THE STANDING SENATE COMMITTEE ON NATIONAL FINANCE
EVIDENCE
OTTAWA, Tuesday, May 16, 2023
The Standing Senate Committee on National Finance met with videoconference this day at 9:01 a.m. [ET] to examine the subject matter of all of Bill C-47, An Act to implement certain provisions of the budget tabled in Parliament on March 28, 2023.
Senator Percy Mockler (Chair) in the chair.
The Chair: I wish to welcome all of the senators as well as the viewers across Canada who are watching us on sencanada.ca.
[Translation]
My name is Percy Mockler, senator from New Brunswick, and Chair of the Standing Senate Committee on National Finance. Now, I would like to ask my colleagues to introduce themselves starting from my left.
Senator Forest: Welcome, everyone. I’m Éric Forest, senator from the Gulf region in Quebec.
Senator Gignac: Good morning. I am Clément Gignac, senator from Quebec.
Senator Galvez: Good morning. Rosa Galvez, independent senator from the Bedford region in Quebec.
Senator Loffreda: Good morning and welcome to everyone. Senator Tony Loffreda from Montreal, Quebec.
[English]
Senator Duncan: Good morning and welcome. Pat Duncan, senator from the other end of the country, Yukon.
Senator Pate: Kim Pate. I live here in the unceded unsurrendered territory of the Algonquin Anishinabek.
Senator Smith: Larry Smith, Montréal.
Senator Marshall: Elizabeth Marshall, Newfoundland and Labrador.
The Chair: Thank you, honourable senators.
Today, we continue our study on the subject matter of Bill C-47, An Act to implement certain provisions of the budget tabled in Parliament on March 28, 2023.
[Translation]
We have with us today from the Canadian Chamber of Commerce, Alex Gray, Senior Director, Fiscal and Financial Services Policy; from the Canadian Federation of Independent Business, Jasmin Guénette, Vice-President, National Affairs, and Christina Santini, Senior Policy Analyst, National Affairs; and from the Canadian Bar Association, D’Arcy Schieman and Alan Kenigsberg of the Commodity Tax, Customs and Trade Section.
We welcome you all and thank you for accepting our invitation to testify before the Standing Senate Committee on National Finance.
[English]
I understand that each association will be making a five-minute opening remark before we proceed with questions from senators.
We will begin in the order that I introduced you. Mr. Alex Gray, from the Canadian Chamber of Commerce, the floor is yours.
Alex Gray, Senior Director, Fiscal and Financial Services Policy, Canadian Chamber of Commerce: Thank you, senators, for having us here today.
Budget 2023 presented the government with an opportunity to establish the conditions necessary to grow our economy and raise future generations’ standard of living. Some elements are laudable. Some others, such as the proposed imposition of yet another sector-specific tax on financial services providers, will harm Canadian competitiveness and further distort an already cumbersome tax code. Taken as a whole, we see Budget 2023’s lack of a decisive strategy to attract the investment required for strong, sustainable growth as a missed opportunity to ensure Canada’s economic competitiveness in perpetuity.
In the aftermath of the pandemic, our international competitors continue to outpace us as Canada experiences low growth and weak labour productivity. Indeed, it was Budget 2022 that first noted that labour productivity growth in Canada has slowed from about 2.7% in the 1960s and 1970s to less than 1% today. Correcting this trend requires government to create a strategy that eliminates the disincentives to investment while focusing on pro-business policies for the benefit of all Canadians.
However, strategy without execution is pointless, and there are many obstacles for Canadian businesses to overcome. We cannot hope to encourage private sector investment without predictable, pragmatic policies. Today, I will highlight two of our membership’s policy concerns which, if addressed, could reduce friction in the Canadian economy at little to no cost to taxpayers.
Start with our convoluted tax code. The recent introduction of several sector-specific taxes such as the digital services tax — still a proposed form — the Canada Recovery Dividend and the corporate tax increase on banks and insurers, introduces unwelcome volatility and unpredictably to the Canadian business climate.
In BIA 1, we are particularly concerned about the proposition of yet another such tax. The proposal to amend the GST and HST definition of what constitutes a financial service in the Excise Tax Act to exclude payment card network operator services sounds esoteric but, as with the digital services tax, we oppose all retroactive natures and, specifically, the retroactive nature of this proposal, which would allow the CRA to assess taxpayers as far back as 1991.
Canadian businesses cannot plan and invest for the future without the ever-looming possibility of retroactive taxation. Additionally, this new tax will decrease Canadian competitiveness while increasing the costs of doing business in Canada. In general, other jurisdictions exempt their payment card network operators from similar taxes. By defying this best practice, the government would be placing Canada’s financial services sector at a competitive disadvantage relative to its international peers. Further, increasing the cost of card acceptance would force businesses to weigh shouldering a new fee or passing it along to consumers — a difficult proposition at a time when the cost of living is increasing for everyone.
We urge the government to reconsider the application of this and other distortive taxes and instead undertake a concerted effort to simplify both business and personal taxation.
Additionally, with over 800,000 job vacancies in Canada, we had hoped to see the budget focus more sharply on the skills and talent our workforce will need now and into the future. Measures such as enhancing the Express Entry program, improving interprovincial and foreign credential recognition practises and reducing seniors’ disincentives to work would cost little while helping business address a vexing obstacle to growth and expansion.
In sum, we had hoped that Budget 2023 would contain many more of these low- or no-cost growth measures. Allow me to underscore that Canadian business is eager and willing to partner with the government to create a strategy that takes advantage of these measures for our collective prosperity. Thank you.
The Chair: Thank you. We will now hear from Mr. Jasmin Guénette and Christina Santini from the Canadian Federation of Independent Business.
[Translation]
The floor is yours, Mr. Guénette.
Jasmin Guénette, Vice-President, National Affairs, Canadian Federation of Independent Business: Good morning, members of the Standing Senate Committee on National Finance. Thank you for inviting us here today to share our comments and recommendations regarding Bill C-47.
I will make my comments in French. My colleague will comment in English. We can then answer your questions in both languages.
The Canadian Federation of Independent Business, or CFIB, is a non-partisan, not-for-profit organization that represents 97,000 small- and medium-sized businesses across the country and in all sectors of activity. Sixty-eight per cent of our members have fewer than nine employees, and 28% of our members have between 10 and 49 employees.
Many of our members are still struggling to fully recover from the effects of the pandemic. Fifty-eight per cent of our members have pandemic debt, and 52% have revenue that is still below normal. That’s not counting the impact of inflation, rising borrowing costs and persistent labour shortages.
From the perspective of our organization and the members we represent, Bill C-47 contains both positive and potentially negative elements that we will raise with you today.
First, we’re pleased to see that the labour mobility deduction for tradespeople will increase from $500 to $1000, providing tradespeople with added support for tool purchases.
We support provisions to establish a sole external complaints body for Canada’s banking industry. The CFIB made this recommendation several years ago.
We’re pleased that the excise tax increase on alcohol products has been capped at 2% this year.
On the other hand, we will continue to ask the government to keep this tax from increasing automatically.
Finally, we’re not opposed to creating the Employment Insurance Board of Appeal to replace the Social Security Tribunal, provided that the board is tripartite and doesn’t substantially increase administrative costs charged to EI.
As I said, other elements of Bill C-47 raise concerns that my colleague Ms. Santini will share with you.
[English]
Christina Santini, Senior Policy Analyst, National Affairs, Canadian Federation of Independent Business: First up, excluding the definition of “financial services” the words “payment card network operators,” as previously referenced by Mr. Gray, would lead to a trickle-down impact on small-business owners, who would now feel the charge of the GST/HST on those services.
It can negate or counteract some of the potential savings that a reduction in interchange fees from the agreement with Visa and Mastercard could engender, thus giving with one hand and taking with the other.
In that regard, we would recommend that the related provisions be removed from this bill.
Second, the requirement to make electronic remittances or payments to the Canada Revenue Agency, or CRA, and other government departments for any amounts over $10,000 should not be a requirement. Many small-business owners will need to visit their financial institution to make arrangements for those payments; not all of them have access to reliable broadband internet or are able to use online services.
