Proceedings of the Standing Senate Committee on
National Finance
Issue 14 - Evidence - Meeting of May 9, 2007
OTTAWA, Wednesday, May 9, 2007
The Standing Senate Committee on National Finance, to which was referred Bill C-294, to amend the Income Tax Act (sports and recreation programs), met this day at 6:35 p.m. to give consideration to the bill.
Senator Joseph A. Day (Chairman) in the chair.
[English]
The Chairman: Honourable senators, I call this meeting to order. This committee's field of interest of government spending, either directly through the estimates or indirectly through bills that provide borrowing authority or bear upon spending proposals identified in the estimates.
Today we begin consideration of Bill C-294, to amend the Income Tax Act (sports and recreation programs). This private member's public bill was introduced in the House of Commons on May 17, 2006, by Mr. Brian Fitzpatrick, M.P. The bill was referred to our committee on May 2, 2007.
It is my pleasure to welcome before our committee this evening the sponsor of the bill. Mr. Fitzpatrick was first elected to the House of Commons to represent the riding of Prince Albert, Saskatchewan, on November 27, 2000. He has been re-elected twice since then. Presently, in addition to being a member of Parliament he is the Saskatchewan Conservative Caucus Chair and the vice-chair of the House of Commons Standing Committee on Public Accounts.
We also have the government officials here, but I think we will proceed with Mr. Fitzpatrick. You could tell us about the bill and then we may have some questions.
Brian Fitzpatrick, M.P., sponsor of the bill: Although my riding is Prince Albert, I have been a resident of a town in the riding called Nipawin, which has about 5,000 people. It has been in the Saskatchewan Junior Hockey League, and I was heavily involved with this kind of operation in my previous life. I practiced law in that town for close to 25 years and I was a volunteer and a helper in that hockey operation.
Basically, the history of the matter is that back in 2001 or 2002, the Canada Revenue Agency did an audit on some of the teams in the Saskatchewan Junior Hockey League. This league has been around almost as long as Gordie Howe and Johnny Bower — some of the people here may remember names like that.
The teams operate in remote communities. Nipawin is three hours from Saskatoon, which is the big city to people in that community. The winters are long. You can watch television every night, but a big part of the culture in our communities is junior hockey.
The province, as you might know, has a rich tradition of producing some really good hockey players. We could create our own all-star team and it would stack up with just about anyone else's team if you wanted to look at positions. This is a big part of our culture in Saskatchewan and for the rural communities.
The audit looked at the billeting costs. The players come into the community and the teams farm them out to homes. They are entrusted by the parents because most of these players are 17 or 18 years old; their aspiration is to get a Division I scholarship in the United States. That is why they are in that league.
They say it is a developmental league; and the league has a rich tradition of doing that. For example, Curtis Joseph went that route, as have many other players from that league. That is what the players do.
To my mind, the parents are entrusting those young men to good homes in our community. The team pays the people who host the players $350 or $400 a month to cover room and board, and I can assure you that this is not a money-making operation for those parents. The players will eat them out of the home with that kind of money. It is a community sacrifice, but one that people are willing to pay.
The tax department deemed that as a taxable benefit. I know there is some confusion over exemptions. People say the income tax exemption is $8,000 or $9,000. That is not the major issue here. The issue is basically that the Canada Pension deductions and the EI benefits start with the first dollar. If the team has an $80,000 budget annually, and you have 22, 23 or 24 players who are billeted out from September to April, when you start doing the math on it, it is not hard to get a figure of $8,000, $9,000 or $10,000 of new costs for these teams.
The teams get 40 per cent to 50 per cent of their revenue from gate receipts. The rest of it is raffles, tickets, volunteer activities, bingos, you name it; and at the end of the year, if they are lucky, the books are balanced. In Saskatchewan, they are all operated on a not-for-profit basis.
The rest of the Tier II Junior A hockey teams across the country have a stake in this issue too and they have become involved with it. I have communicated with all the other leagues and this is a big issue for them. They are not major junior hockey teams; they are not like pro-hockey operations. By and large, most are struggling to make the books balance and to keep something alive in their communities. There are 140 teams across Canada, from Atlantic Canada to B.C.
All I can say is that this is a real hardship to that league, and it has been a major hardship from the day that it happened. They do not ask for grants or assistance from the government. That has not been in their nature in Saskatchewan. Maybe they have received some grants and donations that are universal, but they have not been professional lobbyists in Ottawa trying to get grants to keep their teams alive.
I question the merit of doing this to these teams. Under the Income Tax Act there are many exemptions for culture and the arts. Hockey is our national sport. When I go to Europe and tell people that I am from Saskatchewan, they know about its connection to hockey.
I met Vladislav Tretiak a few weeks ago. Someone told him that I was from Prince Albert, Saskatchewan. I told him that Johnny Bower is from Prince Albert and that Glenn Hall is from Humboldt. Mr. Tretiak knew exactly who they were and said that he learned to be a goaltender by studying good goaltenders such as them.
Hockey is our national sport. This league has never asked the government for any favours. However, now the tax department has ruled that this is an employee-employer relationship. You could argue that in the courts until the cows come home. I have a problem with the determination that that is an employer-employee relationship.
A hundred players come to a training camp in September and many of them find out on the first day that they will get on the bus and head back home. The provincial government does not apply labour standards to this league. I do not understand this ruling.
I want to thank Senator Tkachuk and Senator Mahovlich for supporting this bill. The House passed it unanimously.
The bill is tightly worded. Finance officials were involved in fine tuning it. It is restricted to not-for-profit teams that are registered under the Canada Revenue Agency; it does not include regular not-for-profit organizations. They must qualify in that category.
The bill is restricted to participants in sports programs who are 21 years of age or under. Someone once said that maybe the quarterback of the Winnipeg Blue Bombers could qualify for this exemption. That could not happen unless he is under 21. The clear intent of the bill is to assist amateur athletics. We could perhaps argue about what amateur athletics is. However, professional athletes are nowhere near to being amateur athletes.
The bill is drafted to avoid unintended consequences. If soccer teams, skate clubs, et cetera, meet the criteria and qualify for the benefit of this bill, that is good. We have many problems in society with obesity, type 2 diabetes and young people who are in very bad physical condition. It would be good public policy for the Senate and the House of Commons to be in favour of measures to encourage people to be active.
When I was a kid I went out to the skating rink, the baseball park or the football field and played sports, because I wanted to be Jackie Parker, Johnny Bright, or maybe even Frank Mahovlich. We want to encourage young people.
Sports bring the community together. In Nipawin, we have a diverse community of professional people, business people, Aboriginal people, low-income people, higher-income people and so on. However, when they fill the rink, they are all united cheering for their team. That is a big part of our nation.
The bill provides a small amount of tax relief. Up to $300 per player would be exempt from being determined to be income. For most teams, that would mean not having to sell another $5,000 or $6,000 worth of raffle tickets between now and the fall. I would like those 140 teams to have this tax relief in the fall.
