I'll call the meeting to order.
As you'll note on the agenda, pursuant to Standing Order 81(5), we're dealing with supplementary estimates (B), 2016-17, and pursuant to the order of reference of November 15, 2016, we're studying Bill a second act to implement certain provisions of the budget tabled in Parliament on March 22, 2016 and other measures.
We have the minister and his senior officials here to talk about those issues, both the estimates and Bill , in one hearing.
Welcome, Minister. The floor is yours.
Good afternoon, Mr. Chair and members of the committee.
I am pleased to be here to discuss Bill C-29,
I thank you for giving me this opportunity to share with you the progress we have made for middle-class Canadians over the past year. I will be happy to answer your questions.
As Minister of Finance, my overarching goal is not only to grow the economy, but to do so in a way that benefits families, workers, and the most vulnerable members of our society. You will have heard me say before that we simply can't claim progress unless we all share in the prosperity that we create together. I can tell you that this has now truly become a global challenge. The world's attention has been focused recently on the fact that many of our citizens haven't seen the benefits of the growth we've had over the last several decades. Unfortunately, hard work doesn't always equal progress anymore. It's what Canadians asked us to fix when they elected our government a year ago. It's what we're working to fix with measures like the ones contained in the budget implementation act that we're reviewing today.
Just a few days ago, I had the privilege of travelling to the United Kingdom to tell Canada's stories. I met with students studying at the London School of Economics, where I studied myself just a few short...well, maybe more than a few short years ago. I met with members of the editorial teams at the The Economist and at the Financial Times. I spent some time at the BBC. I met with investors who are looking for opportunities to invest in our country and in our people. Across the board, the feedback I got was this: it's nice to hear from a country that has such a positive story to tell. I can say that I felt very proud to be Canadian after that trip, and we all should. That's because we were one of the very first countries to put our finger on the fact that when you have an economy that works for the middle class, you have a country that works for everyone.
You know the story well, but I'd like to provide a few highlights of what this means.
In the past year, we took some big, important steps towards helping families regain the confidence they'll need to drive our economy forward. We cut taxes for nearly nine million people and introduced the new Canada child benefit, which puts more money in the pockets of nine out of 10 families with children.
With the budget implementation act that we're discussing today, we'll help ensure that the Canada child benefit will be indexed to inflation starting in 2020 so that families can count on the real value of this benefit well into the future.
Over the past year, we also increased Canada student grants for students from low- and middle-income families, and part-time students. We increased monthly payments for the most vulnerable seniors and struck a deal with the provinces to strengthen the Canada pension plan so that this generation of young Canadians and future generations will be able to retire in dignity. Know that we'll be discussing ways of making the Canada pension plan even better at the upcoming meeting of provincial and territorial finance ministers in December in the context of the triennial review.
In our fall economic statement, we clearly indicated that Canada's success in the economy of the future rests on investment and openness. We act in the way confident countries do. We invest in our country and its population by supporting the growth and prosperity of today's middle class, while generating economic growth for the years to come.
Thanks to our measures, Canadians will get home faster after work. They will spend more time with their children. They will breathe clean air and have quality drinking water. They will be able to live in better neighbourhoods and will have confidence in their future.
In this same economic statement, we also took steps to facilitate the process we are undertaking for the future. Over the coming months, we will co-operate with you in order to devise a more coherent calendar for the presentation of the budget and the main estimates.
I know this will be an improvement we will all appreciate.
Mr. Chair, allow me to come back specifically to the bill we're studying today and focus on two measures in addition to the ones I've already mentioned. The first is tax fairness, which is a central pillar of the promise we made to middle-class Canadians. The second is consumer protection.
On tax fairness, let me be very clear. We believe that everyone should pay their fair share of taxes, period. Budget 2016 committed $444 million in new resources for the Canada Revenue Agency to address offshore tax evasion and aggressive tax avoidance. This will enable the Canada Revenue Agency to enhance its assessment capabilities through the hiring of additional auditors and specialists who will have the resources needed to undertake more expansive and comprehensive investigative work.
In addition, we're committed to combatting international tax evasion and aggressive tax avoidance by strengthening existing efforts at home and abroad by introducing new measures. The introduction of the common reporting standard for the exchange of information between national revenue agencies on financial accounts held by non-residents is an important global development. Canada will implement the standard consistent with our commitment to the G20 and similar commitments made by more than 100 other jurisdictions.
Similarly, we're proposing to implement one of the key recommendations from the G20 and the Organisation for Economic Co-operation and Development to address so-called base erosion and profit shifting, BEPS, by multinational firms. With our international partners, we are proposing to require large multinational enterprises to file a country-by-country report with a tax authority in their headquarters jurisdiction. The reports will provide revenue agencies with a high-level overview of the firms' global operations to assist them in performing more effective risk assessments.
Through this second budget implementation act, we also want to amend the Bank Act in order to strengthen and modernize the financial consumer protection framework. We are introducing enhancements to financial consumer protection to strengthen access to basic banking services, business practices, disclosure, complaints handling, corporate governance, and accountability. Together these enhancements will make the regime easier to understand and accommodate consumers' needs in a rapidly changing sector, as well as allow Canadians to benefit from an efficient national banking system from coast to coast to coast. We'll be working collaboratively with stakeholders to support the implementation of the framework.
I want to thank the committee for your work on this important piece of legislation.
Consequently, Mr. Chair, whether we are talking about the Canada Child Benefit, protecting consumers, or measures to guarantee tax fairness, you can see that our document makes the interests of middle-class families our priority.
By supporting Bill C-29, , you will support us in continuing our plan to put people at the heart of the economy and to give them the help they need right now, while investing in the years and decades to come.
I would now be pleased to answer your questions.
The second topic I would like to hear your opinion on involves the protection of consumers with regard to banking services.
Last week, we heard from representatives of the Public Interest Advocacy Centre, who spoke to us about the issue of jurisdictions. This is a paragraph taken from their brief:
||More simply stated, C-29 invites constitutional wrangling, instead of promoting legal certainty, which will harm consumers and banks.