Financial limits generally apply to online transfers. Transaction fees could also be charged, whereas a cheque can be dropped off in the mail at any time, whether it be 11 p.m. or 5 a.m. with chequebooks that may have already been purchased. Ultimately, this measure passes on the administrative burden and costs from the government to small-business owners.
Electronic payments should not be mandated. The more options, the better.
With regard to the provisions relating to the dental care measures act, once again an administrative burden is being added to small-business owners. The good news is that the government intends to leverage an existing declaration process to collect that information. The declaration procedures will also need to be simple — merely a checkbox or two.
On the application of a penalty in the event of unintentional noncompliance, we ask that an education versus an enforcement approach be adopted. The law should allow officers to consider business size, revenues and profits when determining the amount of a penalty by potentially adding the words “up to” before $100. Furthermore, the penalties should only apply to returns filed after 2025 to provide time and support employers through the transition.
Thank you for the opportunity to be here to raise those concerns. We are pleased to answer any questions that you may have.
The Chair: Thank you. From the Canadian Bar Association, we have D’Arcy Schieman and Alan Kenigsberg. Mr. Kenigsberg, I believe you will make a presentation.
Alan Kenigsberg, Member, Canadian Bar Association Commodity Tax, Customs and Trade Section, Canadian Bar Association: Good morning, Mr. Chair and honourable members of the committee. Thank you for inviting the Canadian Bar Association to discuss Bill C-47, namely the proposed amendments to the coming-into-force provisions of the GST/HST amendments to the Excise Tax Act.
The CBA has two concerns with the provisions: one, the retroactive application of tax back to 1991, and two, the proposed extension of limitation periods, which arguably allow the CRA to assess taxpayers back to 1991, notwithstanding the normal reassessment period.
Applying tax legislation to overrule a court decision by imposing tax on a retroactive basis is a serious violation of the rule of law. The Supreme Court of Canada has underscored the importance of predictability, certainty and fairness in the context of tax laws. Canadian democracy is based on the rule of law, as can be seen in the first line of the Canadian Charter of Rights and Freedoms, which states that Canada is founded upon principles that recognize the supremacy of the rule of law.
Canada often emphasizes its support of the rule of law internationally. There is concern that by creating legislation that retroactively imposes taxation, a clear breach of the rule of law, Canada will be undermining its own ability to use moral suasion to encourage other countries to respect the rule of law.
We note that the Department of Finance has suggested that these rules are not retroactive as they merely restore what was always the case. Clearly, this is retroactive legislation, and it’s intended to overrule the Federal Court of Appeal January 2021 decision in the CIBC Visa case as to what the law was: that these services were exempt.
While the government certainly has the right to change the legislation, it should not profess that the draft legislation is not retroactive.
In the federal budget, the government stated that the amendment is “clarifying” legislation, and it justifies the clarification on the basis that:
It has always been widely understood that the services of payment card network operators are excluded from the GST/HST definition of “financial service.”
That assertion is not justified by the facts. In the CIBC Visa decision, the rebate claims in question were for the 2003 period. Other taxpayers have claims that go back just as far, and numerous taxpayers have claims that go back years — sometimes even more than a decade — prior to the CIBC Visa decision.
Furthermore, during the 26 months between the decision and when the government announced the proposed changes in law, everyone who was self-assessing stopped. All the payment card network operators that had been charging GST/HST stopped. The CRA started paying out rebates to those taxpayers, and the Department of Justice was settling cases without trial on the basis that these services were exempt.
For almost 20 years, multiple taxpayers have understood that such services were exempt, and for the last 26 months, everyone understood they were exempt.
The Department of Finance did not make any public announcement that it was going to create retroactive legislation. The CIBC Visa decision was not appealed to the Supreme Court of Canada. It is unreasonable to expect retroactive legislation more than 26 months after a court decision, especially when the government itself is acting as if there is not going to be retroactive legislation.
D’Arcy Schieman, Member, Canadian Bar Association Commodity Tax, Customs, and Trade Section, Canadian Bar Association: The Department of Finance has also suggested that, since this is GST, taxpayers should have expected retroactive changes in law. Retroactive legislation should never be expected. Each time the government creates retroactive legislation with retroactive effect, it further erodes faith in the government, both domestically and internationally.
It also fails to address our concern that the proposed retroactive change is not merely clarifying the law but is intended, specifically, to reverse a court decision determining what that law was.
The Senate committee has previously heard representations that it was clear that the services at issue were, and were intended to be, taxable. However, the statute, regulations and related publications do not support that assertion. In any event, it is a matter for the courts to determine based on established statutory interpretation principles, as the Federal Court of Appeal did here in 2021.
The Senate committee has also previously heard that this legislation is not retroactive but simply restoring the situation to what it had been. With respect, it is the courts that make that determination, and the Federal Court of Appeal did so in January 2021. The reversal of court decisions and consent judgments approved by the courts and the Crown, and the reversal of the CRA appeals- and audit-level decisions after payments of material amounts to the taxpayers for reporting periods dating back for more than a decade, all clearly constitute retroactive changes in legislation.
There is a second-related concern, as my colleague has noted: the extension of otherwise applicable limitation periods. You have previously heard that those amounts that are proposed to be assessed only arose out of rebate claims filed after the Federal Court of Appeal’s decision in 2021. That is not accurate. The amounts at issue relate almost entirely to claims dating back for a decade or more. Opening up those statute-barred reporting periods is an exceptional course of action. Financial statements will have to be restated; shareholders will be affected; and certain entities, without renegotiation of contracts, will no longer find it commercially tenable to continue to operate in Canada.
Further, even if an argument can be made that taxpayers should have known that the government would create retroactive legislation, which is not the case and would ignore the accounting standards and statements so important to the financial sector, once the CRA began to pay out rebate claims over multiple years and multiple federal budget cycles — this was clearly not the case. There was no expectation of retroactive legislation.
These issues should be a concern for all taxpayers and, generally, for all Canadians.
Thank you for the time to discuss this important issue today.
The Chair: Thank you for the presentations. Now, we will proceed to questions.
I will remind senators that you will have a maximum of five minutes each, and the second round will be three minutes each.
Senator Marshall: My first question is for Mr. Schieman and Mr. Kenigsberg.
Your brief was excellent, but there were a few points I want to clarify based on your presentation. Is this retroactivity confined just to these services, or does it open up all aspects of the Income Tax Act? Is it a two-pronged thing? As a taxpayer, for example, if I had a capital gain and it got taxed at a lower rate, is the amendment worded in such a way that the government could go back and say that capital gains should be taxed at the higher rate? Can you address that?
Mr. Schieman: Just the substantive amendments that are part of the budget implementation act.
Senator Marshall: So it opens the door to retroactivity for everything, then?
Mr. Schieman: Not for capital gains, and so on.
Senator Marshall: Okay. It’s specific to this situation.
Mr. Kenigsberg: For anything in respect of this situation.
Senator Marshall: Could you clarify this, then? Did I understand from your opening remarks that the tax was collected and then rebated? Was the tax actually collected at some point in time?
Mr. Kenigsberg: In some cases, the tax was collected; in some cases it was self-assessed. The rebates were claimed and have been paid out for the most part.
Senator Marshall: My next question is for the Chamber of Commerce. When you commented on the budget, I think you also mentioned it in your opening remarks and gave some examples. You were talking about economic growth within the country, the need to eliminate disincentives and focusing on pro-business policy.
Can you give us a brief idea as to what the chamber is referring to with the disincentives and also what are the pro-business policies you would like to see?
Mr. Gray: In terms of the disincentives to work that I mentioned in my opening remarks, generally something we have been focusing on recently is how we keep seniors in the workforce. These are our most knowledgeable workers. Many retired early in the pandemic. They got a package from their employers. They had developed significant equity in their houses, and it was a good time for them to do so. We’re faced with a labour shortage. Right now, Canadian tax planning is essentially a game of minimizing income to maximize government benefits. The RRSP system was designed in 1957, and the age for withdrawals hasn’t been changed. We would like to see some changes there such as increasing the age at which mandatory withdrawals from a RRIF would have to be made. Life expectancies have changed.
