Finance Committee on Nov. 8th, 2017

[The Chair, Liberal, Wayne Easter]

I believe, Minister, you were going to get back to us with an overview of the kind of investments that were made in...Bermuda, was it? Or it was Barbados.

[Bill Morneau, Liberal, Toronto Centre, ON]

Yes.

[The Chair, Liberal, Wayne Easter]

Mr. Sorbara.

[Francesco Sorbara, Liberal, Vaughan—Woodbridge, ON]

Thank you, Mr. Chair.

Welcome, Mr. Minister.

Our government's focus is on the middle class. I am very pleased to say that the Canadian economy is growing fast. The growth is actually more than 4% and there are more than 500,000 new jobs.

That includes many new jobs in my riding of Vaughan—Woodbridge.

When we entered into office, we brought in the Canada child benefit. I was pleased to see the numbers in my riding—more than 16,000 children, 9,000 payments, for a total sum of $4.3 million going to families who need it. They are not the millionaires, but actually low- and middle-income families who need it for their everyday necessities and putting their kids in school. With that measure, we saw that the Bank of Canada governor noted that the economy was boosted by 0.5% with the CCB, and we've indexed it now.

Moving on from the CCB to innovation, in Bill C-63, there are measures for clean technology, boosting the Business Development Bank capital, an investment of approximately $1.4 billion in new financing through BDC and EDC to help Canada's clean technology firms grow and expand.

I wanted to get your comments on how important this is, not only helping middle-class families through the CCB and indexing the CCB but also having an innovation agenda so that we can boost the capacity of our economy to grow.

[Bill Morneau, Liberal, Toronto Centre, ON]

Thank you.

First of all, commenting on the starting point in your question, we are clearly seeing the benefits of investing in Canadians. It's quite clear that what we move forward on, in terms of putting more money in Canadians' pockets through tax reductions for middle-class Canadians and an increase in Canada child benefits, actually put more disposable income in families' hands. That has served as an important part of the increased growth we've seen in our economy.

Our plan, which was to have confidence that Canadians would invest in our economy by taking that money and helping their families, has worked. We know, as you say, that we now also need to be assuring that the long-term future of our country is successful. That means investing in innovation, in making sure we have the kind of research and development going on that will lead to future success, and making sure that Canadians have the kinds of skills they'll need for jobs of the future.

What we saw in budget 2017 were significant investments in Canadians, in innovation through superclusters, and in putting universities, leading businesses, and small businesses together to find ways for us to create even more advantage in already strong sectors. That will be our continuing approach, thinking about how we can help with the R and D and how we can prepare Canadians for the jobs of the future. That's going to be how we'll make sure this success that we've seen is continued for the next generation.

[Francesco Sorbara, Liberal, Vaughan—Woodbridge, ON]

Thank you.

On the issue of tax fairness, we've cut taxes for middle-class Canadians, approximately nine million of them, and raised taxes for our wealthiest one per cent. With the last measure we introduced—and I applaud this measure—reducing the small business tax rate to 9%, firms will benefit up to $7,500 in lowered taxes that they can use to invest and grow the economy.

I know my colleague on the other side mentioned passive investments. Isn't it a fact, Minister, that with a passive investment of $1 million, approximately 98% of small businesses, from coast to coast to coast, are unaffected by that proposed change, that this change will only impact literally less than 2% of CCPCs across Canada? The local restaurant, the local bakery, and the plumber are all unaffected. This measure is based on tax fairness and will grow the economy to incentivize capital to be put to work.

[Bill Morneau, Liberal, Toronto Centre, ON]

You know, I don't think we can say it often enough: 100% of small businesses in this country will be positively impacted by a reduction in the small business tax rate. Every single business that earns $500,000 or less in annual profits will have a lower small business tax rate. It will go down on January 1, 2018. It will go down again on January 1, 2019.

For the 1.7% of those private corporations that are shielding significant income and passive investments, yes, they may go over that million dollars in future, but let's think about that. First of all, every single investment in any small business that exists there right now will be protected. Nobody will have any change in tax situation on any investments they've accumulated in their private corporation. It's only in future that they will be able to continue to invest up to roughly a million dollars, and before then they would probably decide to, instead, put money into an RRSP or a TFSA.

We found a balance that ensures that every small business will have lower taxes and that, for almost all businesses, they will continue to be able to invest in passive investments to assure their retirement or maternity leave. We will end up with more investment in active businesses because it will be advantageous for businesses to do so, especially at the lower rate.

[The Chair, Liberal, Wayne Easter]

We'll turn to five-minute rounds.

Mr. Albas.

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

Thank you, Mr. Chair.

Mr. Minister, thank you for being here today.

Minister, you told the Senate committee recently that you were planning on investing, or I should say spending, $1.2 billion more in the CRA in preparation for the small business tax changes. Why would you need to put in more money if you are not complicating the code so that the bureaucrats who will end up interpreting that code will have to spend more time and thus more resources on it?

[Bill Morneau, Liberal, Toronto Centre, ON]

That's incorrect. I informed the Senate committee that we had made investments in the Canada Revenue Agency over the last two years of roughly a billion dollars in each the 2016 budget and the 2017 budget. We allocated more money to the Canada Revenue Agency in order to ensure that we were going out and making sure there was no tax evasion going on. That investment has to be considered in light of the broader concern that people pay their fair share.

In no way did I say or infer—or if I did, I certainly did not intend to—that there would be any needed investment required for anything that we're doing in the regard you mentioned.

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

Okay. I'd like to go, then, to what Mr. Poilievre originally talked to you about on a per-company basis. To be clear, you're saying that on a per-company basis the $50,000 would apply. Is that correct?