As to the cost of the measure, the people from the Department of Finance said it may cost $5 million at the outside. I would like to know the cost of sending Canada Revenue Agency auditors out to check the books of these teams. This might be a net savings for the taxpayer. I know that the job of the CRA is to enforce the law, and I am not criticizing them. However, I think there are many more important things for the Canada Revenue Agency to be doing than hounding not-for-profit junior teams in Canada.
Thank you for your kind attention, and I will try to answer your questions.
The Chairman: Thank you very much, Mr. Fitzpatrick. Just to clarify your comments, you spoke of Tier II hockey in Saskatchewan. Is this bill a reaction to a ruling by the Canada Revenue Agency that $300 for room and board received by Tier II hockey players was a taxable benefit?
Mr. Fitzpatrick: That is the gist of it. It comes back on the teams. The teams are viewed as the employer, so it is their obligation to collect the money and make the remittances.
The Chairman: Bill C-294 does not talk about hockey players; it talks about sports teams and recreation programs. Can you explain that?
Mr. Fitzpatrick: We could not have a Saskatchewan Junior Hockey League bill. That would not meet the test of how we make laws in this country. I do not want to say that Junior A Tier II hockey is more important than Triple A midget hockey, Junior B hockey, skate clubs, swim clubs or whatever. They are all good. It is good for any organization that is being adversely affected to have the benefit of the bill.
The Chairman: Thank you. This bill, which has received first and second reading in the Senate and is now before this committee, is much broader than you outlined to us.
Mr. Fitzpatrick: There is a fairly short list of people who will relocate for nine months of the winter and so would avail themselves of the benefits of this bill. There will not be a floodgate problem. I checked that out.
The Chairman: Can you share with us a list of all sports teams or recreational programs in Canada for people under 21 years of age?
Mr. Fitzpatrick: Junior football, which allows 22-year-olds, would be off the list. Someone raised university athletics. That is a different matter because they are primarily students getting their education.
The Chairman: Do you have a list to share with us?
Mr. Fitzpatrick: No, I do not. What I have is based on my inquiries and discussions with people and my hockey contacts in trying to identify things. We came up with something like the Olympic programs. The government is far more generous with the Olympic programs than they are with grassroots amateur athletics in the country. On Team Canada, which won the last gold medal, we had three or four players who came through the Saskatchewan Junior Hockey League. They are professionals now and make lots of money but they cut their teeth in that league. If we do not have strong grassroots organizations producing our athletes, then we might be putting our money at the wrong end of the operation. It has to start with the feeder system at the bottom so that we can have a good product at the other end. That is something for the committee to consider.
That league has four or five very successful coaches now in the National Hockey League. James Patrick is the assistant coach of the Buffalo Sabres and I am sure he will be a NHL head coach in the near future. Dave Tippett, with the Dallas Stars, is a graduate of that league. Dave King is a member of the Order of Canada and an Olympic hockey coach. When any of these individuals explains what is going on with Tier II hockey, they simply shake their heads. They cannot believe how we got ourselves in a position whereby these impositions are being placed on these organizations.
When I was a lawyer in Nipawin, every fall 20 professional people would be called into a financial institution. Part of their job was to sign personal guarantees to get the financing in place for that hockey team. I would be there to provide each of those people with independent legal advice. It could cost every one of those people a lot of money to support their community teams but they all think it is worth the cost and the risk to do it.
The Chairman: You and I are monopolizing the time.
Senator Ringuette: I am from New Brunswick. Your bill is laudable; however, I have a few questions to clarify all of this. Did this paper that I have come from your office?
Mr. Fitzpatrick: It provides a bit of background. My assistant tried to put something together to help you understand the situation.
Senator Ringuette: The second paragraph says that in 2003, the Canada Customs and Revenue Agency audited and assessed each Saskatchewan Junior Hockey League team between $8,000 and $12,000 in taxes owed.
Mr. Fitzpatrick: That is right, but it is second-hand information. I am not sure whether the figure is totally accurate, but I know that some of the teams told me that they were hit pretty hard because the audit went back some years as well. It might have been over $20,000 or $25,000.
Senator Ringuette: They gave out these funds that they gathered as a non-profit organization for room and board purposes in the amount of $50 to $200 per month to the hockey player. Why would the team be taxed?
Mr. Fitzpatrick: The teams are taxed because they are deemed to be the employer. When you have an employee- employer relationship, it is up to the employer to make the source deductions off the payroll and remit them for Employment Insurance and the Canada Pension Plan. The employer has to contribute as well. In a true employer- employee relationship, the employer contributes half of the Canada Pension Plan deduction and more than that for EI premiums. Basically, if you do the math, for the first $37,000 of income, 10 per cent is for the Canada Pension Plan. Someone used the argument of what is there to protect the players against injury, because Canada Pension provides some disability. Saskatchewan Junior Hockey League has a private disability plan that is far superior to anything offered under the Canada Pension Plan. I am not sure that the little bit of money that would be collected under the Canada Pension Plan would amount to any benefit to an injured player. If it did, you would have to get a microscope out to see the benefit. EI is the same. There might be some cases where a player might be entitled to collect EI but in the vast majority of cases, I do not think anyone could collect. It would be like collecting EI from seniors.
Senator Ringuette: I understand. Was the league giving the money for room and board directly to the provider and that is where the issue arose? Were they not paying the family that hosted the young person?
Mr. Fitzpatrick: I think you are right. The league has been around since the late 1940s and always operated in this manner. Somewhere along the line, there was an anomaly whereby a player had worked outside the hockey arrangement but if he had been able to get a few more dollars from the hockey end of it, he might have been entitled to benefit. That became the basis of an appeal to the Canada Revenue Agency, which led to this audit. The principle that I believe in — the greatest good for the greatest number of people — should be an important factor in our consideration.
Do we whack 140 junior A hockey teams because once in 50 years one player will miss out on a few weeks of EI?
Senator Ringuette: Your paper also indicates that a player who makes one of the teams generally receives the sum of $50 to $200 per month as an allowance for personal expenditures. That amount is not included in your bill.
Mr. Fitzpatrick: That is right.
Senator Ringuette: Therefore, that amount would come under employer-employee situation.
Mr. Fitzpatrick: I wish that were exempt as well but we have tried a number of times to deal with this matter. I made a decision to draft a bill that could get through the process and provide some relief, which meant letting a few things go.
Again, I am not happy about that either. I was a parent and $100 a month with a 17-year-old or an 18-year-old at home is pretty much taken for granted. I have argued the fact that almost every family I know with players in that league has entrusted their players to the team to put them in good homes, just like their own homes. They are in a good home and they have three square meals a day and some allowance money for going to a movie or whatever.
Most of these players are attending high school and they want athletic scholarships to the United States. Many of them get scholarships.
Senator Ringuette: Certainly, I understand and agree with what you are trying to do but I am not sure that this will help.
Mr. Fitzpatrick: More could be done in this country to encourage our amateur sports, I agree.
Senator Ringuette: I still see the $50 to $100 per month allowance as coming under the employer-employee situation.
An amount of $300 per month in 2007 is not a lot of money.
Mr. Fitzpatrick: It is indexed.
