Good morning, committee members. Thank you for the opportunity to appear to discuss the government's response to the COVID-19 pandemic.
My name is Kim Moody. I'm a chartered professional accountant and the CEO and director of Canadian tax advisory services for Moodys Tax Law and Moodys Private Client in Calgary, Alberta. I have a long history of serving the Canadian tax profession through a variety of leadership positions, including chair of the Canadian Tax Foundation, co-chair of the joint committee on taxation of the Canadian Bar Association and CPA Canada, and chair of the Society of Trust and Estate Practitioners Canada.
I intend to use my opening remarks to briefly comment on some of the challenges that we are experiencing with the Canada emergency response benefit, to provide some straightforward suggestions to address those challenges, and to briefly discuss some additional benefits for seniors.
To begin, I would like to commend the government for responding quickly to implement the CERB. It's obvious that a quick response, as compared to a perfect response, was the preferred approach, and I certainly agree with that. The CERB has definitely put money into the pockets of Canadians who are in a very challenging spot to provide for themselves and their families. With no rule book on how to respond to such an unusual challenge, the government, again, needs to be commended for its quick response.
However, now that we are two months into this crisis, with the overall picture certainly more clear than it was at the beginning, the simplicity, ease and quickness of the receipt of funds is also exposing challenges and unintended consequences. While some of these challenges have been widely reported, here are some that we are experiencing with clients and friends.
People are receiving double CERB payments. Within our firm, we know of numerous children and friends of clients who are receiving $4,000 per month, and they're wondering what to do about that.
People who are clearly not eligible to receive the CERB, usually because they did not meet the $5,000 total income requirement for 2019 or the previous 12 months from the date of application, or have not met the requirement of being out of work for at least 14 consecutive days for reasons related to COVID-19—there are some buddies of my son who were working and who applied for the CERB—are receiving the funds. They are often being encouraged to apply by someone they know.
People who were temporarily laid off are refusing to go back to work after being offered their jobs back, and instead want to continue to receive the CERB. While I'm not an employment lawyer, it seems to me that such people may have quit their employment voluntarily, which is the statutory language that I'll refer to in a second. If that is correct, then such a person would not be eligible to continue to receive the CERB, pursuant to subsection 6(2) of the Canada Emergency Response Benefit Act. Some employment lawyers I know have confirmed such treatment; however, I'm not seeing any enforcement of this provision whatsoever.
The CERB is appearing to be a real barrier and competition to hiring employees as employers start hiring. We have had numerous reports amongst our clients and friends of former employees preferring to be on a CERB vacation rather than return to work. We are seeing and experiencing this especially with part-time employees.
For example, my sister and brother-in-law own and operate a successful bakery in the Calgary Farmers' Market. At the beginning of the crisis, they laid off most of their staff because of the expected decline in revenues. As the crisis progressed, the demand for bread increased and far exceeded expectations. Accordingly, they needed to hire back some of their employees and/or hire new employees. Suffice it to say, it has been a difficult process to hire the required employees when the business is competing with the CERB. That's real.
Media outlets have recently reported on a memo written to Employment and Social Development Canada staff who process CERB applications that suggests they should approve the applications, even if a person has quit voluntarily, if a person was fired for cause, or if the overall application was contentious. It appears that such applications will be later reviewed. This is shocking to me and to many Canadians. While speed over perfection was clearly the preferred approach, it is not clear why a purposeful eye-closing to a review of contentious or even possibly fraudulent applications should occur. Based on our firm's experience, one could assume, reasonably, that 10% of applications may have issues.
With the PBO estimating that the CERB program will cost Canada $35.4 billion, 10% of that amount is $3.54 billion. That is a large number by any measure. Let's put it into perspective.
In 2019 the Canada Revenue Agency released its fifth report on the so-called tax gap, focusing on corporate taxes. Other reports released by the CRA examined sales tax fraud, domestic tax evasion and the use of offshore tax havens. The 2019 corporate report estimates that in the 2014 taxation year, Canadian corporations managed to pay somewhere between $9.4 billion and $11.4 billion less than they should have in taxes.
Personally, I have real trouble with those estimates. Anecdotally, I believe those are wildly high, but that's just me. Let's adjust that estimate down to something in the more believable category, somewhere in the range of $3 billion to $5 billion.
The fourth tax gap report, released in June 2018, discussed the international tax gap and personal taxes. The CRA stated as follows:
Based on international audits completed between 2014 to 2015 and 2016 to 2017, almost $1 billion in income was uncovered and assessed from 370 individuals, 200 corporations and a small number of trusts. The additional tax identified was $284 million. Of this, 23% was attributed to individuals and 77% to corporations and trusts linked to those [individuals].