In terms of the pro-growth policies that we advocate for, the first would just be a simplified corporate tax code. It is convoluted and difficult to access. Even with the IRA response tax credits which have been touted by the government, they’re more difficult to access than their equivalent in the U.S. We would like to see streamlining on that front. We would like to see greater regulatory smoothness. In Canada, projects die not because of an unwillingness of their partners to complete them but because of regulatory delays that seem to never end. It prevents us from meeting our economic capacity and from developing the infrastructure we need to get our goods to the world.
Senator Marshall: The government, as you know, has established an array of funds. We have the Canada Growth Fund, the Innovation Fund, the Strategic Innovation Fund, and so on. Has the chamber ever taken a position on those funds and whether they actually do contribute to economic growth? That’s the overriding objective of them.
Mr. Gray: Of our 200,000 members, none of them have ever asked for another government agency. Our demands are for regulatory certainty, certainty on the taxation front and a more friendly environment in general.
Senator Marshall: I’ll start with the Canadian Federation of Independent Business. Perhaps you can start by taking about the CEBA loans which is something that I say is a train racing towards us. Maybe I’ll have second round to continue, but can you address the issue of the CEBA loans and the impact it looks like it will have on small business?
[Translation]
Mr. Guénette: Thank you for the question.
Yes, business owners who have taken out the Canada Emergency Business Account loan will have to repay it before the end of this year to qualify for loan forgiveness. During the pandemic, the main benefit of the program was the $40,000 or $60,000 loan forgiveness. The deadline for repayment of CEBA loans is December 31 of this year. If businesses are unable to repay it, they will lose the loan forgiveness and will have to repay the loan at 5% interest. They will have until the end of 2025 to repay it.
As I said in my opening remarks, 52% of our members are experiencing below-normal revenue. A great number of our members have accumulated debt as a result of the pandemic. On average, they owe more than $100,000. We’re asking the government to extend the repayment deadline by at least a year or even two years, to help more businesses repay their loan and remain eligible for the forgiveness loan.
As of today, only 10% of businesses have fully repaid their CEBA loan. People have been asking for quite some time now that the deadline be extended to help businesses repay their loan, which was very helpful during the pandemic.
[English]
Senator Marshall: May I go on the second round to further explore that?
The Chair: Yes.
[Translation]
Senator Forest: Thank you to the witnesses for being with us.
For my first question, I will carry the ball. Right now, you’re trying to secure an extension on repayment of the loan granted to our businesses.
How was that received? Are they open to it? Are they totally against it?
Mr. Guénette: We’ve put in a lot of effort. More and more people now understand how important it is that the deadline be extended.
When we came out of the pandemic, we were all glad to be able to move on. The fact remains that this loan must be repaid. We hope that the deadline will be extended. We’ve had no news at this time that the date would be extended. There’s still a possibility, but we’ve had no clear indication that the date will be extended.
Senator Forest: I have a question about the automatic increase in the excise tax on alcohol products, which was implemented a few years ago. I’m thinking particularly of microbreweries and microdistilleries.
After all these years, have you been able to determine how much tax the government has collected? We were told that this tax costs a few cents a glass. However, we can see that microbrewers and microdistillers are in serious trouble. These businesses are heritage tourist attractions. They draw people from across the country.
Is your federation able to see the costs and benefits of all this? What impact does this tax have on the microbrewery and microdistillery community?
Mr. Kenigsberg: We have no study that looks into what you are asking. The heavier the tax burden on small producers, the more they are forced to limit their operations, especially when it comes to hiring staff, expanding, innovating and purchasing equipment.
We were pleased to see that the excise tax was capped at 2% in the last budget. However, the problem is that it will automatically increase each year. That’s very unfair to small producers across the country. That’s why the approach needs to be reviewed.
Senator Forest: Because we’ve had two consecutive months with the consumer price index at over 4%, additional measures will be required if we want that to be taken into account.
Now I’d like to address Mr. Gray from the Chamber of Commerce.
We worked hard to pass Bill C-208, which taxes intergenerational business transfers fairly again. What’s happening today is totally unfair. Right now, the government is saying that Bill C-47 will develop measures. However, the measures are not in place at this time.
Can the Canadian Chamber of Commerce give us — C-208 passed a few years back, two and a half years ago, actually.
What impact has the bill had on intergenerational business transfers, in your view?
[English]
Mr. Gray: The impact will be significant, I believe. What we hear from our members — and this has come up repeatedly in consultation with members — is that the process is too complicated and punitive, especially for smaller businesses. We’d like to see further simplification.
In terms of quantifying the impact, I would, possibly, be able to get back to you in writing with some numbers on an average basis. I don’t have that data in front of me. In general, however, we believe in preserving the spirit of Bill C-208 and we would advocate for any and all policies that simplify the transition of business, including but not limited to employee ownership trusts.
[Translation]
Senator Forest: I will expect an answer in writing. Mr. Gray, the vast majority of cities and communities in Canada have chambers of commerce. Do local chambers work with cities and municipalities? They share the same issues: attracting new families, ensuring succession in our organizations and promoting economic development, particularly sustainable development.
In the past, chambers of commerce were mostly seen as groups that put pressure on municipal councils. Nowadays, given 21st-century realities, has that changed? Are you working together more to develop Canadian communities?
[English]
Mr. Gray: Our engagement with local chambers has been ratcheted up to an absolutely new level. This was in part prompted by the pandemic in which we were alerted to new realities on the ground facing Canadian small businesses that we hadn’t considered from Ottawa.
While the chamber’s engagement with small businesses and municipalities, their boards and lobby groups, is certainly on the up and up, we have taken that voice to government.
I would probably contend that they do not feel as heard by government as they probably should. They participate in consultations, they submit feedback to committees and they raise their hands to appear at committees just as much as any of us do. On the whole, however, they feel a bit left out of the decision-making process. We are happy to abet as much as we can but there is only so much a national organization can do, absent the lived experience that these small municipalities go through.
[Translation]
Senator Gignac: Good morning and thank you for being here. My question is for the Canadian Bar Association. The issue that you’ve raised is important to me. I did ask Department of Finance officials questions about the retroactivity factor, and I’m surprised, like you. Twenty-six months between a court of appeal decision and government action, as you mentioned in your testimony — has that ever happened? Is it unusual? I’m curious to hear your thoughts on this.
[English]
Mr. Schieman: Unprecedented. I don’t think we have seen anything even close to this long a delay between a court case and the announcement of legislation.
Senator Gignac: What is the best practices? I’m not a lawyer. I’m just an economist, but it’s neither the first time nor the last time that the government will lose at court. However, usually in the following days, the following weeks or the following three months, they will send a signal of an intention to appeal, or to reverse, or something. You said that the government has not provided any signal in the last 26 months. I’m just curious to challenge — whatever.
Mr. Schieman: Our preference would obviously be not to get to court. Once rebates were filed 20 years ago, the response would have been not to usurp the power of the court but to address that once the government authorities became aware of that. Failing that, of course, as expeditiously as possible after the judgment.
Mr. Kenigsberg: From the Canadian Bar Association’s perspective, any time you’re creating retroactive legislation that imposes a tax it’s not a good thing, and you don’t want to do it. But if you are going to do it, you need to do it very quickly and you need to have all the elements of government on board with it.
In the past, we’ve seen it where the CRA refused to pay out rebates. That at least gave a sign to taxpayers that there was retroactive legislation coming. None of that here. Here, the rebates are being paid and after 26 months, even if someone might have thought that there was going to be retroactive legislation, that mindset changed. This caught everybody off guard. No one was expecting retroactive legislation here to my knowledge, other than the Department of Finance. No one in the business sector was expecting this.
Senator Gignac: If I understood correctly, the finance department mentioned to us that even the Canadian Bankers Association told me that the figure is around $200 or $300 million. It’s not necessarily the amount of money because, quite frankly, the banking system can afford to pay given their profits. I know that sector pretty well since I’ve worked for financial institutions, but it’s more the idea and the precedent. It’s more about that, namely, creating a new area and the perception as well that in Canada, this is it not a rule of law that we want to send. Does that correctly interpret your testimony?
Mr. Schieman: Absolutely.
Senator Gignac: Okay.