Senator Ringuette: Is it indexed?
Mr. Fitzpatrick: Yes.
Senator Ringuette: The other thing that should have been looked at in this situation with regard to the Canada Revenue Agency is providing room and board money directly to the family. On the one hand, they have revenue of $300, but as you said in your initial statement, they might have $500 in expenses as a result of hosting that young person.
Mr. Fitzpatrick: However, the league is not the Toronto Maple Leafs or the Ottawa Senators. I have sympathy for them. They could engage some very expensive tax advice on exotic plants to get around these sorts of things. This is very remote from Stikeman Elliott stuff. These teams do not have $700 or $800 an hour to obtain advice on how to get around these rules. In their own mind they might be asking, ``Why are they even doing this to us?'' That is the question.
Senator Ringuette: Do you find this to be a problem?
Mr. Fitzpatrick: The $5,000 or $6,000 a year does not seem like much, but when you are running one of these teams and your budget is $180,000 per year, you have car raffles and bingos, you are looking for volunteers and you need your books balanced in order to stay out of the red and stay in the league, $5,000 or $6,000 is a hard sell.
Walking around on the streets and telling people to buy another lottery ticket to pay a $5,000 or $6,000 bill to Canada Revenue Agency is not a winning and motivating strategy, even for the volunteer or the person who wants to buy the raffle ticket.
Senator Ringuette: I mentioned the option because it was a simple way of dealing with the issue without having the legislation.
Mr. Fitzpatrick: That has not happened, but a concern for many of the teams is that the National Collegiate Athletic Association has onerous and difficult rules in place with respect to what ``amateur'' means for athletic scholarships. In fact, there was a story from Ohio State where a player on the team had a six-year-old brother with no parents. Even people making donations to help pay for the care of that child could disqualify him from being a part of that program.
That organization has viewed Tier II junior hockey in Canada as being legitimate amateur sports. There is a concern in the back of people's minds that the Canada Revenue Agency's decision to say that this is an employer-employee relationship could potentially close that avenue off some day. I think that would be regrettable.
Senator Di Nino: Welcome, Mr. Fitzpatrick. I hope you will find this appearance a pleasure.
Mr. Fitzpatrick: You folks have been terrific. I am on the Public Accounts Committee, which is generally a place that people do not want to appear as witnesses, as you may expect. I find this much more relaxing.
Senator Di Nino: You and I are coming to the realization that fewer and fewer of us remember who Johnny Bower was. I bet you will find more of us in the Senate who remember him than in the House.
Mr. Fitzpatrick: Yes. I was cheering for Senator Mahovlich when he was 18, 19 or 20 years old to get 50 goals and be the first since Rocket Richard to accomplish that, but I think he missed it by a goal.
Senator Di Nino: Frank Mahovlich and I actually went to school together at St. Mike's. You know how old he is.
Mr. Fitzpatrick: He comes from a small town in Northern Ontario. Timmins, right?
Senator Di Nino: I have a few questions to ask you. First, I wish to pick up on our chairman's comment.
This has been presented as a bill to assist a group of hockey teams. The bill actually is meant to assist any not-for- profit sport or recreational team that is part of a program under certain sets of rules, so they cannot be abused. Is that correct?
Mr. Fitzpatrick: You are exactly right.
Senator Di Nino: Therefore, this is not just about the hockey teams, although that was probably the impetus for creating the bill.
Mr. Fitzpatrick: Yes.
Senator Di Nino: My second question was raised in the Senate by Senator Tkachuk when he presented it. This sounds like it is a relief for young men instead of young women.
The hockey league does not necessarily restrict women from playing, but because of the width of this bill, which includes sports teams and recreational programs of all kinds, it involves both genders. It is not to be seen in any way that this is mainly driven by or favouring boys as opposed to girls. Is that right?
Mr. Fitzpatrick: Hailey Wickenheiser from Saskatchewan is a good hockey player. Girls are continually getting involved in hockey. There are also swim clubs, dance clubs, soccer involvement and all kinds of organizations today.
If by chance there are not-for-profit developments out there that require young ladies under the age of 21 to go to communities and be in a room-and-board situation, the benefit would be there for them as well.
Senator Di Nino: Thank you for that clarification. I believe the bill is also retroactive to a period in time of two to four year ago. Is that the case?
Mr. Fitzpatrick: No, I do not think that is the case.
Senator Di Nino: It is not retroactive?
Mr. Fitzpatrick: If we get Royal Assent, the clock would start going forward.
Senator Di Nino: There is no retroactivity?
Mr. Fitzpatrick: Right, but they would sure be happy if they could start in the fall without this thing on their minds.
The Chairman: My understanding is that there was a retroactivity clause in the House that was removed through amendment. Is that correct?
Mr. Fitzpatrick: There have been two or three bills on this. With regard to that particular question, I am not absolutely certain whether that happened. You are probably right.
The Chairman: Yes, that is my information.
Senator Di Nino: Just for the purposes of our audience and for the record, this bill had been passed by the House in 2004 and it died on the Order Paper when the election was called. Is that correct?
Mr. Fitzpatrick: No. That was a different bill.
Senator Di Nino: Was it similar to this?
Mr. Fitzpatrick: My good friend Roy Bailey, whom many of you might know, championed the cause in that Parliament. It was really his bill, although it was in someone else's name. We jockeyed around, but it was Roy Bailey who pushed that bill through.
The bill was flawed. We were trying to increase the basic personal exemption of $8,000 to a higher figure, and then we realized far too late that the bill would not provide relief because EI and the Canada Pension Plan start right at the beginning and the personal exemption does not provide you with any relief for that. It was pointed out at committee that that would not help us. Therefore, on this bill, we started with that premise and drafted the bill quite differently, in a way that would address that concern.
Senator Di Nino: The issue has been around for a while. That was the point I was trying to make.
Mr. Fitzpatrick: Yes. It has been around for quite a few years.
Senator Di Nino: Are you aware of any other sports or recreational organizations that the Canada Revenue Agency has exempted to date?
Mr. Fitzpatrick: No, but either section 7 or section 8 of the Income Tax Act has a set of exemptions. For example, there are exemptions for churches and for the cost of musical instruments for people in the arts and culture community. If you go through the act, there seem to be exemptions where there are anomalies where if you apply the law across the board you will hurt some people who fall between the cracks. Why could legitimate amateur sports in this country not be in that group? I did not see anything in those exemptions that ever applied to amateur sports, which are a big part of the culture in our society and which should be encouraged, especially when you look at type 2 diabetes among young people. Senator, we should be doing everything we can to encourage our young people to get active or they will not be around when they get to be my age or your age.
Senator Di Nino: You made your case eloquently about the fairness and the way of life particularly in the smaller cities and small-town Canada.
Does this require the Royal Prerogative?
Mr. Fitzpatrick: You will have to help me out on that.
Senator Di Nino: Since this is a money bill, does it require the Royal Prerogative?
Mr. Fitzpatrick: The Speaker in our House, with the standing orders, and so on, would have reviewed the bill, and he must make a determination on it. He has let the bill proceed, so I think we are all right. The answer is no.
