THE STANDING SENATE COMMITTEE ON NATIONAL FINANCE
EVIDENCE
OTTAWA, Wednesday, November 23, 2022
The Standing Senate Committee on National Finance met with videoconference this day at 6:45 p.m. [ET] to study the subject matter of Bill C-32, An Act to implement certain provisions of the fall economic statement tabled in Parliament on November 3, 2022 and certain provisions of the budget tabled in Parliament on April 7, 2022.
Senator Percy Mockler (Chair) in the chair.
[Translation]
The Chair: I wish to welcome all of the senators, as well as the viewers across the country who are watching us on sencanada.ca.
My name is Percy Mockler, and I am a senator from New Brunswick and the Chair of the Standing Senate Committee on National Finance. Now, I would like to go around the table and have my fellow senators introduce themselves, starting on my left.
Senator Gignac: I am Clément Gignac from Quebec.
[English]
Senator Bovey: Patricia Bovey, senator from Manitoba.
Senator Boehm: Peter Boehm, Ontario.
Senator Marshall: Elizabeth Marshall, Newfoundland and Labrador.
Senator Smith: Larry Smith, Quebec.
Senator Loffreda: Senator Tony Loffreda, Quebec.
[Translation]
Senator Moncion: I am Lucie Moncion from Ontario.
Senator Galvez: I am Rosa Galvez from Quebec.
[English]
The Chair: Thank you, senators. This evening we continue our study on the subject matter of Bill C-32, An Act to implement certain provisions of the fall economic statement tabled in Parliament on November 3, 2022 and certain provisions of the budget tabled in Parliament on April 7, 2022, that was referred by the Senate of Canada to the Finance Committee on November 17, 2022.
[Translation]
We are pleased to have with us this evening, from the Canadian Taxpayers Federation, Franco Terrazzano, Federal Director, and Nicholas Gagnon, Quebec Director. Thank you both for being here.
[English]
Also by video conference, from the Canadian Bar Association, we have Steeves Bujold, President; and Stephen Bowman, Member. Welcome to all the witnesses and thank you for accepting our invitation to participate in the study of Bill C-32.
[Translation]
We will start with the opening remarks from the Canadian Taxpayers Federation, followed by those of the Canadian Bar Association.
[English]
Franco Terrazzano, Federal Director, Canadian Taxpayers Federation: My name is Franco Terrazzano. I’m with the Canadian Taxpayers Federation, or CTF, and I’m here on behalf of Canadian taxpayers who do not support the culture of wasteful spending, never-ending deficits and tax hikes. The culture of wasteful spending does not help Canadians. The more money the government spends on fancy trips, the less money we have to hire more nurses. The more pay raises the government gives itself, the less money parents have to put their kids in hockey. The higher the debt, the higher the interest charges, and the more likely that taxes will rise.
Unfortunately, the budget update continues this culture of wasteful spending. It shows that the government is already on track to blow through its budget by $20 billion. That’s astonishing when we’re only halfway through the budget year. Here’s the most amazing part. Finance Minister Chrystia Freeland called her budget update prudent; the numbers suggest otherwise.
Freeland said the government would spend $452 billion in April’s budget. During the budget update, Freeland now says the government will spend $472 billion. In seven months, Freeland is somehow managing to spend $20 billion over budget. And the April budget was not austerity, not even close.
Freeland’s April budget contained $90 billion in extra spending compared to pre-pandemic, and the government was already spending all-time highs before the pandemic, even accounting for inflation and population differences. Freeland is outspending that big spending budget by $20 billion. For context, $20 billion is equal to a two-point reduction in the sales tax. Ms. Freeland could reduce the sales tax from 5% to 3% without increasing the deficit. Freeland only needs to keep spending equal to her April budget.
Canadians need relief, but Canadians are paying too much tax because the government wastes too much money. According to a recent Ipsos poll, 72% of Canadians say they pay too much tax. Many other countries are cutting taxes. Ottawa is hiking gas taxes, hiking payroll taxes, hiking alcohol taxes. The government is imposing a second carbon tax next year through fuel regulations. The budget update is pinky-promising a balanced budget in 2027, but taxpayers should be skeptical. For starters, that’s after the next election.
The Parliamentary Budget Officer’s numbers paint a less rosy picture. The PBO releases budget projections only a few weeks before the budget update. It shows that Freeland is highballing revenue and lowballing interest charges. The PBO projected revenue in 2027 to be $11.1 billion lower, and interest charges $2.8 billion higher. Bottom line: The deficit in 2027 would be $9.4 billion using the PBO’s revenue and interest numbers. This is a larger deficit than the downside scenario in the budget update.
More government borrowing means more tax dollars lost to bond fund managers. The budget update estimates interest charges will cost taxpayers $252 billion through 2027. That’s a cost of $6,300 for every Canadian. Freeland claims the budget update is prudent, but the budget update is giving the CBC another $42 million. That’s after the CBC handed out $51 million in bonuses and raises during the pandemic.
The government just spent $1.3 million on a week-long trip for the Governor General and her entourage, and $6,000 per night for a single hotel room during the Queen’s funeral. Three hundred thousand government bureaucrats got a raise while their neighbours lost pay during lockdowns.
Fortunately, there is some good news. The government could balance the budget next year by bringing spending back to the all-time high levels of pre-pandemic, even adjusted upward for inflation and population growth. Instead of spending $20 billion over budget, the Canadian Taxpayers Federation recommends balancing the books with modest spending restraint. The government could provide much needed tax relief and stop piling debt onto the backs of Canadians’ kids and grandkids. It would only take modest spending restraint. Thank you.
The Chair: Thank you, Mr. Terrazzano.
Now, we will have comments from the Canadian Bar Association. Mr. Bujold, you have the floor.