Senator Smith: Mr. Gray, you talked about how the government could initiate policies that would be beneficial to stimulate the economy. I guess the question I have is a follow-up to Senator Marshall’s.
What opportunities were missed by the government? How does it compare with other jurisdictions in the world? You see what’s happened with the inflation-reduction policy introduced in the United States, but could you give us some of your thoughts about how we compare? If you had a top two or three that need to be implemented now — and don’t tell me the Tax Act because I took economics and business and we were looking at this a long time ago in terms of efficiency — what would they be? If you could help us, that would be great.
Mr. Gray: Sure. Aside from tax, the two concerns that come up most commonly among our membership are skill shortages and red tape. In terms of skill shortages, for example, as I mentioned in my opening remarks, we need to harmonize the Express Entry program. There are a lot of talented people who would love to make their homes in Canada who may find it difficult to do so.
Regarding other jurisdictions, look at the U.S. and the H1B visa that gets highly skilled workers into the country very quickly. This is a program which doesn’t have a direct corollary in Canada but could be implemented to attract international talent.
On the regulatory side, our permitting process takes too long and regulatory decisions are not necessarily made with an economic lens in mind. We normally think of the EU being very advanced in the regulatory sphere, which is true, not to take anything away from them. But we have also seen in the U.S. as a comparison. They’re starting to take a more economic lens in their regulatory approval process.
With respect to the IRA, again it could be simplified. It’s not as seamless for Canadian companies to apply for the Canadian equivalent benefits as it would be for American companies, which is a shame. We can’t complete with them on a dollar-for-dollar basis, obviously. Strategically, we could induce investment by at least making the process more streamlined.
Senator Smith: Could the CFIB give their answer to that question?
Ms. Santini: We share similar concerns and points of view. One area we’ve been pushing for our members is with regard to carbon pricing and putting a freeze on that, ensuring that the rebate scheme is fair for small business owners. Money has been set aside but not doled out or returned. Also, we have undertaken research that has demonstrated that small-business owners pay a lot more than they get back from the pricing scheme, which is supposed to be revenue-neutral.
Ultimately, they’re just not getting their fair share back, and it is something that is increasing their input costs, whether these be transportation or energy.
You mentioned international examples. Not all countries have followed the same path to support environmental goals as Canada. Not all are implementing pricing strategies; some are rather investing in clean technologies, understanding that there isn’t an affordable and accessible alternative for all aspects of the economy.
We would encourage the government to look at what is done elsewhere and not just look at introducing a tax or a price. Also, for the price that has already been introduced, how can we ensure that all are treated fairly under that same scheme?
The labour shortage is one of the biggest pressures our members are talking about. They’re just not seeing the applicants. There is a huge vacancy rate across all sectors and skills. It’s not just the unicorns we’re missing; it’s also the basic labourers. We’re supportive of different initiatives that simplify the immigration system. We’ve also put forward proposals to help incentivize older workers to return to work or to stay in the workplace by enabling them to keep more of their hard-earned money — the whole idea of increasing the potential labour pool that small business owners can draw from.
The other element is to potentially increase the efficiency of the labour they have by supporting even the smallest of business owners to invest in automation. Right now, a lot of investments or credits are potentially out of reach for those small businesses that are just starting up.
Then, of course, there is the red tape. We’ve been a long-time champion for reducing red tape. We encourage the one-for-one rule to apply to policies, guidance and legislation — not just regulations; ensure that new pieces of legislation and regulations that are brought are measured and costed with a small-business lens or perspective; and, enshrine a feedback loop within government portals.
Senator Pate: Thank you to our witnesses for appearing.
We know that part of the issue of labour shortages relates to the fact that individuals, during the pandemic, became clearly aware of the risks to them in terms of health and economic risks, and the lack of protections in the labour market that had been evolving over several decades. I notice there has been a fair bit of talk, particularly among groups like Policy Options and Canadians for Tax Fairness, about the fact that corporate profits trended much higher during the pandemic while corporate contributions to public revenue were trending lower.
Given that corporate tax avoidance nearly doubled in 2021 compared to the pre-pandemic average, and that 2021 tax avoidance cost Canadians approximately $30 billion, I’m concerned about how we square that with some of what you’ve presented today. We know that the funds needed for essential services, such as health care, education and infrastructure, place a burden on those who have the least. One fairly comprehensive and straightforward strategy to prevent corporate tax avoidance is a minimum tax on book profits, which has been implemented in the United States recently, as you know. In the U.S., they issued a minimum tax of 15% on book profits.
I’m curious as to what your respective positions would be on the support for a minimum tax on book profits as a strategy to mitigate some of the tax avoidance that has been occurring. I heard what you’ve presented, but this was an issue I didn’t hear anyone speak to.
Mr. Gray: We agree that tax avoidance is a terrible thing. It should not occur, and one of the root causes of tax avoidance is a convoluted tax code and loopholes — ways to get in and out of declaring where your profits are coming from.
That is why the Canadian Chamber of Commerce fully supports the pillars 1 and 2 deals at the OECD for a global minimum tax. It would simplify a great deal of our corporate taxation. That’s why we’re particularly discouraged to see that this government is pressing ahead with the digital services tax, which contradicts the spirit of pillars 1 and 2, and is something, frankly, that our government agreed not to pursue. It’s just an absolutely discouraging thing to see.
I fully agree: It shouldn’t exist; it has no place in corporate society. We hope the government will press forward with all efforts on pillar 1 and 2.
Senator Pate: So you support a minimum book profit tax that the U.S. is put in place?
Mr. Gray: My focus has been mostly on the pillar 1 and 2. I don’t know how the two interact; it would be interesting to look at. I would be totally happy to talk about it further, but it’s definitely something to investigate.
Senator Pate: Perhaps your organization can look into it and send something to us in writing?
Mr. Gray: Absolutely. I would be happy to.
[Translation]
Mr. Guénette: We didn’t conduct a member survey on all of the specific issues you mentioned.
[English]
Senator Pate: Is it a question you might pose to your membership and see what the view would be? Thank you.
Mr. Kenigsberg: Sorry, we’re here today to talk about the retroactive amendments. This is not something we have considered.
Senator Pate: Thank you.
[Translation]
Senator Galvez: Thank you very much to our witnesses.
[English]
My question is for the Canadian Bar Association.
I understand that you have come and your opening remarks are with respect to a very specific thing, but there are other areas in the budget that I’m sure concern your association, members and clients. I would really like to have your opinion on combating money laundering, measures related to money laundering, digital assets and other measures.
We know the Criminal Code will be amended so to give law enforcement the ability to seize digital assets that might be confiscated as the proceeds of crime, and there will be an increased ability of the Attorney General to obtain through judicial authorization disclosure of tax information from the Minister of National Revenue.
There is another point: The modernization of the financial sector oversight to include the mandate of the Office of the Superintendent of Financial Institutions, or OSFI, will include addressing integrity and security risk to Canadian financial sector.
What is your position? You are involved with many of these taxes and any litigation. What is your opinion with respect to these two measures?
Mr. Schieman: Obviously, they are very important issues.
My area of expertise — you don’t want me addressing that. To my colleague’s point — and I apologize; I would love to be able to address that, but we are not prepared and would not be able to do justice to it.
Senator Galvez: Can you prepare a statement with respect to these two points — as you said, giving back your profession — and send it to the committee?
Mr. Kenigsberg: We will talk internally and see what we can do.
The Canadian Bar Association is a huge organization representing thousands of lawyers, judges and everything. Getting us to agree on any issue is often difficult.
We’re here on the retroactive point because we do all seem to agree that it is something that needs to be changed. On that point, we are happy to discuss it and see what we can do.
Senator Galvez: I would appreciate it. Maybe tell us what the positive and negative, or the controversial issues are, so we better understand the impacts of these measures.
[Translation]
Now that we’ve talked about loans and their repayment, I’d like to know how many members are affected by this measure and what is the total amount of the loans?
Mr. Guénette: Ten per cent of our members have fully repaid their Canada Emergency Business Account loan.