Senator Di Nino: It was dealt with by the Speaker. That is an issue that will undoubtedly come up in our debates.
Mr. Fitzpatrick: I think the Minister of Finance and the Prime Minister of the country have supported the bill as well. That is key. I would not try to get a bill through without the Minister of Finance onside, who was a pretty good hockey player in his day, too.
Senator Di Nino: The Minister of Finance was a great hockey player.
The Chairman: Thank you for those questions and the points of clarification. We will suspend briefly for a change of witnesses. Mr. Fitzpatrick, you are welcome to stay. We will have representatives from the Department of Finance. You will understand that all of the honourable senators here have sympathy towards the specific example that you gave. We are all supportive of small town athletic activities and other activities. However, as I pointed out earlier, this bill is much broader than the hockey team. Therefore, I think it is incumbent upon us as a committee of national finance to understand the impact of this bill on the public generally and on the public purse.
Mr. Fitzpatrick: May I make one comment before I leave? I think that this bill is worded quite tightly to prevent a lot of unintended consequences from occurring. I practiced law for a number of years, and I want to emphasize that to bring yourself within the ambit of that small, little amendment there are a fair number of hoops you would have to go through to qualify. It is not like we are opening the doors. Many of these things came from the Department of Finance to ensure that. I want to address that concern.
The Chairman: We appreciate that comment, and we congratulate you on your initiative. Private member's bills are not easy; they are an uphill battle. You have this one through the House of Commons and you are now before the Senate.
Mr. Fitzpatrick: Unanimously so.
The Chairman: We congratulate you on that.
We will now proceed, honourable senators, with the second part of this meeting.
We are very pleased to have with us officials from the Tax Policy Branch of Department of Finance: Mr. Gérard Lalonde, Director, Tax Legislation Division; and Mr. Edward Short, Senior Tax Policy Officer. Gentlemen, do you have any introductory comments, or would you like to go directlyo questions?
Gérard Lalonde, Acting Director, Tax Legislation Division, Tax Policy Branch, Department of Finance Canada: My only comment is that I must correct the record yet again. I am an acting director, not a full-fledged one; maybe some day.
The Chairman: If we keep announcing you as fully fledged then maybe one day it will happen.
Mr. Lalonde: I would also comment that I am happy to be here. It is always a pleasure to come to this committee. We are open for questions.
[Translation]
Senator Fox: Mr. Lalonde, I would like to hear you talk about tax policy. Are there any tax policy problems in this approach? Mr. Fitzpatrick's initiative is an excellent one. But, whereas it is really justified, it does seem to target one quite specific area. Does this pose any public policy problems?
[English]
Mr. Lalonde: First, our minister is behind this bill. Insofar as our department is concerned, our minister is the top word on tax policy. Do we have a tax policy concern with this bill? Not from that perspective, no.
[Translation]
Senator Fox: It is an excellent initiative, but I wonder if it can apply to specific groups. Has the department considered how widely this policy might apply in other areas? Other sports come to mind as well. For example, I sit on the board of directors of Tennis Canada; does this apply to the young players who go to the training centre in Montreal? Should culture be treated in the same way? If the bill errs in anything, it is in not mentioning that. Unless that you are telling us that the specific target is employers' recreational programs. But that seems to be a bit restrictive as a focus.
[English]
Mr. Lalonde: As the honourable member from the other place mentioned, there are a number of constraints in this bill, and some of them have been put in with the help of the Department of Finance Canada and, more particularly, Mr. Short, who is with me here today. He pointed out a number of deficiencies not only with the previous bill that was proposed in the previous session but also with this bill.
Clearly, you have to meet a number of conditions to fit under this bill. You have to be in receipt of an allowance for housing; you have to be under 21 years of age; you have to be in a recreation program; you cannot be the coach, et cetera; it has to be a registered charity recognized under paragraph 149(1)(l) of the act.
Are there teams other than hockey teams that could possibly fit all these parameters? Probably. If you are going to extend this to hockey teams, would it be appropriate to extend this to other sports teams in the same situation? It seems apparent that the answer would be yes.
[Translation]
Senator Fox: I certainly do not want to put the survival of the bill in jeopardy. On the contrary, I think it is a good bill. I am just searching for answers as to why the department did not expand its scope.
It is fine for hockey. But why not apply it to the kids at Tennis Canada's national training centre who get an allowance to go there? This should also apply to the kids who go to the École Vincent d'Indy and the National Theatre School in Montreal. I have a hard time understanding why the bill does not apply to other situations mutatis mutandis, as my Jesuit teachers used to say.
[English]
Mr. Lalonde: To start off, this is a private member's bill and not one from the Department of Finance Canada. The history behind the policy of this bill is something that we did not have a primary input into. We were looking at the technical efficacy of the bill in doing what it proposes to do.
[Translation]
Senator Fox: In most provinces in Canada, a single department collects taxes. In Quebec, there are two. With this bill, would Revenue Quebec apply the same principles as the Canada Revenue Agency?
[English]
Mr. Lalonde: No, they would have to make their own amendments. Insofar as this applies to the Employment Insurance Act, that would carry through; for QPP, they would have to do their own amendments.
[Translation]
Senator Fox: Let us take triple A midget hockey teams in Quebec as an example. They are probably much the same as the ones that Mr. Fitzpatrick is talking about, but their tax situation is different. As long as the Government of Quebec does not follow suit, the $350 amount will be taxed provincially, and a young hockey player in Flin Flon will then have an advantage that a player in Chicoutimi does not.
[English]
Mr. Lalonde: There are a number of instances where the tax law in the province of Quebec differs from the tax law federally.
Senator Fox: You are giving me a bureaucratic answer. Have you started any negotiations or talks with the government of Quebec to see if this policy, which will be applied by Canada Revenue Agency, would be applied by Revenue Quebec?
Mr. Lalonde: We have not. This is not a government bill; it is a private member's bill.
Senator Ringuette: It is supported by your minister.
Mr. Lalonde: It is supported by our minister but it is not the government's bill.
Senator Fox: Your answer is frustrating me a great deal. I find it is a terribly bureaucratic answer. I would hope that once this bill is passed, someone would get off their behinds in the department and go to see Revenue Quebec. If your minister really believes in this bill, he should believe that it ought to apply the same way across the country and not discriminate between teams in various parts of the country.
I am sorry to raise my voice but your answer is frustrating me. Sure, the bill is not as extensive as I would like to see, but I would be the last to say the bill should not go through because it is not as extensive as I would like because it does not apply to other sectors. There is one thing that grates on me a great deal, which is to say that it will not have an even-handed application across the country. I am terribly disappointed to hear you say — I am not saying that the minister said this, but you are sort of saying — that you will just sit on your behinds if this is passed and not initiate any talks with other governments to ensure that there is even-handed application and that there is no discrimination between hockey players, whether they are in Flin Flon or in Chicoutimi.
Mr. Lalonde: The Province of Quebec does keep a close eye on what we are doing federally. For the most part, they come to us when they see federal income tax changes having been done and they move proactively on their part. We do not generally go and lobby them to follow suit with changes to the federal act.
