Proceedings of the Standing Senate Committee on
Banking, Trade and Commerce
Issue 37 - Evidence - June 12, 2013
OTTAWA, Wednesday, June 12, 2013
The Standing Senate Committee on Banking, Trade and Commerce, to which
was referred Bill C-48, An Act to amend the Income tax Act, the Excise Tax
Act, the Federal-Provincial Fiscal Arrangements Act, the First Nations Goods
and Services Tax Act, and related legislation, met this day, at 4:25 p.m.,
to give consideration to the bill.
Senator Irving Gerstein (Chair) in the chair.
The Chair: Good afternoon and welcome to the Standing Senate
Committee on Banking, Trade and Commerce. This afternoon our committee will
continue our study of Bill C-48, An Act to amend the Income Tax Act, the
Excise Tax Act, the Federal-Provincial Fiscal Arrangements Act, the First
Nations Goods and Services Tax Act and related legislation.
Yesterday we heard from the Honourable Ted Menzies, Minister of State
Finance, and his officials. Today we are pleased to welcome in our first
hour Ms. Carole Presseault, Vice President, Government and Regulatory
Affairs, Certified General Accountants Association of Canada; Mr. Richard
Monk, Advisor, Chartered Professional Accountants Canada; and Mr. Wayne
Adams, Director of Membership Development and Community Relations, Canadian
We will receive opening statements starting with Ms. Presseault.
Carole Presseault, Vice President, Government and Regulatory Affairs,
Certified General Accountants Association of Canada (CGA-Canada):
Honourable senators, thank you for inviting the Certified General
Accountants Association of Canada to appear before your committee today to
speak to Bill C-48.
At the outset, I would like to emphasize that CGA-Canada supports the
introduction of Bill C-48, and encourages committee members to move swiftly
to pass this important piece of legislation. This bill deals with a massive
backlog of unlegislated tax measures. Its passage would, in our opinion,
bring greater clarity to Canada's tax system and strengthen the integrity of
our tax laws.
We do, however, have some concerns about the way in which technical
amendments to the Income Tax Act are managed by the government and
I will speak to these process-related issues and briefly focus on three
particular themes: where we have been; what we have learned; and where we go
from here, the most important question.
For many reasons, it has been 12 years since an income tax technical bill
was passed by Parliament. Bill C-48 has two predecessors. Let me go through
the history. Bill C-33 was introduced in 2006 and died on the Order Paper
when Parliament was prorogued. Bill C-10 came along in October 2007 and it
died on the Order Paper. It was not until Bill C-48, which is before you,
that the work begins to catch up on more than a decade's worth of
unlegislated tax proposals. This has resulted in a significant backlog of
more than 400 measures, as estimated by the Auditor General of Canada in
What have we learned from this? These delayed technical tax amendments
cause serious difficulties for taxpayers, businesses, professional
accountants, their clients and, of course, the government. These
difficulties include lack of clarity and certainty in legislation; inability
of Canadians to self-assess or correctly calculate taxes; higher costs for
taxpayers to obtain professional advice to comply with tax law; absence of
appeal rights for taxpayers for these unlegislated tax measures; less
efficiency doing business transactions; and, obviously, greater cynicism
about the fairness of the tax system.
This past December, CGA Canada convened a summit on tax simplification
that brought together approximately 60 stakeholders, public officials and
thought leaders on this matter. Many well-informed recommendations were
generated that day in the areas of compliance, tax planning and policy
making. A majority of participants expressed concerns about the lengthy
delays in legislating technical tax amendments and agreed that this
situation should not be permitted to happen again. Based on this idea, one
of the chief recommendations stemming from this forum was that legislation
be brought forward in a timely manner.
Indeed, Parliamentarians from all political stripes have acknowledged
there is a problem with the process. Parliament needs to enact tax changes
on a regular and frequent basis to avoid the situation we face today: A bill
that is almost 1,000 pages long, with some measures dating as far back as
So where do we go from here? Clearly, we need a better process to deal
with tax amendments on a regular and timely basis — there is agreement on
this fact. CGA-Canada understands that, originally, a technical tax bill
with routine amendments to the Income Tax Act was to be brought forward by
the government of the day on an annual basis a short time following the
tabling of the budget. The intent was to detach technical amendments from
the budget implementation act, and allow these amendments to proceed on a
separate track and to be adopted on an annual basis.
It was a matter of basic housekeeping. However, only four income tax
technical bills have been enacted since 1991.
Of course, we must do a better job. We believe there needs to be a
mechanism or trigger to invoke discipline in the legislative process to
ensure that technical tax amendments are brought forward, adopted and
enacted within a reasonable amount of time following their introduction in
the budget, as opposed to more than a decade later.
Greater legislative discipline will bring more clarity, certainty and
transparency to tax legislation; will reduce the compliance and paperwork
burden; and, perhaps most importantly, will protect the integrity of the tax
Mr. Chair, thank you for your time. I am pleased to respond to any
comments or questions.
The Chair: Thank you, Ms. Presseault. Mr. Monk, the floor is
Richard Monk, Advisor, Chartered Professional Accountants of Canada:
Good afternoon. My name is Richard Monk and I am the past Chair of CMA
Canada and advisor to the newly created Chartered Professional Accountants
of Canada, CPA Canada.
On January 1, 2013, the Canadian Institute of Chartered Accountants,
CICA, and the Certified Management Accountants of Canada, CMA Canada,
created CPA Canada to support unification of the Canadian accounting
profession. On behalf of CPA Canada, thank you for the opportunity to appear
I would like to note at the outset that CPA Canada appreciates the
opportunity to work closely with Finance Canada with respect to current tax
laws and regulations, as well as on future legislative initiatives. Indeed,
the Canadian Bar Association/CICA Joint Taxation Committee has commented
over the years on most of the elements of Bill C-48, including foreign
affiliate rules, non-resident trusts and specified investment flow-through
entities, just to name a few.