This was the result of the centre's legal analysis, which highlighted the weak power of federal laws and regulations in connection with common law and the Civil Code, as well as the greater protection afforded by provincial elements.
I would like to know why the government is stubbornly pursuing this, as it did in the case of the Investment Industry Regulatory Organization of Canada. It tried to supercede the Supreme Court's ruling regarding provincial jurisdiction, despite losing many cases.
Are you not concerned that Quebec and other provinces will challenge this decision before the Supreme Court, and that the government will again lose time and money to try to establish jurisdiction in an area that is not federal at this time?
Perhaps I can go on two different tangents.
We live in a global world. We are in the fight for competition. We are in the fight for jobs, for capital. I would argue that since our government has taken office, we have seen a number of victories on our side in terms of companies choosing to invest in Canada, whether it is Thomson Reuters, General Motors, or General Electric. Minister, I'd like you to comment on the measures we have taken to entice capital, entice organizations, to locate to Canada. That's the first tangent.
On the second tangent—it's best just to lump them together—I've always argued very vehemently that we need to ensure that we have a tax system that is fair, a tax system in which all Canadians and all organizations in Canada are paying their fair share, one in which no one is subsidizing anyone else, and in which Canadians can have confidence. We have undertaken a number of measures. When I say we, I mean the government, and you, along with the national revenue minister.
I would like you to elaborate on the measures we have taken in the government and why it is so important that we coordinate our efforts globally and why Canadians need to have confidence in our tax system.
Those are two separate questions.
On the first question, I think it is fair to say that we've had some success this year. The decision by Thomson Reuters to locate their headquarters in Toronto was a positive one, and investment decisions by Microsoft, General Electric, and General Motors in Canada have been positive. That said, we know that more can be done. In our fall economic statement, there were several measures that we think will have a very positive impact on investment in Canada.
First of all, we announced that we were going to put in place an “invest in Canada” hub to focus our efforts around the country on how we can encourage more international investors to invest in Canada to create jobs here in Canada. That's critically important.
We also said that companies here in Canada that need particular talents and particular skill sets will have the opportunity to attract those people to Canada. Really, that's with the intent of hoping that they will be able to increase employment here in Canada by attracting those certain skills.
We also announced the Canada infrastructure bank, with which we hope to find projects that international investors will be able to be part of and that will enhance our infrastructure here in Canada, creating jobs now and a more productive economy in the long term.
On your second question, tax fairness is also critically important. We put in place measures in our budget to ensure that we are able to collect the taxes that are owed in this country. We're moving forward this year to look at how we can simplify the tax code to ensure Canadians can understand our tax code and believe it's fair, so that they will be able to understand and reap the benefits of a well-designed and well-understood tax code.
Our decision to put in place the Canada infrastructure bank was based on our understanding of both the needs we have in Canada and the situation around global capital.
With respect to the needs we have in Canada, clearly we're going to make significant investments over the next 11 years. We've committed $180 billion, but the needs are greater than that. We can actually invest more over time in order to have an even bigger impact on our economy and to have a more productive economy in the long term.
In thinking about how we can have a greater impact, we looked at what other opportunities there are. We have the lowest interest rates in history right now. We have a huge desire from long-term investors to invest in infrastructure. Putting those two things together, we can see that we can attract capital at a very attractive cost, capital that would be interested in the kinds of investments we have here. In our estimation, it's a win-win. We have more impact for more Canadians today, with more jobs, and in the long term, a more productive economy, while creating the opportunity for investors to invest in long-term projects that can make a difference for, in many cases, pensioners and others who are seeking to have those long-term returns.
Thank you, Minister, for being here. I'm pleased to see that our colleagues from the government side used their question time to get all these softie questions thrown at you, so maybe we could challenge you a bit. We'll get off script a bit and ask a couple of questions that I'm hearing from my constituents, quite frankly, and that we also heard from witnesses who testified before our committee on Bill .
I'd like to ask you first about a concern that's being expressed. I'm sure that your inbox is flooded, like ours are, by those medical professionals who are concerned about the elimination of the small business deduction for group medical structures under clause 44 of Bill .
Both the radiologists and the Canadian Medical Association, who were here last week, referred to it as “unintended consequences”. I actually challenged your colleagues on this committee, because several of the questions were pretty clear that this was not an unintended consequence but a direct attempt to get at small businesses.
I'd like you to clarify before this committee whether this was an unintended consequence and whether this is an attempt to fix a loophole, which seems to be the indication coming from your colleagues on the other side, or are you going to look at an amendment based on the representations we've heard?
We recognize that the challenges in Alberta are significant. This is of enormous concern. I'm sure you're hearing what I'm hearing, which is that families are struggling in Alberta. That's not limited to Alberta; it's in other parts of the country as well.
We've taken significant measures to be of assistance. We started out, most importantly, with changes to the employment insurance system, recognizing that for regions of the country that were experiencing significant changes in unemployment, they would be in a better position in terms of getting longer unemployment insurance amounts so they could deal with the transition.
I won't in any way say that that's going to fully deal with the challenge. We are doing other things, as you mentioned. I think what we've done with the Canada child benefit is really important, because that is having a big impact on families with children who are finding themselves in that situation.
For all Albertans, and for that matter, for all Canadians, investing for the long term in our country is important. Finding our ability to invest in infrastructure—and we've announced a number of infrastructure investments in Alberta—will help to get people to work and will help the economy to be more productive over the long term.
We are making multiple efforts to make a difference, and we will continue to be focused on this challenge, recognizing that it's important. In the long run, we will be talking about skills and skills development as well, so that we can enable people to keep their skills up to date and consider ways in which they can have an impact in whatever field they choose to be in, whether in Alberta or in other parts of the country.
Well, I never like to challenge people without having absolute certainty of the answer. What I can tell you is that all of the things you just said are accurate.