[English]
Senator Galvez: I assume all your members —
Mr. Guénette: I don’t have that number; I can’t tell you if all of our members have taken the CEBA loan, so I don’t know if all of them have. Almost a million businesses in Canada applied and received CEBA loans. The vast majority of small businesses in Canada received that loan, but I don’t know if 100% of our membership received it.
As I said earlier in my presentation and when I answered your colleague’s question, 10% of the CEBA loan holders have been able to repay it in full. The greatest advantage of that loan was its forgivable portion. That’s why so many businesses took it, namely, to help them go through the different waves during the pandemic and the business restrictions, and so on.
The deadline to repay that loan is by the end of this year to have access to the forgivable portion. If they don’t pay it back by then, they lose the forgivable portion and have to pay interest on that loan.
[Translation]
Senator Galvez: I understand all of that, but I’d like to have an idea of the total amount owed. Perhaps we could add a comment at the end of our report to recommend that the government extend the deadline for two or three years. I feel our committee could add a comment, but I’d like to get an idea of how much we’re talking about.
[English]
Ms. Santini: We collected data recently, but we’re not certain of the number and we don’t want to misquote. We’ll share that information with the committee following this meeting.
Mr. Guénette: On the web, we have the small business recovery dash board which highlights some of the key data to keep in mind when we think about small businesses and the impact of the pandemic. The most recent data we collected indicates that on average, the debt amount is $104,000 per business.
[Translation]
Small businesses have a huge amount of money to pay back. Obviously, it has a significant impact on their operations. Their ability to repay the money limits the activities they could do elsewhere, such as investing in marketing for their business or purchasing equipment.
However, instead of doing that, they will need to repay the loan very quickly. So, I believe it would be a good policy to extend the deadline for at least a year, if not two.
[English]
Senator Duncan: Thank you for your attendance here today. I would like to follow up on some of my colleagues’ questions about the CEBA loans. My question relates to the regional and the whole-of-country aspect of it.
When you provide the data — and the chair will give you a time frame when we need that — are you also able to provide us with a regional perspective, for example, the majority of loans in northern Alberta or northern Manitoba have been repaid or not repaid. Are you able to apply a regional lens to your information?
Ms. Santini: To an extent. Sometimes, if we break it down too small, the sample is just not big enough.
Senator Duncan: You also run the risk of identifying individuals. I understand that, but even a provincial breakdown?
Ms. Santini: For some provinces otherwise regional — east, west, and so on.
Senator Duncan: Provincial would be better because we can then compare it with employment and other factors.
I would like to follow up on the requests to deal with the Income Tax Act, the income tax code. We’ve heard you talk about regulatory modernization and the need for it. Who should do the work? Have you suggestions for the Government of Canada or for this committee?
Mr. Gray: With respect to this particular taxation issue we’re discussing today or more broadly?
Senator Duncan: Broadly. We all understand and we’ve heard this from accountant representations, from CFIB and the Chamber of Commerce has talked about the need to overhaul the Income Tax Act. Who should do it? You might want to consult with your members and reply in writing.
Mr. Gray: I’m happy to. Broadly speaking, the federal government has to take the lead on modernizing both personal and business income taxation. This is something that’s been promised for a very long time. Parties like to say that they’re going to do a complete overhaul of the tax code and it never seems to come to fruition. Meanwhile, our tax code gets more complicated and difficult for Canadians to comply.
Senator Duncan: Every taxpayer understands that. You’re saying the government should do it. Your organization isn’t offering their help?
Mr. Gray: Of course, we would be ready to help. We don’t exactly control the same levers of power that the government holds, but I would be delighted to talk to any member of government about this at any time.
Senator Duncan: Thank you.
Senator Loffreda: Thank you to our panellists for being here this morning. My question is for Mr. Gray of the Canadian Chamber of Commerce and it’s on the Division 32 of Part 4, the Canada Growth Fund.
When you last appeared before our committee in November as part of our study on Bill C-32, you called on the government to partner with business to create a clear, coherent strategy to generate the investment required for strong, sustainable growth. You talked about the need to approve major infrastructure projects but didn’t provide much commentary on the Canada Growth Fund which was first announced in the Fall Economic Statement.
Six months later, we know we have about a $15 billion fund and Bill C-47 is proposing amendments to the Public Sector Pension Investment Board Act to enable the Public Sector Pension Investment Board to manage the assets of the Canada Growth Fund to deliver on the fund’s mandate of attracting private capital to invest in Canada’s clean economy.
Has the chamber reviewed the Canada Growth Fund’s mandate and objectives since then? How confident are you that it will be successful in helping our economy grow?
If the CFIB wants to weigh in on this too, I welcome your comments.
Mr. Gray: I think it’s a positive change of direction for the Canada Growth Fund. Perhaps change of direction is not the best way to put it.
Back when we spoke in November, it wasn’t quite clear as to what the fund would look like, what the scale and scope of its operations would be. Our members are certainly happy to see some definition on that front.
As to the management of the assets by the PSIB, there has been some commentary floating around that it’s not quite at arm’s-length and it’s a bit unusual, but it’s an extremely well-run pension board and we have full faith in its investment managers to deliver on their mandate.
Senator Loffreda: You did say that decisions should be taken with an economic lens. Here is a decision that was taken with an economic lens, so maybe further commentary would be welcome.
Does the CFIB have any comment on that?
[Translation]
Mr. Guénette: We didn’t look at that particular issue. In general, we support measures that help businesses grow faster, with a lighter tax burden and fewer regulations. However, we haven’t studied this particular program you talked about closely enough to comment on it today.
Senator Loffreda: It’s a $15-billion fund, so it is quite big. If you could look into it and send us your comments later, they would be welcome.
Mr. Guénette: Certainly.
[English]
Senator Loffreda: My second question is to both the CFIB and the Canadian Chamber of Commerce. What impact, if any, will the ban on cosmetic testing on animals have on businesses in Canada? This is Division 28 of Part 4. We know Canadians support this measure — I certainly do — but you are aware of unintended consequences this measure might have on Canadian businesses. My understanding is it would be minimal.
Similarly, and somewhat related, can you speak about Division 27 of Part 4 that seeks to protect Canadians from potential health and safety risks associated with the use of natural health products by strengthening Health Canada’s ability to compel a company to recall a product if there is a serious risk to health? I’m asking because I know the Canadian Health Food Association is not supportive of this measure. Are you aware of it? Do you have any comments to share with us on either of these two divisions and the impact it may have on some of your members?
Mr. Gray: I’m not aware of any commentary from our members on either of those issues.
Mr. Guénette: Same.
Senator Loffreda: I’ll stick with both of you again, given my economic background. I would like to address the policy objective of Division 5, Part 4 of the bill. With this division the government seeks to amend the customs tariff to indefinitely extend the withdrawal of most-favoured-nation tariff treatment for Russian and Belarusian imports, which is expected. Since March 2022, the general tariff of 35% has applied on virtually all imports from these two countries, and the government hopes this legislative change sends an important signal to Canadian importers to incentivize sourcing away from these two countries.
I think it is a good measure and likely supported by the vast majority of Canadians. However, I wonder from a business perspective how this measure impacted Canadian businesses who previously imported products from Russia and Belarus and what financial impact it might have — or had — on their bottom line.
I ask because there have been products elsewhere a negative impact on sales, for example, farmers who rely on fertilizer have been impacted. Are there similar impacts you are aware of?
[Translation]
Mr. Guénette: We’ve heard comments from our members in the farming sector about fees for fertilizer that have brought up their operating costs. The government had shown interest in reimbursing farmers for these fees. It hasn’t reimbursed them yet. These are comments we heard about customs duties on fertilizers from Russia. This represents a significant cost increase for farmers who use those fertilizers. We wanted them to be reimbursed quickly, and I understand that the government hasn’t done that yet.
[English]
Senator Loffreda: Any commentary from the Canadian Chamber of Commerce?
Mr. Gray: Nothing to add, thank you.
Senator Loffreda: Thank you.
The Chair: Honourable senators, we will move immediately to second round.
Senator Marshall: Thank you. I’m going back to the Canadian Bar Association to talk about the retroactivity clause in the bill. Most likely this bill will go through both chambers and will be approved and that section of the bill will become law. What I would like to know is what options are open? Do the companies just pay the retroactive amounts now, the $300 million, or is there some other recourse for them or once it is in the bill it is a done deal?
