Finance Committee on Nov. 22nd, 2016

[Ray Foley]

Right, so these groups are, as I said earlier, on the small end, the short end, 10, and up on the high end, 100. Many groups are in the 20 to 30 or 35 range.

[The Chair, Liberal, Wayne Easter]

Let me ask you the question this way, from your point of view—and I think I know your answer before you answer it—are these various doctors from various fields coming together in this corporation for a tax benefit or for the betterment of health care?

[Ray Foley]

Clearly for patient care.

[Dr. Fabiano A.S. Taucer]

But don't take his word for it. Groups coalesced even before there was any benefit. It was for the benefit of patients and for health care delivery.

[The Chair, Liberal, Wayne Easter]

The Canadian Medical Association will be on next, I know, but I would like to know what the rough figure is in terms of tax consequences. If you are suggesting that people would move out of the country, that to me would be a serious matter. I also know that this place does operate in silos. Sometimes one department doesn't understand what the other department is thinking. In any event, I hear what you're saying.

Thank you, all, for your presentations. We will suspend in a minute.

To members, while suspended between panels, could members confirm with the clerk in what language—English, French, or both—you want your watermarked copies of the pre-budget consultation draft, so that they can get that done in the language of your choice?

We will suspend for five minutes.

[The Chair, Liberal, Wayne Easter]

Let's come to order quickly.

I think everyone heard my introduction before. We're dealing with Bill C-29, a second act to implement certain provisions of the budget tabled in Parliament on March 22, 2016, and other measures.

The first witness will be Mr. Wudrick from the Canadian Taxpayers Federation.

Go ahead and start.

[Aaron Wudrick, Federal Director, Canadian Taxpayers Federation]

Thank you very much, Mr. Chair.

As you said, my name is Aaron Wudrick. I'm the federal director of the Canadian Taxpayers Federation. We're very pleased to appear this evening to comment on Bill C-29, which, of course, contains various provisions to implement aspects of the 2016 federal budget.

At 244 pages, it's a rather voluminous bill. Rather than even attempting a micro-level analysis of it, I just want to touch on a few measures in particular that the CTF takes a view on, specifically the indexation of the child care benefits and anti-tax avoidance measures, and I have a comment on the government's overall attempts to simplify what is a very complex tax code.

The Canadian Taxpayers Federation supports the government's modification of the UCCB into the new means-tested Canada child benefit. Our only concern about this measure is the total cost of it, specifically that it was presented during the election campaign as part of a package of measures that were supposed to pay for themselves, but ultimately, it ended up costing more than advertised. In this sense, I'd actually suggest it's a miniature version of the government's overall fiscal situation.

That said, we do support indexation generally. I note that the Taxpayers Federation was one of the vocal groups that advocated for the elimination of bracket creep for income taxes, whereby individuals were pushed into higher income tax brackets just because of inflation. Paul Martin, when he was finance minister, implemented this in the 2000 federal budget.

While that measure was designed to protect taxpayers from higher tax brackets, the CCB indexation, by contrast, because it is an entitlement, will lock in a higher expenditure level. We think that this is ill-advised, given that the government is already spending more on this measure than it had planned to.

With respect to the anti-tax avoidance provisions, the Taxpayers Federation applauds these measures to clarify the law. We strongly oppose tax evasion and believe that those who break the law should face the full force of the law. But we should also be absolutely clear about the potential effect of eliminating so-called grey areas, these loopholes that have effectively functioned as safety valves to lower the overall tax burden, since the practical effect of eliminating those loopholes is to raise the overall effective tax burden. We should be honest about the potential impact there. I know that not everyone on this panel might agree, but we would argue that raising taxes is not a good way to boost economic growth, which, of course, we know is one of this government's central objectives.

The last thing I want to touch on is the simplification of the tax code. I think it's safe to say that concern about the excessive complexity of our tax code cuts across the political spectrum. As of this year's tax filing date, the Income Tax Act was over one million words long and would take the average person 59 hours non-stop to read. To give you an idea of how long this is, Leo Tolstoy's epic war novel War and Peace is only 587,000 words. By contrast, the Income Tax Act is about twice as long as War and Peace. I really think we need to look at ways of making the tax code simpler. We can always debate what the right level of taxation should be. Of course, our group will always be there arguing that lower is better, but whatever we settle on, I think we should be looking to try to find simpler, more effective ways to raise the same amount of revenue.

I'll leave it at that. Thank you.

[The Chair, Liberal, Wayne Easter]

Thank you very much, Mr. Wudrick.

Mr. Schnapp.

[Marshall Schnapp, Ombudsman, ADR Chambers Banking Ombuds Office]

Thank you.

