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Hassan Yussuff
View Hassan Yussuff Profile
Hassan Yussuff
2021-06-01 11:12
Thank you, Chair.
First let me thank the committee for the opportunity to present to you today.
I represent the Canadian Labour Congress, Canada's largest central labour body in the country, and it speaks on national issues on behalf of three million working men and women from coast to coast. The CLC, of course, supports Bill C-253, and I want to thank the members who voted to advance this bill.
For years, the CLC has advocated changing the bankruptcy laws in our country. Workers and pensioners should be first in line, not last, when it comes to paying creditors. Workers pay for their defined benefits, pensions and other post-retirement employment benefits by deferring part of their compensation. Employers have a legal obligation to pay these promised pensions in retirement. It is totally unacceptable that earned benefits are taken away from pensioners, through no fault of their own, at a time in their lives when they are least able to adjust. Pensioners cannot simply go back to work when their pensions are cut. They need the post-retirement drug coverage and benefits that they have earned through working for a lifetime.
This tragedy has gone on too long. It has occurred too often. It cannot go on any longer. It is time to fix this problem.
The insolvency process is rigged against working people. The recent Laurentian University example shows how small unions are isolated and besieged by CCAA proceedings. Workers are threatened with devastating job losses unless they agree to make deep concessions to wages, pensions and benefits.
The CLC believes that public institutions should be excluded altogether from the CCAA and the BIA. The federal insolvency laws are meant for commercial corporate reorganizations. They were never meant to provide cover for provincial governments that refuse to live up to their fiscal obligations and expect workers and pensioners to pay the costs. The CLC would prefer that the claims of workers and pensioners be moved to the front of the line, as Bill C-253 seeks to do.
If there is no consensus to do so, the CLC believes that all parties should consider granting pensioners' and employees' claims the status of “preferred claim”. This would place them immediately behind the secure creditors in priority of claims, but ahead of unsecured creditors. We believe that treating employees' claims as preferred claims will materially improve outcomes for workers and pensioners.
However, getting the data to establish this is not easy. Currently the data is controlled by the big accounting firms—especially Ernst & Young, KPMG, Deloitte and PricewaterhouseCoopers —that act as monitors in CCAA proceedings and trustees in bankruptcies. There is a clear public policy purpose for making this data available for researchers. We are seeking aggregate anonymized data for large business insolvencies in which pension deficits are involved. We are not seeking commercially sensitive data. In our view, the superintendent of bankruptcy should be required to obtain this data from monitors and make it available to researchers.
We also recommend that the federal government conduct a feasibility study to establish a national mandatory pension insurance scheme for Canada. This study should form the basis of discussions with the provinces to establish a national scheme to rescue stranded pensions.
Finally, the government must stop company executives from enriching themselves and shareholders when there is a serious pension deficit.
The 2017 Sears Canada CCAA filing and liquidation was an outrage. Beginning in 2010, Sears paid $1.5 billion to shareholders in dividends and share buybacks. By doing so, Sears paid five and a half times more to its shareholders than it would have cost to entirely erase the deficit in its DB pension plan. Sears' decision in 2013 to pay a $500-million dividend when the pension deficit stood at $313 million would alone have been enough to eliminate the deficit. Instead, Sears Canada pensioners outside of Ontario were forced to accept cuts in benefits. This is a profound injustice. It should never be permitted to happen again.
Thank you very much. I look forward to any questions that committee members may have.
I wish all the best to you.
View Scott Duvall Profile
NDP (ON)
Thank you.
One of the things that Mr. Yussuff said—and I feel it's outrageous that this could actually happen—is that when Sears paid $500 million to dividends in 2013, they still had a $313-million pension deficit. How can we prevent companies from doing this in the future? They're the ones that plan going into CCAA. How do we stop this paying of dividends when there is a huge debt in the pension fund?
Maybe Mr. Lemieux wants to answer.
Dominic Lemieux
View Dominic Lemieux Profile
Dominic Lemieux
2021-06-01 12:24
This amounts to taking money out of our pensioners' pockets and redistributing it to shareholders, who are well off, for the most part.
I would come back to my initial proposal. First, Bill C‑253 has to be passed. In addition, the provinces have to ensure that pension funds are 100% funded. It is indecent for a company to give money to its shareholders when it is not paying its contribution to the pension fund. That is the same thing as me, as a head of household who is about to retire, being in debt and my credit cards being maxed out, but deciding to head south for two weeks. It would make no sense to leave my children like that, in a vulnerable position. Well, that is exactly what we allow, in Canada: taking money from pensioners' pockets, from the most vulnerable people, and distributing it to company shareholders.
View Ted Falk Profile
CPC (MB)
View Ted Falk Profile
2021-05-17 13:27
Thanks, Mr. Chair.
That is a lot of money, but it's over 38 years, so I appreciate that.
