Evidence of meeting #60 for Finance in the 43rd Parliament, 2nd Session. (The original version is on Parliament’s site, as are the minutes.) The winning word was amendments.

A video is available from Parliament.

On the agenda

MPs speaking

Also speaking

Trevor McGowan  Director General, Tax Legislation Division, Tax Policy Branch, Department of Finance
Jenifer Aitken  Executive Director and Senior General Counsel, Legal Services, Law Branch, Department of Finance
Miodrag Jovanovic  Associate Assistant Deputy Minister, Tax Policy Branch, Department of Finance

3:05 p.m.

An hon. member

I really liked your answer.

3:05 p.m.

Liberal

The Chair Liberal Wayne Easter

Yes, you did.

Ms. Aitken, Mr. McGowan or Mr. Jovanovic.

3:05 p.m.

Associate Assistant Deputy Minister, Tax Policy Branch, Department of Finance

Miodrag Jovanovic

Thank you, Mr. Chair.

I believe the first part of the question was about why it took 20 days for the second news release to come out. I'm not sure I have an answer to that. All I can say, again, is that throughout the process, as we normally do, we continued to brief the minister. I cannot comment on specific aspects of the briefing, but we just continued to do so. At some point the decision was made and a news release was drafted. That's basically the time it took to do so.

On the second question, with respect to who took the decision, again, Mr. Chair, I believe we answered that question before.

3:05 p.m.

Liberal

The Chair Liberal Wayne Easter

Thank you.

Before I turn to Ms. Bendayan, nobody has talked about the four points in the press release. I think I can say in all fairness that nobody on this committee, and I think no parliamentarian, wants to see a law used for tax avoidance.

Are the points you outlined or that the minister outlined in her press release to target what they see as the dangers of, as I think it says in the press release, “surplus stripping”? Is that what it's mainly targeted at, and not the genuine aspects of intergenerational transfers, which bring fairness and equity under the tax system to selling intergenerationally versus outside the family?

3:05 p.m.

Director General, Tax Legislation Division, Tax Policy Branch, Department of Finance

Trevor McGowan

The idea in the July 19 press release was to provide a set of four issues that would need to be considered in the course of developing a rule to help distinguish between genuine transfers of a business to the next generation and more contrived tax planning that does not in fact result in the transfer of business to the next generation. The idea would be to develop a set of rules in order to help distinguish between the two cases and ensure that the benefit provided, which is to say the non-application of the anti-avoidance rule in section 84.1 of the Income Tax Act, is available to intergenerational transfers of a business but only in the appropriate circumstances.

These four bullet points are just the sorts of things that would typically need to be considered. Of course, for a view of a fully fleshed-out set of rules, Quebec has some. They deal with a lot of the same points, although maybe not conceptually ordered in the same way. One is the control of the company that carries on the business going to the next generation: whether or not the parent can retain ownership in the company after the transfer and what type of ownership, whether it would be preferred shares, common shares and things like that; whether there's a particular timeline involved for the transition of the involvement in the business between the parent and the child; or whether it's just a more general requirement that the parent can stay on in order to transfer their knowledge to the child. Finally, it's the level of involvement of the child after the transfer of the business: whether or not they have to maintain an economic interest through shared ownership for a particular period, or whether they need to be actively involved in the carrying on of the business itself.

These are all issues that need to be considered and developed in the course of developing a rule that appropriately targets real intergenerational transfers.

3:10 p.m.

Liberal

The Chair Liberal Wayne Easter

Okay. Ms. Bendayan.

July 20th, 2021 / 3:10 p.m.

Liberal

Rachel Bendayan Liberal Outremont, QC

Thank you, Mr. Chairman.

Actually, I will pick up on the point you just raised with Mr. McGowan. Certainly, as Parliamentary Secretary to the Minister of Small Business, I've been working very closely with entrepreneurs over the last two years now.

