Public Accounts Committee on March 23rd, 2010

[Louise Levonian]

It's a stage-by-stage process. There are 400 or so technical amendments. Some could be brought forward. If we put all 400 forward, it would be a bill of 1,000 pages. I'm not sure that would be readily accepted in Parliament either, so we will be bringing forward pieces of this in tranches.

[Stéphane Dion, Liberal, Saint-Laurent—Cartierville, QC]

Thank you very much.

[The Chair, Liberal, Shawn Murphy]

Mr. Saxton, five minutes.

[Andrew Saxton, Conservative, North Vancouver, BC]

It's okay, I'm fine.

[The Chair, Liberal, Shawn Murphy]

Anybody else?

Mr. Kramp.

[Daryl Kramp, Conservative, Prince Edward—Hastings, ON]

I'll just maybe take a minute or two, Mr. Chairman. Thank you.

I'm still concerned with this backlog of amendments. If we were to prioritize them--if there were 300, 400, or 500, however many--it would be nice to know exactly what they are and how they would or could impact, if as Mr. Ernewein has said a lot of them are really inconsequential.

I'm wondering, are some of them even post-dated? Were some a good idea ten years ago, but now things have changed so dramatically that they're sitting in the bank vault as an amendment and they're already redundant? Do those possibilities exist?

[Brian Ernewein]

The short answer is yes.

In terms of the log we keep of technical amendments and concerns, there are provisions that don't get a priority because they aren't very important. Among those would be those that relate to parts of the Income Tax Act that have come and gone.

I can think of a couple of examples relating to the large corporations tax. Essentially a form of capital tax on large corporations introduced in the mid-1980s or late-1980s, it was eliminated by this government a couple of years ago. There were some proposed technical amendments. People would log possible changes or corrections to those provisions. I don't think they will be much of a priority now, so that would be an example of something whose time has passed.

[Daryl Kramp, Conservative, Prince Edward—Hastings, ON]

Okay.

Occasionally, on some of these amendments there will be political overtones. I think we all recognize that. But the majority of them, or hopefully the largest majority of them, will be simply housekeeping per se.

Is there some indication that you could provide to this committee of a plan to clean up some of these--or year one, year two, year three, year four, year five--just so that we have some benchmarks and some indication of a level that we could expect you to solve this outstanding issue?

Mr. Horgan, is there any business plan to clean some of these up?

[Michael Horgan]

We are working on packages to put forward to the minister for his consideration for tabling in the House. The most immediate one is old Bill C-10, which, with some changes that we were proposing, could readily be reintroduced back into the House. That's about a hundred amendments. We're working on other packages to put to the minister for his consideration.

[Daryl Kramp, Conservative, Prince Edward—Hastings, ON]

Okay.

Some of the highest areas of concern I have at my constituency office are issues that relate to Revenue Canada. If it's a collection item I think that's understandable, but a lot of times it's an issue of interpretation or a position of guidance. As such, I really do believe that we have to have some certainty going forward. So I would urge you to try to have as clear a playing field as possible. If we are giving advice, I want to be assured that it's just not something that is here today and gone tomorrow.

I'll deal with a specific item just for a second, if I may, Chair.

As an example, I have a company--no name--that was dinged $750,000. They were dinged this assessment simply because they were told by EDC and by Revenue Canada how to report their taxable income. They did report, but there were modifications and changes that had still not passed. Then an assessment came through and dinged them.

Now, they've appealed it, we went through the whole process and justice was served--no problem at all. But $750,000 was tied up for two to three years simply due to a lack of clear definition and a lack of clear direction as to how we would proceed. And, once again, they were highly technical issues.

These do have an impact out in the general public and into our constituencies, so I would urge you to be as expeditious as possible to clean up any of these grey areas so it is much more black and white.

Thank you.

[The Chair, Liberal, Shawn Murphy]

Thank you, Mr. Kramp.

I just have a clarification, Madam Levonian or Mr. Ernewein.

On the “Court case response—restrictive covenants” on page 11 of the auditor's report, the auditor talks about issues being "statute-barred" because of long delays since 2001. Can you tell the committee, what is the time limit for the CRA to go back to look at transactions? Of course we're talking about the absence of fraud here. Is three years my understanding?

[Brian Ernewein]

It depends on the taxpayer. For individuals, it's three years; for large corporations, it's four years.

[The Chair, Liberal, Shawn Murphy]

You can see in this situation that obviously you weren't expecting this court case to come out in 2000. There was another one in 2003 ruling that in the case of anybody receiving amounts of a purchase price that were allocated to a restrictive covenant, the moneys were to be handled on a tax-free basis. The minister at the time--that's back seven years ago--indicated that the government would amend the Income Tax Act.

I am assuming that every tax practitioner in Canada started allocating large sums to restrictive covenants because the money flowed tax-free, but the way I look at is that it's personal income tax. It's too late now for CRA to go back and challenge anything done prior to 2007. That money is all gone, and until this is done....