Has the calculation been done on that amount of money to find out whether it is actually fair compensation for royalties related to the oil and gas sector?
Samuel Millar
View Samuel Millar Profile
Samuel Millar
2021-05-17 13:27
The amount for the payments is tied to the expected dividends that Canada would receive from its part ownership in the Hibernia project. It's tied to the equity share in the Hibernia project, rather than to an amount that would be collected from royalties through the production of oil and gas.
Samuel Millar
View Samuel Millar Profile
Samuel Millar
2021-05-17 13:28
I'm not entirely sure I can answer the question as posed. The amount is tied to the specific equity share in this project and to the dividends that were expected from it over that period of time.
View Wayne Easter Profile
Lib. (PE)
Thank you all.
We'll move on to part 1(t), “extending the income tax deferral available for certain patronage dividends paid in shares by an agricultural cooperative corporation to payments made before 2026”.
On that one, I forget the explanation from the other night. Can somebody give me a little bit of an explanation? What's the intent here?
Trevor McGowan
View Trevor McGowan Profile
Trevor McGowan
2021-05-13 17:38
Agricultural co-operatives can pay patronage dividends to their members. This would extend an income tax deferral on the amount of any patronage dividends received until the time that the shares are exercised.
The specific issue is that when these agricultural co-operatives pay patronage dividends to their members, that can carry with it certain immediate tax consequences, absent this deferral in the act. These co-operatives were having to pay amounts out to their members so that they could satisfy the tax liability that came along with the patronage dividends, which were causing cash-flow issues for these co-operatives.
What this measure would do is extend, in respect to eligible shares issued before 2026, an existing temporary deferral that allows those immediate tax consequences—taxation, basically—to be deferred until the disposition of the shares. It helps co-operatives with their cash flow.
View Peter Julian Profile
NDP (BC)
Thank you very much, Madam Freeland. Yes, I want to get back to other questions. I'm taking your answers as “no”, for the moment, on both.
On the wage subsidy, it is very controversial. Billions of dollars have been misused for dividends, stock buybacks and massive executive bonuses. The government has acknowledged that by kind of putting in place something for June 5 that doesn't include dividends and doesn't include stock buybacks, and yet the government has been saying all along that money should not be used for dividends, stock buybacks and executive bonuses, that the money should go to the workers.
My question is very simple and twofold. First off, will the government insist that a company that has laid off its workers and paid dividends and executive bonuses pay the money back?
Second, we wrote to you on January 5 asking for the full list of amounts that companies have received under the wage subsidy. Will you release those amounts so that Canadians can actually judge for themselves how the wage subsidy has been distributed?
View Chrystia Freeland Profile
Lib. (ON)
Thank you, Mr. Julian, and Mr. Chair.
Mr. Julian, let me start by emphasizing what from my perspective is the most important reality about the wage subsidy, which is that this program has allowed literally millions of Canadians to continue to be employed, 5.3 millions across the country.
There are 621,000 jobs, Mr. Julian, in your province of British Columbia that have been supported by the wage subsidy. That's important for two reasons. These are people who continue to have an income, and they are people who continue to have a job. Maintaining that connection to your employer is absolutely essential. It is something that only the employer can help do. It's not something the government can do. That's why for us providing support that would keep people having an income and keep them connected to their jobs was absolutely essential, and the disclosure requirements for the wage subsidy were detailed in the initial wage subsidy legislation, which all parties supported.
View Andrew Scheer Profile
CPC (SK)
This year, on March 31, Canada Mortgage and Housing Corporation, CMHC, announced a special dividend payment of $3.5 billion to the Government of Canada; that is, a transfer from CMHC directly to the Government of Canada. This means the premiums of those first-time homebuyers, who are low- and middle-income Canadians who can't afford to put more than 20% down on their mortgage, went to pay a $3.5-billion dividend to the government. Is that correct?
Romy Bowers
View Romy Bowers Profile
Romy Bowers
2021-05-11 11:56
It is correct that in March of this year we issued a special dividend. The circumstances for that dividend were quite unique. Typically, we issue dividends on a quarterly basis, as do many commercial entities, based on the revenues we earn from our commercial businesses. With the onset of COVID over a year and a half ago, we suspended our dividend because of the uncertainty of the economic conditions, so that we could preserve capital in the event of unforeseen circumstances. During this period, our revenues accumulated and our capital levels accumulated as well. We chose to issue a dividend as economic conditions became better with the alleviation of some of the COVID pressures, and that's the reason the dividend was a large amount.
View Andrew Scheer Profile
CPC (SK)
It says here on CMHC's website that that quarterly dividend is $250 million, so that's exactly a billion dollars a year if it's $250 million a quarter. That's off the backs of premium payers. That special dividend that goes into the government's coffers is directly on the backs of low- and middle-income Canadians and, as you just mentioned, first-time homebuyers. The federal government has scooped up the profits made on the backs of hard-working first-time homebuyers. Is that correct?