Steeves Bujold, President, Canadian Bar Association: Good evening, Mr. Chair and honourable senators. Thank you. My name is Steeves Bujold and I am the president of the Canadian Bar Association, or CBA, and a senior partner at McCarthy Tétrault in Montreal. I am joined this evening by Stephen Bowman, a CBA member, a tax expert and Vice Chair at Bennett Jones LLP.
[Translation]
The CBA brings together over 37,000 legal experts across the country. The CBA is the voice of the legal profession, and its main mission is to improve the law and the administration of justice.
[English]
Thank you for inviting us to discuss Bill C-32. We are here to share our concerns about parts of the bill that compromise the important principle of solicitor-client privilege.
[Translation]
It is important to state at the outset that we support the objectives of the bill. However, changes are required to uphold the fundamental principle of solicitor-client privilege.
[English]
What is solicitor-client privilege, and why is it so important? In practical terms, solicitor-client privilege allows people from all walks of life to communicate freely with their lawyers in a trusted environment. Protecting full and frank communications between lawyers and their clients allows clients to receive the best legal advice possible. Maintaining a trusting solicitor-client relationship is in the public interest.
We believe at CBA that the proposed reporting obligations for trust in Bill C-32 would not withstand constitutional scrutiny, given the Supreme Court of Canada decisions on similar matters. Our highest court has considered the privilege in about 18 cases since 1999. The CBA has successfully intervened in several of those appeals. The Supreme Court of Canada has ruled that the state cannot impose duties on lawyers that undermine their commitments to their clients’ causes. In other words, the government cannot conscript lawyers to obtain information it is not entitled to because this information is protected by solicitor-client privilege. This is a principle of fundamental justice. The proposed legislative changes threaten this bedrock principle.
Bill C-32 recognizes the importance of solicitor-client privilege and exempts lawyers’ general trust accounts, on one hand. However, client-specific trust accounts are not exempted, on the other hand. The client-specific trusts would be required to file annual tax returns to report the identity of all trustees and beneficiaries of the trust. The new obligations, as drafted, compromise solicitor-client privilege.
In closing, we appreciate that authorities require sufficient information to determine taxpayers’ tax liabilities to effectively counter aggressive tax avoidance, tax evasion, money laundering and other criminal activities. However, these measures must be balanced with the need to respect solicitor-client privilege and allow lawyers to fulfill their duty of loyalty to their clients. The government can achieve its policy objectives without implicating lawyers.
As the Supreme Court of Canada reiterated in the Blood Tribe decision in 2008:
Solicitor-client privilege is fundamental to the proper functioning of our legal system. . . . Experience shows that people who have a legal problem will often not make a clean breast of the facts to a lawyer without an assurance of confidentiality “as close to absolute as possible” . . . . It is in the public interest that this free flow of legal advice be encouraged. Without it, access to justice and the quality of justice in this country would be severely compromised.
This is why we recommend amending section 150(1.2)(c) to exempt from the filing obligation any trust account maintained by a lawyer or notary in accordance with the rules of professional conduct governing them.
On behalf of the CBA, thank you again for this opportunity to present today. Stephen and I look forward to answering your questions.
The Chair: Thank you, Mr. Bujold.
Honourable senators, before we proceed to questions, I’d like to share with you that the first round will be five minutes, and the second round three minutes. Therefore, please ask questions directly. To the witnesses, please respond concisely. The clerk will inform me when the time is over.
Senator Marshall: Thank you to our witnesses for being here tonight. My first question is for Mr. Terrazzano. It’s relating to the Canada Growth Fund. I don’t know if you’re familiar with it or not, but the government has decided to establish a Canada Growth Fund. Without getting into too many details, they say the mandate of the growth fund will be to make investments that will attract substantial private-sector investment in Canadian businesses and projects to help seize the opportunities provided by a net-zero economy.
The budget bill specifically provides for $2 billion for the minister to acquire shares in a subsidiary corporation to launch the Canada Growth Fund. Do you not feel that this would be a good expenditure of government money?
Mr. Terrazzano: Thank you so much, senator, for that question. No. This really smells like corporate welfare to us.
Just quite frankly, these politicians and bureaucrats, I don’t think they could balance the budget of a lemonade stand, so we certainly don’t want to see them running around with taxpayers’ money trying to play investment bankers.
If our government wants to encourage investment and encourage economic growth, then let’s reduce taxes. We’ve seen taxes continue to go up, up and up during the pandemic. Instead of what smells like a new round of corporate welfare, we’d like to see them reduce taxes.
Senator Marshall: Thank you very much for that comment. I’ll probably come back to you again with another question, but my next question is for the lawyers regarding the letter that they sent requesting amendments to Bill C-32.
Could you tell me if you’ve made representation to the government or participated in any type of consultation process? Once something is included in a bill, it gets very difficult to amend it. I’d be interested in hearing what you have been doing so far with regard to the part of the bill that you’d like to see amended.
[Translation]
Mr. Bujold: Thank you very much for your question, Senator Marshall.
We have been lobbying since 2018 because that’s how long the provisions we are here to discuss have been around. We wrote to the minister responsible at the time, and, more recently, we have written to the Minister of Justice and the Minister of Finance to call for the same recommendations we shared with the committee yesterday, in our letter to the chair. Our recommendations have the support of the Federation of Law Societies of Canada, which has made similar representations to those of the CBA.
[English]
Senator Marshall: Thank you very much.
[Translation]
Senator Moncion: My question is for Mr. Bujold and Mr. Bowman. You said that the scope of the exception was ambiguous. In your letter, you talk about the exception’s ambiguity, describing it as inadequate and impractical, and saying that it risks placing lawyers in a conflict of interest with their clients. Can you elaborate on how the exception is ambiguous and why it’s inadequate?