Bill C-48 marks the end of a very long road, one with many twists and
turns over the years. The last technical bill on income tax received Royal
Assent in 2001. I think it is fair to say that we greet the proposed
technical tax amendments Act of 2012 with a sense of relief. We support Bill
C-48. CPA Canada understands how important it is for taxpayers to have a
greater certainty and clear understanding of Canada's federal income tax
Former Auditor General of Canada, Sheila Fraser, observed in the fall
For taxpayers, the negative effects of uncertainty may include higher
costs of obtaining professional advice to comply with tax law; less
efficiency in doing business transactions; inability of publicly traded
corporations to use proposed tax changes in their financial reporting,
because they have not been "substantively enacted"; greater cynicism
about the fairness of the tax system; and increased willingness to use
aggressive tax plans.
Bill C-48 helps to improve clarity and certainty and mitigates the
negative effects of uncertainty identified by the Auditor General. However,
it is a simple truth that striving for clarity and certainty never ends. CPA
Canada supports the policy of technical tax legislation being tabled for
review and adoption by Parliament on a regular basis, so that we do not
accumulate legislation that is not in force for a number of years, thus
exacerbating the problem of tax complexity and uncertainty.
As we think about the future, CPA Canada sees an ongoing need to address
the issues of tax simplification. We suggest a two-part approach. First,
create an office of tax simplification, as was done in the U.K. in 2010.
This office would focus on simplifying particularly complex and vexing parts
of the current system. Second, establish an expert panel or even a royal
commission on tax reform to conduct a full-scale examination of our taxation
system and recommend how we can ensure that tax laws are certain,
predictable and fair so that the taxpayer can order their affairs
intelligently. We believe these twin initiatives would send a strong signal
of the government's commitment to clarity and certainty in our tax system
and would be warmly received.
Mr. Chair, thank you for your time. I would be pleased to respond to any
questions you may have.
The Chair: Thank you. Mr. Adams, please proceed.
Wayne Adams, Director of Membership Development and Community
Relations, Canadian Tax Foundation: Good afternoon, chair and senators.
My name is Wayne Adams and I am a director with the Canadian Tax Foundation.
Before joining the foundation in 2011, I was the Director General of Income
Tax Rulings and the Chief Technical Officer with the Canada Revenue Agency.
I worked with the CRA for 34 and one half years.
The Canadian Tax Foundation was established in 1945 as an independent tax
research organization under the joint sponsorship of the Canadian Institute
of Chartered Accountants and the Canadian Bar Association. The foundation
provides a unique forum for lawyers, accountants, academics and other tax
professionals to work together for the betterment of the Canadian tax system
and the tax profession in general.
We have in excess of 10,000 members who are drawn from the legal and
accounting professions, industry, academia and the Government of Canada,
including the Canada Revenue Agency, the judiciary and the Departments of
Finance and Justice. The foundation has long been respected by government
policy-makers and administrators for its objectivity, its focus on current
tax issues, its concern for improvement of the Canadian tax system and its
significant contribution to tax and fiscal policy.
The Canadian Tax Foundation is not an organization that lobbies
governments on behalf of its members. Given the diversity of our membership,
it would be impossible to reasonably represent a collective viewpoint. In
contrast we take pride in providing forums where all well-reasoned and
supported views on all sides of an issue can be expressed. Our primary
concern is the promotion of policies and practices that improve the equity
and efficiency of the Canadian tax system.
More than 80 per cent of the government's revenue is collected under the
Income Tax Act and the Excise Tax Act. We live in a rapidly changing world,
and this legislation must respond dynamically to changes in commercial
In his appearance before the Standing Committee of Finance in March of
this year, Larry Chapman, Executive Director of the CTF, drew an interesting
analogy with the repairs and upkeep necessary to ensure the proper
functioning of a car or a home:
Can you imagine how much work would be required if you made no
repairs to your home or your car for more than 10 years? That is what
has happened with these two statutes. The last bill addressing technical
amendments was passed in 2001.
Bill C-48, the technical tax amendments bill, is a massive piece of
legislation that represents 10 years of repairs, maintenance, and updating
of the Income Tax and Excise Tax Acts. Its passage is important to all
Auditor General Sheila Fraser, in her 2009 fall report to the House of
Commons, detailed the legislative chronology of the unenacted predecessors
to this bill. Parts of this bill had been before Parliament on nine separate
occasions. The Auditor General recommended, among other things, that the
practice of introducing and passing technical amendments on a more regular
basis be reinstated. The Standing Committee on Public Accounts in its 2010
report recognized the joint responsibility of Parliament and the Department
of Finance to pass technical amendment legislation on a timely basis. The
Parliament needs to share responsibility for ensuring that technical
amendments are passed in a timely manner after they are introduced. The
department's responsibility is to put the government in a position to be
able to table technical bills; after that, it is up to Parliament to ensure
they are passed.
There are a number of reasons why it has taken this long to bring this
legislation in Bill C-48 before Parliament. Delays in the passage of tax
legislation leave taxpayers and their advisers in a no man's land of
Our message for the Standing Senate Committee on Banking, Trade and
Commerce is that, in the future, you should welcome and encourage the timely
submission of technical legislation to update and improve these important
statutes. This is an issue on which taxpayers, parliamentarians and the
Department of Finance can work together for the benefit of all Canadians.
Thank you. I hope to be able to answer any questions you may have.
The Chair: Thank you very much for those very excellent opening
I take it that, notwithstanding that we have a bill before us of some 955
pages and we are not hearing any criticism on the bill whatsoever, that it
is entirely devoted towards process and how we might deal in a timely manner
in the future. I did not hear any questions about anything in the 955 pages.
Senator Massicotte: We should ask whether they have read it all.
The Chair: The second observation I will make, and this is perhaps
presumptuous of me in terms of referring to your comments, Mr. Monk, I see
that you have suggested establishing an expert panel or even a royal
commission on tax reform. I submit that perhaps is something even the
steering committee of the Senate Banking Committee might consider looking at
as a possible study and how we might move forward.
Having said that, I am going to turn to my list of questioners and start
with the deputy chair of the committee, Senator Hervieux-Payette.
Senator Hervieux-Payette: Welcome, everyone. I would like to
congratulate Ms. Presseault, who organized the Summit on Tax Simplification.
The activity likely served professionals well, but it also served taxpayers.