Romy Bowers
View Romy Bowers Profile
Romy Bowers
2021-05-11 11:58
It is correct that we pay about $250 million in dividends on a quarterly basis, and that's a result of the risk-based premiums that we charge for our mortgage insurance and securitization businesses. That's in line with the mandate that we have to support financial stability as part of the National Housing Act. We are also bound by the dividend framework that implicates all financial Crowns, and we make an effort to make sure that any excess capital or revenue that we earn is returned to our stakeholder, the Government of Canada.
View Matthew Green Profile
NDP (ON)
In testimony, we heard that there was information, and that CRA had at its disposal tools to monitor the reasonableness of applications as they relate to the wage subsidy. In an Order Paper question, I asked about the CRA's decision to temporarily suspend, as of March 2020, the programs and services for high-risk audits, including international large businesses, high net-worth compliance, GST of large businesses and so on.
In other committees, you've heard me, Ms. Hogan, reference the $120 million of subsidies that Imperial Oil took, and the $300-plus million it paid out in dividends. I've tried to find a rationale to that, and I have had some challenges.
In ESDC's policy development and program design, is it your opinion that it adequately had analysis around the inevitability of companies taking the wage subsidy and paying it out in dividends?
Karen Hogan
View Karen Hogan Profile
Karen Hogan
2021-04-26 16:54
I want to confirm that I have the question correct, because you referenced Employment and Social Development Canada. It was not involved in the wage subsidy program; it was involved in CERB.
View Kelly McCauley Profile
CPC (AB)
I recognize that, but you mentioned they did an analysis regarding.... I think Mr. Green was referring to payouts for dividends, etc., companies receiving subsidies but still paying out dividends. You mentioned that finance did an analysis to come up with the wage subsidy or recommendations for it.
Are you aware if ESDC followed such recommendations, or did they just create it out of the blue without the feedback from finance?
Karen Hogan
View Karen Hogan Profile
Karen Hogan
2021-04-26 17:08
The Department of Finance provided advice on the design of the program and advice that informed the policy—
Karen Hogan
View Karen Hogan Profile
Karen Hogan
2021-04-26 17:08
The advice that informed the policy decision.... Once the policy was in place, then Canada Revenue Agency rolled out the program in accordance with the policy.
View Matthew Green Profile
NDP (ON)
Thank you.
I deeply appreciate the interventions of my friend Maxime from the Bloc, which laid out all the information that was withheld and the secrecy in the way this analysis was made. I'll go back just to reiterate for the people who are tuning in.
You have stated in paragraph 7.8 that the Department of Finance performed a partial analysis of the initial design of the subsidy program, but then you said it later provided a sound and complete analysis to inform the adjustments to the subsidy. We heard Mr. Sabia talk about the rapid way in which they had to respond, yet you've laid out that you were unable to provide Parliament with details of these analyses because they were in secret, and cabinet documents must be kept in strict confidence.
The challenge that we have before us as a committee undertaking this audit is that we have to have, I think, reasonable access to information to know exactly what it is that is before us.
I'm going to frame just a little bit further that in paragraph 7.9 you stated through the Auditor General that there were prepayment controls that were implemented to ensure that payments were appropriate. You used an example that the agency did not have up-to-date earnings or tax data or sub-annual data or any kind of starting points throughout the year and that you did not have all the information you needed to validate the reasonableness of the applications before payments were issued.
I'm going to put this question through you, Madam Chair, to the Department of Finance, to Mr. Sabia, whom I missed in the last session of our audit on the CERB. I brought up some important questions in relation to the push-and-pull economics of what we were providing to people to stay home safely versus what the labour market demanded.
Did your department have discussions about mandating that any businesses receiving the wage subsidy would not be allowed to engage in stock buybacks, pay dividends or pay CEO wage bonuses?
I'm not asking you to reveal any kind of secret cabinet stuff. I just want to know if you had discussions about that in your analysis. You don't even have to give me the results. I just want to know, Mr. Sabia, whether you considered it.
Michael Sabia
View Michael Sabia Profile
Michael Sabia
2021-04-22 11:47
Madam Chair, I'm going to give Mr. Green a two-part answer. I'm going to make a couple of comments and then I'm going to ask my colleague, Andrew Marsland—
Michael Sabia
View Michael Sabia Profile
Michael Sabia
2021-04-22 11:48
I would say that a focus of this whole program has been maximizing the scope and reach of the program. Therefore, there was at the time, I think, very much a focus on keeping this as simple and broad as possible, because the objective was to help as many Canadians as possible, which I think the program is succeeding in doing, and to help as many Canadian businesses, particularly smaller businesses, and particularly in some heavily—
View Matthew Green Profile
NDP (ON)
Through you, Madam Chair, sir, those are talking points. I need to know whether you had discussions about stock buybacks, dividends and CEO bonuses. If so, did you make a recommendation to cabinet? You don't have to tell me what the recommendation was, but I need to give you an example. This program provided $120 million in public money to Imperial Oil and then let them pay out $324 million in dividends to their rich shareholders. I need to know, in terms of your reasonableness for the applications, whether you provided cabinet with recommendations on the dividends and the bonuses.
