Finance Committee on May 22nd, 2018

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

Actually, Mr. Chair, the witness took the words out of my mouth in terms of what I wanted to explain.

I understand what Mr. Kmiec is trying to achieve, but I'm afraid that all the amendment would end up doing, frankly, would be to make sure that the TOSI, the appropriate rate, would always be taxed on that lower possible rate, which is not the intention of it.

For that reason, I wouldn't be able to support this, but it might be something we could consider working on afterwards.

[The Chair, Liberal, Wayne Easter]

Mr. Kmiec.

[Tom Kmiec, Conservative, Calgary Shepard, AB]

Mr. Chair, while we have the experts here, perhaps I could ask them a question.

Is there a way, then, to amend this to get at this example—the easy one, just because the math is simple—of $100,000 a couple, 60:20? In that scenario, it just doesn't seem fair to me that if you're trying to pay out your spouse, just because they're supporting you, and you're being helpful, and for whatever reason....

I understand you can just pay yourself $80,000 and just plan as a family, but is there a way to amend either this amendment or the act itself—perhaps you could point me in that direction for future use—that would get at the unfairness that I see? I know it's a normative statement, but I think it is unfair in a situation where you have a micro-business, you're successful, and you want to be able to pay out your spouse for the contributions they make to it.

[Trevor McGowan]

In general terms, if there's a policy decision that's taken by a government, it can get complex, I think, but it's always possible to draft your way there. In this case, the government decided to maintain the tax on split income level at 33% to maintain the disincentive to splitting income.

To answer what I think you'd also asked about, ways to avoid the tax on split income, it's worth keeping in mind that the simplest way to avoid the rules is that if you have family members involved in the business, pay them salary instead of dividends. In that case, you're not even in the realm of the tax on split income, you're just under the general rules for salary. Many business owners, in particular when they have minors or people under the age of 18 involved in the business, will simply pay a salary.

[The Chair, Liberal, Wayne Easter]

Okay. We're ready for the question.

(Amendment negatived [See Minutes of Proceedings])

We'll move to amendment NDP-1 on the same clause.

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

Thank you, Mr. Chair.

I am going to present my amendment, which would amend clause 13 of the bill by replacing lines 21 and 22 on page 18. As you will see, it's quite simple. Its goal is to change the date the rules on the distribution of revenue would come into effect. The bill proposes that the rules apply in 2018 and subsequent taxation years. As the Minister of Finance announced last December, new rules on the distribution of revenue will apply retroactively. We are voting on a bill that will implement rules retroactively.

The purpose of my amendment is to give enterprises or individuals affected by these new rules time to adjust. Its purpose is to change the year 2018 to 2019, so that all of those concerned may have time to adjust.

We are discussing amendments to the Income Tax Act that will apply retroactively. In other words, since January 2018, enterprises and individuals should already have adjusted to a law that has not yet been adopted but which was announced in December 2017.

This concerns the fairness of the application of the Income Tax Act. Ideally, we do not adopt rules retroactively. The new rules should only come into effect in 2019.

[The Chair, Liberal, Wayne Easter]

Mr. Fergus.

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

Thank you very much, Mr. Chair.

I don't want to challenge the concerns raised by my honourable colleague head on. However, I wish to point out that in Budget 2017, the Minister of Finance announced that these rules would apply as of 2018. In the document published in July 2017, he indicated once again that these rules would come into effect on January 1, 2018, and that all claims for that year would come into force on December 31, 2018. That is indeed what the minister announced and he was very clear on that. It was written black on white at least twice that these adjustments would come into effect in the 2018 taxation year.

[The Chair, Liberal, Wayne Easter]

Mr. Poilievre.

[Pierre Poilievre, Conservative, Carleton, ON]

Mr. Chair, this is a very reasonable amendment.

We're already almost in June, we haven't even passed the rules, and the government wants them to apply as of January 1 of this year. In other words, people are going to know exactly what the rules are probably in early July, and they will have to retroactively adjust their plans back to the beginning of January.

That's not how good policy is done. Typically, you implement a tax change, particularly in the case of an increase, before it actually takes effect. In this case, we're making people live by laws that were not even in place when they took effect. I think that at the very least the government could push implementation back to the beginning of next year to give family businesses the ability to plan ahead.

Thank you.

[The Chair, Liberal, Wayne Easter]

Is there further discussion on NDP-1?

Mr. Albas.

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

Mr. Chair, I would like to follow up on what Mr. Poilievre has just said, in that many small business owners, if they don't have access to proper tax planning or an accountant on an ongoing basis, will not know how these changes will affect their income tax. To be switching it halfway through the year—this legislation still has to go through the other place—is not fair.

Witnesses have come forward and have said that CRA will need to have solid evidence if it's going to be able to face a challenge in the Tax Court on these things. Entrepreneurs should have been given notice of these rules so that they could talk with their accountants, with their tax planners, and arrange their affairs in a way that's tax efficient and fair, and in a way such that they could show that their spouse or children have been working in the business on an active basis and they can prove it.

As we know, there are many small family operations right across this great country. In British Columbia, 90% plus are small businesses, and I'll tell you what: many of them trust family members, because they do infrequent tasks and may not necessarily record their hours. I do think that the government has not been overly generous.