[Bill Morneau, Liberal, Toronto Centre, ON]

To be clear, all investments that any Canadian-controlled private corporation has currently in its entity will be protected.

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

My question was, though.... You said that on a per-company basis it would be at $50,000. It would not be on a per-shareholder basis, the $50,000. Is that correct?

[Bill Morneau, Liberal, Toronto Centre, ON]

As I said in the first instance, everything they've done up until now is protected. In future, of course, any investments they make will be from a bigger pool of profits because their taxes will have gone down. They will be able to invest in their business, their active business, in exactly the same way they've done in the past, but with more funds because of the lower tax rate. They also will be able to maintain passive investments in their entity of up to about a million dollars.

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

Again, if it's on a per-company basis, then basically that encourages people to incorporate because of the lower rate. Isn't that the exact opposite of what you said in your July 18 paper: that you felt that the trend of going from 1.3 million Canadian-controlled private corporations to 1.8 million was a problem that needed to be solved? Aren't you, in fact, now encouraging the exact opposite, Minister?

[Bill Morneau, Liberal, Toronto Centre, ON]

In fact, we strongly support small businesses in this country. We are pleased if people are starting up small businesses. What we want to make sure is that the investments in those businesses with that low rate are actually investments in the active business.

What we've done is that we've created an advantage for people to invest in the active business by lowering the tax rate. At the same time, we've created a window of opportunity for them to have passive investments as well, so that they can manage their way while having that small business between retirement—

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

Minister, you haven't created any windfall for anyone. It's their work. It's their retained earnings.

I appreciate that you look at it as being yours, but again, if you go with a per-company...that does encourage more corporations. Obviously, the criticism is out that if you lower the small business tax rate you'll encourage more corporations.

Minister, if what you were trying to solve initially was to stop people from incorporating, doesn't this very policy do that?

[Bill Morneau, Liberal, Toronto Centre, ON]

In fact what we said was that we were trying to make sure our tax system both encourages investments and doesn't create advantages for those who are already advantaged. By lowering the small business tax rate, we are encouraging active investment in business, and by creating an opportunity for people to have passive investments up to a threshold, we are ensuring we're not creating advantages only for the few.

Finding a balance is important. We think we have found a balance that will stimulate investment, and at the same time, not create a tax advantage that is only available to a very small subset. Of course, as mentioned earlier, about 1.7% of small incorporated entities might ever get to that limit.

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

Minister, in Bill C-63, one of the first measures are changes to work-in-progress, or sometimes called billed-basis accounting. That will basically force lawyers and other professionals, if they're working on contingency cases, to pay taxes every year.

Minister, do you realize that in some cases, in small rural areas where they are not serviced by large law firms that can subsidize these kinds of cases, you will in fact make it more difficult for people who are on the margins and have legitimate cases—where it may not be a slam-dunk case—to have their legal representative...?

Your own parliamentary secretary said in the House of Commons that he is sensitive to these changes. We had MP McKay, a lawyer as well, say that there are challenges with the approach.

Minister, are you concerned that this will make it more difficult for people to get representation?

[Bill Morneau, Liberal, Toronto Centre, ON]

We've spent some time on this issue.

Of course, for other professionals, the law to ensure that people have their revenue and expenses in the same time period was changed in the early 1980s. We believe the approach we've come to is one that makes sense and that treats the legal profession like other professions.

We worked with the various legal associations to make sure we have the implementation effective in this regard. By moving the transition from what was originally considered to be a two-year transition to a five-year transition, we believe we've found a way to get at the objective. That is, a tax system that's consistent for people in different kinds of enterprises, and one that allows a transition for those organizations that have work in progress that they need to fold into their activities in a reasonable fashion.

[The Chair, Liberal, Wayne Easter]

Ms. O'Connell.

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

Thank you, Mr. Chair.

Thank you, Minister, for being here. Mr. Rochon, thank you, as well.

I want to talk about Bill C-63 in terms of some of the items contained in here. We heard from witnesses yesterday about the importance of making this change to allow nurse practitioners to fill out forms for their patients. I come from a semi-rural riding, so it is not always easy...and certainly many Canadians are in ridings that are even more rural.

Can you maybe speak to why this change is important and what you anticipate its impacts will be?

[Bill Morneau, Liberal, Toronto Centre, ON]

We think this is a really important change. Obviously we are facing demographic challenges in this country that are going to continue to make the provision of health care challenging. We recognize that, in many cases, people will need to have a doctor to provide services for them in their health care situation.

In many cases, though, nurse practitioners can play an important role. This measure was to acknowledge that as an important issue moving forward. We believe that by doing this, it will create an opportunity for our system to be more cost-effective and also to give people the appropriate level of care they need from the appropriate provider. It's recognizing expertise where expertise exists and being efficient at the same time, which is a very positive outcome.

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

I also want to speak to testimony that we heard yesterday from witnesses in terms of specified co-operative income and the changes that were made for fishers and farmers in co-ops. I know this is something that was raised by the chair as well. Yesterday the witnesses said it was a welcome change. I'm assuming this change is based on consultations or on what you heard.

[Bill Morneau, Liberal, Toronto Centre, ON]

During the course of our consultations, we did hear that in co-operatives there was a specific challenge. Often farmers and fishers put their businesses together in order to make it more efficient to actually conduct their business, but any change in their ability to have a small business corporation with the limits that small businesses actually have would have caused the potential collapse of their co-operative.

We listened and realized that not all businesses are run exactly the same way, and that there was a legitimate approach to managing these co-operatives that were creating economic advantage—an economic advantage that we think is important—and we found a way to assure them that they could continue on with the appropriate approach to taxation in their situation.