Senator Fox: I hope Mr. Fitzpatrick has more gumption than the department has and that he takes his crusade — or gets another member to take his crusade — to the Government of Quebec.
[Translation]
Senator Biron: Can this apply to competitive ski teams? Can it extend to the activities of not-for-profit organizations?
Senator Ringuette: It has to be done through a not-for-profit organization.
[English]
Mr. Lalonde: First, we have not done an in-depth assessment of every recreational team in Canada to determine whether that particular team would fit within this provision. Again, this is not a government bill; it is a private member's bill. We tried to ensure that it technically does what it was proposed to do, and I think we have been some help in that respect.
Should a ski team fit each and every one of these requirements in this bill? There is no reason why not.
[Translation]
Senator Ringuette: I am disappointed that a member of Parliament has to work for three years to put forward a bill to address an agency's lack of vision. When this bill was tabled in the House of Commons for the first time, did you have discussions with the Canada Revenue Agency?
[English]
Mr. Lalonde: I did not personally; my predecessors did. This issue arose as a result of a decision that a claim made by a hockey player was valid and had to be paid out of the Employment Insurance program because this person was an employee. In the other place, I mistakenly said that the decision was made by a court, but I gather it was by an Employment Insurance referee. Having let the issue out into the open, the Canada Revenue Agency looked at it and concluded, based on existing jurisprudence, that these people were employees and that therefore Employment Insurance premiums should have been withheld. That was sort of the beginning of this issue.
Senator Ringuette: Yes, but you have to understand that this bill in its current state does not remove the onus from the non-profit leagues to be seen as an employer for the $50 to $200 they might provide for a bottle of Pepsi after the weekend game. To me, this is very frustrating.
I agree with Senator Fox on one issue: I find that too often, as parliamentarians, we have to confront the bureaucracy on policy. You do not have to have a doctorate in the Income Tax Act to look at this and to talk with the agency. I believe that this bill still, with regard to the agency ruling, will put the onus again on the hockey league as the employer-employee relationship.
Mr. Lalonde: This bill does not do that. It relieves, to some extent, the impact of that.
The point is that the Canada Revenue Agency did conclude, although it was under some pressure not to conclude, that there was an employee-employer relationship. We cannot change that. There either is an employer-employee relationship or there is not.
Senator Ringuette: It is because of the living allowance or because of the room and board allowance?
Mr. Lalonde: It is because of all the facts and circumstances involved with the arrangement between the hockey players and the teams. There is a great deal of jurisprudence as to when an employer-employee relationship exists and when it does not, and it is not always clear. A number of conditions apply, including whether the employer provides the tools necessary for the employment; whether the employer provides direction; whether the reputed employee is a contractee and does what he does professionally as a service provided to the employer; whether he does what the employer tells him to do; whether he goes where the employer tells him to go.
Senator Ringuette: Have you looked at all those factors?
Mr. Lalonde: I did not. The Canada Revenue Agency did.
Senator Ringuette: Have you looked at all these factors with the Canada Revenue Agency in order to help members of Parliament create a bill that would remove this impediment for non-profit amateur organizations and the young people they are helping out?
Mr. Lalonde: We take no joy in this bill, and I personally take no joy from this line of questioning. My predecessor did talk to the Canada Revenue Agency. It was done at a very high level. It was studied very carefully and the Canada Revenue Agency could not ignore the situation.
Edward Short, Senior Teax Policy Officer, Tax Policy Branch, Department of Finance Canada: I was present at one of those meetings that took place after the assessments had been raised and the issue was before the Tax Court. The teams settled, so we do not have the benefit of a decision in the court on these specific facts.
Mr. Fitzpatrick has made a legitimate suggestion that it is debatable whether, in the case of a player-coach relationship, there should necessarily be an employer-employee relationship. There may be circumstances in which that is the case. Remuneration for living expenses is usually a factor to look at to determine whether there was compensation paid to that person in return for their services. Does that mean that that should apply in the case of all players or for small amounts? That depends on the circumstances of each player. As Mr. Lalonde said, it is for the Canada Revenue Agency to make that determination on a case-by-case basis.
We have received representations from others in the non-profit sector asking that there be clarification on whether people who work in that sector are employees or are self-employed. We have always relied on the common law, the case law. The principles for establishing whether someone is an employee versus self-employed are well-established. We do not think it is necessary for us to initiate a new policy for any particular sector to decide when someone should be considered not to be an employee.
As Mr. Lalonde said, this all began with the case of one hockey player who had claimed Employment Insurance benefits and was initially denied those benefits. The player asked for a review of that decision within the Canada Revenue Agency, and the agency decided that, based on the facts and circumstances for that particular hockey player, under the principles of common law that person was an employee. Therefore, that person was entitled to Employment Insurance benefits.
The flip side is that you must consider whether other hockey players in these leagues would also be entitled to those benefits and whether their employers should be responsible to make remittances for Employment Insurance. These bills have always been about Employment Insurance. Even this bill uses the Income Tax Act to avoid teams having to pay Employment Insurance premiums under the Employment Insurance Act.
Senator Ringuette: For $300, as long as that $300 is for board and lodging. As I said earlier, it does not remove the employer-employee decision of Canada Revenue Agency, because there is still the allowance. It is not a lot of money — $50 to $200 a month. I am not sure this is a solution. I do not see how it removes that employer-employee decision and it exempts only the $300 a month from EI and CPP. Is that not the case?
Mr. Short: That is right, but I believe you are getting at the issue of whether these players should be considered to be employees. As I said, we fall back to the common law. We think the principles are established in the common law. Whether they will apply to every hockey player depends on the facts of the situation. A hockey player may be receiving an amount of compensation such that it could be said they are in an employer-employee relationship. We have not presented any proposals within the department to make a change for hockey players so that they would be different from other classes of employees. It is still up to each hockey player or each team to discuss with Canada Revenue Agency whether they have that kind of a relationship.
Senator Ringuette: This is absolutely not solving the problem. From my perspective, this is just putting a little icing on the CRA policy. It is not dealing with the issue that Mr. Fitzpatrick wants to deal with.
Mr. Short: There is the basic personal exemption already under the Income Tax Act. In addition, the first $1,000 of employment income is eligible for the Canada Employment Credit. Therefore, we are talking about someone who is receiving compensation and who, under the facts and circumstances, would be considered an employee of the hockey club. In order for them to be taxed on those earnings, they would have to be earning, in conjunction with other employment income, amounts greater than that.
Senator Ringuette: The determination from the Canada Revenue Agency was not to put the onus on the young hockey player, as I understand, but to put it on the team. The team did not do the source deductions and employer contributions for EI and CPP on the amounts paid to the players in the form of an allowance.