My name is Marshall Schnapp. I'm the ombudsman for ADR Chambers, and we're the external complaints body that RBC, TD and DC Bank use. I don't have any specific comments on the bill, but I would say that what the legislation does for external complaints bodies is current with our practices and it codifies a lot of what was in the regulations.

I'm also here, obviously, for any questions.

Thank you.

[The Chair, Liberal, Wayne Easter]

Thank you very much.

From the Canadian Labour Congress, we have Ms. MacEwen.

[Angella MacEwen, Senior Economist, Canadian Labour Congress]

Hi. Thank you.

I'm here on behalf of the 3.5 million members of the Canadian Labour Congress. I want to thank you for the opportunity to present our views on Bill C-29.

The CLC brings together Canada's national and international unions along with the provincial and territorial federations of labour and 130 district labour councils whose members work in virtually all sectors of the Canadian economy, in all occupations in all parts of Canada.

As my colleague from the Canadian Taxpayers Federation did, I'm going to touch on just two parts of this bill because the bill is very long.

Part 1, subclause 43(1) amends section 122.61 of the Income Tax Act, indexing the Canada child benefit to inflation, but only starting in July 2020. The Canada child benefit replaced the universal child care benefit, which was taxable and not indexed; the Canada child tax benefit, which was not taxable and indexed to inflation; and the national child benefit supplement, which was also not taxable and was indexed to inflation.

The Canada child benefit was introduced and came into effect as of July 2016. It is not taxable, like two of the previous three, and not indexed to inflation, like the UCCB. It simplified the other three programs and it better targeted this benefit to low-income families, so it was very popular and one of the things that the Canadian Labour Congress pointed to as a success that would lift children out of poverty.

The maximum benefit under the old system, if you had one child under six, would be $5,700 for this year. The new CCB gives those families an extra $650 a year for that child. This is a considerable amount of money if you have a low income, but since the CCTB and NCB were indexed to CPI, this advantage shrinks to only $190 in 2020. It is inexplicable that a benefit aimed at reducing child poverty would be allowed to erode by so much in such a short period. An alternative to keep costs down would be to phase the benefit out earlier. Right now, two-child families with incomes of up to $200,000 still receive some benefits. It's also inexplicable that we're allowing.... Because we're not indexing either the $30,000 or the $65,000 as peoples' incomes rise, they'll grow out of those groups...in order to keep benefits for fairly wealthy families.

Part 4, division 1 introduces a definition of “suitable employment” into the Employment Insurance Act. This definition was previously spelled out in EI regulations and in the “Digest of Benefit Entitlement Principles”. Most of the definitions from the EI regulations have been moved into legislation but some parts of them are specifically missing.

The health and physical capabilities that allow workers to commute and perform the work is no longer a factor in considering suitable employment nor is it necessary that the hours of work are not incompatible with family obligations or religious convictions. That's quite significant. If you are offered, say, a night shift but you have a child in school, do you have to take that night shift or can you say that's not suitable employment? Most of us have to be accommodated for our family situations, and it would be incongruent if EI did not also accommodate us for our family situations.

That the nature of work not be contrary to moral convictions or religious beliefs is no longer included in the definition of suitable employment. This was in EI regulation 9.002(1). The definition in Bill C-29 is otherwise the same as EI regulation 9.002(2) and (3). I'm wondering if this was an oversight, or if it was intentional, given that the Social Security Tribunal relied heavily on years of jurisprudence from the Board of Referees and the umpire. We're likely to get more consistent decisions if we can stick to the established definition and people will have more consistent outcomes.

Thank you very much.

[The Chair, Liberal, Wayne Easter]

Thanks very much, Ms. MacEwen.

From the Canadian Medical Association, we have Mr. Feeley and Dr. Davies.

[John Feeley, Vice-President, Member Relevance, Canadian Medical Association]

Thank you, Mr. Chair.

I'm John Feeley, vice-president of member relevance at the Canadian Medical Association. I'm joined here today by Dr. Rick Davies, who is a professor in the division of cardiology at the University of Ottawa Heart Institute and managing partner of the Associates in Cardiology group medical structure.

Let me first thank the members of the committee for recognizing the risk to health delivery posed by the proposed changes in Bill C-29 affecting group medical structures, and for inviting the CMA to appear before you as part of your study of this important legislation.

The CMA watched your first meeting on this bill with great interest. As part of my remarks today, I'll address the questions posed by the committee during that meeting.

Since the release of this proposal in the 2016 budget, it has become increasingly clear to the CMA that Finance Canada is vastly underestimating the risk to medical group structures. I'm here today to clarify that the risks are real. If this proposal applies to group medical structures, there will be a negative impact on medical research, physician training, and the delivery of specialty care in Canada.