I have not read the Auditor General's report. In your study, did you see
any recommendations made by the Auditor General that were not incorporated
into the bill? It seems to me that other witnesses have told us that some of
her recommendations had been incorporated in the bill. In your opinion,
should the other recommendations appear in another 300-, 400- or 500-page
bill next year? Basically, if anyone knows the tax system well, it is the
Auditor General of Canada — the former one, I mean.
Ms. Presseault: The Auditor General has paid a lot of attention to
the process, as we did. The members of the Standing Committee on Public
Accounts came to the conclusion that, for all sorts of reasons — as Mr.
Adams mentioned — the idea of introducing a bill each year should be
dropped. It is the Department of Finance's role to introduce the bill and it
is Parliament's role to pass it. But there are no mechanisms that require
the government to introduce such a bill annually. Those are really the
questions that the Auditor General looked at. Some thought was also given to
what a good mechanism might be. We still have no answer. It is also an
accountability issue, to some extent.
Basically, some tax measures were proposed. The home renovation tax
credit, for example. The tax credit was in place and Canadians everywhere,
myself included, went off to the hardware store to buy material for
renovations. But the tax credit was not passed by Parliament until the
following fall. So there was another tax measure that was in place, but that
came into effect only retroactively.
My biggest concern is that, when a tax measure is in place, but it has
not been passed, taxpayers lose their right to appeal decisions made against
them. Legally, that is very significant.
Senator Hervieux-Payette: The Auditor General made some
recommendations. Are there some that are not incorporated that you think
should be and dealt with in the year to come? If we were to be diligent, let
us start with the year that will begin after this budget is implemented. We
can start working on the next one.
Mr. Monk: I will just echo what Ms. Pressault mentioned: It is
important to get this bill through. Both the Canadian Bar Association and
CICA have been looking at it for quite a while and we have nothing really
negative to say about it other than let us move on and eliminate some of
this uncertainty that Canadian taxpayers have at the moment.
Mr. Adams: I think Finance would likely put forward, and may well
have yesterday, that they feel they have complied with the Auditor General's
observations. The Auditor General identified a catalogue of comfort letters
that had been outstanding and had encouraged the Department to develop a
database so they could keep track of it and not wait so long as to develop a
I think the evidence tabled by the Department of Finance at the Public
Accounts Committee meeting was that they waited before tabling a second
technical amendments bill until the first one had passed. I think that was
their own process decision and I think they said that they would reconsider
You would have heard testimony yesterday that there was a technical
amendments package tabled as a notice of ways and means motion in December.
They have started to put this forward.
The other thing to remember is that this bill grew to its size, and even
continued to grow, after the Auditor General's report. There were some
undertakings in budget speeches on avoidance measures. They indicated that
they would study also some of the foreign affiliate amendments. In this bill
we are looking at ideas and policy decisions that have been developed after
the Auditor General's report.
I think Finance should be the one to speak for it, but I believe they
have fulfilled the undertakings. If there is a bill before you towards the
end of this calendar year or the next calendar year that is of a certain
size, it will largely be sourced by those two measures that are already on
the legislative process track. If this is 1,000 pages over 10 years, then I
think you will find that 100 pages might be an annual size. Who is to know?
Senator Hervieux-Payette: Mr. Adams, do you feel that the
department is ready to implement that? You were inside the department. How
can the officials in the department implement that overnight? I mean, what
is the process for them to be trained to know about the implementation of
the entire bill?
Mr. Adams: I think the Department of Finance was independent of
Revenue and continues to be. They have their tax legislation staff. I think
they just have many demands on their time, whether it is budget legislation
that must be tabled, technical amendments, or even considering these
suggested needed changes that lead to comfort letters.
As I say, I think they are trying their best to fulfill all of those
Senator Hervieux-Payette: Revenue Canada —
The Chair: Thank you, Mr. Adams. I am sorry, senator, I am going
Senator Hervieux-Payette: I did not have the answer.
The Chair: I am sorry, we have a number of other questioners.
Thank you, senator.
Senator Maltais: I have a comment and a question for Mr. Monk.
Ms. Presseault, you mentioned the increasing cost to taxpayers of doing
their tax returns. Is that increased cost in fees for accountants? That is
what I found in your brief. When you talk about higher costs for taxpayers,
you mean accountants' fees.
Ms. Presseault: Is that a question or a comment? Yes, they are
accountants' fees, management fees, bookkeeping fees, administration fees
for companies and individuals alike. I could send you a document later on.
We did a little research into this, and the surveys show the proportion of
Canadians who are using professionals to help them fulfill their obligations
to pay their taxes. I can give you the data. The rise in fees is not just
for accountants. I have the feeling that your question is about finding out
why this bill should be passed if tax simplification is something we are
Senator Maltais: It is not my idea; it is Senator Massicotte's.
Ms. Presseault: It is contrary to the interests of our members.
For us, what counts is the public interest. The public is better served by a
tax system that is simple and easy to understand.
Senator Maltais: That is what I wanted you to tell me.
Mr. Monk, you mentioned a tax simplification office. How do you see that
Mr. Monk: The U.K. recently developed an Office of Tax
Simplification. We could look at that model and determine if that would be
suitable for Canadian purposes. We were told that, so far, the U.K. has been
able to eliminate some 100 pages from their tax code. I think it is a model
that could be looked at.
Senator Massicotte: My question is for Mr. Monk.
The chair raised the point that we have a 955-page bill and no comments
as to any shortcomings in it or corrections needed to it. Mr. Monk, do you
agree with the bill as proposed? Does it satisfy you as a professional?
The question goes to Mr. Monk, then Ms. Presseault can answer if she
Mr. Monk: We do. As I mentioned in my opening comments, we have
been involved in reviewing. The CBA/CICA Joint Tax Committee has been
looking at this for several years. All along, we have been in the process
and, essentially, now we are prepared to suggest that it satisfies any
concerns we would have had, and we are comfortable with the bill in its
Ms. Presseault: A number of measures proposed in the bill are well
known and already in place, in some cases for more than 10 years, and for
five years in other cases. Those affected by the bill, including business
and professional accountants, have had the opportunity to comment on several
occasions. Various components of Bill C-48 were introduced in bills that
were not passed, but also in the consultation process. In general, we have
not heard any objections to the bill. There seems to be consensus that it
should be passed. It is important for it to be passed quickly, before the
Senator Massicotte: Mr. Monk, I have a follow-up question.