Mr. Bujold: Thank you very much for your question, Senator Moncion. The provision is actually a direct attack on solicitor-client privilege. Over the past 20 years, the Supreme Court of Canada has repeatedly described solicitor-client privilege as a quasi-constitutional right, one that helps strengthen our justice system. Clearly, we can all agree that our justice system is a cornerstone of our democracy. An attack on solicitor-client privilege is an attack on the justice system.
Senator Moncion: All right. I want to take it a bit farther.
In this situation, the focus is mainly on identifying trust owners to counter tax evasion. I understand the need for solicitor-client privilege. I have always seen it much more on the criminal side than on the corporate side as far as trusts are concerned. That’s where I think it may be possible to provide some clarity to address the ambiguity in the provision.
Do have any comments on that?
Mr. Bujold: That is a very good question. In fact, what the Supreme Court teaches us is that the area of law or the reason why you consult a lawyer or a notary in Quebec is not a determining factor in establishing the strength or the presence of the solicitor-client privilege. Solicitor-client privilege applies at all times.
In the analysis to be made, one should not ask whether one should balance the objectives pursued by the law and the solicitor-client privilege, since they are not at the same level. In fact, solicitor-client privilege should be breached only in the most exceptional circumstances, when it is the only option available.
I’ll give you an example to illustrate what happens when public safety is involved. In 1999, there was a very famous case, Smith v. Jones. According to that decision, you can pass on information to rescue someone who is in immediate danger. This is the only possible and clear measure if one wants to breach the solicitor-client privilege and pass on information that is otherwise protected by that privilege.
The circumstances here are not like that at all. The government has several other mechanisms that enable it to obtain the information it is seeking other than by making lawyers and notaries agents of the state, since that is really what is being done here. We are being placed in circumstances where we are being asked to pass on to the government information that is entrusted to us as part of a professional mandate of legal representation.
Funds can only be held in trust as part of a mandate. This is regulated in all provinces across Canada. You probably know that we are highly regulated. We are accountable to our professional bodies for client identity, transaction details and source of funds. We are regularly inspected and investigated and face significant penalties if these regulations are not followed. We are part of a system of self-regulation. The professional bodies oversee the enforcement of those regulations or laws that make the system work.
As I said earlier, solicitor-client privilege is part of the solution to strengthen our legal system. It is not an obstacle to the respect and application of the laws. It is part of the solution. It’s extremely important to understand that aspect.
Senator Moncion: Thank you very much.
Senator Gignac: I thank the witnesses for being with us tonight.
My question is for Mr. Bujold. If I understand correctly, the purpose of Part 1 of the Income Tax Act is to clarify the rules applicable to audits by the Revenue Agency, particularly with respect to the requirement for taxpayers to provide reasonable assistance and answer relevant questions. If this change is being proposed, it must be because there have been legal gaps. I believe there was a court ruling that possibly limited the Revenue Agency in this regard.
Should these enhanced powers cause us concern? If so, why should we be concerned?
Mr. Bujold: Thank you for your question, Senator Gignac. Our association does not have any representations to make on the other provisions of the act. Our representations relate specifically to the amendments to section 150 of the Income Tax Act and subsections (1.1) to (1.4), which are direct attacks on solicitor-client privilege. However, we do not take a position as a professional association on the other provisions of the bill.
Senator Gignac: I understand, but can you enlighten me on this? If I understand correctly, this court ruling has determined the extent to which agency officials can demand answers to relevant questions. If you can’t help us, who should we talk to about understanding this ruling? It’s still a court that made that ruling and said that it can’t be done, and the economic statement is going to give more power to the Revenue Agency to act.
I’m an economist by training and I didn’t think to turn to the economists association to enlighten me on this. You are lawyers. If you don’t comment, who should we turn to to determine whether this is a violation of the Charter of Rights and Freedoms or something else?
You kind of understand my question. Perhaps you can provide a written answer later. I would still like you to shed some light on this court decision.
Mr. Bujold: Thank you for clarifying, Senator Gignac. I think you are referring to Canada (Attorney General) v. Chambre des notaires du Québec, ruling [2016] 1 SCR 336. Our association was involved in that case, and our representative was Mahmud Jamal, who now sits on the Supreme Court of Canada. That ruling set up principles which are relatively similar to those before us today. In that case, notaries were searched. They were asked to provide information to Quebec and the Chambre des notaires went before the courts to have the searches declared unreasonable because they targeted privileged information.
All three courts — the Superior Court, the Quebec Court of Appeal and the Supreme Court of Canada — deemed the provisions used by Canada Revenue Agency to be unconstitutional because the searches were targeting information protected by professional secrecy, they were not authorized by any court or the mechanisms weren’t strong enough.
I must admit, we have the impression today that we’re fighting the same battle we fought in Canada (Attorney General) v. Chambre des notaires du Québec, since the same principles are at issue. In that case, the Supreme Court stated that professional secrecy should remain “as close to absolute as possible.” That was the criterion set out, and the court stated that solicitor-client privilege was not just a principle or a concept, but a fundamental and substantive rule of law. That is a substantive right granted to us, such as the right to a quality, or the right to security. Finally, it stated that any legislative provision that interferes with professional secrecy more than is absolutely necessary will be labelled unreasonable.
The lens we must use to look at the whole thing is this: What we are doing must be absolutely necessary and no other means exist. This clearly does not apply here; there are other means of obtaining taxpayer information pertaining to transactions managed by a professional entrusted with money.
My colleague could clarify that the transactions we are talking about are, in one way or another, provided to a tax authority through the taxpayer. For example, if interest accrues on funds entrusted to a legal firm or notary, the taxpayer receives a statement, and they must then provide it to a tax authority. It is not the lawyer or the notary who is an agent of the state, it is the professional themselves, the client themselves, the taxpayer, who must pass on the information to a tax authority, just like the rest of their income.
