Finance Committee on Sept. 19th, 2024

[Montana Wilson]

I am not part of a larger firm, so I don't feel overly comfortable answering that question, other than to say that I don't believe—

[Don Stewart, Conservative, Toronto—St. Paul's, ON]

Okay—

[Montana Wilson]

—that all the money is staying where it could be, in a local sense.

[Don Stewart, Conservative, Toronto—St. Paul's, ON]

That's it, Mr. Chair. Thank you.

[The Chair, Liberal, Peter Fonseca]

Thank you, MP Stewart.

Thank you.

Now we're going to MP Sorbara, please.

[Francesco Sorbara, Liberal, Vaughan—Woodbridge, ON]

Thank you, Mr. Chair.

First off, thank you to the witnesses who are present here today and to the ones online. Obviously, the testimony is very important and very informed on all fronts.

First I want to talk about small businesses in general in Canada. They are the backbone of our communities and the backbone of our economy.

The city I represent, the city of Vaughan, is the largest economy in the York Region, with 1.4 million people. We have about 20,000 small and medium-sized enterprises. Over 230,000 folks work in those enterprises. I know the dynamism that exists in Canadian businesses. I love it. It creates wealth and creates jobs.

One of the first things we did in 2015 was lower the small business tax rate from 11% to 9%. Another endeavour was in budget 2022. I was thinking about it today, and I wanted to make sure this was on the record. We lowered it. The small business tax rate was phased out in terms of the accumulated capital or taxable capital that a small business has. It was at $15 million; it went up to $50 million. That's where we put it up to. It's obviously in place and ongoing. It provided, from 2023 up to 2026-27, nearly an estimated $700 million in tax savings for SMEs and small businesses in Canada.

In a few weeks, we'll celebrate and mark the introduction of lower credit card fees for small businesses across Canada and the work that the deputy prime minister and finance minister has done with those issuers, so I'm happy to see that.

With regard to capital gains, as I said two days ago in our Tuesday meeting, I have looked at this issue and I've vigorously studied it as a CFA charter holder and someone who has spent 22 years on Bay Street and Wall Street. I'm in favour of the move to the inclusion rate to 66%. The effective tax rate on capital gains was at 25% prior to this move. Now, we're in just around the early 30% mark, depending on which province you are in and which personal income tax rate you have. Why? It removes tax inefficiencies in our tax system, and MP Stewart will know what surplus stripping is and how firms pursue that.

There is no causation between the level of the inclusion rate or where it's been and economic growth, for many reasons. Economic growth is complicated. We're doing a good job of growing our economy, but there are many factors that determine economic growth.

Ms. Wilson, I do understand the small businesses. You do not have a defined benefit pension plan. Other folks do, and I'm very cognizant of that. Your pension, for many small business owners, is your business, and that's why, in our measures, there is the increase in the lifetime capital gains exemption. There is the Canada entrepreneurs' incentive . We've put in a number of new measures that are good for small businesses.

However, at the end of the day, we really need to avoid extreme wealth concentration in this country. We do need to avoid that. Having a low capital gains rate and a low effective tax rate versus dividends, versus interest, gets you to an extreme wealth concentration, and we need to avoid that. That's why I've been in favour.

To the gentleman from the province of Quebec, I apologize. You commented on what drives economic growth and reduces inequality. Can you please comment on that again?

[Olivier Jacques]

I assume the question is addressed to us.

As you just mentioned yourself, economic growth is caused by many factors. The tax rate is among them. There are so many factors that influence a company's decision to come to Canada or a Canadian's decision to set up a company. These factors also include the available human capital, the available physical capital and particularly corporate taxes, which are all more influential than the effective rate on capital gains. In fact, I'm looking at the OECD data right now, and it's not entirely clear that the effective tax rate on capital is higher in Canada right now than it is in the United States.

[The Chair, Liberal, Peter Fonseca]

Okay, I think we're right at time. Thank you very much, MP Sorbara.

We have MP Ste-Marie for two and a half minutes.

[Gabriel Ste-Marie, Bloc, Joliette, QC]

Thank you, Mr. Chair.

I have two questions for Mr. Genest‑Grégoire, and I will ask them one after the other.

Here is my first question.