Taxpayers listening today might ask the question. I presume that your
interest is more in representing your clients. That is what your
professional responsibilities are. Maybe the amendments are too favourable.
Maybe there is something wrong. How could you be in favour totally? Are the
Canadian taxpayers getting a bad piece of legislation here?
Mr. Monk: Taxes are quite specific to individuals. All I can say,
really, is that, as an organization, we have looked at the legislation
through the Joint Taxation Committee and, from a holistic and general
perspective and a business perspective, we are prepared to suggest that the
legislation be adopted and that these amendments be put through.
The Chair: Thank you, Senator Massicotte. That was a good try to
see if they are representing the taxpayers, but we are getting a good view
Senator Tkachuk: In a practical sense — and there was some
discussion earlier — to have the Department of Finance deal with the issue
of comfort letters and outstanding clarifications, to me it would seem that
you would have to have an act of Parliament to compel them to do it on a
Has that been discussed or considered by any of your organizations, and
do you have samples of bills, perhaps, that could be introduced that would
make this happen?
Ms. Presseault: We actually have been in discussions with some
members of Parliament, and we are doing some research right now on what the
appropriate mechanism could be. We have not come up with the perfect
solution. What is the mechanism that could trigger the minister to table the
bill? There are obviously various questions about how. All I can say is,
"Stay tuned." We will keep you informed of where we go, because this is a
really important issue. We have found ourselves in this situation. We are
wondering what the best process is.
The U.K. has a process that colleagues at the table here disagree with.
We looked at it very closely. It is a sunset process. It basically is a
trigger so that, if you do not introduce the technical tax amendment in the
bill following the budget speech, I think it sunsets in a period of two
years. That is, it is deemed to have never been. That does not really work
with our system. Mr. Adams understands the system inside and out, and he can
tell you why it does not work with the system.
There has been heavy reliance on comfort letters. It is important for the
taxpayer to have some clarity, and that has been providing clarity. Our
system is really not made in the way that that sunset mechanism could work.
Is there legislation? I do not know. We are seeking the opinions and
advice right now and looking at what we can do.
Certainly, a strong message is coming from the committee, saying, as
other committees have said, that there needs to be a process, at least an
annual process, to look over technical tax amendments.
Senator Tkachuk: This is not a good process. This is 900-pages
long. You could work out with this.
Ms. Presseault: It is not a good process for us, and it is not a
good process for Parliamentarians.
Senator Tkachuk: For Parliamentarians, it is not a good process,
because we cannot get through this. I mean, here we are in the Senate, where
we are supposed to take our time with this bill. It is a big bill. We try to
read parts of it that we are interested in, but, at the same time, if it was
a hundred pages, then I think we could deal with it a lot more easily.
I have one more question, if I could. We talked about the time spent.
Perhaps people in Finance did not have time to do it because they are busy
with the budget and all of that stuff, but what about time spent? I think
one of the senators — it might have been Senator Hervieux-Payette —
addressed part of this.
The cost to Canadians is, I think, something that we should try to make
public — the cost to Canadians, not only to pay accountants but also in time
itself trying to figure out what to do. There must be some assessment. I
mean, it is your business, so you must have some assessment of what it is
costing Canadians in actual cash and time to deal with legislation that is
Ms. Presseault: We have actually been involved in a report,
published by the Fraser Institute very recently, about the cost of tax
compliance. I do not have those numbers at my fingertips, but it is a new
report. The report, admittedly, will not deal with the fact that it is the
cost of compliance with tax; it does not deal with a backlog. If we have a
number and then can show in 10 years, if we have a process, that it has
brought the cost down, then that would be really important.
There are very recent numbers on the cost. We would be pleased to provide
the committee with a copy of the report.
Senator Tkachuk: That would be great.
Senator Ringuette: I am surprised to hear that there is no
recourse for the taxpayer if this bill is not passed. Maybe Mr. Adams would
know, with 34 and a half years at CRA.
I was under the impression — and please correct me if I am wrong — that
the interpretation bulletin that CRA issues was as good as gold with regard
to the taxpayer getting the right information and reading the legislation
correctly. Am I to understand that on an IT issue produced by CRA, the
taxpayer has no recourse unless it was in a bill like this?
Mr. Adams: I confess to some misunderstanding about how this would
adversely affect an individual. The law is passed. If new legislation is
proposed that would have an advantage or, in fact, maybe would increase
taxes — let us say it increased tax or closed a loophole — actually, until
that law is passed, that taxpayer has the right to file based on the
existing legislation, and there is nothing that would adversely affect them.
If there were an incentive, like the Home Renovation Tax Credit — let us
say you had filed your return claiming that before the law had passed and
there was some dispute — there would be difficulty for the tax court to
actually intervene to resolve that dispute because, again, it is on proposed
legislation. It is almost like a trade practice to operate as if it was law.
Normally, that would be set aside until it is law. No one should be
compromised because of un-passed legislation.
On your last point, one of the reviews that came out of the Auditor
General's report identified that bulletins were becoming out of date.
Clearly, there would be no bulletins written on proposed legislation; they
would not even be in existence. However, if anyone was confused by it, both
the CRA local offices as well as the hotline for income tax rulings could
certainly provide people with an explanation as to the proposed legislation,
and that service would be free.
Senator Ringuette: You are saying that the interpretation bulletin
that is issued is not necessarily related to a new tax measure or to the
content of this bill; is that right?
Mr. Adams: Right.
Senator Ringuette: To what extent would an interpretation bulletin
be related to the comfort letters?
Mr. Adams: They would not necessarily. The comfort letter process
is where someone writes in to the Department of Finance and says, "Look, I
do not think that your measure has the right result in this complex
situation." The Department of Finance agrees to look at it, and I think that
is a credit to their character. I was saying earlier that you could list all
the countries in the world that would consider that type of request, and
Canada might be the only one. You certainly would not have more than the
fingers on one hand.