Senator Gignac: Thank you.
[English]
Senator Smith: A question for the Canadian Bar Association: In your submission, you call upon the government to find a balanced approach between countering tax avoidance, tax evasion and money laundering while respecting solicitor-client privilege. You also argue that trusts managed by lawyers and notaries be explicitly exempted from filing obligations. Can you explain how this is a balanced approach? In what other ways can the government fight tax avoidance and tax evasion through the use of trusts?
[Translation]
Mr. Bujold: Thank you very much for your question, Senator.
In fact, what we are doing doesn’t just affect all trusts or fiducies. In a very real sense, it impacts trusts held by lawyers or notaries.
As I said, without wanting to repeat myself, there is no indicator or proof to show that trusts held by lawyers and notaries are tools to help make tax evasion worse. We have not received any evidence. On the contrary, our position is that professional associations closely monitor transactions conducted by lawyers and notaries, and they are subject to inspections, investigations and reports. We have to generate accounting reports on those transactions.
Senator, if you were to retain my services as part of a real estate transaction to settle litigation, I would be required to ask for identification to confirm your identity and obtain your address. I can’t take cash from you, not above $7,500, so you would have to send the funds from a Canadian bank account. I am limited in terms of how I can use those funds; I can only use them as part of the mandate you give me. If the case is settled, I would send it to another law firm, which would send it to the person we are dealing with. If it’s a transaction, it’s the same thing, we would deal with another firm.
Therefore, these transactions are very secure and highly regulated. In no way is this a situation that could lead to secretive untraceable transactions, during which we lose information if it’s not provided to the government every step of the way. On the contrary, we have to keep every detail of these transactions for at least seven years, using very clear registries, and those registries are inspected regularly.
We are challenging the legislative provision in order to demonstrate that it is useless, because many other mechanisms exist and, therefore, it breaches a fundamental right raised several times by the Supreme Court of Canada. In fact, every time we have challenged provisions that undermine professional secrecy, almost every single judge declared them unconstitutional.
We are acting today so that we can avoid fighting this fight yet again before the courts to overturn these provisions.
[English]
Senator Smith: I have more of a general question for the Canadian Taxpayers Federation. Mr. Terrazzano, you were very strong in terms of voicing your feelings and opinions on the actual budget and forecasting moving forward. I wondered if you could give us your own version of what you would do if you were in the position of government to try to rebalance, as you were outlining, the situation that we’re in economically. And how long would it take to do that?
Mr. Terrazzano: Thank you so much for the question, senator. We have presented our 80-page budget submission to the Finance Committee that outlines exactly what we would do. Now, I did outline a lot of bad news with what we saw in the budget update. But as I mentioned, there is some good news.
Senator Smith: I’ll take the good news too, so we have a balance.
Mr. Terrazzano: I appreciate that. The good news is that it would take very modest spending restraint to balance the budget next fiscal year. Very modest. When I say, “very modest spending restraint,” I mean just bringing program spending back to the all-time high levels of 2018-19, even adjusted upward for inflation and population growth. By doing that, you balance the budget and still have enough room to reverse some of the tax hikes we’ve seen during the pandemic. So that’s what we would do if we were able to have our wishes implemented.
Again, that 80-page submission was presented to the Finance Committee, and I’m happy to share the document with everyone in this room if you would like.
Senator Boehm: I want to begin where my colleague Senator Smith left off, Mr. Terrazzano. In a Canadian Taxpayers Federation news release on November 3 entitled “Freeland’s over-budget spending burns through extra cash from taxpayers,” you note the $20-billion difference between what was projected in Budget 2022 and what is projected in the Fall Economic Statement. But I would like to note, first of all, projections are projections. We’ve had them for decades, even before the PBO was created. Sometimes they overshoot and sometimes they underproject. But at the end of your news release you state that “Freeland needs to stop wasting so much money and cut taxes now,” but you don’t specify where exactly you think the waste is. So my question is this: What would you cut from the Fall Economic Statement and why would you cut it?
Mr. Terrazzano: Thank you so much for the question. I do want to acknowledge that projections are projections, but we’re working with the best available public data from both the government and the Parliamentary Budget Officer.
Now, where would we find savings? First, leadership starts at the top. That means members of Parliament should not have taken pay raise after pay raise after pay raise while the people they’re supposed to represent took pay cuts, lost their jobs or even their businesses during the pandemic.
Leadership at the top also means we have to look at Rideau Hall. We are giving former governors general an expense account for life up to $200,000 every single year they’re able to bill the taxpayer, including six months after their death.
It also means you have to do the little things right, and that means looking at the Mission Cultural Fund. Do you know we spent $8,800 on a sex toy show in Germany? That was from the taxpayer expense; that’s unacceptable. Another small expense is we saw the Governor General and her entourage spend $1.3 million on a week-long trip to the Middle East.
Of course, we can’t just do the small things right. We also have to do the big things right.
We saw 300,000 government employees receive at least one pay raise during the pandemic; not a single government employee took a pay cut. We’ve also seen a ton of corporate welfare being handed out. Some examples of announcements: We saw the government announce $295 million for the Ford Motor Company. We saw the government announce $420 million for Algoma Steel, $12 million for Loblaws, $20 million for Maple Leaf Foods, $110 million for Toyota, $372 million for Bombardier. Within this 80-page budget submission, we have many more examples of spending we would like to cut. We have specifics, but also we have high-level targets such as —
Senator Boehm: I get the idea. I can tell you, whatever was spent in Germany was not spent when I was ambassador there.