Group medical structures are prevalent within academic health science centres and among certain specialty groups as we heard earlier, notably among radiology, cardiology, anesthesiology, and medical oncology.

The CMA estimates that about 10,000 to 15,000 physicians are incorporated in these group medical structures. This team-based care is essential for educating and training medical students and residents in teaching hospitals and for conducting medical research. Unlike other professions, group medical structures have not been formed for taxation or commercial purposes. Also unlike other professions, physician compensation is set by negotiations with provinces and is based on the existing tax framework.

Group medical structures are formed to deliver on provincial and territorial health priorities primarily in the academic health setting, such as teaching, medical research, as well as optimizing the delivery of patient care.

Maintaining the current framework for the small business deduction is critical to the continued viability of these structures. It is critical that the committee understand that Finance Canada is significantly underestimating the impacts to group medical structures. Changing the eligibility to the small business deduction will have a significantly larger implication than simply the 4.5% difference in the small business versus general rate at the federal level, as suggested by the department.

With no practical way for the provinces to use a different definition, the combined tax rate increase would be as high as 17.5%. As a result, this federal tax change would establish a strong disincentive to practices in the impacted structures. While we recognize Finance Canada's validation of cost-sharing arrangements, this is unlikely to resolve the concerns we're raising today because we're talking about pooled income and reallocation of revenue amongst a group practice.

The CMA is also aware that the department developed financial impact scenarios that show the net impact will be in the hundreds of dollars. While unfortunately we were not afforded access to this analysis, it is our position that these results are not an accurate portrayal of the impact of this federal tax proposal.

To demonstrate this case, the CMA worked closely with MD Financial Management to develop real financial scenarios based on real financial information from two typical incorporated physicians in group medical structures. MD Financial Management is a subsidiary of the CMA providing financial management services to Canada's doctors.

This real financial calculation revealed annual net reduction of funds of $32,500 and $18,000 for each of these physicians respectively. Projecting forward when extended to all incorporated members of each physicians group structure, this would represent a negative impact of $39.4 million and $13.4 million based on a 20-year time frame and 4.8% rate of return.

In closing, I would like to underscore the importance this issue has to health care delivery. Since the release of the budget, the CMA has received an unprecedented level of correspondence from physicians expressing their grave concerns with the federal proposal.

To date, we've been copied on over 1,800 submissions to Finance Canada, the finance minister, and to members of this committee. In comparison, when we informed our members of the increase to the top personal taxation rate, we did not receive one message—not one single message.

When we surveyed physicians they confirmed the concerns we had heard regarding these specific proposals. Sixty-one per cent of respondents indicated that the group structure would dissolve. Three-quarters said that other partners would leave the group practice, almost 80% said the tax proposal would lead to reduced investments in medical research by their group, and over two-thirds said that the tax proposal would limit the ability to provide medical training spots.

I thank the committee again for inviting the CMA to appear during your study of Bill C-29 and I strongly encourage the committee to adopt CMA's recommendation to exempt group medical structures as the only means of avoiding this negative and unintended consequence.

Dr. Davies and I would be pleased to address any questions you may have.

Thank you for listening.

[The Chair, Liberal, Wayne Easter]

Thank you very much.

For the Canadian Centre for Elder Law, we have Ms. Watts.

[Laura Tamblyn Watts, Senior Fellow and Staff Lawyer, Canadian Centre for Elder Law]

Thank you very much.

We are a national research and law reform institute. We focus exclusively on issues associated with law and aging. We are independent, non-partisan, and non-political, and we're very honoured to present to you today.

I wanted to lead off by saying that while we are not an advocacy-based organization, we have had the privilege of reviewing some of the submissions from the Public Interest Advocacy Centre and the Foundation for Advancements of Investor Rights, FAIR Canada, and we agree with many of those provisions.

I'm going to focus today on three things. First, I'm going to try to bring the voice of older people to the table when we review both the OAS and look at some of the code provisions with regard to financial services. Second, I'm going to bring to the table the voice of older women in particular, and how older women are disproportionately negatively affected. That information is not well reflected in the provisions available in the budget that the committee has looked at so far. Third and last, I'm going to focus very specifically on section 19 of the OAS with regard to the payment allowance for a pensioner's spouse or common-law partner.

To begin, I think it's important to reflect that financial services are not dealing with the overarching reality of Canada's aging population. We have the largest demographic shift in the history of humankind, and we have the largest intergenerational transfer of wealth in Canadian history. With great respect, many of the provisions reflected in the document before us for consideration do not adequately reflect the real needs of Canadians to make sure that financial services are responsive to both the aging population and the transfer of wealth, and that services are accessible, make sense, and deal with the realities of cognitive impairment that we see.