Our main goal with the Canada child benefit was to significantly improve the outcomes for Canadian families, in particular for families in a lower-income or middle-class situation, and that we've done, raising 300,000 children out of poverty. It was also, as you said, to focus our efforts on families that really need it.
My family, previous to our decision, was getting the universal Canada child benefit, and we're not now. I think that is wholly appropriate, because we were able to take the money being used in sending out those cheques and give it to families that were in a greater position of need.
We also, in taking the approach we took, made sure that those payments were not taxable so that when people see the cheque, can really understand what they're getting and put it to use for their families.
I think it's made an enormous difference. We're hearing the differences. You're probably hearing them in your constituency office like I am. Across the country, we're hearing that the rolls are down in drop-in centres and places where struggling families would go to get support, which is an extremely positive thing for those families and for our country.
My last area is on economic development and the growth of the economy. I have raised this before, but you've touched upon it as well, and so I'm going to bring it up again.
As to the growth of climate change adaptation and the greening of our economy—and I'm sure you've spoken a lot about this with other leaders—how is Canada positioning itself to be a leader in green technology and climate change adaptation?
As we've spoken about before, it's not only good for our bottom line as we try to prepare so that we're not responding to disasters and just dealing with them, but it also helps us to be leaders on climate change adaptation and to grow the economy.
You mentioned this in your comments. I'm just wondering if you could elaborate on how we're doing as leaders, and how much you see this fitting into the overall growth of our economy as we move forward in the long term.
Again, the CMA actually had Deloitte have an independent look at it, and it's anywhere between $16,000 and $32,000 a year.
Maybe we'll switch gears here, since it looks like I'm not getting very far with this, Mr. Chair.
Before, you were mentioning about the need to make the tax system fair. Canadians are a fair people. We're also a practical people, and we know that practical people make decisions. I'm going to read to you something from the 2016-1017 edition of Byrd & Chen's Canadian Tax Principles. This is about reduced tax revenues. It states:
||There is evidence that, if tax rates are too high, the result may be reduced aggregate tax revenues. Some authorities believe this begins to occur at tax rates between 40 and 50 percent.
||We would know that, and with the 2016 increase in the maximum federal to 33 percent, maximum combined federal/provincial rate in most provinces now exceeds 50 percent, going as high as 54 percent in Nova Scotia. While it's difficult to predict the degree to which this will encourage tax evasion, it is almost certain that tax rates at this level result in significant amounts of income being moved out of Canada. Individuals with income in excess of the current maximum threshold of $200,000, often have great flexibility in where they reside and how they invest.
||Of particular importance is the possibility of moving to the U.S., where the combined federal/state rate on incomes in excess of $200,000 can be as low as 33 percent.
Given that there are wonderful winters in Florida, Minister, do you not see that by instituting this increase, the middle-income tax cut, or whatever you want to call it, you're actually putting our treasury at risk?
Thank you, Minister, for coming today.
Just from going door to door in my riding during the summer, I learned that the Canada child benefit was a massive hit. Families really appreciated the extra money, the fact that it was after tax, and that they received it just in time to go back-to-school shopping. That was a great piece from the government.
To pick up on my colleague's comments on the business tax deduction for doctors and to clarify things for my colleague, nothing in the law prohibits doctors from still forming these partnerships. The only change in the law is that now they equally will share the small business deduction of $500,000, which was the original intent of the law. In my previous experience as a corporate lawyer, I think it's actually the fair thing to do.
Minister, both you and the have been travelling the world, promoting Canada as this great place to invest. What do you see as the global economic challenges for Canada's economic growth outlook?
Clearly, we have put in place measures that we think are going to be positive for our country, but we're not immune from global economic conditions. There are a number of what I would call headwinds around the world that present challenges and reinforce the need for us to take measures in our own economy that can make a difference.
Globally, we've seen China move away from an approach to developing its economy that's focused on investment and infrastructure and one that's more focused on consumerism. That, of course, reduces reliance on some of the things that we produce and changes global resource prices. That's something we have to deal with.
We've seen over the last couple of years a significant change in the levels of global trade. For the first time in many years, we've seen the increase in trade be less than the increase in global growth, which is a challenging trend and portends a challenge around global growth. Anything that has a negative impact on global trade, of course, has an impact on a country like Canada that relies on trade. Any decision to consider trade barriers or put up any challenges in that regard can present challenges.
For us, that reinforces the need to focus on what we can do. Our focus on helping families so that they can invest and consume is important. Our focus on investing over the long term in infrastructure can make a real difference. Our attracting investors from around the world to come to Canada can make a real difference. While we can't change global trends, we can do what we can nationally to make a difference for Canadians, to create jobs here. That's what we intend on doing.
I would be remiss if I did not take this opportunity to bring up infrastructure.
There are two things, currently. There are the funds that were announced, and there is the Canada Infrastructure Bank. You are aware of our reluctance with regard to this infrastructure bank. First, it was not presented as such during the election campaign. The Liberal platform did mention an infrastructure bank, but it never mentioned such a massive commitment from the private sector.
There is also the fact that you will be taking funds that would have gone to small communities to put them in this infrastructure bank that will not really be accessible to small municipalities, as you acknowledged, I believe, to the Federation of Canadian Municipalities.
I would like to know why the government chose this massive commitment of private funds, when it could have borrowed at 2% at the time of the last 30-year securities auction. We know very well that Mr. Barton, Mr. Sabia and Mr. Wiseman would like to see a return of more than 5%, 6% or 7%. The Caisse de dépôt et placement du Québec had an overall return of 9%. I can't see them investing in a project that would yield less than that.
I have another question for you on infrastructure, but first I would like you to explain why this involvement of the private sector is absolutely necessary today, as it will mean a loss of public control over these infrastructures.
Thank you very much, Mr. Chair.
Thank you very much, Mr. Morneau, for being here.
In the past, I asked you a lot of questions on the Canada Child Benefit, particularly as regards those who need it the most, especially those whose parents receive social assistance. I wanted to know if those parents were going to receive the child benefit.