The point I really wanted to make is there are factors, unforeseen events, that can affect spending, okay? We did not expect Russia to invade Ukraine on February 24, and that has impacted the whole global thing. We did not anticipate a pandemic that would have an impact to the extent that it has had. We do have a role in the world. We do have a Governor General and a Prime Minister travelling. Yes, there could probably be a better measurement of spending, but having been involved in program review under Prime Minister Chrétien, the Deficit Reduction Action Plan under Prime Minister Harper, and now we’re seeing another review process that is being led out of the Treasury Board, I think there are measures under way.
And I think you really should not look at some contractual obligations. I’m happy you mentioned MPs getting raises and not senators — well senators are getting raises too, and these are built into the legislation. But I think you have to be careful in terms of what you’re targeting and suggesting. The big-money items are social programs, defence spending and the like, and you don’t want to cut those. But we need to ensure that those Canadians who are not as fortunate as we are, sitting around this table, are being given every possible chance as well. That’s why I’m asking you for more precision.
Not the small stuff — that can be fixed and should be fixed, you’re absolutely right — but on the big thing, I think, we have to be very careful in what we say.
Mr. Terrazzano: Senator, I agree that we do have to be careful. If you have more recommendations for savings, we are all ears. As we mentioned in the House committee, we’re willing to work with all parties to find more savings. In our budget submission, we also identified the program review that was very successful in the 1990s. Let’s also remember that before the pandemic, the federal government was spending all-time highs, even after accounting for inflation and population differences, which means in 2018-19, the Trudeau government spent more money than the feds did during any single year of World War II.
Through the pandemic, I think most Canadians understand — if I can just float an analogy — that if you have a leaky roof, you fix the leaky roof. You don’t take out the credit card and spend money you don’t have on a new flat-screen TV and a couple of BMWs. We’ve heard the finance minister say if we want new programs in the budget, they have to find savings in other areas of the budget to fund that. But then we get a budget update that shows that Ms. Freeland can’t even keep to her own spending targets in the last budget; in fact, she’s going over budget by $20 billion.
Senator Boehm: This would be for Mr. Bujold or Mr. Bowman.
I’ve listened to the comments you’ve made about the Supreme Court ruling on Canada (Attorney General) v. Chambre des notaires du Québec as a key ruling and you have elaborated on that — thank you very much — and also on the question of tax avoidance, evasion, money laundering, base erosion, profit shifting, other financial crimes. Are other organizations in agreement with your position on this, and, if so, would you be able to say who they are?
[Translation]
Mr. Bujold: Thank you very much for your question, Senator Boehm.
Indeed, to our knowledge, the Federation of Law Societies of Canada, which encompasses all professional associations for lawyers, notaries and paralegals in Canada, has the exact same concerns as we do.
Our profession includes 37,000 members; lawyers, notaries and law professors. To our knowledge, large Canadian firms are also very concerned about the provisions introduced in this bill.
I have not heard about anyone in the judicial and legal world whose opinion runs counter to what we included in yesterday’s letter and what we are putting forward here today.
Many rulings made by the Supreme Court of Canada over the last 25 years all point in the same direction. This is not just a controversial legal position that we want to put forward; it is about the rule of law and avoiding a constitutional challenge after the bill passes.
Senator Boehm: Thank you very much, Mr. Bujold.
[English]
Senator Duncan: Thank you very much. My apologies for my late arrival. I’m Pat Duncan, senator for the Yukon. I would like to thank the witnesses for their presentations today. My question is for Mr. Terrazzano.
Your opening remarks did not address details provided in Bill C-32 on measures such as the Underused Housing Tax Act, that will, according to the officials who have presented to us, raise $835 million from non-residents. Did the Canadian Taxpayers Federation provide the government with specific policy papers or a position on this measure or other specific measures that will raise revenue for the government?
Mr. Terrazzano: Thank you, senator. We have provided the government with much detailed analysis in terms of the taxation of Canadians’ homes, and we’re very concerned about this and see it as a very slippery slope to a home equity tax in Canada.
Despite both Mr. Trudeau and Mr. O’Toole saying they wouldn’t put in a home equity tax during the last leaders’ debate, unfortunately the Canada Mortgage and Housing Corporation has continued to use tax dollars to fund and promote home equity tax research. The one specific proposal relating to the taxation of homes that we want the government to address is to remove the reporting requirement with the CRA. In 2016 the government brought in a reporting requirement where if you sell your home, you have to report the sale with the CRA. We see that as another very slippery slope to a home equity tax, and it is one of the proposals that we’re recommending the government to scrap.
Senator Duncan: Excuse me, Mr. Terrazzano, this is a taxation of non-resident Canadians on underused housing. My question was if you submitted a specific proposal on this measure.
Mr. Terrazzano: Well, we have submitted proposals and papers and releases that include this. Once again, with respect, senator, what we see — this — is that it is another slippery slope. Not just this tax you are specifically talking about but the so-called anti-flipping tax, we see all of this as measures of a slippery slope toward a home equity tax. That would be so damaging for so many Canadians. For our parents who rely on the sale of their home to fund their golden years, a home equity tax would be damaging. For young Canadians who are hoping to use the sale of their first home to buy their first family home, again a home equity tax would mean a lot of pain. We do see this as a very slippery slope leading toward that.
Senator Duncan: Respectfully, this is, again, a measure on underused housing. The Canadian Taxpayers Federation in the past made representations to the National Financial Committee that an overhaul of the Income Tax Act, or ITA, is very long overdue. That last representation, I believe, was 2019 — I could be wrong on that. My specific question: Is there a current discussion paper; and if there is a current discussion paper, would you provide it to us, in writing, by the deadline that the chair will provide to you? Thank you.