They are prepared to undertake that their measure does not have the right
result or there could be confusion on the interpretation. They have
undertaken, as part of that letter, to fix the law because it did not
achieve their tax policy. It is like an undertaking. The taxpayer receives
the letter and then it is released through access to information. Everyone
has access, if they had that same situation.
Typically, an individual that just has wage income or whatever is not
affected by a comfort letter. However, anyone in a similar situation would
have the ability to research in books provided by private practitioners.
They have the comfort letter and they can identify whether their situation
is the same. They would take relief that they could file in the same way.
Senator Ringuette: However, if there were a certain dispute with
regard to one of these letters, coming back to what Ms. Presseault said,
with all the appeals and so forth, the taxpayer would not have access; is
Mr. Adams: If there were a dispute. However, I am trying to figure
out why people would think there would be a dispute. Is there a suggestion
that the Canada Revenue Agency would ignore the comfort letter? I do not
think that has been established as any sort of practical outcome. There
could be a hypothetical discussion wherein someone might say the CRA auditor
and the taxpayer were unaware of the comfort letter, and maybe it got into
court and the tax court judge would be in a difficult position. That is a
As I say, given that there have not been any examples where they would
say it happened once or it happened lots of times, I just wonder if it is
more of a worry hypothetically than a practical worry.
Senator Hervieux-Payette: I will try again with you, Mr. Adams.
This was probably written by a team, because I do not understand how one
person could do it all. One of the reasons we have to write these letters is
because they have to be clarified. Of course, the budget speech is general
and then you have to put that into a piece of legislation.
Those who apply the law — it is not the Department of Finance; it is
Revenue Canada, to whom you submit your income tax form. What is the
relationship? The Department of Finance has worked very hard. Not just with
the comfort letter but in other situations, do they clarify and make sure
cases do not end up before the court? Is there a policy group? How does it
intervene in terms of the Department of Finance and the Canada Revenue
Agency so we do not complicate the lives of people but we simplify it?
Mr. Adams: CRA has a division called the Legislative Policy
Directorate, what we would refer to as the crosswalk with the Department of
Finance. If CRA detects something that needs a legislative amendment, there
is a process there for CRA and the tax policy people, whom you would have
had here yesterday, to work cooperatively.
I would just like to say that, in terms of these measures you are looking
at, it is not a corrective piece of legislation that is necessary after each
budget. Some of the provisions that are being corrected were almost
undisturbed for years and years. However, maybe something changes in the way
people do business — the unlimited liability corporations, the different
types of trusts — and they recognize that a provision that was thought to
have been working fine does not work fine with a new product. That would not
mean it would be a bad outcome or a good outcome; it just does not work. It
can be a change unrelated to the Income Tax Act that causes the analysis of
these provisions. It is a fairly complicated process. If your question was
whether the CRA and the Department of Finance have good communication, yes,
Senator Hervieux-Payette: The comfort letter comes from Finance?
Mr. Adams: The Department of Finance.
Senator Hervieux-Payette: Would you say that the principle behind
these comfort letters could be part of the legislation so that you can
define more precisely what was originally in the bill and, in order to use
the comfort letter principle, other people would not have to get a comfort
letter; however, once it is in law, it is applicable to everyone in the same
Mr. Adams: Once it has changed, the comfort letter disappears and
the legislation is then amended. You would not find in a particular section
of the act that there are five or six very similar comfort letters
associated with a particular section of the act. There is usually just the
one. Other practitioners would notice it, or maybe they are having
discussions at the same time because they have similar concerns. It is not
that at any given time someone might ask about a particular situation,
unaware that there might already exist that undertaking by the Department of
Finance to change the law.
Senator Hervieux-Payette: If and when we pass the bill, do you
feel that maybe there is a cost associated with the administration of the
bill, but there is a savings in not going before the court because things
are now more precise?
Mr. Adams: It would be difficult to measure. Certainly, I think
the primary group that would be appreciative is all those who are not
members of large national firms, who have research areas that continuously
keep up to date. I cannot imagine how a small practitioner, a single lawyer
or accountant in Bathurst or Sault Ste. Marie who is trying to keep track of
the existing legislation — never mind the proposed legislation — would
handle being faced with an inordinate challenge. They would be appreciative
of not having to wonder what they should recommend to their client.
Senator Massicotte: If we have time —
The Chair: We always have time, Senator Massicotte. Please make it
a simple question.
Senator Massicotte: I am just curious. Ms. Presseault, your
association in many provinces has merged with the CPA or CA, so you
represent the CGA of those that have not merged?
Ms. Presseault: No, I represent CGA-Canada. As the situation
exists today, all provincial bodies are members of CGA-Canada, with the
exception of CGA-Quebec, which merged with the Institute of Chartered
Accountants of Quebec and CMA Quebec last year. As it stands today, I
Having said that, CGA-Canada announced a few months ago that it had
entered into talks with my colleagues here at the table to merge with them,
and we are in the process of doing what needs to be done to go towards that.
Our intention is to merge soon.
Senator Massicotte: Thank you.
The Chair: Thank you for that clarification. To our panel, on
behalf of the Senate Banking Committee, I express our appreciation to each
of you for your appearance here today. Thank you.
In our second hour, we are pleased to welcome Michael Vineberg, Senior
Partner, Davies Ward Phillips & Vineberg LLP; and Andrew Kingissepp,
Partner, Tax Department of Osler, Hoskin & Harcourt LLP.
Mr. Vineberg, the floor is yours.
Michael Vineberg, Senior Partner, Davies Ward Phillips & Vineberg LLP:
Thank you very much for inviting me here today.
Bill C-48 proposes to enact a comprehensive series of technical
amendments, some remedial, others substantive. Most of these provisions have
been, as you know, the subject of prior bills and have been revised to
ensure that they fulfill the general legislative intent.
At the time of the 2009 Auditor General report, the backlog consisted of
more than 400 technical amendments and 250 comfort letters. While no
legislation is perfect — certainly no bill of 955 pages — the present bill
will finally allow the Canada Revenue Agency to give effect to the remedial
aspects of the legislation, which affect thousands of Canadian taxpayers.
Many of the effective provisions of the substantive aspects date back to
2000, 2003 or 2007.