As a tax expert, are you concerned to hear that the change came into effect at the end of June, that we do not have the official text of this measure and that the government could be defeated at any time? That would leave a lack of clarity in terms of taxation, which would probably be quite worrisome for you.

Here's my second question.

Have you looked at the proposal by CPA Canada, the Chartered Professional Accountants of Canada, which offers taxpayers the opportunity to realize a capital gain before June 25 and carry forward the $250,000 threshold?

Please go ahead.

[Antoine Genest-Grégoire]

Thank you for the question.

I just want to clarify that, although I teach in the tax department, I'm an economist. I wouldn't want to speak for my tax colleagues.

However, it is widely recognized among economists as well that predictability is extremely important for investment planning, among other things. Announcing a measure without being able to provide the corresponding legislation is not an ideal way to proceed. I'm not stealing their words, but many of my tax colleagues and tax professors were a bit shocked by this approach. It's certainly not ideal for people to be able to plan their affairs properly.

As for the possibility of declaring this gain on a prospective basis, it seems to me that this avenue would also have made life easier for all those who, without necessarily saying their circumstances were difficult, would have wanted to rearrange their affairs to respond to a situation of greater neutrality. If they had had the opportunity to realize the gain before this measure came into effect, it would probably have made their lives easier.

[Gabriel Ste-Marie, Bloc, Joliette, QC]

Thank you very much.

[The Chair, Liberal, Peter Fonseca]

Thank you, Mr. Ste‑Marie.

We have MP Davies for two and a half minutes.

[Don Davies, NDP, Vancouver Kingsway, BC]

Thank you.

Ms. Trottier, even after these changes are made, Canadians will still have 50% of their capital gains under $250,000 tax free, as they do now, and they will still have one-third of their capital gains above $250,000 tax free. People will be in the enviable position of still being able to shelter a minimum of one-third of their capital gains and not pay a nickel in taxes on it, when, as we heard from our Teachers' Federation witness, teachers, nurses, plumbers, warehouse workers and taxi drivers have to pay tax on 100% of every dime they make.

Do you think that this modest change is going to affect the investment or job creation decisions of the wealthiest in Canada?

[Dr. Claire Trottier]

I think it's going to have no impact, to be honest with you. It's going to have no impact on my life. I think for the wealthiest Canadians, this will have no noticeable impact.

However, as one of the witnesses said, I think that the revenue that's going to be collected from this change will have a dramatic impact on the lives of virtually all Canadians. The programs that are being funded by this are going to have a massive impact. In my view, it's an excellent policy.

To your point, the fact that wealthy people will still have this built-in tax break is still, to me, deeply unfair. I really do think this is a very positive and strong step, and I'm in favour of it. I would encourage the government to continue taking additional steps, including looking at a wealth tax on the ultra, ultra rich, including billionaires.

[Don Davies, NDP, Vancouver Kingsway, BC]

Ms. Yetman, this is going to generate $19 billion over the next five years. What would you do with the $19 billion if you were prime minister?

[Heidi Yetman]

If I were prime minister and I had $19 million, I would invest it in education, absolutely. I know education is not federal, unfortunately, but systemic underfunding has created a crisis across Canada in education.

[Don Davies, NDP, Vancouver Kingsway, BC]

It would buy lots of school lunches.

[Heidi Yetman]

And we would be able to feed all kids in Canada. Wouldn't that be amazing?

[The Chair, Liberal, Peter Fonseca]

Thank you, MP Davies.

We go now to MP Chambers for five minutes.

[Adam Chambers, Conservative, Simcoe North, ON]

Thank you, Mr. Chair.

Mr. Jacques or Mr. Genest-Grégoire, what happened to wealth inequality between the years of, say, 2019 and today?

[Olivier Jacques]

I'm not sure. I haven't consulted the data recently, but clearly wealth inequality has increased in the last 40 years. I don't exactly know about the last four years.

[Adam Chambers, Conservative, Simcoe North, ON]

Someone talked about supercharging wealth inequality. The Bank of Canada governor says that inflation devastates low-income households and increases wealth inequality. Would you agree with him?

[Olivier Jacques]

I don't think inflation increases wealth inequality. I would not agree with that.

[Adam Chambers, Conservative, Simcoe North, ON]

When asset prices go up, that doesn't increase wealth inequality?

[Olivier Jacques]

It depends on whether inflation reduces the value of assets. That's the more important question. It depends on that.