Mr. Terrazzano: Senator, thank you so much for that question. This is something that we continue to advocate on. We haven’t updated any policy paper on this, but when it comes to tax avoidance, we see that the best way to minimize tax avoidance is to have a simpler tax system.
Senator Duncan: Sorry, did you say you do not have a current paper?
Mr. Terrazzano: We haven’t updated the paper that you must be talking about.
Senator Duncan: You have not updated it, okay. Thank you.
The Chair: Senator Loffreda, who is the sponsor of the bill.
Senator Loffreda: Thank you to our witnesses for being here. My question is for the Canadian Bar Association. Currently, a trust that does not earn an income or make distributions for a year is generally not required to file an annual T3 return of income. The current measures we’re looking at for trusts would amend that requirement and would generally require most Canadian resident trusts to file a return of income subject to a number of specific exceptions for certain types of trusts.
Given the growing and ongoing risks and threats of anti‑money laundering, terrorist financing, tax avoidance, tax evasion and more, which you have mentioned, would the benefits of such a measure not outweigh the costs, especially today, given the geopolitical environment? I understand the point about absolute necessity; there’s no need to repeat that. Would you not interpret this measure at this point as absolutely necessary?
If we compare to our major trading partners, like the U.S. and other countries, don’t most of them have such a requirement?
Stephen Bowman, Member, Canadian Bar Association: Thank you, senator, for that question. The scope of the provision, as you’ve said, is expanding the reporting obligations that relate to trusts, particularly to bearer trusts and trusts that are what I’ll call inactive in the sense that they don’t have current income. The tax return that’s required for a trust is reasonably onerous, and additional information will be required beyond what has traditionally been called for. All of that is done in aid of the pursuit of better clarity on beneficial ownership, international tax avoidance, anti-money laundering and all of that suite of agendas, which are shared by Canada and its international partners.
Our submissions tonight relate specifically to the application of that expanded reporting to lawyer trust accounts. Our position fundamentally is the lawyer-client relationship in any context — whether it’s a criminal matter, a civil matter, matrimonial, any area of law — fundamentally rests on solicitor-client trust and confidentiality. It is essential that there be an open communication, a completely trusting communication, between lawyer and client. If a new client comes to a lawyer, and the lawyer says, “By the way, next year I may file a tax return and talk about you,” and the client says, “What will you put in it?,” and the lawyer says, “I’m not sure yet because it depends on privilege,” the client is immediately put in an uncomfortable position. Down the road, the lawyer is an even worse position, trying to assess what’s disclosable and what’s not. It’s an invidious position, really, for both parties, and it undermines that relationship.
The other side of this is that the legal profession has substantial obligations it imposes on us as lawyers, our law societies, annual reporting which asks specific questions about money received in cash, about management of trust accounts. Those annual reports can be audited and regularly are audited. We’re not allowed to receive more than $7,500 in cash without explaining why. We also have requirements that require us to be clear about who our clients really are.
Finally, our trust accounts are only permitted to be used in connection with the provision of legal services. We can’t just use them as a convenient bank account that’s somehow off the radar of FINTRAC and other agencies of that kind. We can only take money when we’re giving legal services. And when we’re giving legal services, we need that relationship.
That’s our focus with our submissions tonight. It’s on that application to the lawyers and the trust accounts of lawyers.
Senator Loffreda: Thank you for that. Just to clarify, maybe, with respect to numbers. As you’ve mentioned, Bill C-32 recognizes the importance of solicitor-client privilege and exempts lawyers’ general trust accounts; however, client-specific trust accounts are not exempted.
What percentage of trust accounts are lawyers’ general trust accounts? What is the population we’re talking about with respect to client-specific trust accounts? What is the difference between the two?
There is another thing I’d like you to comment on. I don’t expect you to have seen this, but as you both understand, a Charter Statement is always issued by the minister with respect to legislation. This one was tabled in the House of Commons on November 21, 2022, so it’s very recent. The Charter Statement is one you do know, but for the sake of the public who are listening, one of the most important responsibilities of the Minister of Justice is to examine legislation for inconsistency with the Canadian Charter of Rights and Freedoms. He does get into the additional reporting requirements for trusts:
Powers to compel the production of information for the administration of the Income Tax Act, which is based upon a self-assessment system, have been upheld as reasonable under section 8.
And it goes on. I guess you would disagree with his statement, yes? That is for the Canadian Bar Association.
Mr. Bujold: Yes. Thank you, Senator Loffreda. I haven’t seen the document you’re referencing, which was issued yesterday. Taking for granted that it says what you just read, yes, we disagree with the statement because it’s completely contrary to the —
Senator Loffreda: You haven’t seen it yet, right?
Mr. Bujold: No, we haven’t seen it yet. But if the Ministry of Justice issued an opinion clearing the disposition that we’re talking about today, the opinion we’re expressing today is that it’s contrary to the massive corpus of decisions issued by the Supreme Court of Canada during the last quarter-century.
[Translation]
To answer your previous question, the Federation of Law Societies of Canada asked the courts to review the Proceeds of Crime (Money Laundering) and Terrorist Financing Act. The case made it all the way to the Supreme Court and, in 2015, it made a very clear decision about exempting lawyers from provisions that apply to them under the law and regulations. We’re talking here about the provisions that implement FINTRAC, which you know well.
Once again, the same provisions were discussed. Solicitor-client privilege must be protected absolutely. Only in very exceptional cases, when no other solutions exist, can we allow lawyers to become state agents and give information to government authorities.
[English]
But I would let my colleague answer regarding the data on the general trust account. That was the first part of your question, general trust accounts and specific trust accounts. If you would allow, Mr. Bowman can complete that answer.
Mr. Bowman: Yes. Thank you, Mr. Bujold.
