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Results: 16 - 30 of 71
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.
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