Mr. Kenigsberg: The bill gives the government the authority to do that, to go back and potentially retroactively reassess these entities to pay additional tax, which they might have already received as a rebate. Then they might be challenging the legislation in court.
Senator Marshall: Okay. So that is an option that they could challenge the legislation in court?
Mr. Kenigsberg: I don’t see why not.
Senator Marshall: That’s great. Thank you. I have a question for both Mr. Gray and also for the Canadian Federation of Independent Business. Mr. Gray, has the Chamber of Commerce taken a position on the debt and deficits? The government continues to run deficits. As we go from one budget document to the fiscal update, the numbers keep getting bigger and we no longer have a time when we think we are going to have a balanced budget. Has the Chamber of Commerce taken a position on debt and deficits?
Mr. Gray: Broadly, yes. The position is: We are in a time of economic precarity. We have just come out of a pandemic, and the bottom line is that fiscal prudence should be paramount. Obviously, we are completely supportive of those Canadians who need it most receiving targeted assistance. But overall, the costs of government are going up. Something has to give at some point. One way to do that is to grow the economic pie to abet business investment in Canada so that there is more tax revenue to go around.
Senator Marshall: That’s not happening. Can you go to your next option?
Mr. Gray: I think fundamentally what has to happen is again we talk about the simplification of the tax code. When that happens you can normalize the revenue that is coming into government while reducing the costs of collecting it. That’s one of our key tenets that you have no doubt heard us mention before. More broadly, at the end of the day, future governments, future generations are going to have very difficult decisions to make as to maintaining the fiscal stability of the country.
Senator Marshall: Any comments on the size of the deficits? I was looking on your website trying to find something more detailed. Is there anything with regard to the size of the deficits?
Mr. Gray: There is probably nothing specific on the website, no. I think, broadly speaking, our membership is less than pleased to see that the projections in the budget are somewhat higher than they were in the fall economic statement, and there just doesn’t seem to be adherence to a consistent guardrail.
Senator Marshall: Thank you. Do I have time to get the Canadian Federation of Independent Business to comment on that?
The Chair: Yes.
Senator Marshall: Could you provide your comments on debt and deficits? You have in the past, so I would like something more current because we have a new budget and we will get another fall economic update. If you can comment on the debt and the deficit and the size of both and what the position of the federation is.
Ms. Santini: Absolutely. Following Budget 2023, we surveyed our members, and 83% would feel that the government should focus and prioritize on bringing the budget back to balance, and 71% opposed the fact that we were now posting a deficit of over $40 billion in 2023-24 and that, as a country, were not showing a return to balance any time soon.
Ultimately, they do want the government to be good fiscal managers and to be prudent with the funds that they collect because ultimately Canadians, their employees and themselves as businesses have to pay for government spending. So a greater awareness of where that money is going, showing good stewardship on the priorities of the government and its expenditures, but also understanding there are only so many taxes those small businesses and individuals can take. There is only so far you can go into the well. So really looking at how to increase productivity, how you can get gains in growth there, but also how you can be more efficient in delivering the services you have and be good stewards as a government. I think those are two key points or approaches that can be undertaken.
Senator Marshall: Thank you. Do I have time to ask the Canadian Bar Association?
The Chair: Canadian Bar Association, would you please comment on that question?
Senator Marshall: I will give you the opportunity although I know you are not here to talk about debt and deficits, but if you have something to say I would like to hear it.
Mr. Schieman: We don’t have anything to say on that. Can we just clarify the last comment, briefly? You had asked what other remedies are available, and we had responded that it could be challenged in the courts. But just to point out the obvious perhaps, that’s what got us here today.
Senator Marshall: Thank you.
[Translation]
Senator Forest: I want to pick up on that.
Under our current tax regime, certain measures to support efforts aimed at meeting our commitments in relation to global conflicts were supposed to be temporary. This is 2023. Our tax legislation is an accumulation of measures, regulations and amendments. Today’s economy is increasingly global. I think a tax regime should have three key features. One, it should be fair and ensure that all taxpayers pay their fair share. Two, it should be effective and generate the revenue necessary to provide citizens with the services the government wants to provide. Three, it should be competitive. Ultimately, overburdening our best and brightest, our entrepreneurs, could push them to leave the country for places with less aggressive tax rules.
The Canadian Chamber of Commerce representative or the Canadian Federation of Independent Business, CFIB, representatives may be able to answer this.
The idea of reviewing the country’s tax system has been around for a long time. Don’t you think the CFIB or the Canadian Chamber of Commerce should take a leadership role in pushing the government to undertake that review?
The purpose of the review would be to bring the system more in line with the realities of the 21st century, to adapt it to the changes in our economic structure and the flow of the economy across the country. Perhaps Mr. Gray could start the discussion.
[English]
Mr. Gray: Canada already experiences significant brain drain. It is a major problem.
It is not surprising. Let’s take a hypothetical example. Say you are a tech worker and just out of university. You are 22 and you’re looking at housing costs in Toronto. They can be up to 200% higher than the equivalent in the U.S., and you could be looking at making 70% of the salary. The numbers don’t add up.
Within the context of a tax review, sure, it is something we would be fully supportive of. We need to figure out how to keep our best and brightest here. We need to figure out how to attract the best and brightest here.
There are many mechanisms we could advocate for that would probably get us there: streamlining the tax code, making it easier to start a business, making it easier to hire, and making it easier to grow and expand. Any simplification that would help the Canadian economy is one we would support.
[Translation]
Mr. Guénette: As my colleague mentioned, CFIB members support government measures that would bring down the debt and put the government on track to return to a balanced budget. That is our organization’s position. Our members are in favour of those measures.
We are also pushing very hard for a streamlined tax system and a lower tax rate, so that our members have more resources to invest in their businesses and human resources. I’ll give you an example. I don’t think the $500,000 deduction threshold for small businesses has changed since 2009. That is the amount that gives them access to the small business tax rate. The deduction threshold has been the same since 2009. It hasn’t been changed. Yes, the tax system needs streamlining, but the threshold also needs updating. It should be raised to $600,000 and indexed year after year, to lessen the tax burden on small- and medium-sized businesses so they can reinvest in their businesses.
Senator Forest: I gather from your remarks that you see a comprehensive review of the tax system as more of a fantasy. You lean more towards ad hoc measures to address existing irritants. However, a comprehensive look at the system that takes into account globalization…
Mr. Guénette: Both are possible. On one hand, you have the day-to-day reality of business owners, collecting sales tax, remitting it to the CRA, filling out the routine paperwork to operate, making sure to follow the rules and so forth. That’s the daily reality for business owners. The government needs to do something on that front to make that reality more appealing. That would encourage people to start businesses and help those entrepreneurs invest more in their success. That’s one thing.
On the other hand, I would say this about a more comprehensive review, and I’m speaking on behalf of the CFIB. We would be very open to taking part in the review and working with those who want to move that forward, but the two aren’t mutually exclusive.
Senator Gignac: I have two questions. I want to pick up on the conversation with the Canadian Bar Association representative regarding the retroactive measure in the bill.
The budget contains the following statement:
It has always been widely understood that the services of payment card network operators are excluded from the GST definition of “financial service.”
The Finance Department officials told us the same thing last week.
What is that statement based on? The Canadian Bankers Association seemed surprised by that statement. Have you met with finance officials to get more information on that?
[English]
Mr. Kenigsberg: As I understood your question, it is the basis for the statement that it has always been understood that these would be taxable.
Senator Gignac: They mentioned this, but it is probably from their point of view, since it was CIBC that went to court and challenged that for the last few years.
Mr. Kenigsberg: I would say “the last few decades,” not just last few years. CIBC’s case in the court was 2003. There are other taxpayers who have cases just as far back as that. Many taxpayers go back years and years.
I would be guessing as to where Finance is coming up with the statement that everyone always knew this. I think there were some statements that Finance was relying upon where they said there was some publication where they said certain aspects of those services were administrative in nature. The Federal Court of Appeal looked at those statements and determined that those were not the services being provided here; the services being provided by these entities were much broader, in depth and were clearly financial services.