I would like to say a few words about an anomaly in taxing foreign trusts
that have only a minimal link with Canada.
Trusts established by an act or a will are often set up for the long
term. The main goal of a family trust is to separate administrative
functions from the beneficial interest. The founders often arrange for the
assets in a trust to be held for two or three generations. A number of
trusts were established in Canada 60 or 80 years ago; most of the
beneficiaries were born abroad and even the administration is done abroad.
Trusts like that generally no longer have assets in Canada and their
original link with Canada may have been forgotten.
But as long as a single beneficiary remains in Canada, such as a
great-grandchild of the person who originally set up the trust, the trust
will be subject to tax in Canada, generally on all its taxable income, even
though all the assets, the administration and the vast majority of the
beneficiaries reside elsewhere.
Taxing a foreign trust on its entire income, based upon the slender
thread of a single Canadian resident beneficiary with a minor interest, is
truly excessive. This could be remedied in several ways, as set forth in my
submission before you, and I am pleased to tell you that I understand that
Finance will be looking at this.
On another issue, the delay between the issuance of comfort letters and
remedial enactment is generally not prejudicial, but the multi-year delay
sometimes has a profound financial effect; it is not simply a hypothetical
problem as stated by a speaker in the prior panel.
For example, I represent a foreign entrepreneur who moved to Toronto and
created hundreds of jobs in the Canadian high-tech industry. Subsection
128.1 of the Income Tax Act exempts from the departure tax obligation
individuals who live in Canada for less than five years, but only with
respect to the property with which they came to Canada. My client arrived in
Canada, owning the common shares of his company, and he left Canada owning
the common shares of his company. Unfortunately for him, they were a
slightly different class that he received on an absolutely mundane, tax-free
As he did not leave Canada with the absolutely identical property with
which he arrived, there was a multi-million dollar capital gains liability.
When he left Canada, the problem was not great. His company was worth many
millions of dollars. Today, it is virtually bankrupt. He has been obliged to
deposit all of his available funds as collateral security to the bank, which
has given a letter of credit to the CRA for his capital gains liability.
Section 274 of the bill will finally resolve this problem retroactively
such that a share reorganization or another tax- free event would not deny
the availability of the exemption for short-term Canadian residents. This
remedial provision, which is probably one of more than 100 in the bill, will
assist in the establishment of Canadian businesses by foreign entrepreneurs
and will allow the true legislative intent of Parliament to be effected.
Andrew Kingissepp, Partner, Tax Department, Osler, Hoskin & Harcourt
LLP: Good afternoon, and thank you for inviting me to appear before the
committee today. I am here to speak about primarily one specific aspect of
As mentioned, I am a tax partner at Osler, Hoskin & Harcourt LLP, and my
submission today deals with the proposed technical amendment to section 86.1
of the Income Tax Act, which is contained in Bill C-48. I previously made a
similar submission before the House of Commons committee in March.
Let me say first that I very much support these amendments, and I commend
the members of all parties for indicating their support of Bill C-48 as
well. Generally, we would suggest, as the previous witnesses have done, that
this proposed legislation be enacted into law at the earliest opportunity.
On the particular issue that we are concerned with, our firm has
represented the interests of over 80 Canadian individuals for more than 10
years and they have been waiting for this 86.1 amendment that is in the bill
to come into force. While the predicament that these individuals find
themselves in has a lengthy history — I will not get into all the details —
in its simplest terms, the issue is about ensuring that share distributions
by foreign private companies get treated the same way as distributions by
foreign publicly traded companies. That is a U.S. public company
distributing stock to its shareholders and that gets the same result if you
get a certain other kind of U.S. company.
When the discrepancy arose, Parliament had already enacted the original
86.1, and it was limited to providing tax- deferred rollover treatment where
there was a spinoff by a U.S. public company. In our particular fact
situation, we had a privately held U.S. company that was widely held, and it
met all the requirements of the foreign spinoff rule except for the fact
that it was not a listed company. The shares were not listed on an exchange.
There were discussions with the Department of Finance and it was agreed
that they would recommend to the Minister of Finance, pursuant to a comfort
letter, that 86.1 be amended to extend the rollover to taxpayers receiving a
share distribution from certain U.S. companies that are SEC registrants. The
gist of the discussions was that the Department of Finance agreed that the
registration and disclosure requirements for a private company SEC
registrant were analogous to the registration and disclosure requirements
for a U.S. publicly listed company.
A commitment was made by the government of the day to amend section 86.1
and a comfort letter was issued in 2001. Despite this, the status of these
shareholders remains unresolved to this day. Previous attempts by successive
federal governments to amend section 86.1 have been unsuccessful, not
because this particular provision was not supported — it was — but rather
due to external events such as elections and other priorities.
The passage of time in our particular case has caused additional expense
and, in some cases, anxiety for these individual shareholders. We are very
pleased to have this amendment included in Bill C-48 and to be here before
the Senate at second reading stage. We are delighted to hear it is supported
by both parties in committee also.
The main point we want to make today is the importance of having this
amendment enacted without further delay. It ensures fairness and certainty
for Canadian taxpayers. It also ensures equal tax treatment in other
provinces and territories as compared to the province of Quebec, as Quebec
actually addressed this issue in its own taxation act several years ago. It
also eliminates unnecessary stress on all those Canadian taxpayers who have
been waiting patiently for this matter to be resolved.
Thus, while there is a lengthy history to this, the main point from our
point of view is to get Bill C-48 passed as soon as possible. I would be
more than happy to answer any questions as well.
The Chair: Thank you, Mr. Kingissepp.
Senator Hervieux-Payette: My thanks to our two guests. Mr.
Vineberg, when you refer to your client, is that about clause 94 in the
Mr. Vineberg: No, it is clause 274.
Senator Hervieux-Payette: That refers to foreign trusts. As you
are describing it, where is that person's business, in Canada or abroad?
Mr. Vineberg: He had an American business with a Canadian branch.
