Finance Committee on Nov. 2nd, 2017

[Pierre Leblanc]

There is a $200,000 lifetime limit.

[Pierre Poilievre, Conservative, Carleton, ON]

It's a lifetime limit, but it can be contributed at any point throughout the lifetime?

[Pierre Leblanc]

Actually, I think it's just on the basis of a lifetime limit. We'll follow up on that.

[Pierre Poilievre, Conservative, Carleton, ON]

Okay.

Are you seeing people use TFSAs to invest in private corporations in order to enjoy tax-free returns that they shouldn't be enjoying?

[Trevor McGowan]

When the tax-free savings accounts were introduced, they contained a number of what were at the time cutting-edge rules to prevent that type of planning. There were amendments made shortly after the TFSAs were announced, but they had a pretty comprehensive and strong set of anti-avoidance rules that came out with them. Because they worked so well, actually, some of those were later extended to RRSPs. Using that as a model, in this bill they would be extended as well to RESPs and RDSPs.

The TFSAs themselves, when they were introduced, never allowed somebody to do that because of the obvious anti-avoidance concerns, and—

[Pierre Poilievre, Conservative, Carleton, ON]

To go back to the RDSPs, can they be invested in private corporations right now?

[Trevor McGowan]

No. I think you still have to have a qualified investment. That's just an example of the—

[Pierre Poilievre, Conservative, Carleton, ON]

Sorry. Just clearly speaking, though, can the proceeds of an RDSP be invested in a private corporation right now?

[Trevor McGowan]

No, I don't believe that they can.

[Pierre Poilievre, Conservative, Carleton, ON]

Then that scenario you described at the outset, whereby someone would use an RDSP to invest in a private corporation and then use the RDSP as a vehicle to avoid paying tax on returns, is impossible. That's not possible if you can't invest in a private corporation through an RDSP in the first place.

[Trevor McGowan]

I don't know that it's not possible; rather, if it happens, certain consequences arise, and you have a penalty.

[Pierre Poilievre, Conservative, Carleton, ON]

Okay, but that's already the case.

[Trevor McGowan]

Right, but the penalties being introduced here are different and I think in many ways stronger. If you have the advantage tax, income on a prohibited investment is subject to a 100% tax, which is very strong.

I can provide a more detailed comparison, if you'd like, on the differences between the current and proposed schemes.

[Pierre Poilievre, Conservative, Carleton, ON]

I worry whenever we have officials who come here with new rules and can't tell us why we need the rules. I become very concerned that we're imposing costs and restrictions on people without any purpose, so I would appreciate some explanation as to how these anti-avoidance schemes could even occur, given that the practice you described at the outset is already forbidden under the existing law.

Moving on to the exploration expense changes, you said that in cases where an exploration for oil well development is successful, then the expense associated with that exploration would be deductible at a rate of 30%, whereas if it's unsuccessful, it would be deductible at a rate of 100%. Did I understand that correctly?

[Randy Freda]

In terms of exploration, the measure deals with how discovery wells would be treated. They would be treated as development wells at 30%, unless they're proven to be or deemed to be unsuccessful. In that case, they would then become exploration expenses, which are deductible at 100%.

[Pierre Poilievre, Conservative, Carleton, ON]

So the answer is yes?

[Randy Freda]

I guess what I'm trying to get at is.... I think it might be the same. Those discovery wells will be treated to start off with as development expenses at 30%. You don't necessarily know whether they're going to be successful or unsuccessful at that point in time, but if a discovery well proves to be unsuccessful, then it could become exploration and it would be deductible at 100%.

[Pierre Poilievre, Conservative, Carleton, ON]

I still think that's a yes.

[Randy Freda]

Okay.

[Pierre Poilievre, Conservative, Carleton, ON]

I'll go back to the point. If a company invests $100,000 to explore whether there is oil underneath the prospective well, and that well turns out to be a dud, then they can deduct 100% of the costs in one year.

[Randy Freda]

Correct.

[Pierre Poilievre, Conservative, Carleton, ON]

If it turns out that when they invest $100,000, the well turns out to be a cornucopia of oil, then they can deduct that over three and some-odd years at 30%.

[Randy Freda]

Yes.

[Pierre Poilievre, Conservative, Carleton, ON]

What if they don't figure out whether it's a dud or whether they've struck black gold for five years?

[Randy Freda]

In terms of the deeming rules, that's where it gets into the idea of “to deem to”.

One is that if you prove that you're unsuccessful, it's immediate once you do that. The second is that if there's no—