Finance Committee on May 7th, 2019

[The Chair, Liberal, Wayne Easter]

Thank you.

We'll go to Mr. Richards, back to Ms. Rudd, and then we'll split the last two.

[Blake Richards, Conservative, Banff—Airdrie, AB]

Thanks, Mr. Chair.

I have a few questions for MNP.

One of them has already been touched on which was regarding intergenerational transfers. I might come back to it if there's time, but because it's been touched on already, I'll go to the other two things I wanted to ask you about.

In your opening remarks, I believe you mentioned that Canada had one of the highest tax regimes in the G20. Could you elaborate on what the effects of that is on our ability to attract new businesses and to retain the ones we already have here? What do you recommend the government might do to make taxes more competitive?

[Jennifer Kim Drever]

When we were here last September, we brought a 10-point plan to improve Canada's competitiveness. Number one on our plan was tax rate reductions. We currently have a 27% corporate rate. We have an over 50% personal rate in most provinces or close to it.

Within the OECD, we are the fourth highest on personal tax rates. This impacts our competitiveness, because businesses look for places where they can develop their business, where they can employ workers, and where they can be competitive on a worldwide scale as things cost more in Canada, as they do.

Taxes are not just the income tax. There are all levels put out by all governments and it's not just the federal government we're talking about. It costs more to do business in Canada. It costs more to live in Canada. This impacts where people want to do business and where people want to live. We have clients asking us all the time about whether they should continue to operate in Canada or whether they should look at other places in the world to carry on their business.

We believe that if we were to have a lower corporate tax rate, it would improve productivity. There would be more jobs and we would have a more competitive, economic, situation for our country.

[Blake Richards, Conservative, Banff—Airdrie, AB]

When I do round table meetings and meet with business owners across the country, just about always the two biggest issues that come up are the complexity of filing a tax return and the issues in dealing with Revenue Canada.

With the thousands of people who work at Revenue Canada, when you try to give them a call, good luck getting anyone on the phone. That's what I always hear. Then they say that if you ever get someone on the phone, if you were to ask, say, four Revenue Canada agents for an opinion on a tax matter, you'll get about six or seven different opinions. It makes it very difficult. If Revenue Canada agents themselves can't even understand the tax code, how are the rest of us supposed to understand it. That's the comment I often hear.

Do you have any thoughts around the complexity of filing a tax return? Do you have any suggestions on what the government could do to make that easier and simpler, particularly for small businesses and individuals?

[Jennifer Kim Drever]

Filing tax returns in Canada has become increasingly complex over time. It's not just the existing government but it's also prior governments that have made things a lot more complex in Canada, and we can see this going back to, say, 2015. There were changes to section 55 that were very complex and it makes it very difficult for many businesses to structure their affairs and look at the best overall corporate structure for their business because there is so much ambiguity in what they do.

There's complexity in structuring, in filing and for individuals. The specified corporate income changed in 2016. We've made a correction for farmers and fishers this year but a lot of other businesses are still impacted by that. There probably were unintended consequences to it. I will touch on one of those in a minute, if that's possible.

We also have complexity even with respect to something as simple as selling a house in Canada. With the changes that have been made to combat some of the issues going on with houses and principal residences in Vancouver, for instance, or in Toronto, those now have to be reported. Essentially, it is very difficult for an individual to file their personal tax return on their own and get it right, with the complexity of today's system.

For instance, I had an email from some person I've never met who found my name on the Internet around the 29th of April asking a big, convoluted question about selling their house. They were asking what to put on their tax return and how to file it. I gave them a recommendation to find an accountant who would help them at that point because it was beyond their being able to do it on their own.

Going back to the specified corporate income, for instance, there are businesses in Canada that are also caught up in these changes that we believe were unintended. Those changes were meant to capture multiplication of the small business deduction.

If a computer sales business, for instance, happens to have a client that is a marketing firm and that marketing firm has, let's say, three business owners, one of whom is related to the owner of the computer company, that computer company could lose access to their small business deduction, and they don't even know it. That's not multiplication of the small business deduction but they've been caught in these rules.

I think there are problems with the complexity and the compliance because it is so complex.

[The Chair, Liberal, Wayne Easter]

Thank you.

We're well over but I take it you would be in favour of a comprehensive review of the tax system.

[Jennifer Kim Drever]

If we do a comprehensive review—we've always been advocating that—we must do it correctly. It shouldn't be picking and choosing, picking winners and losers. A comprehensive review would be about building, creating, looking at all interested parties, building a system that works for today's economy and for Canada as it is today.

We shouldn't go into comprehensive reform saying we are going to, number one, get rid of the capital gains exemption, or the small business deduction. It should be about the best policy framework to capture what we're trying to create for Canada. All interested parties should be there: finance, parliamentarians, tax specialists, labour and first nations to look at all the different aspects.

[The Chair, Liberal, Wayne Easter]

It could start off with a white paper.

Ms. Rudd.

[Kim Rudd, Liberal, Northumberland—Peterborough South, ON]

Thank you, everyone, for being here.

Before I get into questions, I want to congratulate you on the establishment of the Thaidene Nëné.

I know it has been a long time coming and it has been a process and not something that you as a first nation have given up on. It takes perseverance and a lot of hard work, so congratulations, Steven, on your negotiation and on its formation. It couldn't have been easy.