In a 2016 study that we participated in, reviewing financial elder abuse in particular, we know that 2.6% of all Canadians are subject to financial elder abuse involving hundreds of millions of dollars. We know many people are becoming older and many people are becoming more cognitively impaired, and that financial services have not established training to deal with that.

The complaint mechanisms we've seen proposed are enormously confusing for older people and families. They don't know how to go to a variety of resources, how to manage internal services with their financial institutions. They perceive gaps in insurance services. We hear time and again that older people and family members simply are not being well served by financial institutions and that the dispute resolution mechanisms are inadequate in this regard.

I want to bring together the voice of older women. We just finished a three-year consultation with older women of diverse populations, including indigenous populations, and some said the government has to raise their pensions, it has to raise OAS, it's not enough, they cannot eat. If they're earning half as much as a man, then they're only able to contribute half as much to their pension. They save for an RRSP, but it's not meeting their needs when they're old. Aging is a man's world. Women are starving. When we reflect on how negatively women are served by OAS.... We appreciate the changes that are being made to the OAS, and appreciate that it has been raised, but there are significant impacts for older women, particularly because they are the poorest group in all of Canada.

Most people living in Canada contribute to CPP through paid employment. It provides a pension based on a lifetime of pensionable earnings. We age throughout life. When we see the dropouts for caregiving it means that older women in particular live in poverty.

The last piece I want to raise is a very narrow point of section 19 in the OAS. In particular, this section deals with people who may be forced to separate because of things like jail. We hear time and again that people are forced to separate because of care needs, particularly when they move into retirement homes and nursing homes. There is no presumption that this kind of separation would be included in this.

With great respect, there should be clarity that when people are forced to separate for health and care needs, it's not accidentally captured by this provision.

I'm happy to speak further on a number of aspects, but those are my initial comments.

[The Chair, Liberal, Wayne Easter]

Thank you very much, Ms. Watts.

Turning to the first round for seven minutes, we have Mr. Ouellette.

[Robert-Falcon Ouellette, Liberal, Winnipeg Centre, MB]

Wow. I don't know what I'm going to do with all that time. That's incredible. I think it's the first time in my life, Mr. Chair.

[The Chair, Liberal, Wayne Easter]

You will certainly figure out a way I'm sure.

[Robert-Falcon Ouellette, Liberal, Winnipeg Centre, MB]

I would like to talk about the Canada child benefit with Ms. MacEwen from the Canadian Labour Congress.

I agree that the Canada child benefit actually did have a really great impact, but I wonder if you realize there are other issues. For instance, if you're a child in child and family services, and you're placed in care of the state, many provinces roll that money back, away from you.

I was wondering if you were aware of that.

[Angella MacEwen]

Yes. I know there was a campaign by child welfare groups who were campaigning to get the provinces to not claw that money back from parents on social assistance, but I'm not sure—

[Robert-Falcon Ouellette, Liberal, Winnipeg Centre, MB]

It's not just social assistance. For instance, if you're in child and family services—

[Angella MacEwen]

Yes. I don't know where it was. I haven't heard what the resolution is for children in care.

[Robert-Falcon Ouellette, Liberal, Winnipeg Centre, MB]

For the children in care, apparently, in many provinces what actually occurs is that the provinces will roll back many of the funds. For instance, the most in need children who often might end up aging out of the system and end up on the streets, or who are trying to go to university or college with no family supports or services, who should probably have a certain kitty of money in order to support themselves through RESPs or something, don't have those funds or those family supports one would normally have, but they also don't have their Canada child benefit, which was taken by the province they find themselves in.

Anyway, I encourage you to look more into it because I think it's not just the federal government's problem; it's a problem of all governments across this country.

My final questions are for Mr. Schnapp related to the ombudsman's office. Could you describe your level of independence versus the institutions you represent?

[Marshall Schnapp]

Sure. How we're structured I think allows us to be independent. First of all, we go by the ombudsman standards, of which impartiality and independence are a part. We also have investigators and we review all of the matters. We have discretion when it comes to intake. We also have discretion when it comes to what files to deal with, even if they are not in time to make the complaint. When we do reach a decision, that draft decision is given to whichever party we've decided against and then they have an opportunity to make comments, and that goes both ways.

As well, how we're set up is that if a bank doesn't agree with what we do, we'll publish the report on our website. I don't think we've ever had to do that because the banks do defer to our ultimate recommendation.

[Robert-Falcon Ouellette, Liberal, Winnipeg Centre, MB]

A previous witness here said what the act had in division 6 under complaints wasn't robust enough to deal with the complaints.

Are the new changes we're putting in place going to allow you to still hold banks to account for their activities if they trample the rights of a citizen?