It is my impression, Mr. McGowan, and I hope yours as well, that our entrepreneurs here in Canada are extremely hard-working. They are working double time in order to keep their heads above water. They are intent on growing their business and also intent on following the rules. I appreciate, though, as a lawyer, that our tax legislation needs to be reviewed every once in a while to ensure that we have the necessary safeguard measures in place so that very experienced tax lawyers are not finding loopholes. There are very few bad actors, and I hope you will agree with me, among our small business community. I thought it would be important for me to clarify once again that not only would the small business community be consulted, as you were discussing earlier, Mr. McGowan, but also the government would not be applying any changes to tax legislation retroactively.

You mentioned a number of times the date of November 1 as being the earliest date on which changes might be introduced. I would also like you to clarify that it's not actually between now and the end of October, as you mentioned. Really, November 1 is the earliest possible date, but as the press release states, it could also be up until the date of publication of the final draft legislation, which could in fact be later. Is that your understanding?

3:10 p.m.

Director General, Tax Legislation Division, Tax Policy Branch, Department of Finance

Trevor McGowan

Yes. It is the later of November 1 and the final publication of draft legislative proposals. The earliest it could be is November 1, but of course it could be later than that.

3:10 p.m.

Liberal

Rachel Bendayan Liberal Outremont, QC

Of course, as you mentioned, but it bears repeating, that would be subject to parliamentary approval. We would have to pass this legislation in the House of Commons, which is dependent, again, on parliamentary supremacy.

3:10 p.m.

Director General, Tax Legislation Division, Tax Policy Branch, Department of Finance

Trevor McGowan

Yes. That's absolutely correct. It would need to be tabled as part of a bill and then pass through Parliament and receive royal assent.

3:10 p.m.

Liberal

Rachel Bendayan Liberal Outremont, QC

Again, it may seem obvious but I would like to confirm: Our small business community won't be taken by surprise by anything the government may introduce, because they will be intimately involved in this consultation process that you mentioned a few moments ago.

3:10 p.m.

Director General, Tax Legislation Division, Tax Policy Branch, Department of Finance

Trevor McGowan

That is certainly the intent behind yesterday's release. I think yesterday's release provides a bit of a framework for the development of issues that will provide a general idea until draft legislative proposals are released in the near term. We've already started hearing comments on the conditions in yesterday's release. That dialogue will continue through to when draft legislation is released. There will be another round of consultation on the draft legislative proposals. The measure itself will not apply before November 1.

Ultimately, as said in the press release, there's an intention to release final draft legislative proposals afterwards. There are a number of steps in the consultative process where stakeholders would be engaged.

3:10 p.m.

Liberal

Rachel Bendayan Liberal Outremont, QC

Thank you, Mr. McGowan.

Not to further belabour the point that Mr. Fragiskatos very eloquently stated earlier, the issue, I think, has been clarified. We now understand that these amendments to tax legislation for intergenerational transfers came into force on June 30. However, I thought I heard you say earlier in your testimony that some tax changes often come into effect in a new tax year. Obviously, that is not the case—to be perfectly clear—with the changes we're discussing here in committee today, but could you elaborate a bit on how the CRA perhaps needs to work in the background in order to prepare for these modifications to tax legislation, and on why it is that in some cases, although not this one, the application date would be in a new fiscal year?

3:15 p.m.

Director General, Tax Legislation Division, Tax Policy Branch, Department of Finance

Trevor McGowan

It's important to note, I think, as I believe I may have mentioned earlier, that in terms of these amendments, they will be reflected in an individual's tax return that gets filed for the 2021 taxation year. There's no administrative action that the CRA really needs to take until it starts looking at those tax returns well into 2022. There's a little more time for the CRA than having to administer or assess right away. It's important to keep that in mind.

It's often the case that amendments might apply as of a particular date or to a taxation year. Amendments that apply as of a particular date are typically transactional in nature. They might apply where you sell shares, pay a dividend or make a particular type of investment where you can pinpoint with specificity when that transaction occurred and what day it occurred on. That's typically something that we would look to in developing measures and making recommendations on the effective date.