I should point out that's exactly what Conrad Black was up to, except that it was a little different in that it was a publicly traded company. The only problem Conrad Black and his partner David Radler had was that the United States securities commission and the United States court weren't as enthusiastic as they were here in Canada about that transaction.

Would you not agree with me that this would be a lot of money lost to the Canadian taxpayers? It has to be.

[Brian Ernewein]

Well, I have a couple of points.

First of all, your assumption, Mr. Chairman, is very much the same as our own was; that is to say, there'd be a high behavioural response to the court case finding that a certain return was tax-free. A lot of people would seek to transform their returns into exactly that, and that was the reason for the proposed change.

Second, what I said a moment ago about the time limits is right. Generally it's three years for individuals and four years for large corporations, but CRA has the ability to seek a waiver from a taxpayer to keep the tax return open, and it is possible that they might seek to do that in certain cases.

However, I think the most important point in this case is that with the announcement of the change, we think the behavioural response to the court case probably would have stopped. When it was announced by the Minister of Finance in 2003 that these payments, these rejigged non-competition payments, were no longer going to be tax-free, we think that the mass of people would have stopped setting them up, because there would have been no point. If they had persisted, notwithstanding the fact that they'd be taxable again--and perhaps taxable at a higher rate than capital gains, in some cases--and if the thing had become statute-barred, your point would have been exactly right, but if they changed their behaviour back to the old form as a result of the announcement, we wouldn't have that issue.

Finally, your essential point about the need for Parliament ultimately to enact these so that they do have effect remains absolutely valid.

[The Chair, Liberal, Shawn Murphy]

You have one question, Madam Faille.

[Meili Faille, Bloc, Vaudreuil—Soulanges, QC]

Regarding Mr. Kramp's statement, I too get questions from business people in my riding. So I was extremely surprised to learn that the Department of Finance charges businesses a fee for the advice they are giving. One individual showed me a letter that stated that a fee had to be paid to the government in order to find out what the law allows and what it does not. But I found out later from an official in the Department that despite the fact that the Department of Finance charges a fee for its legal advice, there is no guarantee as to its legal value.

In one case, an individual went to court. The disputed amount was in the range of $500,000 to $550,000. The individual ended up winning his case. Nevertheless, this is a major problem.

How can the Department justify charging a fee to businesses for its advice when we find out in the report of the Auditor General that all of this confusion results from the fact no legislation or system is in place?

My next question deals with the 250 advance rulings.

[The Chair, Liberal, Shawn Murphy]

Madam Faille, could I at least get you to...? We have only a couple of minutes--

[Meili Faille, Bloc, Vaudreuil—Soulanges, QC]

Are the 250 advanced tax rulings available to the public on the Internet? Where are they stored?

[The Chair, Liberal, Shawn Murphy]

Keep this very brief.

[Brian McCauley]

Actually, that's our question, not the finance department's.

Starting in about 2000, after discussions with industry and practitioners, we put in place a cost-recovery process for advance income tax rulings. Those rulings, as you say quite correctly—around 200 to 225 a year—are binding on the agency. When we provide a ruling, on the assumption that all of the facts are correct and there's full disclosure, of course they are binding on the agency, which is why we take such care with them.

Ordinarily, the 99.9% of taxpayers who request information get that information through a non-cost process: through letters, pamphlets, bulletins, and brochures. That's how the vast majority of guidance is given and questions are answered. This process was set up specifically, as you can well imagine, for what I would call the really high-end, complex need for certainty—mostly, frankly, business types of transactions, at their request. I think there were even some observations in the Auditor General's report about the value of the rulings process, mostly to business.

So that happens on that side. And yes, when we provide something in writing on the assumption that the facts are correct, it is binding on the agency and the government, and we respect it. That is the case here.

[The Chair, Liberal, Shawn Murphy]

Thank you very much.

Mr. Young, we have a couple of minutes left.

[Terence Young, Conservative, Oakville, ON]

Thank you, Mr. Chair.

I have just a comment before we let the folks from Canada Revenue Agency go. I operated my own business from 2000 to 2008 and I just want to tell you that I found the front-line people with whom I dealt helpful. They were courteous, they were reasonable, and they were somewhat tough. I thought it was a very effective combination. It was the folks in Hamilton that I dealt with; my business was located in Ottawa. I just thought I'd send you out of here—

[David Christopherson, NDP, Hamilton Centre, ON]

They're always like that.

[Terence Young, Conservative, Oakville, ON]

In Hamilton, yes, they are. I've always loved Hamilton.

I just thought I'd give you an “attaboy” before you headed out of here, and congratulations for that front-line service. It is really quite good, I think, as a former business operator.

[The Chair, Liberal, Shawn Murphy]

Mr. Shipley, do you have a brief comment or question?