmiec, Conservative, Calgary Shepard, AB]

He's just one example. One consideration for many kids is the tax efficiency of it and whether they want to continue to be in the business, because there are many disincentives to continuing. Being a farmer makes for a hard-working life, for one thing, and then on top of it you pay huge amounts of tax.

In the proposal the government has before us—the one we're studying, the one we're here for—it's double taxation. Repeated witnesses have said that you'll be taxed on the estate side, you'll be taxed on one end, and taxed again on the other end. It's another disincentive to continue multi-generational farming, multi-generational ranching.

Ranching is big business. It's also a family business in Alberta. Entire regions of Alberta are named after the original family farms and original ranchers who were there. Do you think the family farm is obsolete?

[Prof. Michael Wolfson]

I don't know that the family farm still exists in most cases. You may fly over a parcel of land that looks like one farm, but it's really a variety of legal structures and parcels spread all over. I also heard a senior Finance official, on Monday during the discussion of this thing, raise questions about the interpretation. I'm not a technical tax expert. It's been a long time since I was involved, but they were saying that this interpretation is not necessarily correct.

[Tom Kmiec, Conservative, Calgary Shepard, AB]

Madam Drever, I saw you shaking your head at that statement. You are the tax expert. You deal with this. You administrate these taxes. Can I get your opinion on this?

[Jennifer Kim Drever]

I am from the Peace region of Alberta. Just for the record, I believe there the stat is that there are more arable acres in that region of Alberta than there are in the entire province of Manitoba. We have a lot of farm clients in that area, and there are corporations of farmers. The reason for that is that the land and machinery costs are so capital-intensive that it is impossible to repay the debt on that land using personal tax dollars. We have to incorporate those farms to pay back capital at corporate tax levels instead of personal tax levels.

The other reason is that there is so much fluctuation in a family farm. They say you have one good year and one disaster every five years. In that good year, you have to be able to save some of your money to fund the disaster, because it is coming.