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Results: 1 - 15 of 18
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.
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 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.
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.
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