On the issue of the specific trust accounts, they tend to be larger. They tend to last longer and they tend to be in connection with certainly more complex situations, where there may be transactions in and out and a requirement to keep close accounting on the numbers and reporting to the relevant client and interested stakeholders.
The numbers at any point in time, in a large law firm, can be dozens or hundreds and, over the course of a year, that much more because they, of course, don’t last forever. The reporting obligation will apply to those that are more than three months in duration.
We allude to in our letter to the specific area of condominiums which, in the common law provinces, are governed by provincial statutes which require trust accounts to be maintained. In those cases, an account will typically be opened for a developer in connection with a large condominium project. All of the purchasers in that project, of whom there can be hundreds, will pay their advance payments into that trust account. There are many, many transactions. They need to be accounted for. According to the people I’ve spoken to, they need to account for that very specifically to their clients and to each of the owners. It’s not entirely clear in some cases whether that represents hundreds of trusts for one condominium project or one trust with hundreds of beneficiaries, but there will be many, many of those.
Senator Bovey: I’d like to thank the witnesses. I have a question for the Canadian Bar Association, if I may.
In the document that we received dated November 22, you have a section on trusts held by registered charities. You’re saying that proposed subsection 150(1.2)(d) would exempt a trust that is a registered charity, but then you go on to say, “It is not clear if the new trust reporting rules apply to restricted charitable purpose trusts that are held internally by registered charities, such as endowed funds,” et cetera. There are many charities that do have those specific endowment funds, and I’ve worked with many of them.
I wonder if you could dig a little deeper for me. As I read it, I thought this was exempt, but you’re putting a question in that perhaps they’re not exempt. I wonder if you can illuminate that for me.
Mr. Bowman: Thank you very much, senator. That is a question, in our minds, of ambiguity. You’re quite right, charities have their own regime, and the rules are not intended to impinge on them. But as you noted, many of the larger charities — in fact, probably most of them — have separate endowments or separately restricted funds. I know of one medium-sized charity that has something like, I think they said, 180 separate accounts. Someone leaves them money for this purpose, someone else leaves them money for this, and someone else makes a grant for that. Universities and hospitals would be vastly larger than that example.
The question that they’re worrying about or that we’re noting in our letter is whether they ought to be filing for the separate pools, the separate trusts that hold a particular donor’s identified funds. The funds are generally not segregated, but they are separately tracked and impressed with different obligations, which may make them a separate trust.
So the clarification would be to ensure that the reporting protection or the reporting status of the charity as a whole is definitive for its entire affairs and it doesn’t have to do separate reports down below, which would essentially be redundant in any case because it’s all inside the charity.
Senator Bovey: As you say in your document, and as I have experienced over many years, those restricted funds are reported annually. Over the years, the means of reporting seem to get increasingly complex.
You’re wanting clarification as to whether the charities need to make special application for exemption, yes?
Mr. Bowman: Yes, whether we could clarify what the intent of the legislation is, either with a clear statement in it — an amendment to the bill — or through some clearly clarifying statement.
Senator Bovey: Would this be part of regulation?
Mr. Bowman: I would think not, because the statute is the statute, and there is not a regulatory power to exempt that I’m aware of, so it might have to be in the legislation.
There is also the question of Canada Revenue Agency administrative practice, but often they decide sometime later what their administrative practice is.
Senator Bovey: As you said, some of these have many funds, and they can be very large funds. Some of the smaller organizations, their endowment funds aren’t large, but they do have funds in them that are specified in different directions —
Mr. Bowman: Yes.
Senator Bovey: — which are obviously audited and also reported to the CRA. You are looking at this as another level of bureaucracy, then.
Mr. Bowman: Yes, and I can’t see any benefit either because the donation reporting that happens with a charity answers the question of where the money came from, the source of funds.
Senator Bovey: Yes. Thank you.
[Translation]
Senator Galvez: Many thanks to the witnesses visiting us tonight.
[English]
My first question will be to the Canadian Bar Association. I think we cannot negate or put our heads in the sand about the importance and the extent of tax avoidance and tax evasion. Every year there is a new scandal, such as the Panama Papers, the Paradise Papers, the Pandora Papers, the Luxembourg papers. The OECD evaluates there is US$11.3 trillion in tax avoidance and tax evasion. When it comes to Canada, we are considered a laggard on measuring the extent of this tax gap.
At the Senate, we have discussed this for many years, and we pushed the CRA to calculate this tax gap. We have arrived at an estimate that we lose $15 billion per year in offshore havens.
I understand that you auto-regulate yourselves and you account for the ethics of your lawyers, but I follow the International Consortium of Investigative Journalists, who say that tax avoidance and tax evasion are possible thanks to lawyers. Actually, quite easily, if you look into the literature, there is the question: How can experienced Canadian tax lawyers help with tax evasion and tax fraud? It says anything the taxpayer charged with tax fraud says to their accountant can be used by the Canada Revenue Agency against the taxpayer. Of course, the information a taxpayer shares with a lawyer cannot be accessed by the CRA due to lawyer-client privilege, while any records that the taxpayer’s accountant has related to their file can be seized.
I understand that only under certain circumstances should we infringe on the privilege between a client and their lawyer, but I think, given the amplitude and extent of the tax gap and tax avoidance issues, we have to come up with a solution. Times are evolving. I understand that in the past the courts were in your favour, but I think eventually we will have to go somewhere to try to open these things up and be able to recuperate this money.
What solutions do you propose? You say there are other means. What are these other means?
[Translation]
Mr. Bujold: Thank you very much for your question, Senator Galvez.
Our association supports the government’s goal to fight tax evasion; it’s an extremely important matter. Resolving this problem would lead to a great deal more tax fairness.