Moreover, how are we doing, everywhere in the country, in ensuring that the provinces do not take the money back? We give, but the provinces take back what we give. I would like to know what the situation is in this regard currently.
I've also heard that there are other provinces that continue to claw back these benefits from these families. One group in particular who I think you should know about who continue to suffer are the children who are in the care of the state. These are some of the most vulnerable children in our country. They have become an economic benefit for some governments and also for a number of people. They are almost a natural resource. We often say that our children are a resource, but in this case, they're actually an economic benefit. The more children you have in care, the greater the economic benefit. This is true in a lot of provinces, especially for first nations children.
I just want to put on your plate and in your mind that, if you have the opportunity to talk to various provinces, you make sure they don't claw back this money from these children. I know they're doing it in the province of Manitoba. It's not that I want to start a war with Manitoba, and I also know they're doing it in other provinces. I'd like to ensure that the monies that we give to these children, the most in need, when they leave child welfare at age 18 or they age out—children who often have no social support sometimes and very poor family structures—will at least give them financial resources that can propel them to a better future. They need at least to have the potential to pay for an education that will give them the long-term success they need so they don't end up living in places like the Occidental Hotel, now the Red Road Lodge, in Winnipeg, which is essentially a place for homeless people. Because they're 18 and they've aged out, they don't have the financial resources to pay because no one really wants these kids. I hope to put it in your head in a public way—and I hope you don't mind, sir—so you will talk to other finance ministers when you have the chance to encourage them to look at that.
I have a very short question. I'm just wondering if there are any studies being done on the longitudinal impacts on the Canada child benefit, especially among families. What are they using the monies for? Who benefits the most? Are we conducting scientific studies in order to really understand this form of guaranteed income for families?
Thank you for your time and for listening. I appreciate it.
I was hoping to make a quick intervention, Mr. Chair.
In terms of having a clean and efficient process, I want to state my objections to the common reporting standards. We heard from many different credit unions both in the pre-budget consultations but also on the review of this bill. It is a big mistake for the government to introduce legislation without having some sort of provision à la FATCA where it allows small credit unions to be exempted if they have less than 2% of their assets being held by foreign nationals. It will cause a lot of angst for credit unions.
I am thinking particularly of not just the smallest credit unions, where obviously the staff will have to spend more time doing paperwork to submit at the federal government's new behest on these common reporting standards, but also other credit unions which are not structured in the same way as the banks where in Quebec, Desjardins, will have to submit hundreds of applications because they have hundreds of locations.
Does one of my other colleagues from the Conservative side want to speak about the doctors? No.
We will be opposing those measures particularly the common reporting standards. Again, the so-called clarification is going to put a lot of good doctors who are doing research across the country in a position where they might just decide to leave for other jurisdictions, or at least it will cause a lot of angst for many of them who will have to restructure their practices in a way that is tax efficient for them.
On those two points, and I'm sure many other things in the budget bill, we're going to abstain or oppose, but we can do many of these on division.
In Bill , the government is eliminating a series of small tax loopholes. For instance, SMEs were recording one deduction twice, and small savers reported the income from stripped coupons as capital gains. However, Bill C-29 has failed to eliminate the biggest tax loophole, which is the use of tax havens. I suppose that was just forgotten, hence this amendment.
Those who followed the debate concerning motion M-42 on tax havens, which I introduced, know this: the use of tax havens is due to the regulations that exceed the scope of the law and of treaties. Amendment BQ-1 does not really change the laws, and scrupulously respects fiscal treaties. It only repeats what is in the Income Tax Act, but does it in a direct way that makes it very clear that certain tax regulations are illegal.
Subparagraph (ii) reiterates that in order to be tax exempt, income derived from a foreign branch must be covered by a tax treaty. Through this clause, Parliament will invalidate paragraph 5907(11) of the Income Tax Regulations. In those regulations, the government discreetly exempted from taxation income generated in 22 tax havens with whom we had not even concluded tax treaties.
As for the third paragraph of amendment BQ-1, it repeats word for word what clause XXX of the tax treaty with Barbados says. If businesses open branches in Barbados to avoid paying tax, they will simply not be covered by the treaty.
However, unfortunately, the government again discreetly adopted a regulation to exempt them from paying tax, despite what the law and the treaty said. I am referring to paragraph 5907(11.2) of the regulations. These two provisions may well be illegal. By adopting this amendment we will say so clearly, and this will invalidate them. For the five big banks alone, we are talking about $6 billion a year that will stop going up in smoke.
Thank you, Mr. Chair.
Thank you, Mr. Ste-Marie.
I will have to do a ruling on this.
The amendment seeks to amend the Income Tax Act by including in the definition “taxable Canadian business” for any business that is entitled to a special tax benefit conferred by Barbados under the Canada-Barbados Income Tax Agreement Act, 1980. As House of Commons Procedure and Practice, Second Edition, states, on page 768:
||An amendment is also inadmissible if it exceeds the scope of the ways and means motion on which a bill is based, or if it imposes a new charge on the people that is not preceded by the adoption of a ways and means motion....
It is the opinion of the chair that the amendment, by eliminating an exemption, would oblige certain entities to bear an additional charge. Therefore, I would rule the amendment is inadmissible.
(Clause 31 agreed to on division)
I think we have witnessed, both at the stage of consultation and confirmed here again by the minister today, that this is clearly the first step where this government, the minister, and the department are going to start to whittle away at the small businesses. We know that in the election campaign, the Liberals campaigned on a reduction in the small business tax and joined with the other two parties, and then they reneged on that commitment when it came time to present a budget.
We also know that when the current Prime Minister was campaigning, he used a phrase along the lines that small businesses were nothing but a tax dodge, and I think we are seeing here the first evidence of that thought. I would put all small businesses on notice to watch out for budget 2017, because today it's the group medical structures, and tomorrow, who knows what it's going to be? Our witnesses before the committee last week said that they believed it was an unintended consequence. It is clearly not an unintended consequence. This is clearly designed to take away a small business deduction from a group of practitioners who are simply organized in this fashion so that they can deliver better health care to Canadians.