Michael Sabia
View Michael Sabia Profile
Michael Sabia
2021-04-22 11:49
Mr. Green, you know very well that this kind of work, those kinds of discussions and that advice to ministers and to an elected government.... The way our system works is that to keep that advice robust and open, those are cabinet confidences. I think you understand very well—
View Matthew Green Profile
NDP (ON)
Through you, Madam Chair, how do you use the terms “robust” and “open”? We're in the public accounts committee dealing with an audit and we don't have basic information on the analysis by the government on how this came to be.
I'll give you an example. We're talking about Main Street versus Bay Street here. I have a whole community of businesses on Locke Street in my community whose 2019 revenues were dramatically reduced, and due to all these infrastructure programs they can't adequately show their losses and they didn't qualify for anything. One in five businesses in my city are not renewing their business licence. That is the reality and the of the small businesses that are trying to weather this storm.
I need to know whether the Department of Finance had, in its analysis, any thought around the way in which the major corporations of this country absolutely, in my opinion, bilked taxpayers on this program.
View Matthew Green Profile
NDP (ON)
Once again, was a recommendation made that included an analysis in keeping with.... You don't have to tell me what the recommendation was, but did your department at least consider that corporations like Imperial Oil could take $120 million and pay out $300 million-plus dollars in dividends?
Michael Sabia
View Michael Sabia Profile
Michael Sabia
2021-04-22 11:50
Through you, Madam Chair, Mr. Green, again, you understand the rules under which our system works and the provision of advice. Therefore, to respect those rules and indeed the law with respect to confidences of the Queen's Privy Council, those are not details we can enter into. If you have an issue with that—which you seem to, and which is fair on your part—then I think asking us that question is obviously....
We always operate in a way that respects those rules and respects the law. If that law or those rules need to change, then that's an issue, I think, sir, for you to take up with the government of the day.
Trevor McGowan
View Trevor McGowan Profile
Trevor McGowan
2021-03-11 17:54
Thank you.
I'd like to build upon what my colleague Shawn has already said about the context of the anti-surplus-stripping rules in section 84.1 and the intended purpose of the proposed amendment in Bill C-208, and then discuss how it would apply, looking at the specific legislative proposal.
I'll skip ahead to clause 2. I will mention clause 1 a little bit later, but clause 2 is the one that really deals with intergenerational transfers. It applies where a parent transfers shares of a corporation to a corporation controlled by their child or grandchild. There's a fairly simple trigger for that relief to be provided when it applies. That is the deeming of the purchaser corporation to not be dealing at arm's-length, which effectively turns off the anti-avoidance rule in section 84.1.
The difficulty or some of the challenge with the measure in the bill is how precisely targeted it is to get at what you'd think of as a real intergenerational transfer of a business. Of course, it deals, as I said, with the transfer of shares of a corporation owned by a parent to a corporation controlled by the child. It does not intrinsically deal with the real transfer of the business that is being carried on.
That level of abstraction from the actual business—where a parent wants to hand it over to their child or to their grandchild, so they can carry it on, keep it going, continue building it and continue running the business—is not directly provided in the bill due to this abstraction, just looking at transfers of shares going from one to another. It's that lack of precise targeting that I think we want to highlight as being a concern with the measure.
I could provide a few more details on that. In particular, the rule doesn't require the child, after the transfer, to be involved in the business in any way. It doesn't require the parent to cease to be involved in the business after the transfer of the shares. In fact, the parent could simply wind up the business right after the transfer.
There is a requirement that the purchaser corporation that gets the transfer shares be legally controlled by the child at the time of transfer. “Legally controlled” is generally defined for tax purposes to mean that the child could elect a majority of the board of directors. However, it does not prevent the purchaser corporation from being factually controlled by the parent. Likewise, it doesn't provide that the child will necessarily have any economic exposure to the shares being transferred. In fact, it does not require the child to retain ownership of the purchaser corporation after the transfer.
The requirement that shares be transferred to a purchaser corporation controlled, at the time of transfer, by the parent, is somewhat abstract, but I think it's worth noting the points of departure between that and what you'd normally consider to be a real transfer of a business to a child.
Why do these matter? They matter because while it is generally described as facilitating an intergenerational transfer in certain cases that Shawn set out—basically a transfer of shares to a corporation owned or controlled by the child—it would also open the door to facilitate tax planning, generally for high-net-worth individuals.
Shawn was mentioning the tax rate differential between capital gains and dividends in this anti-surplus-stripping rule. That's at the heart of it. In particular, as Shawn said, for a top-marginal-rate individual in Ontario, that might be the difference between around a 47% tax rate on dividends going down to a tax rate of 26% or so on capital gains.
