Finance committee  Yes.

Finance committee  We do agree the reasonability is there to complement the bright-line test. We can't legislate every possible scenario, so we do need reasonability there as a last resort. We absolutely do, but I agree we are going to be relying on the courts to determine what is and what is not reasonable because that is a question for the judge.

Finance committee  One thing you could look at is what percentage of that is on the overall value of the business, or the overall income of the business. If $50,000 is a small number in terms of that business, in theory maybe they don't get a small business deduction anyway, but it's something that might be looked at so it's not a one-size-fits-all at the low level.

Finance committee  Those businesses all survived, the ones that had money to stay afloat. Therefore, it comes down to whether it helps the public good. There are people who didn't lose their jobs because their employers kept them on. It comes down to issues with respect to whether $50,000 is the right number.

Finance committee  Is it $45,000? What is the number?

Finance committee  I don't actually have an opinion on that. It is something that should get looked at as part of comprehensive tax reform. The answers will come out of the committee or the study.

Finance committee  With the test on excluded shares, you have to hold more than 10% of the votes and value directly, so shares held through a family trust would not meet the TOSI exceptions. Yes, it would impact more businesses than just services, and then just PCs, but those businesses impacted have different structures in place, like the family trust, which are used for estate and succession planning purposes.

Finance committee  The way this has been drafted does impact your small business deduction. One reason we did like this better than what we had discussed last fall and last summer was that we're not looking at a 73%-plus permanent tax rate on passive income anymore. That is a good thing that we're not looking at that.

Finance committee  I would agree with that. The one-size-fits-all is less of a one-size-fits-all today than what we saw last October when we were discussing how these changes were going to be. The reason I say it is less than one-size-fits-all is that the small business deduction is a per-year deduction, so it might impact you one year and not another.

Finance committee  We're not asking to get rid of the reasonability test. I want to be clear that we believe that reasonability tests exist to help complement the bright-line tests that are in the legislation. You do need it. We would like the CRA and Finance to work together on what they would consider to be reasonable.

Finance committee  That would be a great idea, or as part of comprehensive tax reform, we could deal with those kinds of issues. There is a lot of ambiguity in those TOSI rules as they are written around excluded shares, and there's also the question of why the service company is exempted. Why is there going to be TOSI on service companies, but there is not going to be TOSI if you own more than 10% votes and value for other industries?

Finance committee  We do not think a royal commission is necessary, but we do think we should have a committee created—of stakeholders, of finance, of experts, and of parliamentarians—where they all work together to get a desired result. What we are looking for is predictability, certainty, and fairness.

Finance committee  In the reasonability test, we have to look right now at the relative value of each of the spouses' work. It does make it difficult at times to put a value on what one spouse does versus another. If there was an exemption, it would remove that. We wouldn't have this concept of someone's work being less valuable in the business than another person's work because of what it is.

Finance committee  In the budget documents, they are using a 5% rate of return, which means $1 million of passive assets earning that $50,000 of passive income. I would agree that it probably is too low, the reason being that there are a lot of businesses that need passive assets in order to weather the economic storms.

Finance committee  I think there are some reasonability issues elsewhere, but in this, for the most part, it's a purely mathematical question. There are formulas. It's just a matter of complying with the calculations and administering it and tracking it on a go-forward basis. I would be hard-pressed to determine what we actually would do, because we haven't even seen what the forms would look like or how the CRA would request that we track this.