I think it is absolutely ludicrous that the government would carry through with this kind of initiative. In my view, this is the first of what we will see consistently going forward over the next three years: an attack on small businesses, an attempt to bring in more revenue by hitting small businesses. I want to go on record, as part of this discussion, to say that the Liberal members of Parliament will pay the price for this in the next election.
I would like to ask, Mr. Chairman, that we have a recorded vote on this particular clause.
We received a number of submissions from the Canadian Medical Association and the Canadian Association of Radiologists, and looked at the testimony before the committee.
A few points probably warrant further mention. Obviously from their perspective, it affects doctors, but it is a provision of general application. The small business deduction is available regardless of what business you're in.
As was said earlier, these measures would follow the existing policy where there's one business and one business limit of up to $500,000 that applies to partnerships as well in this context. The rules are called the specified partnership limit rules, and they provide that when you have a partnership with a number of corporate partners, that one limit is shared among the partners. These rules are currently in the act, and the amendments in Bill are an extension of that policy.
I mentioned as well that it's a provision of general application. As we've heard, it applies to doctors, and it would also apply to lawyers, accountants, dentists, engineers, architects, or any group that could organize themselves into one of these structures. It is not a provision aimed solely at the medical community. It is reinforcing the integrity of the small business deduction rules and the $500,000 limit, and it does not look at what type of business is being carried on.
I know a number of comments were based on numbers. They mention certain numbers. The Department of Finance had others. I believe we have our costing measures, our numbers that we provided in the last hearing. But one thing that had been mentioned I heard earlier was the $32,000 number. I can explain briefly where that came from, but in doing so, I would have to provide a little context into how these rules work, and the sort of planning that is going on.
If an individual earns income directly, they pay taxes at the normal marginal rates, as was said, often around 50%. I think the top marginal rate in the relevant example provided was an Ontario individual, so that would be, I think, 53.53%. If you earn income through a corporation, there's corporate tax. The general corporate tax rate is 15%, and the small business deduction rate is 10.5%. That's federally, obviously. There are provincial taxes on top of that, but I don't want to list them all. We're not neglecting them, but it does make it higher.
Due to the corporate shareholder integration mechanisms in the Income Tax Act, if you earn income in a corporation and then pay it out in the same year, you generally pay the same combined corporate and individual tax rates as if you earned them directly. In the $32,000 case, that was $500,000 of income from Dr. M., and so if they earned it directly or through a corporation, we'd have roughly the same amount of tax in Ontario.
The benefit sought to be obtained is when funds can be retained in the corporation, so there's a lower corporate tax rate, 15% federally, as opposed to a top federal rate of 33%, assuming Bill is passed, so that's a significant difference.
To the extent those funds are not needed for personal costs of living, maxing out your RRSPs or whatever, to the extent that those funds are available to be left in the corporation and invested, then that presents a deferral benefit if they're not taken out in that year. In the case provided, I think some $214,000 was left in the corporation and the difference between the small business rate and the general corporate rate was calculated at about $32,000, but those are the funds available to be invested and to get the benefit of the one-year deferral, you can invest those funds at around a 5% rate of return, and that might give you, I think, about $1,500 over a year. I think there were comments on that. Then that $1,500 would be taxed, so the actual benefit would be even lower. That's just by way of explaining the differences in the numbers.
It looks at the benefit, at where you take the computation. Do you look at the dollars available to be retained in the corporation or do you look at the actual value of the deferral benefit?
I hope that provides some more context into where some of these numbers are coming from and the planning itself. It really involves the ability of particularly professionals, such as lawyers and so on, to leave their excess funds in their corporations and to invest them to earn an enhanced yield. If you're earning income directly and you're a top-rate taxpayer, taxed at 53% in Ontario, and then you earn $100—your last $100 subject to the top rate—you'd have $46 or $47 available to invest. If you earn it in a corporation and the corporation pays tax at 20%, say, you'd have $80 to invest. That's a good head start.
That's the benefit of the deferral, and that, of course, is not being touched, the general difference between the general corporate rate and the personal rate. It just provides some context into the nature of the benefit and the differences in the numbers.
To kind of tie it all together, those benefits will continue. What will be preserved is the general policy underlying the small business limit, which is to say that one business, either a sole business in a corporation or a partnership, has one $500,000 deduction, and that can't be, to use our phrase, just multiplied. If you have one partnership, you have one $500,000 limit; if you have 10 partners, that could be $5 million or $5.5 million; 100 partners would be $50 million, and so on.
I understand there were questions about the use of the word “multiplication” as well. That's the sense in which the term was used in the Department of Finance documents.
The department did look at the effects and, of course, we had a consultation period, starting with when the budget was tabled, and again looking at the revised draft legislation that was released in July. We heard a number of comments from a number of affected stakeholders.
I know I mentioned this before, but it's worth reiterating. These are amendments of general application. They apply regardless of the industry. If there's, for example, a law firm carrying on business through a partnership, as many do, setting aside sole practitioners, one would expect that law firm to continue, to perhaps stop using this particular tax planning strategy to the extent they were using it before to multiply access to the small business deduction. Of course, in that case, I've worked at firms where there are over 100 partners, and I would not expect them to stop carrying on business in a partnership.
Of course, what we've heard a lot of today is from the medical community. I would say we heard, in the course of our consultations, that it seems that it's not universal that these types of arrangements are done through what would legally be considered to be a partnership. There's been a bit of, I won't say confusion, but different uses of terminology. For example, we've heard a number say that we have this partnership but it's not profit-oriented.
Well, the definition of a partnership is something that is carried on, a business that's carried on, in common with a view to a profit, and so there have been some difficulties. We have heard, though, that some operate through, not joint ventures, but co-ownership types of structures. I don't know the extent to which there could be a migration to that. We have definitely heard, in our submissions, and I think that you've received the same ones, that there would be difficulty, or reluctance, to move to those in the teaching hospitals or research community. But it is something we looked at.
