Finance Committee on Nov. 2nd, 2017

[Pierre-Luc Dusseault, NDP, Sherbrooke, QC]

Yes.

[Trevor McGowan]

Right. That's probably the reference in subclause 30(1). Part of the package of technical amendments that were released in September 2016 are intended to be technical and housekeeping measures. Many of these correct oversights and mistakes made in past bills.

In this case, the name “Canadian Payments Act” had changed several years ago, whenever the amendment was effective. When the name of the reference statute was changed, the reference in the tax act was not changed to follow it. It doesn't have a substantive effect, but it corrects the incorrect reference back to when the change ought to have been made.

[Pierre-Luc Dusseault, NDP, Sherbrooke, QC]

It doesn't necessarily have any tax impact, then. It's simply making a correction that should have been made previously.

[Trevor McGowan]

Yes, that's correct.

[Pierre-Luc Dusseault, NDP, Sherbrooke, QC]

Very well.

I'll leave it there for now, Mr. Chair. I know the clock is ticking.

[The Chair, Liberal, Wayne Easter]

For committee members to think about between now and half past five, our options for fitting in two or three more hours next week are Monday afternoon, Tuesday morning, or Thursday morning. If you have any special thoughts on where you'd like to be on those days, I'd like to hear them.

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

Perhaps what we can do is have members identify which sections they would like to have extra scrutiny on and then just invite those.

[The Chair, Liberal, Wayne Easter]

I think we do need to hear the explanation, though, on each section. For most of them, we've asked the officials to be fairly short on those explanations.

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

I noticed the parliamentary secretary wants to ask questions of officials. However, I think she can ask for those things at other times as well. This is a chance for parliamentarians who do not have access to officials on a regular basis to be able to ask questions.

Rather than hold up meetings and cancel schedules, we've tried, especially on the opposition, to work with the government on the scheduling of the BIA. We've been very co-operative thus far. I would hope you would attest to that, Mr. Chair.

[The Chair, Liberal, Wayne Easter]

Yes.

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

Perhaps what we could do is focus on those things. I do realize that we want to hear testimony on everything, but there's a bit of ragging the puck. A lot of it goes along with that as well.

[The Chair, Liberal, Wayne Easter]

If you have a suggestion, let me hear it. In the case of the parliamentary secretary, this particular parliamentary secretary—the two of them, actually—there are departments that she's not the parliamentary secretary for here, so I think she certainly can ask a question. That's her right.

Go ahead, Ms. O'Connell.

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

I had suggested this I think at the subcommittee meeting, but the officials have to come back when we do clause by clause anyway, and will be available for questions. I agree with Dan in the sense that if there are any sections that members absolutely want questions on before making amendments, there is always that opportunity when we do clause by clause, since officials have to appear and be available for questions.

Can we find that compromise and not bring everyone here unnecessarily?

[The Chair, Liberal, Wayne Easter]

We'll give that some thought.

We're going to Mr. Fergus.

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

If I could make a suggestion, let's do Monday, then, after question period.

[The Chair, Liberal, Wayne Easter]

Okay. That's where we'll go.

Mr. Fergus, you have a question. You're on deck for questions.

[Greg Fergus, Liberal, Hull—Aylmer, QC]

Thank you, Mr. Chair.

Thank you to the officials for being here.

I'd like to pick up on bill-based accounting. I'm not a lawyer, and I'm certainly not an expert on tax law. That said, I'd like to make sure I understand the reasons and general principle behind these amendments.

I'd appreciate it if you could keep your answer to no more than one or two minutes, as I have a few more questions about this. Could you explain why these amendments are necessary? What problems are they meant to fix, and how will these amendments do that?

[Trevor McGowan]

One of the fundamental aspects of the general tax rules and tax systems—this comes from Supreme Court decisions in IKEA and Canderel—is that tax rules ought to provide taxation on the truest picture of your income. To that end, the basic scheme of the act, currently, for a large majority of taxpayers, requires accrual accounting, which means that in any year, you pay tax on the amount that you earn in that year.

Back in the 1980s, as I said, there was a general shift in the tax rules, away from what we call billed-basis accounting, whereby you include something in income when you send out the bill, to this more comprehensive, truer picture of income, the accrual system. Exclusions were made back then for certain designated professionals. Of course, lawyers are on the list, but there were also doctors, chiropractors, I think maybe veterinarians, and others.

However, the reasons for excluding them from the general rule that provides the truest picture of income no longer exist right now. Therefore, as part of the tax expenditure review, it was determined to be inappropriate to provide for continued access to this tax deferral, rather than applying the general rules that apply to other taxpayers. This could include other professionals, such as engineering firms and the like, It's instead of having two sets of rules, with a favoured category and then the general one.

[Greg Fergus, Liberal, Hull—Aylmer, QC]

The conditions have changed. That seems to be the crux of the problem, given all the questions I'm hearing from members on all sides, government and opposition members alike. My colleagues don't appear to be convinced that the conditions and landscape have changed so much so that this exception is no longer warranted and should come to an end.

[Trevor McGowan]

As I said, this proposed measure arose in the context of the tax expenditure review, a comprehensive review of the system of tax expenditures we have in the act, looking at not just tax credits but also at preferential deferral systems of the kind we have here.

Outside experts were brought in, and this was started well over a year ago. The decision was taken that with the different regulatory atmosphere and the perhaps increased sophistication in accounting tools, it was an appropriate time to make this change and to eliminate that preferential deferral regime for the designated professionals.

[Greg Fergus, Liberal, Hull—Aylmer, QC]

I'd like to focus on lawyers, since the impact on them has come up.

My fellow members from all parties have brought up the issue of deferred billing.

Situations in which lawyers defer sending out their bill do arise, for example, when a court case has not been settled, a decision is pending, or it was agreed that the client would be billed only in the case of a favourable outcome. Those strike me as good reasons to keep the preferential treatment in place. Am I wrong?

[Trevor McGowan]

As I said, it exists as a separate regime for the designated list of professionals, and it's important to keep in mind that the general rules apply not just to industry generally but to other classes of professionals who for many years—decades, even—have managed to make estimations of what the fair market value of the work in progress is and have been able to work within those rules.

There's guidance both from international accounting standards and the Canada Revenue Agency on how to appropriately apply accrual accounting to fairly specific fact situations. It essentially puts these excluded groups on the same playing field as others who have been able to comply with the rules for quite some time.

[Greg Fergus, Liberal, Hull—Aylmer, QC]

Are there countries comparable to Canada that have done away with this type of practice and preferential regime?

[Trevor McGowan]

I'm not aware of any list of countries that use the accrual basis for their taxation. I can ask, but I simply don't know the answer to that question.

[Greg Fergus, Liberal, Hull—Aylmer, QC]

Thank you, Mr. Chair.