Because there is a lot of talent in Montreal and Toronto, he decided to base
his business in Canada, even though its charter is American. When the
business was sold, the decision was to make a very small change to the
statutes. Instead of having ordinary shares, they became class A ordinary
shares. Because they were not exactly the same class of ordinary shares,
even though the value and the economic conditions were exactly the same,
they were not covered by the act. At that point, there was a comfort letter
already. I can tell you that my client has not been terribly patient since
2006. Two years ago, he told me: "I cannot wait any longer. If someone can
buy my rights, I will give them a 15 per cent discount, even with the
comfort letter. As I always say:
A letter from Brian Ernewein is like a bar of gold.
Senator Massicotte: Is he still selling at 85 per cent?
Mr. Vineberg: At the moment, I think he can wait another week. He
has set up another business in which he wanted to keep a certain interest,
but his interests have diminished because he cannot put money into his
Senator Hervieux-Payette: He has left Canada?
Mr. Vineberg: Yes.
Senator Hervieux-Payette: And the trust was outside Canada?
Mr. Vineberg: No, the shares were American. But when he left,
under the law, he had to give a guarantee and the Canadian government does
not accept American shares. He had $X million, he made a deposit, he put the
money into an American bank that gave the guarantee to the Canadian
government, and he has been stuck in that situation for seven years.
Senator Hervieux-Payette: Our legislation does not solve the
Mr. Vineberg: No, the solution, basically, is clause 274. The
other point is the foreign trusts and that is not covered, in my opinion.
However, there is another possibility.
For example, I have another client in France where one of their children
is thinking of coming to Canada. I have to tell them, "I do not think you
should allow the child to come to Canada, because this trust does not
distribute its income. If we have one of seven beneficiaries living in
Canada, the trust will be deemed to be subject to Canadian tax on all of its
income." It does not make any sense.
Senator Hervieux-Payette: It is not corrected.
Mr. Vineberg: It is not corrected, but I think that is something
to be looked at.
Senator Hervieux-Payette: There are 900 pages and we have not
managed to solve that case. It is a bit strange. However, I must say that as
far as Mr. Kingissepp goes, you will have a comfort letter and then you will
wait for a modification in the legislation the next time.
Mr. Kingissepp: We have a comfort letter. We have had that since
Senator Hervieux-Payette: You do not have this situation covered
by the law.
Mr. Kingissepp: It is. The bill is just fine.
Senator Hervieux-Payette: Okay, so you are happy.
Mr. Kingissepp: Yes, we want the bill.
Senator Oliver: I have a question for each of you. I will start
with Mr. Kingissepp. Of the 80 people waiting for clarification of section
86.1 — I know you had a comfort letter — I would like to know whether there
were any financial consequences since 2001 for any or all of them and, if
so, what type of financial consequence would flow from that?
Mr. Kingissepp: It is an excellent question. It has a complicated
answer. Let me try to think about it.
The important point for this purpose, I think, is that the individuals
had to file their returns for the relevant year, which was 2000, before
getting the comfort letter. They all self-assessed on the more adverse
treatment and so they filed and, when we got the comfort letter, they filed
notices of objection.
Senator Oliver: Was there a rebate?
Mr. Kingissepp: Yes. The distinction is that for individuals there
is no requirement to pay the tax if you are objecting. CRA has been good
about making the system work and administering it. They cannot allow the
objections until the law is passed. They have been stuck at the appeals
level with the CRA. They are still there now. It creates anxiety for them
because the system still thinks they owe them money. As long as the law is
pending, they get statements they owe these amounts and the interest over 13
years, as you can imagine, gets to be pretty large.
The thing that is really frustrating is that in many respects, even
though they got, therefore, dividend treatment in 2000, in a sense, it is
just a question of timing, because they ended up selling the spun-off
company. For most of them the spun-off company was taken over a few years
later and they ended up paying tax again on that sale.
Most of them at that point had the comfort letter, so they ended up, in a
sense, filing to their detriment at that time, as well. At that point, they
filed based on the amendment, which would have given them a lower cost base
than if they had taken the original dividend treatment. In effect, they have
overpaid their tax there. It just shows you the kind of complication and
difficulty that can arise when things drag on for a long time. Needless to
say, most of them have probably had professional help in terms of dealing
Senator Oliver: Mr. Vineberg, you have been coming to these
committees for years and given us invaluable advice on a number of things.
Most of us around this table are concerned that a bill dealing with laws
passed as long ago as 2001 which are just now being resolved to the
detriment of thousands of Canadian taxpayers. From your experience, what
types of things would you recommend to this committee that we recommend to
the government to overcome this enormous delay?
Mr. Vineberg: I think that, obviously, there had been an issue
with minority Parliaments and it has taken much longer. If there could be a
policy, for example, of not waiting and dealing with it as an omnibus
technical provision but that — I am just throwing this out as an idea —
every second year in the ways and means motion that they could try to give
effect to the comfort letters and the technical amendments.
When you think of it, if it is a majority Parliament and everything is
ultimately enacted; is there any reason why everything must proceed by way
of a technical bill?
As you have heard, there are many provisions in this bill that are not
really technical-technical — the restrictive covenants, the foreign
affiliate rules, the non-resident trust. However, they have been around for
so long, it seems like, oh, my God, this must be technical by now. This was
proposed in 1999 and we still do not have it passed.
That is one possibility. Obviously, Parliament is sovereign. It cannot be
dealt with by regulation. You must amend the act.
One recommendation that I would not support is the idea of a sunset
provision. Currently, even if it takes five or ten years — and hopefully
that will not occur in the future — the comfort letters are ultimately
You can tell a client, yes, you have received this letter from CRA saying
you owe a lot of money, but do not worry. You do not owe that money. Listen
to me. Sometimes they do not listen to you.
If there was a sunset bill, yes, it could force the Government's hands,
but things happen and I would say that, as of now, major billion dollar
deals are done on the basis of a comfort letter. If there was a sunset
provision that the piece of paper did not mean anything after two years, it
would be a very scary prospect for us. I do not know how Mr. Kingissepp
Mr. Kingissepp: I completely agree.
Senator Oliver: Thank you both very much.
Senator Massicotte: Thank you for being with us. For those who do
not know, I want to make a comment. Mr. Vineberg comes from a lineage of an
important Montreal family who has contributed immensely not only to the law
community, but to the business and cultural communities. Thank you to your
parents, you and grandparents. You have made a significant difference to our
The only question I had was relative to the point you raised where, if an
interest exceeds 10 per cent in a foreign trust, then they are deemed to be
a Canadian taxpayer.