As I said, there are still a number of tax benefits to be obtained when you look at the differences, for example, between earning directly versus earning through a corporation, even when that corporation is a member of a partnership and does not have access to the complete small business deduction. In addition, you have, as we worked through the numbers, the $32,000 number. When you work through it, it's actually much smaller than that. The value of the deferral is the $32,000 available to be invested. But if you paid that out in a year, it would be worth nothing. The next year, it might be worth, I think, around $1,500.
So, on the impacts, of course, we can't tell what will happen. You can't predict the future. We did not anticipate massive changes. That wasn't the intention.
As I said, many industries, and lawyers are the paradigm example, will continue to operate through a partnership, without any question.
Based on what we've heard, and continue to hear, although obviously concerns have been expressed, it's not clear to us that all the partnerships either will cease to be carried on or cannot be reorganized.
Thank you, Mr. Chair. I know there are a few members of the committee who are anxious to shut this down in a hurry, as we did Bill , but I think this is so important that I thank you for making this exception.
Mr. McGowan, it was obvious when the minister was here that he was, I would say, unaware of this or certainly wasn't well briefed on it. I'm not going to try to speculate why, but I can tell you that our inboxes are full. We had two very impressive presentations before this committee last week, which fell on deaf ears.
With all due respect, and with all due respect to many of my lawyer friends, I don't think a partnership of lawyers who may practise in different areas of law is in any way similar when compared with what we're talking about: these medical structures, which are designed not as tax dodges, but are designed to recruit some of the best minds in the world to come to Canada. They're also designed, if we were listening to the testimony, in such a way that many of these partners perform work that is not necessarily billed, because we're talking about a publicly paid billing system. It would seem to me that for you to compare dentist and lawyer partnerships with this particular type of partnership is blatantly unfair.
I think the finance department—which this obviously originated in, because the minister certainly didn't originate it—is taking a pretty bull-headed approach to something that I think is plain wrong. You, as a finance department official, are not going to pay the price, but my Liberal colleagues across the way are going to pay the price at the ballot box next time, because what you are doing here is, in my view, taking away something that in our country we've been trying to encourage our health care professionals to do: to work more as teams.
This is going to break them up. You're going to have a whole bunch of individual practitioners or smaller partnerships. Finance will get no more money at the end, as pointed out to the minister earlier by my colleague. It seems that all we're hearing is that this seems to be falling on deaf ears, and I'm saddened by that.
As I was saying, in 2012, the Harper government gave the banks precedence over everything in the preamble of the Bank Act. The government thought it could shield the banks from the requirements of Quebec's legislation. The Supreme Court, however, wasn't convinced.
Now the government is again trying to get around the court's decision, this time through Bill . It is trying to use the back door to encroach upon civil law, a 400-year-old legal system protected under the Constitution, and is depriving consumers of their rights in the process. This is very serious.
The government can expect to face another legal battle, like the one that resulted in the Marcotte decision, and consumers will be in for years of uncertainty, not knowing which legislation is applicable.
If Bill is passed in its current form, without our amendments, the banks will be able to do what they want. If a customer is swindled, they will no longer have any real recourse. Gone are the days of customers being able to take advantage of the free and simple complaint mechanism available through Quebec's office of consumer protection. The only place bank customers will have to turn is the office of the banking ombudsman, an organization funded by the banks.
Clause 131 of Bill as well as the English version of clause 117 raise serious constitutional questions. They set consumer rights back and open the door to legal challenges, while encroaching upon civil law, a coherent legal system that has existed in Quebec for more than 400 years.
For all those reasons, I urge you to adopt Bloc Québécois amendments BQ-2 and BQ-3. I'd also like to hear the officials' views on these amendments, if I could.
Thank you, Mr. Chair.
Without question, it would be operationally challenging and very costly, even if it was possible—because it is not clear whether it would even be possible for an entity to be subject to multiple rules for the same issue across the country—and it certainly wouldn't be in the consumers' interest, either in a province or nationally, not to know what rules apply to them in a specific circumstance. There is no question that it would be difficult.
It's clearly not what the policy intent is. The policy intent from Parliament, historically, has been for banks that are subject to its charter and regulation to follow a certain set of rules and regulations and have a dedicated regulator, as such, and for Canadians, no matter where they are, from coast to coast to coast, to have the same protections that pertain to these issues.
Let me be clear. There are many provincial rules and legislation that fall outside of the scope of this legislation, for example, contract law that doesn't pertain to consumer issues, or business practices that don't pertain to consumers. All those will still apply. All those remedies will still apply, and other provincial legislation will still apply.
Let me step back and explain that the complaints handling process that exists now and is being enhanced under the amendments of this bill is strong, is convenient, is cost-effective in that there's no cost to a consumer, is timely, and it works well. The first step is clearly, like any organization, that it's a bank internal process and complaints handling system, and then there is a time limit to which the bank has to respond and if it's not to the satisfaction of the customer, they can then go to an external complaints handling body, of which there are only two in Canada that are now regulated by the federal regulator.
The fact that a bank would pay for that funding—the banks now pay for OSFI and bank supervision—that's a standard world practice, that the institutions that are subject to regulation often will cover the cost of that regulation, and it's internalized. In this case, the two entities follow the same standard of handling bank complaints and then, thereafter, you still have the dedicated federal regulator that sits on top of both the external complaints bodies and the banks.
Let me draw your attention to amendments in this bill that further enhance the obligations on both the external complaints bodies and the banks to publish all their details, the nature of those complaints, and to make the boards under corporate governance rules, the boards of directors, even accountable for ensuring that they comply with the external complaints handling and publicizing and the public accountability statements, all of that information, to hold them to account.
Okay, so not the opposition's amendment. This is a little bit different.
You are giving us assurance, then, that this respects the parameters of the Supreme Court's decision.
Now, we want to be effective. That was the second point I wanted to address. It's clear that all laws are made to be challenged. If we accept that, we know there will always be some lawyer somewhere who will find some aspect to challenge. As my colleague rightfully argued, however, the government could set off a never-ending guerrilla war, legally speaking. As lawmakers, we need to take steps to make absolutely sure that our laws are less vulnerable to challenges.