This has already been looked at by the court, and it said, “No, that is not what the legislation did.”
Senator Gignac: Second, it would be the first time or not that we have a situation like that that the Finance Department waits 26 months before going with a new article in the law — 26 months after having lost in the court. In the meantime, CRA has proceeded to send money, and now it will flip-flop again. Have you ever seen that?
For me, the trust we have in government and the way government functions — and I’m not here to really lobby for the banks, because they can afford to pay $200 million when you have $70 billion profit last year. It is not the money; it is the ideal and principle.
Have you ever seen something like that — a loss in the court, then wait 26 months — ? In addition, the CRA — because if it’s well understood why the CRA — is it uncharted territory?
Mr. Kenigsberg: Yes, it is uncharted territory. I will take it a step further, because there is something I have always found a bit confusing with the statements provided. It was said that everyone was aware of it and everyone knew about it, but not only is the law retroactive, but you are opening up statute-barred periods. They normally have four years to assess, and after that, it goes statute barred. This legislation is proposing to open that.
It has baffled me a bit as to why you need a rule to open statute-barred periods if the government always knew that this was taxable and has been acting on it. The only reason you need to open up statute-barred periods is because the government hasn’t been acting that way, or they are trying to go after taxpayers they missed the first time. There is no real reason to open up a statute-barred period other than it wasn’t always the case.
Mr. Schieman: Just to add to my friend’s comments, this is not a case where it is a technicality. The court, in the case at issue, cited numerous Supreme Court of Canada judgments for the proposition that it must consider the text context and purpose behind this legislation; it considered that and came to this conclusion. The court made this determination and then 26 months passed and hundreds of millions of dollars were paid out. To your point, this is unprecedented.
Senator Smith: For the Canadian Bar Association, a quick question. What type of interaction have you had with the government? Do you have a program — not an attack plan but a plan to make sure that you access as many people as you can within the government? What type of action have you taken? Have you had that interaction or have you sat back and waited for them to come to you?
Mr. Kenigsberg: It’s a bit confusing when you say, “waited for them to come to us.” There was no consultation when they made the draft legislation.
Senator Smith: So there was no consultation. Have you approached the government on a proactive basis to try to pull out more information from them in terms of what can and can’t be done?
Mr. Kenigsberg: We have been talking to various organizations who have been talking to the Department of Finance.
Senator Smith: You haven’t talked directly to the government, then?
Mr. Schieman: We have an in-person meeting May 24 with the Department of Finance, which we have each year.
Senator Smith: I just wondered where you are in terms of the positioning.
Mr. Schieman: We have met with bodies. We met in April in Ottawa with the Canada Revenue Agency. That wasn’t on the agenda. We are meeting with Finance. To my friend’s point, other interested parties have met with the same constituents from Finance.
Senator Smith: I was wondering where you are with the decision makers; that’s all.
Maybe I can go back to the CFIB and the Chamber of Commerce.
One of the responses that the government has had is that the initiative in Bill C-47 would enact the Canadian innovation corporation. Could you give us some comments in terms of the effectiveness that you foresee this could have, in terms of an opportunity? We have lived the experience of the Canada Infrastructure Bank, and that was not necessarily the most positive experience. I’m wondering what your thoughts are in terms of the innovation. How would they focus it to make sure they can maximize the benefits for Canadian business?
Mr. Gray: As I mentioned earlier, the creation of government agencies is typically not something that our members ask for. As to how we would receive this, as with all these agencies, we will have to wait and see what the governance structure and corporate plan look like. Frankly, it’s so far out of our membership’s asks. To answer your question of how it can best maximize things, it would be difficult to say.
Senator Smith: I was thinking about government investment in terms of stimulating investment for start-ups or young entrepreneurs, whether there is any offshoot, from the history of having had an investment bank, to having an innovation fund. Does the CFIB have any thoughts on that?
Mr. Guénette: Typically, we represent the smallest of the smallest; seventy percent of our membership are businesses with under 10 employees. Those types of funds or programs are typically aimed at established businesses and larger corporations — those in high tech, for example — whereas our membership is in retail, hospitality, personal services and things of that nature. I’m not aware of the specifics of the innovation fund that you just mentioned. This is something that we can certainly look into.
Typically, our membership is more interested in making sure they can compete with larger corporations and that a level playing field makes it easier for them to play and compete with larger corporations, so to have a financial and regulation environment that helps them in that sense.
Senator Pate: Mr. Gray, and I think others, have talked about the need for tax reform in this country. As you mentioned, we haven’t seen a comprehensive review since the 1960s. You have said the government, but I’m curious as to whether you have looked at who and, in particular, whether there has been any consideration of the newly invigorated — maybe soon-to-be-invigorated — law commission as one of those bodies that might consider looking at this. I would be interested in the perspective of all of you but, in particular, Mr. Gray and the CBA.
Mr. Gray: We would welcome any progress on the file whatsoever. We are sort of process agnostic at this point. The last review was in 1967, so I don’t think we can afford to be picky or choosy about how it gets done; I think it just needs to. Law commission, royal commission, whatever you want to call it, whatever ends up happening would be a boon for our members.
Ms. Santini: Ultimately, whatever process is set in place, whether it is bureaucratic or a commission, we would hope that small businesses and key stakeholders are engaged and part of the conversation on an ongoing basis. The 1967 reforms, proposed white paper of 1969, are what led to the creation of CFIB, because small businesses were not represented in those reforms. Let’s not lose sight of over 1 million small-business owners this time around.
Mr. Kenigsberg: I’m sure we have numerous members who would be happy to help out on any commission that is looking at that. It has been a while.
Senator Pate: Do you have any other suggestions beside the law commission? Clearly, no other department has taken it on, despite numerous recommendations.
Mr. Kenigsberg: The problem you have, frankly, is that it is difficult for someone like us — who doesn’t have the government nor the control — to spend what will be a lot of time to draft legislation that may or may not be considered. I would have thought you would need to do it through the government somehow if you are going to want people to actively take part and volunteer their time.
Senator Pate: Sorry; I’m not clear. The law commission is separate but arms length. Part of it is designed to make recommendations to the government. It sounds like you are not sure that would be the appropriate venue.
Mr. Kenigsberg: No, I’m saying that if you did use the law commission to do it, but at least that’s appointed by the government, is my understanding. There are some connotations. What I meant is that it is not like the Canadian Bar Association can put together a committee of people to change the legislation on their own.
Senator Pate: Any other suggestions as to who might do it, if not a law commission?
Mr. Kenigsberg: Sorry.
Senator Pate: Thank you.
Senator Loffreda: I think we have discussed in detail the concern of the Canadian Bar Association regarding the retroactive application of the GST/HST on payment card clearing services. I have been in the banking industry for close to four decades. As Senator Gignac said so well, over $60 billion in profits, top line of $195 billion, it is a matter of principle rather than — $195 million for the banks, if you take it as a percentage, it is a very low percentage. The amendments will be paid, in effect, by the banking industry only.
But there are always two sides to the middle. I have the testimony that was brought up by the official from Finance, Ms. Amanda Riddell. She said that in 1991, she raised it because the issue of whether payment card clearing services would be subject to tax was raised at the time. The Department of Finance clarified that those types of services would be subject to tax and, in fact, gave a news release announcing as such and followed up with regulations to clarify that fact.
Are you aware of the news release at the time?
Ms. Riddell went on to say that:
All it does is to reinstate what has always been the case, which is that these types of services offered by Visa , for example, to banks, such as CIBC , who were the parties involved in the case at bar. The services offered by Visa to CIBC would be taxable, as they have always been. Visa, because it is providing taxable services, would then be able to claim input tax credits. The bank, which is paying the tax on the services, is not able to recover the GST they pay on those services because they are providing exempt financial services.
She then explained a bit about what it was, which was helpful.
She said:
It is not a retroactive tax. It is just an amendment that restores the situation that had always been the case prior to the court decision. It was just an adverse court decision.
And when the question was asked by Senator Marshall regarding what the impact is and who would pay it, Ms. Riddell indicated that the banks will pay, “$195 million in 2023-24. The amount is intended to recover rebates.”