Mr. Lalonde: The issue of whether someone is an employee in terms of how they are providing services is certainly not restricted to hockey players. There are many cases where disputes occur as to whether someone is an employee. However, in circumstances where it is determined according to the law that someone is an employee, then it is up to the employer to withhold and submit those premiums to the Canada Revenue Agency. You are right. In the same way, my salary is subject to withholding tax for income tax. In this case, as Mr. Short has pointed out, the amounts are under that threshold. The employer is also required to withhold Canada Pension Plan and Employment Insurance in the same way that a young Canadian working in Tim Hortons has source deductions for EI and CPP. They might make $50 a week or $100 a week. Are Employment Insurance premiums withheld? Yes.
Senator Ringuette: The way in which the bill is written has nothing to do with non-profit organizations but it does have everything to do with the young athlete. The bill would give such kids an exemption of $300 per month. Mr. Short, you just indicated that $300 per month adds up to $3,600 per year, which is less than half of the basic personal exemption. Therefore, in real terms, you are not giving anyone a break.
I say ``you'' because you indicated that your minister was supporting this, which I suppose is because it is not costing the Canada Revenue Agency so much as $1.
Mr. Lalonde: We did not draft the bill because it is a private member's bill. It is quite a feat, as has been pointed out, to get a private member's bill to this stage.
[Translation]
Senator Ringuette: This is awful. I am going to stop, because, really, I have my answer. Once again, under the guise of helping a parliamentarian with a problem that I recognize is legitimate, all that has been done with this bill is to mask the reality. Nothing is changed, not in the decision, not in the basic personal exemption. This gives us nothing, zero.
[English]
Mr. Lalonde: With all due respect, it is open to any private member to make a bill to do exactly what they want it to do. In this case, they wanted to exempt hockey players from Employment Insurance. Perhaps that is what could have been done and they should have done. It is not my bill; it is not my minister's bill; and it is not my department's bill.
The Chairman: We understand that point and we do not want you to become too defensive. The frustrations are coming out. We were told that this went through unanimously in the House of Commons. When legislation has been unanimously approved and then comes to us, we assume that it must be a well-drafted bill, but more and more frequently we find that it has hardly been looked at by anyone in the other place. The frustrations are coming through and if you are taking anything personally, I apologize for that.
Senator Di Nino: I want to verify one of the questions that I asked Mr. Fitzpatrick. We keep referring to hockey teams, but the bill as written is about sports and recreational programs that would qualify under the restrictions established by the bill. It is not exclusive to or does not exclude any sports or recreational programs, as long as they meet the requirements of being not-for-profit and for people under the age of 21 and the funds used for lodging, food and minor related expenses. Am I correct in making that assumption?
Mr. Lalonde: That is correct.
Senator Di Nino: That is all I wanted to clarify.
Senator Nancy Ruth: I have two questions. Mr. Short, what is the difference between this case and the case of a parent whose child goes into the teen years and receives a clothing allowance? Surely that is not deemed an employer- employee relationship.
I am a new senator and my mind is boggled in terms of how government works. I came from a meeting upstairs with some people in the Department of Justice Canada who were dealing with a private member's bill to amend the Divorce Act. When I asked whether the Canadian Bar Association's family law division or any provincial bar's family law division had been consulted, the answer was no. When I asked why, the answer was that it is a private member's bill.
Is it common across all departments in government that with a private member's bill you do not go out and search for other knowledge and reflections from civic groups?
Mr. Short: Without offering any opinion on my part as to whether a hockey player who plays on a Junior A team is in a master-servant relationship with the management or the coach, I will say that in the case of a parent paying an allowance, the question to ask is whether it is for services. Under the principles that apply, it is possible to arrive at the conclusion that it does not reflect reality. For example, some people who run their own businesses hire their children as employees and they pay them a salary. They are employees and are in the master-servant relationship. Can that happen in a domestic context? Yes, it could happen that you might employ your children in a domestic context. However, if you pay them an allowance only, is there a master-servant relationship or a parent-child relationship? I do not know of any jurisprudence that would suggest that that kind of relationship would be considered master-servant.
Senator Nancy Ruth: Most of us in this room are servants of the Government of Canada. I sure as hell do not think of them as my master, I will tell you that.
The Chairman: We are servants of the people of Canada.
Senator Nancy Ruth: Do private members' bills receive the due diligence afforded to government bills? How does it work?
Mr. Lalonde: A private member is entitled to propose any bill in the House. It is up to that private member to sponsor, support and explain the bill and why it is a good idea, as our friend has so eloquently done here.
Senator Nancy Ruth: What is the obligation of the relevant department and ministry?
Mr. Lalonde: Frankly, I am not steeped in parliamentary process. I am a tax lawyer and I do my best to try to draft income tax law for the Department of Finance and to appear here, amongst other places, to explain what has been drafted. There are parliamentary procedure experts who can address this more efficiently, but if I were to wade into it with my limited knowledge, private members in Parliament — Parliament is supreme and that is what government is all about — are entitled to put forth any bill they like. If the House passes it, then Parliament has spoken.
Senator Nancy Ruth: Deal with the aftermath. Is that the way it works?
Mr. Lalonde: That is not how I would put it, but that is not completely inaccurate.
Senator Di Nino: On this issue, surely you or others would give advice to the member preparing that bill if the bill were not in order, not legal or not appropriate — I am trying to find the right words — if it were not in accordance with the Charter.
If this were an issue in which you had no expertise, I would agree. However, if it comes to your department and you see this bill is not within the purview of Parliament to allow, would you not inform and advise the member?
Mr. Lalonde: In this case, in particular, with respect to the first bill, I think the honourable member was informed that the bill did not do what he thought it did. Therefore, the bill was reformulated to work in a different way.
Did we comment that, given that the impetus behind the bill was an Employment Insurance issue and not an income tax issue, it could have been dealt with through some other kind of amendment? Yes. Those issues did arise, but there are a variety of ways to achieve any given result. This was the way that was put forth in the bill.
Senator Di Nino: I am not suggesting you should be dealing with policy issues. I am talking about something fundamentally wrong with a piece of legislation that a member brings forth and that you could definitely see a problem with. Would you make a comment to that effect?
Mr. Lalonde: Yes, I would. In this case, the purpose of the bill was not to change whether an employer-employee relationship existed or did not exist. The purpose of this bill was to exclude certain amounts from income. As a second- order effect, that would remove the requirement to withhold EI in respect of those amounts.
Does the bill accomplish what the honourable member wanted it to? Yes, it does.
Senator Di Nino: I appreciate that and I thank you. Both Mr. Fitzpatrick and you have told us that consultation took place. However, I am talking about in general terms.
Senator Nancy Ruth asked a question with regard to a private member's bill. We understand that this is to the degree to which anyone can comment. It is in order, and it is a bill passed by the other place. Hopefully it will be passed in this place because I do not think there is anybody opposed to the bill here.
However, I am asking a more fundamental question. If there is a major flaw in a piece of legislation that is presented to you by a private member next week, for example, and you see the flaw, would you inform the member that there is a problem with that piece of legislation?
Mr. Lalonde: As public servants, we have a limited role in the House of Commons. Obviously, we cannot make a speech in the Commons and explain that sort of thing, but we are invited as witnesses to the Finance Committee in the other place.