Likewise, if the parent is able to access the lifetime capital gains exemption, as they would with some fairly simple planning, it could drive their tax rate down to zero. They would effectively be able to extract retained earnings from the corporation they control and continue controlling the corporation, continue running the business. The child need not necessarily have any involvement in the business after the transfer. To the extent their lifetime capital gains exemption is available, their tax would go from, again, for a top-rate Ontario resident—just to use as an example—47% down to nil.
Even in circumstances where a lifetime capital gains exemption is not available, say either because it's already been used up or because the corporation that carries on the business has more than $15 million in taxable capital—as I understand, a component of the rules would provide a grind to prevent a lifetime capital gains exemption from being accessed for larger companies—you would still have a rate delta, as Shawn said, of around 20 percentage points.
That is obviously going to be the most valuable for high-net-worth individuals who are subject to the top marginal tax rates and for individuals who want to extract a sizable amount of money from their corporation, such that the tax savings would be enough to more than offset the transaction fees of putting these kinds of complex arrangements into place.
I'd be happy to walk the committee through exactly how these transactions can be structured. The gist of it is that the parent has shares of a corporation, transfers them to a child or a company owned by the child in exchange for a promissory note. The parent's company pays the child's company an intercorporate dividend, which of course is tax free, and that dividend is then used to repay the promissory note that was used to purchase the shares. In that way, the money gets out of the corporation; you have a capital gain if the anti-avoidance rules of section 84.1 don't apply; and the individual is able to, instead of paying dividend rates, pay the much lower capital gains rates or nil if the lifetime capital gains exemption is applied.
That, hopefully, gives a bit of a flavour about the slight disconnect in the rules. When we look at the legal form of a transfer of shares by a parent to a company owned by their child, there's that bit of a factual disconnect between that and the real bricks-and-mortar transfer of an actual business to their child that the child continues to carry on.
I had mentioned earlier that I wanted to touch on clause 1, as it is different from clause 2. Clause 2 relates to intergenerational transfers and provides an exception for the anti-surplus-stripping rule in section 84.1. Clause 1 doesn't really relate to intergenerational transfers of a business. Rather, it relates to a different anti-avoidance rule, but it relates to siblings.
Just like for an individual moving from a dividend rate down to a capital gains rate means a tax savings, for corporations, transfers between corporations, if they can essentially transmogrify or change a capital gain into a dividend, intercorporate dividends are generally not subject to tax and so they're able to avoid tax in that way. That's what's called capital gains stripping generally. Section 55 is an anti-avoidance rule intended to prevent that.
There are a couple of important exceptions. One of them is that if you have a corporate reorganization between related parties, then you can move amounts around among your corporations. As long as it's all in the same group, there won't be any negative tax consequences.
This measure would allow siblings to escape the application of the anti-avoidance rule in section 55. As a result, one sibling would essentially be allowed to transfer their stake in the business to the other sibling without triggering this anti-avoidance rule that could result in capital gains treatment. It would provide a tax deferral on that sort of transfer between siblings. Again, it's not intergenerational and is dramatically different, which is why I did it in that order. I hope that provides a bit more of a flavour of what clause 1 does.
That, I think, provides a bit of an overview of the bill and some of the observations that we at the department have made about its technical operation. Shawn and I would be happy to answer any questions you might have.
View Brad Vis Profile
CPC (BC)
That would be very helpful because I found it odd, given how much we know indigenous people don't have adequate housing, that CMHC paid dividends to the federal government.
Ben Segel-Brown
View Ben Segel-Brown Profile
Ben Segel-Brown
2021-02-16 17:50
I guess I would clarify that there are separate business lines, so the dividends don't arise from the assisted housing programs. The assisted housing programs are funded by appropriations from the Government of Canada, so they're not using the profits from their mortgage insurance business to cover the cost of assisted housing programs.
View Nathaniel Erskine-Smith Profile
Lib. (ON)
Mr. Ghiz, I don't want to put you entirely on the spot, but I did read recently in the Financial Post that Rogers and Telus received, I think it was $63 million, from the wage subsidy but then Telus paid out dividends. That makes me uncomfortable.
Does it make you uncomfortable?
Robert Ghiz
View Robert Ghiz Profile
Robert Ghiz
2020-12-08 11:50
I can't answer questions about individual member of our association.
Nonetheless, I believe you were at the committee hearing the other day when the chair of the CRTC, Ian Scott, was there. He talked about how our industry has stepped up to put out programs to help individuals and customers, as well as companies, in health care and governments, during COVID-19. So our industry did respond to some of the issues out there.
View Matthew Green Profile
NDP (ON)
Could you comment quickly on how Canada seemed to be an outlier, relative to the European market, in that it provided a significant bailout to banks without the requirement that they stop dividend payments?