Ms. Riddell also explained that:
What happened is, after the court decision came out, banks submitted rebate claims to recover tax they had paid in the past on transactions done in the past, and we want to recover those rebate amounts that were claimed.
To clarify, I understand all of that. We discussed it in detail. I understand the fact that, in principle, having a retroactive tax is not ideal for anyone, and coming out two years later is not an ideal situation.
I raised the issue with the Finance officials. I asked about the delay. The reason was the same reason everybody else has. It is the same reason you wait 10 minutes for your restaurant waiter: It’s COVID, a lack of resources and other priorities that the government has had.
I want to clarify that there is no precedent. I don’t want Canada to say there is a precedent in Canada; we go retroactively, and everybody is going to pay their taxes retroactively. This is an exceptional basis. It should have been done sooner —we all agree, including Finance Canada — but it’s not the Canadian way. It is an exception. There is a precedent for this, and we have had COVID — a pandemic that comes around once every hundred years. So I’d like your comment on that.
I don’t think Canadian taxpayers should be worried about any retroactive tax here. Once again, the government is proposing $195 million on an industry, which I’m proud to have been part of for four decades — kudos to our banks — we need strong banks — we need healthy banks — the top line is $195 million. It’s only paid by the banks; it’s not going to be paid by other companies here.
Last point — challenge in court. Do you feel the banks will challenge this in court?
Mr. Kenigsberg: Just to be clear on the first part, there were statements that were made. I agree.
If you look at what was actually done, though, the Federal Court of Appeal looked at those exact same statements by the Department of Finance from 1991, and concluded that the services in question here were different, and that these services were much broader and were exempt financial services.
So when the court says what the law was, that’s the court making the determination of what the law is.
The fact that Finance might not like how that decision went — and some people in the Department of Finance might disagree with it — does not make it widely understood. It’s widely understood by these financial institutions and others that have been claiming rebates that they were entitled to them. They weren’t making the rebate claims because they didn’t think they were entitled to them; they made the rebate claims because they thought that’s how the law worked. The Federal Court of Appeal agreed with them.
When you go and reverse a Federal Court of Appeal’s decision back to 1991, that’s retroactive legislation. There is no other way to do it. Frankly, if it weren’t retroactive legislation, you wouldn’t need the clause that says it goes back to 1991. You only need that clause is because it’s retroactive.
Senator Loffreda: It went back 1991 because there was a news release at the time, and it was brought up. That’s her claim; that’s her statement.
Mr. Schieman: The courts determined, after careful consideration, that this did not apply; that did not cover the services.
You asked whether the banks would challenge this. As noted earlier, they might, but it does not always have the effect you anticipate when the Federal Court of Appeal makes a decision. There is a concern in that regard. There is the potential for a real cooling effect, which would be unfortunate and potentially unprecedented within Canada and beyond.
Senator Loffreda: Which is important. The “unprecedented” is important. We don’t want Canadians to think that policy can go back retroactively and they have to pay taxes on what was legislated that they shouldn’t pay tax on. I want to state that clearly.
I wasn’t going to intervene because it was well covered, but it is unprecedented and it’s not something we should worry about. It’s an exception.
Mr. Kenigsberg: It was unprecedented the first time you guys created retroactive legislation as well, and now we’re walking down that slippery slope. We’ve spent a lot of time talking about people investing in Canada and looking at the tax rates, which they have in front of them, but when they see retroactive taxation imposed back and opening up statute-barred periods, it is a real concern.
Senator Loffreda: If it weren’t retroactive, would you agree with this?
Mr. Kenigsberg: If it weren’t retroactive, I would agree that you have the choice to do what you want to do. When it’s retroactive, that’s our concern.
Senator Loffreda: Thank you.
The Chair: There was only one question in all of that.
I’ve listened carefully. I will not go to 1991, but I will go to 2021 in a similar type of legislation.
[Translation]
I’m talking about the intergenerational transfer of businesses.
[English]
In the last two to three weeks where I come from, they’re planting potatoes. I’ve had a lot of farmers who have brought to my attention, even in Walmart and other stores — they said there were some questions they wanted to ask me as chair, and I told them to bring it to my attention and we’ll look at it.
Now I’ve listened very carefully, Mr. Gray. You said you would welcome any progress; you said that in a short sentence. I agree with you.
To the Canadian Federation of Independent Business — and to follow up on a question that was asked by the senators around the table — I believe that the Canadian Bar Association could comment on this question.
[Translation]
I have a question about former Bill C-208, which made it easier to transfer a business from one generation to the next. The bill was passed on June 22, 2021.
On July 19, 2021, the Finance Minister announced that Bill C-208 needed amending. She made the following statement:
The Government of Canada is also committed to protecting the integrity of the tax system. As such, the government is clarifying that it does intend to bring forward amendments to the Income Tax Act that honour the spirit of Bill C-208 while safeguarding against any unintended tax avoidance loopholes that may have been created by Bill C-208.
[English]
A statement and a question.
[Translation]
It’s been two years, and right across the country, no legislative action has been taken. My question is for all the witnesses. What’s the response of small and large businesses when it comes to intergenerational transfers? I’m talking about parents who want to sell their business to their children. Nothing is happening through the legislative process. In light of Budget 2023, what would you recommend the government do right away?
[English]
Mr. Gray: Respect the law as it was passed and, as you mentioned, to make progress on it. Those are all we’re asking for.
Again, it was passed by Parliament. I am at pains to understand how this would cause some sort of reduction in the integrity of the financial system.
Looking broadly at whom Bill C-208 is meant to apply to, it is, as you mentioned, parent-to-child transfers of businesses. In general, these are often small businesses that face undue taxation and burdens trying to pass down a family business.
Again, the angle of reducing the integrity is a bit of a mystery to me. I would welcome dialogue in understanding it, but, frankly, we don’t see it.
[Translation]
Mr. Guénette: You referenced the news release Minister Freeland put out shortly after Bill C-208 received Royal Assent. A few weeks after that news release, she stated that the bill had become law in Canada, that it had received Royal Assent, and that the provisions in the bill were fully applicable. Unfortunately, the Finance Minister’s comments after Bill C-208’s passage created uncertainty among our members.
Following the minister’s comments, we got a lot of calls and feedback from our members. They wanted to know whether or not they were able to use the new tax provisions when selling their businesses to their children. Unfortunately, the comments created a wave of uncertainty. The CFIB’s position on the transfer of family businesses is pretty straightforward: the process has to be easy. Transferring a business to a child needs to be as fast and easy as possible.
We put out a report recently. We found that, in the next decade, about three-quarters of business owners in Canada want to transfer their businesses to the next generation of entrepreneurs. That represents $2 trillion. That is a colossal amount of money, so it’s important to make sure that those businesses can be transferred with ease. It can’t be more expensive for someone to sell their business to their child than to a person who isn’t a relative. Selling a business to a son or daughter has to be just as favourable tax-wise as selling to a third party.
The spirit of the bill must remain. Any potential amendments need to uphold the spirit of former Bill C-208. In other words, the tax treatment has to be the same, whether the business is being sold to a son or daughter or to a third party. That is essential. Business owners should be encouraged to sell to their children, and that means the tax system needs to treat them the same whether they are selling to a son or daughter or to someone who isn’t a relative.
[English]
The Chair: For the lawyers, are you scared that we could have retroactivity there too?
Mr. Schieman: We are always concerned now. In terms of your question, that’s not our area of expertise. Similar to my response to Senator Galvez, it’s one that we will bring up with our broader membership.
The Chair: Thank you. Before we adjourn, honourable senators, I would like to thank you very much, witnesses. I know for a few of you, this was your first meeting. You performed very well. It was very informative and enlightening.
Please send your written responses to the clerk by the end of the day on Tuesday, May 30, 2023.
I would like to inform honourable senators that our next meeting will be tomorrow, Wednesday, May 17, at 6:45 p.m., to continue our study on the subject matter of Bill C-47.
I would like to take this opportunity to thank the staff and the people in the front room as much as the people behind the scenes for helping senators to ask questions for Canadians through the witnesses.
(The committee adjourned.)