It is in that committee that we are asked, in the same way as are you asking here, questions as to whether there are any difficulties with the bill. It is in that venue as witnesses that we would put forth any concerns with regard to the technical aspects of the bill.
Senator Biron: As I understand it, this bill proposes to allow athletes to exclude $4,200 per year from the calculation of their income received from non-profit clubs, societies or associations operated for the purpose of improving athletic performance or promoting athletes.
Would the employer continue to pay toward the Employment Insurance benefit or not? If the athlete takes $4,200 out of his income, does the employer pay the insurance, or would he lose the insurance revenue that he could have received?
Mr. Lalonde: The actual figure in the bill is $300 per month, which would calculate out to $3,600 per year.
The short answer is that by excluding this from income, it would not be insurable income for EI purposes. Therefore, no EI is required to be withheld and it is not taken into account for the purposes of EI benefits.
Senator Biron: Therefore, you will lose the benefit.
Senator Fox: I want to ask one last question, which is a follow-up to Senator Di Nino's question. I am flabbergasted once again. If, as he suggested in his hypothetical question, there were a flaw in a private member's bill that was being debated in the House, I cannot believe that the Department of Finance does not monitor these things. If it did see a flaw, I cannot believe that the department would wait for Mr. Lalonde or Mr. Short to be called before a parliamentary committee. Would they not draft a briefing note to their minister advising him that there was a flaw in the bill? If that is not the case, there are many things I do not understand about government. I just cannot believe that what you told us is indeed the case.
Mr. Lalonde: We do brief our ministers on the contents of private members' bills. The opportunity to comment in the parliamentary process on those bills is at the Finance Committee.
Senator Fox: That is fine. I understand that. However, in response to Senator Di Nino, you did not have that element in there.
You told us at the beginning that your minister supported the policy behind this bill. We have had bills come through here that were flawed and we had officials appear who pointed that out. One was adopted at third reading in the Senate, and then the Canada Revenue Agency said they could not apply it because there had been changes in the numbering and the officials did not tell the members of the Banking Committee that that was the case. That was scandalous on the part of the officials to have done that. Eventually, the new government brought a new bill in and corrected it.
One of the committees of the Senate was misled by the silence of those officials, who, because the question was not put to them directly, allowed the whole committee to think that the bill, once adopted, would have certain policy effects.
That is not your problem as it did not involve your people. However, to say that somehow you do not have any responsibility to point out major flaws, which you indicated in your first answer, is not correct. We are in a ministerial system. You write that note to the minister, the minister supports this bill and tells Mr. Fitzpatrick that maybe he should make an amendment to line three paragraph four of his bill. Then it becomes totally acceptable.
However, you seem to be standing back completely. With all the expertise you have in government, you are basically telling members of Parliament in their private members' bills to go ahead because we do not really care. If it is flawed, it will show those members of Parliament they do not know what they are talking about.
I think, on the other hand, that you have a real duty to Parliament to bring forward those thoughts and amendments in the ministerial way. There is a ministerial way. You do not have to be in front of this committee in order to accomplish that. Your minister must know about flaws.
Mr. Lalonde: With all due respect, I think that is very unfair.
Senator Fox: You said it. I did not.
Mr. Lalonde: You are implying that there is a great flaw with this bill and that —
Senator Fox: I am not.
The Chairman: Let Mr. Lalonde finish.
Senator Di Nino: We cannot put on the record something that is incorrect. I asked this question three times. I think both Senator Fox and I are saying hypothetically that if you have a situation next week, next month or next year where a private member's bill is presented with a major flaw, do you not have a responsibility to say, at least to your minister, ``I think this bill cannot go through because there is something wrong with it''? You just suggested you might, but you did not in your response to me. That is what we want to know. We are not talking about this bill now.
The Chairman: Mr. Lalonde, do you understand the hypothetical question?
Mr. Lalonde: I do. May I respond with an answer on a concrete basis? When this bill was tabled in the House, it had a number of problems with it. It did not have a coming-into-force provision. There just was not one. It purported to refer to non-profit organizations without the proper cross-reference within the act. The indexing did not work. It referred to indexing in a manner that was prose you would perhaps understand on the street, but for income tax provisions, we would apply a certain provision of the act to do that indexing.
Through our minister's office and through the government members on the committee, we did propose amendments to this bill, I think with the full knowledge of the honourable member, to correct these errors in the bill.
Do we sit back and ignore flawed bills? No, but we must follow the parliamentary process.
The Chairman: Mr. Lalonde, in a situation where a bill requires expenditures of money from the government revenue, is there not a Royal Prerogative required? That was a question that was asked earlier of Mr. Fitzpatrick, and he did not have an answer. Perhaps you could tell us.
Mr. Lalonde: Again, I am not an expert on parliamentary procedure, but when the question arose, I did ask what the situation was here. Where you make an expenditure, yes, you do need a Royal Prerogative. In this case, it was a matter of not taxing, not bringing in an amount as opposed to expending an amount. I understand that that makes a difference in the procedure for Royal Prerogative.
The Chairman: Thank you. We will have to look into that as one of our considerations.
What do you estimate to be the total cost to the public treasury of this initiative were it to pass as it appears here?
Mr. Lalonde: We have posed that question to our economists at the department. In the budget documents, anything less than $5 million is costed as a dash or an ``S.'' In this case, it would be substantially less than that. I think we are looking at less than $1 million.
The Chairman: That is because of the restrictions, as Mr. Fitzpatrick pointed out? There are a lot of little restrictions that appear here that would limit this down, even though it appears at first blush to include all sports teams and recreation programs throughout Canada.
Mr. Lalonde: Yes, but you would also have to layer onto that situations where there is an employer-employee relationship and situations where the individual is required to stay away from home and has a housing allowance. If you layer all of these things on, it is not expected to have a major revenue cost, as it is worded.
The Chairman: If it were a recreation program where there is an employer-employee relationship, where the employee was required to live away from home, and that particular organization allowed someone 21 years of age to participate in that recreation program, that would not fall within this; is that your understanding?
Mr. Lalonde: Not with respect to that individual.
The Chairman: The law would not cover that situation?
Mr. Lalonde: That is right. It is restricted to teams where people are under 21 years of age.
The Chairman: Under 21 years of age, and it cannot be a municipal organization. This has to be a separate not-for- profit corporation or organization. The not-for-profit does not necessarily have to be one that issues tax receipts; is that correct? It could be a registered charity or a not-for-profit?
Mr. Lalonde: The section 149(1)(l) corporations are the not-for-profits. It is it not the municipalities or the registered charities.
The Chairman: A few other questions have arisen.
Senator Biron: If someone played hockey for four months at $200 a week, which is $800 a month, that would make $3,200. Would it not be better for him to pay Employment Insurance premiums? He would make about $200 per week, and he would receive 60 per cent of that when he goes on Employment Insurance. That would be $120 per week for eight months. That is 32 weeks. That would make approximately $3,600, would it not?
Mr. Lalonde: I try to understand as best I can what the rules are for income tax. Employment Insurance, frankly, is not in my bailiwick. Perhaps you would be better posing that question to the honourable member who explained earlier that it was better to find a needle in a haystack than to find a hockey player on Employment Insurance, or something to that effect.