I am taking you at your word since you are the experts. You helped draft the bill so as to ensure it complied with the Supreme Court's decisions. I will tell you, though, that, in this particular area, it won't be some humble and modest lawyer from the country arguing the case. It could very well be highly competent authorities, such as provincial representatives, challenging the provision on the grounds that it doesn't comply with the Supreme Court's decision. We are talking about very well-equipped people.
In your view, how likely is a legal challenge stemming from this provision? I don't mean a challenge mounted by your average Joe but, rather, by a province?
First, let me say that the legislation as amended, as proposed, is clear in its intent to have entities that are subject to the legislation follow the rules that are set out, and to know that these are comprehensive in their structure, such that they would be the rules to which those entities would follow pertaining to consumer protection in the realm of banks and banking, which is under federal jurisdiction as per the Constitution. That's clear. Even the provisions around paramountcy merely reinforce the clarity that this is a comprehensive set of rules, which we are asking our federal entities to follow.
There is no reference directly to what provincial rules may be structured, what they may do, and where they apply. They will still apply where they apply, and it may, downstream, take courts to determine that.
I can say to your latter point that even with this language, the intent going forward is collaboration, having more co-operation and collaboration between the federal regulator and provincial regulators to avoid these issues. Working with entities on both sides is clearly the path forward and the intent.
The Financial Consumer Agency of Canada, which is a new agency, is engaging and will continue to engage with provincial counterparts. The way it's designed to work is that if there is a federally chartered institution that does something in a province, a provincial regulator can go immediately to the federal regulator and have that issue addressed.
The plan going forward is for more co-operation and collaboration, recognizing that there is a dedicated regulator for those entities. I think everyone would be hopeful that this clarity makes returning to the courts for various disputes less likely.
I'm going there, but it's just to explain where we stand.
We will therefore be voting against the clause strictly speaking. With respect to the amendment, the issue is whether the clause, as it is currently worded, satisfies the Supreme Court's decision.
We have three experts in front of us confirming that it satisfies the Supreme Court's decision on all counts. Yet one of our colleagues has reservations, and on the surface, they appear to be valid and relevant. Nevertheless, according to the experts, the clause is fine and the proposed amendment is not necessary because the current language of the clause satisfies the Supreme Court's decision.
It will never be possible to prevent a lawyer from mounting a legal challenge; nor will it ever be possible to prevent a province from doing so. That's what you're telling us. On a broader level, we should recognize that, while the experts who drafted the bill confirm that the clause in question satisfies the requirements set out by the Supreme Court, a legal challenge is still possible.
Once again, welcome to the witnesses. I always enjoy discussing the Bank Act with you.
I have just one question, provided your answer doesn't give rise to another. You said, and rightfully so, that you weren't a lawyer but that you could speak to policy issues.
I'd like to know whether the Department of Justice was consulted and whether it issued an opinion on the constitutionality of this bill with due regard to the division of powers.
If so, I realize that you can't tell me what that opinion was. At the very least, though, I'd like to know whether an opinion was provided.
However, consumer protection has not necessarily been identified as falling exclusively within the federal domain.
The other thing to keep in mind is that that very reasoning led to the Supreme Court challenge involving the Investment Industry Regulatory Organization of Canada. There, too, a dispute arose over what some provinces wanted control of, specifically, Quebec and Alberta. They considered the matter to be their responsibility, but the federal government was of the view that it could have some involvement, and that's what it argued before the Supreme Court.
Ultimately, the Supreme Court ruled, siding, on the one hand, with Ottawa with respect to systemic risk monitoring and, on the other hand, with the provinces regarding everything else. In this case, we are dealing with banks, which are indeed under federal jurisdiction, and consumer protection, which is under provincial jurisdiction. A dispute could therefore arise.
I think I agree with Mr. Deltell. A representative of the Quebec government or someone else will no doubt raise the issue.
That's why I wanted to know whether the Department of Justice had done at least one analysis from that standpoint before including the measure in Bill C-29. I realize that you can't tell me what the Department of Justice's opinion was.
I don't assume that you are an expert in everything, but I was wondering about it. In my reading of the federal law, I think it is fairly comprehensive for an ombudsman. The ombudsmen do have a greater level of independence. They're not completely chosen by the banks. They can issue rulings in order to force the banks.... Obviously, the banks would like to see some rulings in their favour, but the ombudsmen are also guided by a code of ethics and conduct, and it's their job to look out.
Ombudsmen work for the federal government. They're hired and appointed by, I believe, the Privy Council, but they still criticize us, and that's good.
In a general way, for instance, I remember living in Quebec, where if at the supermarket you were overcharged by accident.... If the ticket price said $12.99 and you got to the cashier and they scanned it as $15, you would actually get the $12.99 minus $10, so really, the object would only cost you $2.99. It was a very advantageous type of consumer protection law.
I was wondering what the differences were in this instance, because I don't know myself. It's just a question of curiosity. There's no right or wrong answer, by the way.
To go back to the objective, first of all, the bill is intended first to have a very clear statement of intent by the federal government about having high standards to protect consumers. Second, it contains additional high standards that are being set in the bill. Part of that process is actually enhancing the standard for complaint handling bodies.
What we do with a complaint handling body is that they actually apply to the FCAC, the federal consumer regulator. They apply and submit applications according to expectations that this consumer regulator has set, and it is the consumer regulator that actually assesses whether they've met the standard. Indeed, after the assessment, they follow up as well, in order to continue to maintain that standing to be a complaint handling body.
As an example of where the standards are constantly reviewed by the FCAC to ensure they are being met, I'm using the complaint handling example. It isn't just that they are set, but that they are actually followed up on as well. The FCAC is very active in their supervision of banks to ensure they're meeting the standards.
In your example, sure, you could do that. You could go back and seek redress, if you wish, from the bank. You could say to the bank that you were overcharged, and you could ask to use the internal process. You could go to a bank and you could use their internal ombudsman process and say that they overcharged you.
