Thank you very much.
I'll be brief. I have a couple of comments on Bill C-2. I have a couple of points to make about the new 33% top tax bracket and its impact on government revenues and tax planning and tax avoidance.
The first comment is just to emphasize the importance of considering the differences between federal taxation and provincial taxation. In a federation such as Canada it is more difficult to tax mobile economic factors at the provincial level. For example, if a province tries to tax high earners, some of that income may shift to other provinces through the use of financial and accounting techniques. As an example, there's something called an Alberta family trust into which a high earner could put some assets that essentially shifts taxation of the income from those assets to Alberta, where it faces lower rates.
On the other hand, at the federal level it is harder to avoid taxation, because if you're going to try to engage in these kinds of techniques, it is harder to shift money out of Canada than between provinces. In research with Michael Smart from the University of Toronto, we found that high-income taxpayers are much less likely to shift their income and engage in these tax-planning techniques in response to a federal change than they are to a provincial change. When looking at these revenue implications of a high-income tax bracket, then, we should definitely pay attention to evidence on federal changes versus provincial changes.
My second point is about the administrative measures that have been put in place over the past few months. These enhanced administrative measures are critical to combatting tax planning and tax avoidance. If the Canada Revenue Agency makes it harder for individuals to engage in tax planning, then the new 33% tax bracket is more likely to reach its revenue targets.
The government has already announced several measures that move in that direction. As an example, in the recent budget there's a change in the definition of active versus passive income for small business corporations, and there's also an announcement of several hundred million new dollars for enforcement programs at the Canada Revenue Agency.
But I believe there's still more to do on three fronts. First, we should reduce the use and availability of small business corporations as tax shelters. We can do that through examining spousal dividends, by looking at the lifetime capital gains exemption for small business corporations, and considering use of an employee count or an hours threshold, as Quebec has done, for access to the small business deduction.
The second thing we can do is reopen the case for the taxation of stock options. That was taken off the table by the finance minister recently, but I think there are some merits there that deserve some more attention.
Finally, on the issue again of tax planning and tax avoidance, it's really important to consider the international angle. Much of that happens through organizations such as the OECD. They pursue multilateral agreements to curb tax planning and tax avoidance at both the corporate and personal level, and at those international organizations, Canada can and should be taking a leadership role in pushing those processes forward.
That's it for my comments. I look forward to members' questions.