Finance Committee on June 20th, 2019

[Mark Mahabir]

If we look at the list in table 3-5, we can see that it basically shows the revenues going into Canada from countries. On this list, there are a few jurisdictions where there is no corporate income tax, so there are revenues being earned by Canadians in jurisdictions where there is no income tax.

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

Table 3-5 shows that Luxembourg, of all the countries in the world, has the highest revenues from non-residents. These revenues amount to $47.6 billion.

Can you tell us what “revenues from non-residents” means? Are these payments made by affiliates of a Canadian company? What transactions are normally involved? Are they intellectual property payments, interest or dividends, for example?

[Govindadeva Bernier]

In Table 3-5, we measured the revenues from transactions reported in Part III of the T106 slip. We've included the appended form in the report. Part III details transactions, either in property or services. The revenues may also include interest or royalty payments in particular, or payments for management services, research and development, and so on.

The first column, the revenue from non-residents column, concerns money that affiliates in Luxembourg have paid to companies in Canada. The expenditures are funds that Canadian companies have sent to companies in Luxembourg. The net revenue is the difference between the two.

[The Chair, Liberal, Wayne Easter]

We'll have to end it there.

Mr. Fragiskatos.

[Peter Fragiskatos, Liberal, London North Centre, ON]

Thank you, Mr. Chair. If I have time left, I will be splitting it with my colleague Ms. Rudd.

Thank you to everyone, particularly Mr. Giroux, for being here and for the report, which I want to reference.

On page 4, it states the following about the tax gap: “Part of the tax gap can be attributed to unintentional actions, such as errors, ignorance of relevant tax rules or inability to comply.” I want to ask you about errors and also the inability to comply. When you say “errors”, what sorts of examples are we talking about? When it comes to “inability to comply”, what are some of the factors that lead to that outcome?

[Yves Giroux]

When it comes to errors, if you've tried to understand the Income Tax Act, then you can probably quickly get what types of errors could be made. For example, if you're moving, you have moving expenses, and you may believe that some types of expenses are eligible. Conversely, you may not know that you can benefit from some types of deductions for moving expenses. I'm talking here about personal income taxes.

When it comes to corporations, it's very complex what companies can deduct and the types of deductions they're allowed. When it comes to tax planning, there could be errors made in good faith, such as forgetting to report some income—

[Peter Fragiskatos, Liberal, London North Centre, ON]

I don't mean to interrupt you, but in the interest of time, what you're talking about here in terms of errors indicates to me that, really, you're talking about the complexity of the tax code—

[Yves Giroux]

Yes, it could be.

[Peter Fragiskatos, Liberal, London North Centre, ON]

—and perhaps its need for simplification.

[Yves Giroux]

There would certainly be tremendous benefits to taxpayers from simplifying the tax code, the Income Tax Act, and—

[Peter Fragiskatos, Liberal, London North Centre, ON]

What specific areas would you identify as needing simplification?

[Yves Giroux]

I haven't looked at specific areas, but taxpayers frequently mention deductions for medical expenses, for example, when talking about personal income tax, moving expenses deductions, and the sheer number of credits and deductions. Those are confusing to people. That's why a significant portion of individuals need the assistance of tax professionals to file their income tax.

[Peter Fragiskatos, Liberal, London North Centre, ON]

Okay.

What explains “inability to comply”? What are some of the factors? Why “inability”?

[Yves Giroux]

It would be the loss of receipts or supporting documents when, for example, people's homes are flooded or burned to the ground. It happens; it's not a regular occurrence, but it happens, unfortunately. That would be one example.

[Peter Fragiskatos, Liberal, London North Centre, ON]

Right. Okay.

As far as the tax gap is concerned, where does Canada rank vis-à-vis other democracies?

[Yves Giroux]

It's difficult to answer that question, because relatively few countries do a comprehensive analysis of their tax gap. I don't imagine we rank worse than most countries, because of the relative strength of our institutions. It's all relative. It depends on how you measure the tax gap. Based on my experience, I would say we probably rank in the middle of the pack.

That's a good question to address to the Department of Finance and the Canada Revenue Agency.

[Peter Fragiskatos, Liberal, London North Centre, ON]

Thank you very much.

Mr. Chair, I'll pass my remaining time to my colleague.

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

Thank you.

[The Chair, Liberal, Wayne Easter]

[Inaudible—Editor] minutes back.

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

Oh, I got my three minutes back. Thank you, Mr. Chair.

I want to continue in the vein of pricing pollution. I read your report, and you state that putting a price on pollution is one of the most effective and efficient ways to reduce greenhouse gas emissions. What's curious to me is that the Leader of the Opposition yesterday said that in fact your report said the exact opposite—that it doesn't work.

I don't want to suggest that the Leader of the Opposition is misleading people, but I wonder if you could clarify what your report said.

[Yves Giroux]

The report alluded to the fact that putting a price on pollution, a price that is widespread and that's paid by most if not the totality of economic actors, has a cost, but it allows sectors to make the necessary trade-offs among themselves so that for those actors for whom it is the easiest to reduce emissions, they will do so. The report also says that there are other instruments available to economic actors—individuals, corporations, governments—to reduce emissions, regulations and subsidies being the two other broad categories of instruments, but these also have a cost, albeit the cost is often not as transparent as a carbon tax or a price on carbon.

That's what the report says. It also says that technological improvements can be a significant contributor to reducing greenhouse gases, but technological improvements are inherently hard to predict. If they were easy to predict, then some people would be very, very rich by investing in advance in these companies; some of them are indeed very rich and have that insight.

In a nutshell, that's essentially what the report says.

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

As I read your report, I think that putting a price on pollution is, as I said, the most efficient and cost-effective way. Transparency is another word you used in your report, as you just said.

The other thing your report does is to recognize that there is a transition that we go through with those technologies. It could be 20 years away. It could be 10 years away. We don't know, but the majority of Canadians are certainly better off, as you've said in your report, with the price on pollution than they were without it.

Thank you very much.

[The Chair, Liberal, Wayne Easter]

Is there any further response?

You still have half a minute.

Mr. Poilievre, you're on.

[Pierre Poilievre, Conservative, Carleton, ON]

Do you mind taking a question on your report with regard to the CPPIB?

[Yves Giroux]

Not at all.