In regard to that, I looked at some stats today in the case of one bank in particular. For example, 98% of the cases that were brought to the attention of that bank's ombudsman were resolved to the satisfaction of the customer. That compares to the example you gave, which is that 98% of customers get satisfaction right away.
In addition, the FCAC is sitting on top of that and watching to make sure that consumers are protected. Every consumer has a helping hand here. They don't have to do this by themselves. They actually have a federal regulator that is making sure the rules are protecting them.
Okay, we're going through them one at a time.
(Clause 119 agreed to: yeas 5; nays 4)
(Clause 120 agreed to: yeas 5; nays 4)
(Clause 121 agreed to: yeas 5; nays 4)
(Clause 122 agreed to: yeas 5; nays 4)
(Clause 123 agreed to: yeas 5; nays 4)
(Clause 124 agreed to: yeas 5; nays 4)
(Clause 125 agreed to: yeas 5; nays 4)
(Clause 126 agreed to: yeas 5; nays 4)
(Clause 127 agreed to: yeas 5; nays 4)
(Clause 128 agreed to: yeas 5; nays 4)
(Clause 129 agreed to: yeas 5; nays 4)
(Clause 130 agreed to: yeas 5; nays 4)
(On Clause 131)
The Chair: Turning to amendment BQ-3 on clause 131, I think we pretty well had that discussion. We're satisfied with that discussion. Shall amendment BQ-3 to clause 131 carry?
There are no amendments from clauses 136 to 145.
Shall clauses 136 to 145 carry?
(Clauses 136 to 145 inclusive agreed to on division)
The Chair: Next is clause 1, the short title.
(Clause 1 agreed to on division)
The Chair: Shall the title carry?
Some hon. members: Agreed.
An hon. member: On division.
The Chair: Shall the bill as amended carry?
Some hon. members: Agreed.
An hon. member: On division.
The Chair: Shall I report the bill as amended to the House?
Some hon. members: Agreed.
An hon. member: On division.
The Chair: Shall the committee order a reprint of the bill?
Some hon. members: Agreed.
An hon. member: On division.
The Chair: That completes Bill .
Mr. MacKinnon, you have a motion.
Mr. Chair, the idea of the member opposite is quite good.
I think these kinds of motions really draw the ire of someone who actually wants us to do our work. This has obviously received.... This is a government bill. It should be treated with respect. However, so should Parliament.
If parliamentarians cannot be given the time to, first of all, see which witnesses we should be inviting to our study, then we will not have good testimony. If we do not have good testimony, we are not doing our jobs.
I think that this is completely abhorrent to proper process and proper conduct by parliamentarians. I think no one will disagree with me that this is fast and loose and is not going to, at the end of day, produce a parliamentary study that we can be proud of.
If members opposite are okay with that, then just simply say yes to Mr. MacKinnon's motion, but we owe a bit more to this place than simply rubber-stamping what comes in from the government.
Believe me, I heard the same kind of stuff when I was on that side. But you have a greater appreciation for this place when we actually let it function, and committee is the one chance where parliamentarians get to do a deeper dive into these bills.
S I would ask Mr. MacKinnon to push back on this and to not engage in such a quick and hurried study. We are not doing our jobs. We are not doing service to this place, and I think at the end of the day, we let ourselves down, Mr. Chair.
I'm going to be very brief.
I served as a parliamentary secretary. I worked with members on a committee that was opposition chaired and we got more unanimous reports done than any other iteration of that committee did in 10 years.
We did that by going across and talking about these things ahead of time, asking for input, and working together on what was reasonable. There are always going to be politics in this place, but that doesn't mean we can't be good parliamentarians.
This approach, Mr. MacKinnon through the chair, is not a productive way to do that. If you want to antagonize one another, these are the kinds of things that drive people nuts. I do have a very good memory, and I do know that that process worked. Perhaps members opposite may want to reconsider their approach.
I think this motion is excellent. It will place a bit more pressure on our and the other ministers of finance, who are our partners when it comes to the Canada pension plan, or CPP.
When I spoke with public servants from the Department of Finance, I understood that there must be an agreement. A change must be made and the change must be approved by the majority of finance ministers because it's a new type of plan. It's an enhancement of the CPP.
For me, it's extremely important to protect women and ensure equality. I know you recognize this as well. I greatly appreciate your party's contribution to the House of Commons. I think many others also appreciate it.
This doesn't take away anything from what you did. However, this motion will certainly proceed more quickly. Ultimately, I don't want the Minister of Finance to leave next week without the matter having been dealt with by the committee.
It's very important that this subject matter be treated as soon as possible. At the end of the day, I don't want the finance minister ending up in this meeting with the other finance ministers and not having a certain level, not only on ourselves as a government, but also on all our partners in the provinces, to ensure that all of them know that this is important, that it was talked about in Parliament, that there is a motion on the floor, that the Liberal Party, the NDP, and hopefully the Conservatives, are all behind this idea of equality for women and for people with disabilities. This is a change that we'd like to see, and done in a good way.
I'm very supportive of this, and I appreciate Ms. O'Connell and her hard work in trying to get this together.
The clerk indicates to me that the worst-case scenario is we could distribute the recommendations in both official languages Wednesday, as soon as they're available, so that we would have them to discuss on Thursday.
I've been talking to a number of people about this. It's too bad we can't find a meeting soon where we can discuss the whole process of pre-budget consultations. We ran the time frame. It's what's in legislation, I guess, but the Library of Parliament worked nights to no end to get their document together. We didn't have the document for our own review to do recommendations. It's not their fault; it's ours.
I think we really need to talk about this and how we do pre-budget consultations. Whether they're too big or whatever, I don't know, but we really need to refine this thing so we're not stressing people out in the process, so that we have time to do our own work and the Library of Parliament has time to do theirs, and so the clerk's not run off her feet, too. We need that discussion.
What would be the deadline to have them in both official languages, then, if we're to go with that?