Thank you, Mr. Chair, and good afternoon, committee members.
Thank you for the opportunity to appear to discuss the 2020 budget. My name is Kim Moody. I'm a chartered professional accountant and the CEO of Canadian tax advisory services for Moodys Gartner Tax Law and Moodys Private Client in Calgary.
I have a long history of serving the Canadian tax profession in a variety of leadership positions, including as chair of the Canadian Tax Foundation, co-chair of the joint committee of the Canadian Bar Association and CPA Canada on taxation, and chair of the Society of Trusts and Estate Practitioners for Canada, to name a few.
Before commenting on the 2020 budget, I want to start by sharing the significant tax changes we've seen in the last few years, for two reasons: first, to outline the significant challenges that are still outstanding to emphasize that we need to get it right; and, second, to highlight the divisive rhetoric that we all experienced to emphasize that this needs to end so that we can move forward with sound economic tax policy.
The last four years' budgets have been plagued with disturbing and divisive rhetoric, pithy branding messages and, ultimately, poor taxation policies. Some examples are, one, qualifying most budget contents with the phrase “middle class and those working hard to join it” when no credible definition of “middle class” exists; two, attacking the so-called wealthy with a 4% increase in personal tax rates at a time when our neighbour to the south was decreasing personal tax rates, which has put our country's competitiveness at risk; and, three, introducing the private corporation tax proposals of July 18, 2017, with the government effectively calling private corporation business owners tax cheats.
Such proposals, while scaled back, resulted in the introduction of the tax on split income regime and the new passive investment rules—more on this later—and the introduction of the journalism tax incentives, which frankly are an assault on our country's free speech.
Woodrow Wilson, the 28th President of the United States, who served from 1913 to 1921 and was widely regarded as one of the better presidents of the U.S., once said the following about a nation: “a nation is a living thing and not a machine”. I find that very wise and sage. With that in mind, I'll put recent history aside and move on to try to make a positive contribution to our living thing, Canada, but frankly, I believe all of us have an obligation to positively contribute to building a great Canada. We should be working together to develop positive policy and not simply revert to partisan politics. Such working together should be in a co-operative manner, with a conciliatory tone.
Given such, here are some tax priorities that I believe should or should not be part of budget 2020.
Number one, take a permanent pause on the implementation of the stock option proposals. Overly simplified, I believe the government and the Department of Finance have not provided a compelling case to change the status quo, as I have written about extensively in June 2019. Such proposals are very complex, with minimal tax revenues predicted to be raised, and the joint committee on taxation has pointed out some of the technical problems and the complexity of the current proposals. The proposals could have a detrimental impact on growing businesses' ability to attract skilled labour if they are not exempt from the new regime. Again, in my view, these proposals should be permanently abandoned.
Number two, do not increase personal tax rates. While I note that the Liberal election policy platform did not contain an explicit proposal to increase personal tax rates, it—and the Minister of Finance's mandate letter—did contain a proposal that the minister “Undertake a review of tax expenditures to ensure that wealthy Canadians do not benefit from unfair tax breaks.” With respect, such a review was done during the previous government's mandate, so another review in three years is, simply stated, code for tax increases aimed at the wealthy. Such indirect tax increases would cause even more capital to flee Canada and discourage the best and brightest from staying in Canada. This needs to be avoided.
Number three, decrease corporate tax rates. U.S. tax reform has had a significant impact on the competitiveness of our Canadian businesses. In my home province of Alberta, now going into its sixth year of recession, the impacts of U.S. tax reform have been felt greatly. While our provincial government has responded with corporate tax rate reductions, the federal government has not responded in a meaningful way to competitiveness issues caused by U.S. tax reform. One way that could occur is with modest corporate tax rate reductions.
Number four, do not increase the capital gains inclusion rate. Again, the Liberal Party election platform did not contain explicit comments regarding the capital gains inclusion rate, but it did contain the aforementioned tax expenditure “review” to ensure that wealthy Canadians do not benefit from tax breaks. With the 50% inclusion rate being one of the largest tax expenditures, many are concerned that the inclusion rate could increase in the 2020 budget. Such an increase would be devastating to the investment community and to the ability of our country to attract capital. Don't do it.
Number five, do not introduce the interest deduction limitation rule proposed in the Liberal election policy platform. Such election policy platform proposed a new rule to limit interest deductions to 30% of EBITDA. This appears to be a copycat proposal from the U.S. tax reform. However, the U.S. rule was introduced concurrently with a series of other anti-stripping rules and a 14% corporate tax rate reduction. In the domestic context I am unaware of the need for broad-based change, and would suggest careful and comprehensive review before such a rule is proposed. A sloppily introduced rule could have a devastating impact on the business community, especially capital-intensive businesses that hire hundreds of thousands of Canadians and form the backbone of the Canadian economy.
Number six, amend the TOSI regime. As many have likely already told you, the TOSI regime is extremely complex and broad-sweeping, resulting in massive tax increases for so-called middle-class business owners and their families. While there may be a compelling policy case for some sort of anti-income splitting regime, the current regime is untenable and, frankly, unfair. These rules need a complete rethink.
Number seven, repeal the journalism tax incentives. These rules are an attack on free speech in Canada. Some, including me, believe that the regime could lead to biased media reporting in an era where the average person believes that our media is already biased, which is not good. While these incentives may be well intentioned, the tax system is certainly not the right policy lever to deal with the foundational challenges that the print media around the world are facing.
As Woodrow Wilson said during World War I in 1917:
I can imagine no greater disservice to the country than to establish a system of censorship that would deny to the people of a free Republic like our own their indisputable right to criticize their own public officials. While exercising the great powers of the office I hold, I would regret, in a crisis like the one through which we are now passing, to lose the benefit of patriotic and intelligent criticism.
In my view, the journalism tax incentives will indeed lead to a form of indirect censorship, and ultimately, this slippery slope needs to be avoided.
Number eight, introduce meaningful changes to enable a fair succession of the family business and farm to the next generation.
Finally, as many presenters have told you before, this country needs comprehensive tax review and reform. Yes, I know many of you are tired of hearing this. I've had a chance to listen briefly to yesterday's panel, and three of the speakers said the same thing, and so did Peter Weissman.
Perhaps there is something to all the smart people who have appeared before you. Perhaps certain academics, bureaucrats and parliamentarians, who think that comprehensive tax review and reform are not necessary or that Canadians are not ready for such a review, are simply wrong. In my view, Canadians are ready. They're ready for real and refreshing change for the better, ready for positive change to assist our living thing to get ready for the next generation.
I realize that this committee has recommended it before, but the government does need to take action.
Thank you. I'd be happy to take questions.