In fact, to now be saying to people this late into the process that these are the rules that they have to apply as of January 1.... I think it would be better policy to give a bit of a reprieve. I give my colleague from the NDP a nod. I disagree with these policy changes in general. I think this is going to make it.... There are so many rules, and many small business owners who do not have access to an accountant that can give them clear-cut answers will simply not split income, so we'll see less investment in our small family businesses.

I'll be supporting this motion, although I have to say that I do not support a new regime, just because I think the government did all of this in haste and did not consider the many impacts on Canadian small businesses.

[The Chair, Liberal, Wayne Easter]

Mr. Dusseault.

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

Thank you, Mr. Chair.

I thank my colleagues who supported my concept of reasonable public policy.

With all due respect to my colleague, I must say that there is a difference between the fact of announcing measures, consultations or a draft bill, and the adoption of these measures by Parliament, which brings laws into effect. There is an enormous difference.

In addition, I'm afraid that my colleague, Mr. Fergus, lives in the Ottawa bubble a little too much. Entrepreneurs in my area or elsewhere in Canada who do not read the pronouncements of the Minister of Finance on a daily basis may not even be aware of these changes.

This amendment simply aims to give people more leeway so as to ensure that those who are affected by the new law, that is to say the bill which is about to be adopted, will be well aware of the changes. I am thinking particularly about the measures that ask entrepreneurs to prove through time sheets the number of hours during which they or their children or a member of their family worked in the business. In this way, the Canada Revenue Agency would be convinced of their participation in the business.

According to the bill, people must have begun as of January 1, 2018, to fill out these time sheets in order to prove the participation of employees in the business. It would be reasonable to postpone that to next year to allow everyone to adjust. By doing that, the law would apply in an effective and efficient manner, because as many people as possible would be aware of the new rules.

[The Chair, Liberal, Wayne Easter]

Mr. Fergus, please, and then Mr. Poilievre.

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

I think my honourable colleague knows very well that my riding is located on the other side of the river. The Ottawa bubble certainly includes the national capital region, which includes Hull-Aylmer.

All kidding aside, I think that if there is one thing many business owners followed regarding the minister's announcements, that was certainly the changes he presented last July. This was the topic of several discussions, and there was a real national discussion. In my opinion, people are well aware of the measures the minister presented. As we said on several occasions, and the minister clarified this several times, the measures are to come into effect in 2018.

[The Chair, Liberal, Wayne Easter]

Mr. Poilievre.

[Pierre Poilievre, Conservative, Carleton, ON]

Mr. Chair, for the government to implement in January tax changes that are legislated in July is worse than changing the rules in the middle of the game. It is actually like changing the rules in the middle of the game and then applying those new changed rules back to the beginning of the game. You can imagine a hockey game where, halfway through the second period the ref comes on the ice and says, “Oh, the rules have all changed, but we're just going to have to freeze the game for a moment and watch the first period and a half to apply those rules backwards to all the plays that have already happened.” That's what they're doing here.

Families that have arranged their businesses according to the rules as they are written in law today are then going to have to go backwards to the beginning of the year and apply these highly complicated rules that two top justices of the Tax Court say are going to be the subject of a “battle”—and I quote—in the courts. We're going to take this cobweb of complicated rules and apply it to people retroactively.

The least we can do is just move it forward to next year, let people adapt, and hopefully mitigate the damage that it will cause to the family business.

[The Chair, Liberal, Wayne Easter]

Okay, all arguments are in, so we'll vote on NDP-1.

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

Could we have a recorded vote?

(Amendment negatived: nays 5; yeas 4 [See Minutes of Proceedings])

(Clause 13 agreed to on division)

(On clause 14)

[The Chair, Liberal, Wayne Easter]

We're on amendment NDP-2, by Mr. Julian.

Go ahead, Mr. Dusseault.

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

Mr. Chair, I won't move it. I would like to withdraw it, after careful consideration.

[The Chair, Liberal, Wayne Easter]

Okay, amendment NDP-2 is withdrawn.

There are no amendments proposed on clauses 14 to 18.

(Clauses 14 to 18 inclusive agreed to on division)

(On clause 19)

For amendment PV-1, the mover isn't here, but it is inadmissible in any event because it requires a royal recommendation, as I understand the English. I should perhaps read into the record why.

Bill C-74 introduces the Canada workers benefit. The amendment attempts to amend the definition of “adjusted net income” to remove some income that would otherwise be included in the adjusted net income. As a result, the income would be lower and therefore allow an individual to obtain more benefits.

As House of Commons Procedure and Practice, third edition, states on page 772:

Since an amendment may not infringe upon the financial initiative of the Crown, it is inadmissible if it imposes a charge on the public treasury, or if it extends the objects or purposes or relaxes the conditions and qualifications specified in the royal recommendation.

Ms. May, this is in relation to your amendment PV-1. In the opinion of the chair, the amendment could impose a higher charge on the public treasury than the one envisioned in the bill. Therefore, I rule the amendment inadmissible.

With that ruling, shall clause 19—

[Elizabeth May, Green, Saanich—Gulf Islands, BC]

May I speak to the process before the committee for a brief moment, Mr. Chair?

[The Chair, Liberal, Wayne Easter]

Okay, for just a brief moment.