Yves Giroux
View Yves Giroux Profile
Yves Giroux
2020-12-02 17:52
I don't think there were that many restrictions imposed on corporations, banks or otherwise, when receiving financial assistance, loans or grants from the government. I'm not aware that there were that many restrictions, if any at all, compared to other jurisdictions that did impose some more stringent requirements. I'm not aware that there were any conditions or—
View Matthew Green Profile
NDP (ON)
It's just straight economics. It doesn't even have to be.... I mean, I think any economist would look at it and say that, if you're taking taxpayer dollars and giving them to big banks and then allowing them to send them out in the way of dividends, that, too, is super-problematic economic theory. Can you answer that very quickly?
Yves Giroux
View Yves Giroux Profile
Yves Giroux
2020-12-02 17:53
That certainly raises questions as to the need for government subsidies in the first place, if a corporation turns around and pays a dividend.
Corinne Pohlmann
View Corinne Pohlmann Profile
Corinne Pohlmann
2020-11-17 12:02
Thank you for the opportunity to be here today. I'll be focusing my remarks on the impacts of COVID-19 on female entrepreneurs. I'll be walking you through a slide deck that I hope you all have in front of you.
Right away, I want to talk a bit about CFIB. It's a not-for-profit member-based organization that represents the interests of independently owned Canadian companies. Our 110,000 members come from every sector of the economy and are found in every region of the country.
During COVID-19, CFIB has been very active. Our help line call volumes tripled, with small business owners looking for information to help them get through the crisis. We've also undertaken regular surveys since the beginning of the pandemic to determine how small businesses are doing and how well government programs are working, and I want to share some of that with you today.
If we move to slide three, I want to start with how small businesses are doing right now.
As of early November, 66% of small businesses were fully open, 42% were fully staffed, and only 28% were at normal sales, all of which has actually decreased since October as more jurisdictions impose further restrictions. The bottom line is that this pandemic remains a significant challenge for many small businesses.
As you can see on slide four, small businesses are not homogeneous. About 30% have been in business for 10 years or less, and 96% have fewer than 50 employees. Just under one in two small businesses are owned by men, almost one in four are owned by women, and 28% have multiple owners, which might have a combination of genders.
Slide five looks at the share of ownership by gender, with 23% of firms being either entirely or majority owned by women and another 28% owned equally by women and men. This means that around 50% of businesses have women playing some type of role in the ownership.
Female business owners are also more highly represented in certain sectors, such as social services, enterprise and administration management, retail, professional services and personal services. In addition, as you can see on slide six, women-owned businesses also tend to be newer and smaller than their male counterparts, which might also explain some of the additional challenges they have faced.
As you can see on slide seven, those challenges are substantial. Only 63% of female-owned businesses are fully open, which is 10% less than male-owned businesses. Just 35% are fully staffed, which is 13% less than their male counterparts, and only 24% are back to normal sales, which is 8% less than men-owned businesses.
As you can see on slide eight, most small businesses are worried about the uncertainty around a second wave, and about two-thirds worry about the economic repercussions. About half are worried that consumer spending will be reduced even after COVID, and a similar number are worried about their business cash flow, the physical health impacts and their growing debt.
When we dissect the data further, you will see on slide nine that female-owned businesses are much more likely to be worried about consumer spending being reduced even after COVID, about their mounting debt, about their business cash flow, and about dealing with overwhelming stress than their male counterparts. Clearly, female entrepreneurs could use some financial and emotional support.
When it comes to financial support, as you can see on slide 10, female-owned businesses are more likely to need rent relief, and getting that relief significantly increases their odds of staying open. This is why the new Canada emergency rent subsidy needs to be implemented as soon as possible.
As you can see on slide 11, the Canada emergency wage subsidy tends to be more heavily used by more established firms. As female-owned businesses are more likely to be newer and smaller, we can assume they are probably not using the wage subsidy quite as much, and they are more likely to have used the Canada emergency response benefit to help themselves get through the tougher periods of the pandemic. It was also sometimes the only financial support many very small and newer business owners could get.
Quickly, in summary, before I get to some recommendations, female-owned businesses are more likely to be smaller and newer businesses, which also tend to be the businesses that are more likely to fall through the cracks of the various emergency relief programs, so it really should be no surprise that they also tend to be more worried about their businesses, and with good reason. The data tells us that they are less likely to be fully open, have normal or better revenues, be fully staffed or be able to pay their rent.
To help these entrepreneurs weather the storm, we need to make adjustments to the various emergency relief programs. First, we need to expand all emergency support programs to include microsized and newer firms, as this will likely help more female-owned businesses and also those that are owned by visible minorities.
For example, the Canada emergency business account loan requires a smaller company with less than $20,000 in payroll to submit documents showing they have more than $40,000 in non-deferrable expenses. The problem is that the application process is complex and some of the rules make it very difficult to comply. It needs to be simplified and made more flexible.