One of the things you mentioned was the work you continue to do with mining companies and the importance of mining exploration in NWT specifically, but generally in the north. The extension of the mineral exploration tax credit to the junior miners, to the explorers, if you will, has been very important. I was speaking with some of them last week and heard how important that is to them as they try to find those deposits of the very rich minerals there as we move further and further north.

One of the things that I think is important to point out is that we don't get to our green economy, to the innovation and technology of a low-carbon economy, without that mineral exploration because minerals are so important to that economy. So thank you for the work you're doing and congratulations.

There are many things I want to talk about and I'm not sure about my time. Do I have five minutes or seven?

[The Chair, Liberal, Wayne Easter]

You have five minutes.

[Kim Rudd, Liberal, Northumberland—Peterborough South, ON]

Okay. This will be fast.

Kim, we've chatted with each other before, and there were a couple of things in your remarks I just want to come back to.

I must say, I like the format of the MNP submission, acknowledging the good work that has been done and recommending some thoughts about where we could take it further.

On the Canada training credit and your paragraph as to what can we do better, the post-secondary education piece, the other things I would note in there are the interest-free six-month period that was added in budget 2019 for students, which also helps parents, and the lowering of the interest rate.

You've used a couple of examples, including a business here in Ontario. I would just note that as we've moved forward with our interest-free period, Ontario has pulled its back. There is sometimes non-alignment between the provinces and the federal government. Where we take a step forward and a province such as Ontario has taken one back, it makes it hard for parents and students to figure out where their opportunities are. I want to mention that.

You also mentioned the housing affordability measures. You made a comment about parents and how parents often help with buying the first home. I'm thinking back to 15 years ago when we helped our daughter buy her first condo in downtown Toronto. She had some RRSP room from the work she had done as a student. We actually lent her the $15,000 to put in her RRSP so she could borrow it back and pay it over the nine years. It sometimes takes a bit of creative thinking, but that is a vehicle for parents to assist, which provides advantage to both the young person or first-time homebuyer gaining that advantage of being able to use the RRSPs.

[Jennifer Kim Drever]

Can I add to that? What we see with a lot of families is that they don't necessarily have $15,000 of tax-paid money sitting vacant. They might have their money sitting within a registered vehicle themselves.

If you'd had your money sitting inside an RRSP and did that, you would have had to pull closer to $30,000 out of your RRSP to give your daughter $15,000 for her to put into hers. There would have been a tax hit of $15,000, and you would have also lost that room forever within your RRSP.

What we are saying is that it would be great if, while we're looking at the first-time homebuyers plan, we actually allow parents and grandparents to access their RRSPs to help their children and grandchildren, because we know that the cost of buying a house is very significant.

[Kim Rudd, Liberal, Northumberland—Peterborough South, ON]

I take your point. I guess that discussion has happened. I've heard it from others, and there were two things. One, if someone is already retired, their tax hit is not 50%, but probably closer to 17% or 20%. However, your point is taken. The other piece is that RRSPs are about retirement and not putting that at risk.

[The Chair, Liberal, Wayne Easter]

Sorry, Kim, we're out of time.

Mr. Poilievre, you have about three or four minutes.

[Pierre Poilievre, Conservative, Carleton, ON]

Yes.

Thank you to the witnesses here from MNP. You serve a lot of small businesses. I understand your firm is, if not the biggest, one of the biggest tax accounting firms serving small business in this country.

Have any of your clients seen an impact as a result of the 2017 changes to the tax treatment of Canadian-controlled private corporations? If so, can you describe those impacts?

[Jennifer Kim Drever]

You're referring to some of the tax on split income changes.

[Pierre Poilievre, Conservative, Carleton, ON]

I'm referring to tax on split income and the grind-down of the small business tax deduction for those who have so-called passive income of over $50,000.

[Jennifer Kim Drever]

With respect to the passive income, 2019 will be the first year we start to see that. They haven't necessarily seen it yet, but we are seeing what businesses are doing in order to ensure that they would be below the threshold for their passive income in the future.

There's definitely planning and there is concern among our clients about losing their small business deduction. It is something that they are very concerned about.

[Pierre Poilievre, Conservative, Carleton, ON]

I'm sorry to interrupt. I just want to make sure I understand.

The passive income provisions come in during the 2019 year.

[Jennifer Kim Drever]

That's right.

[Pierre Poilievre, Conservative, Carleton, ON]

Right. Are you witnessing tax planning right now?

[Jennifer Kim Drever]

Absolutely.

[Pierre Poilievre, Conservative, Carleton, ON]

What types of steps are small businesses taking to avoid losing their small business tax deduction?

[Jennifer Kim Drever]

Some businesses are looking at the small business reduction and saying, “I guess I'm going to lose it.” Other businesses are saying, “What are we going to do to protect it?” They might be changing their investments to take assets off their balance sheet so that there is no passive income on an ongoing basis—taking it off their balance sheet, whether it's buying IPPs or buying other sheltered vehicles, or they could be actually removing it out, if we can, in a tax-effective manner.

[Pierre Poilievre, Conservative, Carleton, ON]

Some are actually moving their money out of the company altogether.