The Chairman: You are welcome to rejoin us, Mr. Fitzpatrick. This has turned into a cause célèbre. The record will show that Mr. Fitzpatrick, the sponsor of the bill, has rejoined us.
Mr. Fitzpatrick: I wish to reiterate a point that was raised before. Many of the scenarios we are talking about are not employer-employee relationships. Let us be clear on that. They are not taxed on the room and board or where they are living.
The concern I would have with the particular league I have in mind is that you could restructure things and give them salaries and so on, and increase the amounts, but the bottom line of doing so is that you would make those players ineligible for athletic scholarships to the United States. Clearly, they would not be considered amateur athletes under those rules. That takes a lot out of Tier II junior hockey in the country.
I appreciate Senator Fox's comments. I do not know what civil law in Quebec does with employee-employer relationships, but I have been told by the president of the junior hockey team that we have the full support of all the Tier II teams in this country on this bill, including the Quebec teams.
The Chairman: I think it is a shame that that case, which was an employment insurance case, was not appealed up through the tax court due to settlement. It may well turn out that the rest of the players on that team are not in a employer-employee relationship, and small-town New Brunswick, Quebec and Saskatchewan players will not be caught and will be unassisted by this bill.
Mr. Fitzpatrick: You are correct. The team involved in that simply did not have the funds to engage the expertise to carry on with that kind of appeal. That happens in our society, unfortunately.
The Chairman: Yes, it does. The problem is that the solution may not be with this bill.
Mr. Fitzpatrick: However, it will provide real, meaningful relief to the teams involved. It is not the perfect solution, but this is not chump change to them. This is hard-earned sweat equity for those teams. A bit of savings on that means a lot to these teams. I cannot emphasize that enough. They are not the Toronto Maple Leafs or the Ottawa Senators.
The Chairman: I understand that. If the players and the team are in an employer-employee relationship, this does not apply to them.
Mr. Fitzpatrick: That is correct.
Senator Ringuette: I am looking at the wording of the bill. Clause 1 says that paragraph 6(1)(b) of the Income Tax Act will be amended by adding, after subparagraph (v), ``(v.1) allowances for boarding and lodging of the taxpayer . . .''
If the bill read ``living allowance of the taxpayer'' instead, how would that change it?
Mr. Lalonde: Paragraph (d) in that same clause states that ``the allowance is reasonably attributable to the cost to the taxpayer of living away from the place where the employee would, but for the employment, ordinarily reside.'' It is simply saying that a living allowance does not include all of those things.
As well, in terms of good drafting, it would be unusual to have one of the conditions that is applicable to the type of allowance in the preamble to the paragraph and the rest down in the subparagraphs. All of these things are various conditions that apply. Why would you put one condition up in the preamble and the other conditions down below?
Senator Ringuette: At the start, you are talking about allowances for board and lodging. You then give the conditions in paragraphs (a), (b), (c) and (d), where you are talking about living away, which is a condition. Why would we not be talking about, at (v.1), a living allowance of the taxpayer to a maximum total of $300 or $500 for each one? Why are we not saying that? That would be consistent with your condition at paragraph (d).
Mr. Lalonde: In the example that you have posed, you could have a player living at home and getting an allowance. Under your formulation, it would qualify; under this one, it does not. Paragraph (d) goes on to explain that it is an allowance with respect to the cost of living away from the place where the employee would, but for the employment, ordinarily reside. Just saying ``living allowance'' would not work because you could have a living allowance for living at home.
Senator Ringuette: No, but then you have the conditions.
Mr. Lalonde: This is one of the conditions.
Senator Ringuette: Yes. In order to have the living allowance exemption, you need to qualify for paragraphs (a), (b), (c) and (d); and paragraph (d) is already a condition for a living allowance.
Mr. Short, do you understand?
Mr. Short: I think I understand the question you pose to Mr. Lalonde. What you are suggesting is that if you took the words in the preamble that say ``board and lodging'' out of there and put them into paragraph (d), would that not work?
Senator Ringuette: No, that is not what I am saying. I am saying that at proposed subparagraph (v.1), if you replaced ``allowances for board and lodging'' with ``living allowance,'' what would that change?
Mr. Short: A living allowance could be for something more than just board and lodging.
Senator Ringuette: Yes.
Mr. Short: That is what would change.
Senator Ringuette: That is what is described here. The players in this situation would receive $300 for room and board, and anything between $50 and $200 a month as a living allowance to buy a can of pop or a beer on the weekend.
Mr. Lalonde: Would you also extend that exemption to the young person who works at Tim Hortons? It is not there now. A young person who works at Tim Hortons does not get an employment insurance exemption in respect of the $50 a week they earn to go and buy pop.
Senator Ringuette: You are way off field here. You have four conditions. The young people that you just described working at Tim Hortons would not have this exemption. You just said that yourself. Why are you asking me that silly question?
Mr. Lalonde: Because you are posing, in addition to allowing housing allowances here —
Senator Ringuette: Living allowance.
Mr. Lalonde: You are posing that in addition to allowing allowances for board and lodging here, that we allow allowances for additional stipends to cover the cost, in your words, of going to buy pop. Other employees get to pay employment insurance premiums on their earnings that they use to go and buy various personal items; so, too, would these players.
Senator Ringuette: I think that the Tim Hortons employee, for your information, that eats a Tim Hortons doughnut and drinks a coffee is not taxed for it.
Senator Di Nino: Do not tell the Canada Revenue Agency about that. They will tax them!
Senator Nancy Ruth: Thank you for your clear explanation of how the department or whoever helped fix up bits of the first bill that came through on this.
My question is about process. You said that you told whomever that it would be better if you did this or that, more or less. Whom did you tell? Did you tell the member of Parliament or the minister or both? How does it work?
Mr. Lalonde: We apprised our minister of issues with the bill in terms of what position the government members would take with the bill. We drafted motions for tabling at the Finance Committee to correct these various things and I believe these were communicated to the member.
Mr. Fitzpatrick: This is the only private member's bill I have ever worked on, senator. In all fairness, in my particular case — and I cannot speak for all the others — I have found both of these gentlemen to be most helpful in trying to work out the difficulties I have had with my bill. I have no complaint with either one of them. This may be an overall problem, but I have found these particular two gentlemen to be helpful.
The Chairman: On that note, this would be an appropriate time to conclude this meeting.
On behalf of the Standing Senate Committee on National Finance, I would like, first, to thank Mr. Fitzpatrick for taking the initiative on this bill. We want you to know that your basic premise of Tier II hockey in small-town Canada is something we all support, but we have other broader interests and we support those as well — other recreational activities.
We note that you have amended your bill, either because you felt you should or because it was directed that maybe you should, to include recreational programs of employers. That is what we are left to deal with.
I would also like to thank Mr. Lalonde and Mr. Short for putting up with our late evening frustrations and bringing forward some points and I am hopeful you will take back the message from this committee. You have been before us before and we look forward to seeing you again on other issues.
The committee adjourned.