Second, as rent tends to be a more important expense to female-owned businesses, government needs to introduce the Canada emergency rent subsidy immediately, as December 1 is not that far away.
It would also be important for government to look at providing 50% of rent retroactively to those who qualified under the old rent program but did not get relief, as their landlord did not apply. Those businesses have likely accumulated a lot of debt and deserve to be provided with some assistance to help them through.
Third, even though women entrepreneurs are less likely to use the wage subsidy, it is still the most generous program being offered to small businesses. We want to make sure it is accessible to those who really need it. For example, many small business owners pay themselves in dividends, so they're not able to include their own income in the wage subsidy, nor can they use their dividend income to get CEBA. These programs should allow at least some dividend income to be included.
We would also suggest that the new lockdown support, which allows businesses to get up to 90% of their rent covered if they are forced to shut down due to a public health order, be expanded to the wage subsidy. Businesses want to hold on to their staff, and if they must close, they may have no choice but to let them go. Increasing the wage subsidy to 90% during these periods may help many more hang on to their staff until they can open.
Finally, I just want to mention something that is starting to emerge with seasonal businesses. They're now in their low season and may no longer have the revenue losses they did during the summer, but their needs have not changed. Without having made their usual higher revenues during the high season, it will be difficult for many of them to get through to next year. Finding some alternative ways for them to illustrate their circumstances in order to get a higher wage subsidy would be welcome.
There are many more ideas, but I will leave it at that for today. Thank you for your attention. I look forward to answering any questions you may have.
View Tracy Gray Profile
CPC (BC)
Great. Thank you, Minister.
I heard through Export Development Canada that they were instructed not to pay the government the yearly dividend this year as is obligated for Crown corporations. Would you say that was accurate for this year?
View Nathaniel Erskine-Smith Profile
Lib. (ON)
Mr. Medline, you have indicated that all resources have been put into your teammates. Your company has described them as family members. Describe the recent increase to shareholder dividends and how that accords with what you described to this committee in relation to putting all of the resources into your teammates, family members and your essential workers.
Michael Medline
View Michael Medline Profile
Michael Medline
2020-07-10 15:41
We have a lot of stakeholders. We have to do everything we can for our teammates. We put every penny we could and every effort we could into the safety and health of our teammates. In fact, I was on a call with Chinese and Italian grocers early on in the pandemic, heard about plexiglass and put plexiglass in without knowing how much it was going to cost.
In terms of why we pay dividends, it's because ordinary Canadians count on those dividends to retire and to put their kids through school. There's a balance, but teammates, as you said—and you quoted me there—are so important.
View Nathaniel Erskine-Smith Profile
Lib. (ON)
Correct me if I'm wrong, but you paid just over $100 million in pandemic pay, additional pay. What's the number represented by the increase in shareholder payout?
Michael Medline
View Michael Medline Profile
Michael Medline
2020-07-10 15:42
The increase in dividends was four cents per quarter. I'd have to do the math. I'll send it to your office.
View Alain Rayes Profile
CPC (QC)
Mr. Chair, one month ago, the Prime Minister announced with great fanfare that the eligibility criteria for the $40,000 emergency loans for businesses would be more flexible to help self-employed entrepreneurs and businesses that pay themselves dividends to have access to them.
However, as of today—it has been four weeks since that announcement—businesses are still banging their heads on the doors of their financial institutions. They do not have access to the information because it is not available on official websites. In addition, even senior officials confirmed to me during a technical call on June 2, last Tuesday, that this information would not be available for several weeks.
Can the Minister of Finance, who says he wants to act quickly to help our businesses, explain why, after four weeks, it is still not possible to get the information the Prime Minister promised us from his doorstep?
View Mona Fortier Profile
Lib. (ON)
Since the beginning of the COVID-19 pandemic, we have been listening and responding to small businesses and entrepreneurs across the country.
In fact, we have even announced the expansion of the program's eligibility criteria to include many owner-managed small businesses with payrolls of less than $20,000. The new criteria have forced financial institutions to adapt to be able to provide this program to new applicants.
We are working around the clock to ensure that we are able to promptly provide small businesses across the country with the assistance they need.
View Joël Godin Profile
CPC (QC)
Mr. Chair, on May 19, the Prime Minister announced during his daily press conference that his government would take additional measures to help businesses that still needed assistance. The Prime Minister said that he would expand the Canada emergency business account, or CEBA, to include family-ownded SMEs that prefer dividend income over salary income.
More than two weeks after his announcement, SMEs are still waiting for this promise to be fulfilled. I'd like to remind the government that this isn't an election campaign. We're in a crisis, and urgent action is needed.
When will the program be fixed?
View Mary Ng Profile
Lib. (ON)
Mr. Chair, I thank the honourable member for that really important question. Indeed, those small businesses he has described are very important to our country.