What did the department say in that regard? Do they acknowledge that as a
problem? Do they argue it is not an issue?
Mr. Vineberg: I have great sympathy for the department and, yes,
it is a bit of a cat-and-mouse game. This whole thing on section 94, at
least anecdotally, came up because some aggressive tax planners were setting
up a trust in, let us say, Bermuda. They were called Red Cross trusts with
the Red Cross as the beneficiary and the right to amend it later.
Would you not know, he set it up with let us say $1 million and they give
a hundred bucks to the Red Cross and, 15 years later, it just happened to be
his children that get added as beneficiaries.
I personally felt that the old 94(1) worked quite well and things such as
the Red Cross trust could have been attacked successfully. The department,
going back to 1999, said, no, we need something much broader. Sometimes when
you have things very broad, you cast the net too broadly.
I will tell you a story that is somewhat amusing. I will not mention the
gentleman at Finance, but I was at a meeting when I told this to a client.
He said, "So-and-so is the author of this?" Yes. "Then I am going to arrange
for him to be named as a beneficiary of a foreign trust and not tell him
about it." Everyone laughed.
There are trusts I act for that were founded in Canada where no one has
stepped foot in Canada for many years and then perhaps someone is going to
come to school at McGill or University of Toronto. Are they a Canadian
resident? Most people would not even imagine asking the question. Would this
mean that the entire trust is liable and with trustees personally liable?
May I say, it is just excessive.
Senator Massicotte: They agree with you?
Mr. Vineberg: I think it is something to be looked at. I have had
discussions. It is something to be looked at. I am not here to speak for Mr.
Kingissepp or others, but I think virtually every person looking at this
bill would say, if I could, there are at least 5, 10, or 15 things that
should be changed.
Senator Massicotte: CRA agrees with you?
Mr. Vineberg: First, it would not be CRA. It is Finance. I have
had discussions. They are aware of the issue. It could be dealt with. There
are three different ways I have suggested it could be dealt with. Maybe the
simplest way is to say, "Fine. If you are a 1-per-cent beneficiary, only 1
per cent of the income is taxable," or, if a trust is outside and was
established 20 or 30 years ago and everyone has probably forgotten about it,
that is fine.
There are various ways to go. Only the unwary will be caught by a
situation like this.
Senator Nancy Ruth: Mr. Vineberg, you are giving me a little bit
of a teaching lesson. Regarding the story about the trust that had someone
come back to Canada to study, let us say, was the trust to be taxed
annually, or was it both on income and capital gains? What is the process
Mr. Vineberg: The basic principle is that — and this is very
simple — in the event you have a Canadian resident who is a settlor, it is
taxable if it is offshore. We are only talking about foreign trusts. If I
were to establish a trust in Barbados and if I had a child living in
Barbados, then I could give him $1 million and it is not taxable. If I were
to set up a trust for him with $1 million and he is living in Barbados and
it is run out of Barbados, that would be a trust that is taxable in Canada
on all of its income.
That is not so bad because I am in Canada. However, if you had a trust
that would have been set up by my great- grandfather — and fortunately my
great-great-grandfather did not set up any trusts, at least that I know of —
and I have families like this where no one has been in Canada for a couple
generations, but the trust deeds are still Canadian trust deeds. The settlor
of the trust died 50 or 60 years ago. If one of these grandchildren or
great-grandchildren comes back to Canada, that trust is taxed on all its
Senator Nancy Ruth: What is the rule that would tax such a trust
only on its capital gains every 21 years?
Mr. Vineberg: That is a different rule. If you have a resident
trust in Canada, the rule is to avoid. I think this was brought in in 1971.
They did not want people deferring capital gains for a long period of time.
Senator Nancy Ruth: Forever.
Mr. Vineberg: So, basically a trust is deemed to have sold most of
its property every 21 years, and it can get out of that provision by
distributing it to the beneficiaries.
An Hon. Senator: I wonder how many people at home are taking
The Chair: I want to be clear that —
Mr. Vineberg: I mean that leads to talking about something else. I
have had two situations — and I hasten to add they are not my clients —
where people set up trusts and completely forget. Then, someone afterwards
realizes it has been 26 years. The beneficiaries are all Canadian; they
could have gotten all the money out tax-free. They got caught.
I know we have set up — and probably Mr. Kingissepp's firm has also — a
doomsday book so that people know; before the twenty-first anniversary, you
tell them they have to take some action. I remember my father saying, "Gee,
this is a problem I only have to think about in 1992," and now we will have
the second iteration of it in 2013.
The Chair: To Mr. Kingissepp and to Mr. Vineberg, I want to
express our great appreciation, but I must add something to the members of
Senator Massicotte was very kind in recognizing the contributions that
Mr. Vineberg's family has made to Montreal — I might say to Canada.
I would also like to draw to the attention of the committee that Davies
Ward Phillips & Vineberg LLP is a very famous firm from Montreal. Mr.
Phillips was a member of the Senate from 1968 to 1975, and Senator Phillips
was a member of this committee. In 1968, it was the Senate Banking and
Commerce Committee, and he was on the committee at the time when the word
"Trade" was added.
That is a matter of perspective for our witnesses. Again, you have our
great appreciation for your appearance.
Senator Hervieux-Payette: While I was talking with —
The Chair: Is this legal advice that we are trying to get? We are
not allowed to charge.
Senator Hervieux-Payette: Maybe a little advice to our committee.
I was saying that, before I joined the Senate, my husband was the adviser
in fiscal matters to the Banking Committee for 10 years. He is retired now,
but maybe Mr. Vineberg could be invited as a consultant to our committee the
next time we have to study a fiscal matter — he will read the 500 pages and
give us advice.
We have to be humble with the size of the bill and the complexity of the
bill, because that is what we discussed. So, we do appreciate them telling
us it is urgent to do it. I expect at least one or two flowers on the day
they pass the bill, so that we have helped these families.
The Chair: Thank you, Senator Hervieux-Payette. This meeting is