For rules that affect the computation of income over a period or taxation year, where they can't be tied down to a specific transaction that occurs on a specific date but rather apply throughout the taxation year, then I would suggest that application dates that apply as of a particular taxation year make a lot more sense. It really depends on the measure and providing the application date that works best and gives the most certainty to affected taxpayers.

3:15 p.m.

Liberal

The Chair Liberal Wayne Easter

We will have to end it there. We'll go to Mr. Berthold, followed by Mr. Gerretsen. If anybody else wants in, we'll go there, but I'll need a list. I see that Mr. Fast wants in as well.

Mr. Berthold.

3:15 p.m.

Conservative

Luc Berthold Conservative Mégantic—L'Érable, QC

Thank you, Mr. Chair.

I would ask you to indulge me, since some of my questions may seem redundant. It's important, however, that they be put to the department officials in French. That means I will be asking some of the same questions that have already been asked.

I want to begin with a reminder.

3:15 p.m.

Liberal

The Chair Liberal Wayne Easter

The time is yours. Go ahead.

3:15 p.m.

Conservative

Luc Berthold Conservative Mégantic—L'Érable, QC

Thank you.

We are not gathered today because of a news release that came out yesterday. We are actually here because of a June 30, 2021 news release that said, and I quote, “Bill C‑208 makes amendments to the Income Tax Act but does not include an application date.” You found that shocking as well, Mr. Chair. According to that same news release, “The government proposes to introduce legislation to clarify that these amendments would apply at the beginning of the next taxation year, starting on January 1, 2022.” It is on account of that news release that the committee was recalled and we are here today.

Yesterday, the government realized that the committee was going to meet today and that, as a result, the government was probably going to look bad. It opted to put out another news release to retract what it said in the June 30 news release. Unfortunately, the government can't undo a news release. The one put out on June 30 still exists. You and I saw it, as did a whole lot of people in the small business sector and farming world. They were shocked and upset to learn that the government had no desire to implement a bill that had received royal assent and been passed by both Houses. Unfortunately, on June 30, the government apparently decided not to implement the bill because it had come from a Conservative member this time around. The government saw the bill as dangerous and wanted to avoid giving the opposition parties any credit. Too bad for the government that the bill was passed. That is a fact.

The good news is we found out yesterday that the changes in the bill did apply in law. Nevertheless, we need to know what happened on June 30 and why we are meeting today, in the middle of the summer, during the construction holidays, to discuss the government's decision to hurt family farms and small businesses.

My question is for Mr. McGowan, and it has been put to him a number of times.

Earlier, you said that the minister made her decision. Can you tell us the name of the minister who made the decision you were referring to?

3:20 p.m.

Liberal

The Chair Liberal Wayne Easter

Mr. McGowan, I know we’ve been over this road before, but it is Mr. Berthold’s right to ask the same question again. I guess it’s your right to give the same answer.

3:20 p.m.

Associate Assistant Deputy Minister, Tax Policy Branch, Department of Finance

Miodrag Jovanovic

I believe our answer to this question would be the same, Mr. Chair.

3:20 p.m.

Conservative

Luc Berthold Conservative Mégantic—L'Érable, QC

Mr. Jovanovic, will you confirm that Mr. McGowan said this earlier:

“The minister made her decision.”

3:20 p.m.

Associate Assistant Deputy Minister, Tax Policy Branch, Department of Finance

Miodrag Jovanovic

The June 30 news release clearly states—

3:20 p.m.

Conservative

Luc Berthold Conservative Mégantic—L'Érable, QC

I am not referring to the June 30 news release.

3:20 p.m.

Associate Assistant Deputy Minister, Tax Policy Branch, Department of Finance

Miodrag Jovanovic

—it is a government decision. It was announced by the government. At that time, the Government of Canada proposed to introduce legislative changes in Parliament that would apply as of—

3:20 p.m.

Conservative

Luc Berthold Conservative Mégantic—L'Érable, QC

Mr. Chair, the question is clear.

Earlier, Mr. McGowan said this:

“The minister made her decision.”

Mr. Jovanovic, will you confirm that your colleague made that statement?