As of now, over 650,000 small businesses have accessed the Canada emergency business account. The member is absolutely right that we need to make sure that additional support is provided to those additional businesses that now qualify. We're working very hard to make sure that support is there for businesses, and very soon they will be able to get that support through their financial institutions.
View James Cumming Profile
CPC (AB)
Thank you, Madam Minister, for being here today.
I want to see if you can give me an answer to a question that I've been asking related to the CEBA program and the changes that have been made so that entrepreneurs who are sole proprietors or get paid through dividends can realize on these loans.
When will this be available? They need some certainty. When will this program actually be available for them?
View Mona Fortier Profile
Lib. (ON)
As we have said since the beginning, we have been listening to small businesses and entrepreneurs across the country and we are responding to them. We announced earlier—two weeks ago—an expansion to the eligibility criteria for the CEBA to include many owner-operated small businesses. We will continue to work on potential solutions to help business owners and entrepreneurs who operate through their personal bank accounts or who have yet to file their tax returns, such as newly created businesses.
Thank you very much for sharing that concern that you have.
View James Cumming Profile
CPC (AB)
Unfortunately, “lots” is not an answer for the businesses that I'm trying to talk to.
Can you tell me, for the CEBA changes that were recently announced, when will we be able to see people who have income through a dividend able to apply?
View Mary Ng Profile
Lib. (ON)
That's a very important question, Mr. Chair.
There's nothing more important to me and to our government than getting these supports out to businesses. Those small businesses that will meet the expanded CEBA criteria are working very diligently with the financial institutions to make sure that they can get access to those loans as quickly as possible.
Evan Siddall
View Evan Siddall Profile
Evan Siddall
2020-05-19 15:45
We actually don't expect to absorb our capital. We have a range of stress-testing scenarios that we run, as you will recall, and based on current forecasts, we have sufficient capital on hand. We had a $2-billion dividend that we were scheduled to pay to the Government of Canada. We have decided to withhold that liquidity in order to cover claims.
Amazingly, notwithstanding these numbers, they are forecasted to recover. Even when they're under water, Canadians do a very good job of paying their mortgages, so our loss forecasts are not extreme.
View Marty Morantz Profile
CPC (MB)
With regard to the $2-billion dividend, is that an annual thing? Do you give a dividend every year, or is it unusual?
Evan Siddall
View Evan Siddall Profile
Evan Siddall
2020-05-19 16:29
It's unusual, or it used to be unusual. Over the last 10 years, we've earned about $17 billion of profit that goes to reduce the deficit. That's incorporated into the federal government accounts. Off to the side, we accumulate cash, and if that cash doesn't go back to the government, we'd sit on the cash and invest it. That's dumb, because it can be used to repay debt, so we paid a special dividend—someone will correct me—two years ago, I think, of $4 billion. Maybe it was last year. We were scheduled to pay another $2 billion. In addition to that, we pay a regular dividend, and that's basically just to make sure the money goes to retiring debt instead of sitting in my pockets, if you will.
View Marty Morantz Profile
CPC (MB)
The government would have received a $2-billion dividend, and you've maintained that instead of keeping it for liquidity purposes.
Mr. Evan Siddall: That's correct.
Mr. Marty Morantz: Mr. Chair, I have just one other quick one, if I might.
View Pat Kelly Profile
CPC (AB)
Will the government fix the CEBA program to include businesses that pay owner-operators through dividends?
View Bill Morneau Profile
Lib. (ON)
Mr. Chair, I think the language “fix” is incorrect, for more than 500,000 businesses have received this loan. Of course, we are always endeavouring to make sure it works for as many businesses as possible.
View Paul Manly Profile
GP (BC)
Thank you, Mr. Chair.
I'd like to thank the government and ministers present for the rapid relief that they've provided to Canadians. I know the constituents in my riding really appreciate that. I'd like to thank them also for being responsive to the MPs who have brought forward gaps in the program.
The CERB requirements recognize dividend income for eligibility for the Canada emergency business account, CEBA, but the Canada emergency business account does not recognize dividends or contract payments. I've been contacted by many small business owners who have been legally paying themselves with dividends for years, but these companies cannot apply for the CEBA even though this might save them from bankruptcy during this crisis.
Will the government make the necessary changes to allow dividend income to be admissible for CEBA eligibility?
View Navdeep Bains Profile
Lib. (ON)
I'd like to thank the honourable colleague for his very thoughtful question and his advocacy in looking for different solutions and in working with us to help small businesses, not only in his riding but across the country as well.
He's absolutely correct that the Canada emergency business account has been successful, as 590,000 loans have been issued. That's a reflection of some of the changes that we introduced, which made the criteria more generous so that more businesses could obtain assistance.
He has raised the issue of dividends. As I said before, we continue to work with Canadians and Canadian businesses and colleagues in this House to see how we can assist more Canadians, not less of them, and we'll continue to endeavour to do that.
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