I will briefly come back to what I said earlier. The role of lawyers is absolutely essential in administering the justice system. To fight tax evasion, we need strong, independent and impartial courts. We need lawyers on both sides, because most of our courts are contradictory. Therefore, we need Crown prosecutors and defence lawyers who can work under circumstances recognized under the highest standards. Without a strong justice system, our democracy would not be what it is today.
Lawyers are not an obstacle to applying the law. Lawyers are part of the solution. The Supreme Court of Canada stated it clearly in the Lavallee case, which dealt with a search for documents in a law firm. It reads:
. . . the privilege is a positive feature of law enforcement, not an impediment to it.
When a person comes to a legal professional and is obviously planning a crime, no privilege and no professional secrecy exist, because there is no professional relationship. Legal professionals are not in business to plan offences. Legal professionals are there to advise people. Clients can come in with bad ideas, with plans that don’t follow the law. As a matter of fact, our role is to explain, “Your proposal isn’t possible, your proposal is illegal. However, this is what we can do in compliance with the law.”
That is the role of lawyers. We can’t take extreme examples, even if they are appalling and deserve punishment, and apply them to all lawyers. The vast majority is made up of honest lawyers who help people comply with the law every day, and we can’t force them to become state agents.
By using the extreme example we are all aware of, which is completely appalling, we cause enormous harm to the justice system we have in Canada. It is envied by the vast majority of countries around the world because of judges’ professionalism, independence and impartiality, as well as lawyers’ training and high ethical standards. That doesn’t mean we can’t do better, that we shouldn’t keep our eyes open, that we shouldn’t be careful. Yes, we have to be careful, and we should not undermine and attack the system we have to achieve a very specific objective, because doing so would certainly be a step backwards.
This same debate on searching notaries’ offices happened during the passage of the Proceeds of Crime (Money Laundering) and Terrorist Financing Act. Every time, the Supreme Court stated: “Yes, you are pursuing a worthy objective, but are using the wrong means.” Many measures are already in place, and the examples you gave remain rather rare in Canada.
Some lawyers do get punished, based on reading professional associations’ discipline committee decisions. Every time a dubious transaction gets flagged, it’s automatically investigated. In cases of wrongdoing, lawyers are punished, and when that wrongdoing is criminal in nature, professional associations and law enforcement have mechanisms to share information and pursue the investigation on a different level, based on collected evidence. These mechanisms exist so that law enforcement agencies can share information. Obviously, that can include investigating a client or the person who gave instructions to a lawyer; all of those mechanisms exist.
The Chair: We will now move on to the second round of questions.
[English]
Senator Marshall: I have another question for Mr. Terrazzano. I have to say that there is merit in what you’re saying. I agree with a lot of what you’re saying, and we need to hear it. Well, I need to hear it.
Your comments on the home equity tax, I agree with what you are saying. The Prime Minister might say it’s not coming, and the ministers say it’s not coming, but it’s percolating there under the surface and every now and then it rears its ugly head.
My question is this: Do you really think that this government will ever balance its budget, reduce spending or ever pay down its debt? The reason why I ask you this question is I track the debt and I track the interest costs, and they’re only going in one direction, and that’s up. All of these changes in Bill C-32 to the Income Tax Act, when you add up the numbers, the cost to the government and the revenue that’s going to be brought in, well, guess what? It’s a net gain for the government of over $4 billion. Taxes for someone are going up $4 billion.
So just stand back and think about it. Do you think the numbers will ever go in the other direction?
Mr. Terrazzano: Thank you so much for the question, senator. Just between everyone in this room, I don’t think this government will ever balance the budget. I hope to be wrong, but I don’t see any evidence from the government to suggest they’re taking this seriously.
If I can just throw out a few different projections. Look, we just add in the Parliamentary Budget Officer’s revenue and interest numbers into the budget update, and the deficit in 2027 is $9.4 billion. The reason that’s so important is that it is a higher deficit than the budget update’s downside scenario. A higher deficit — just incorporating the Parliamentary Budget Officer’s revenue and interest charge numbers brings up a $9.4-billion deficit, which is greater than the downside scenario.
But beyond that, we really haven’t seen a budget target that this government hasn’t blown. We all remember when Mr. Trudeau was first running for Prime Minister in 2015, he said he’d run a few modest deficits and then balance the budget in 2019. Well, even before the pandemic, he was set to miss that balanced-budget target by $20 billion. I will refer you to the PBO’s Fiscal Sustainability Report 2022. It projects deficit out. It says that under the current trajectory, with the best available data, the government won’t balance the budget until 2041, another two decades of deficits.
Senator Marshall: I think that’s an optimistic scenario, to be honest with you. But my concern also is with the next generation and what we’re doing to the next generation because what’s happening is that a lot of the government programs are assisting younger people, and they’re the ones who at some point in time are going to have to pay back what they’re enjoying now. Do you have any comments on that? That’s a big concern of mine, children and grandchildren.
Mr. Terrazzano: We do a national Debt Clock tour where we go coast to coast to try to raise awareness about this issue. We have a big screen, and the debt goes up every second. One of the big concerns we’ve heard from Canadians coast to coast is that they are worried about their kids and grandkids being saddled with this type of debt. Right now, each Canadian is on the hook for about $30,000 in federal government debt. That doesn’t account for provincial government debt, which would be another $20,000 or so, depending on where you are.
So absolutely, it is going to harm the next generation, but it’s also harming Canadians today. We have seen out-of-control spending. We have seen the Bank of Canada printing up about $300 billion out of thin air, largely buying government debt, helping to drive the inflation we’re feeling today.
Senator Marshall: I also had a question on the Bank of Canada, but I’m sure my time is over. Your clock, by the way, you leave out the debt of the Crown corporations, so you might want to add that in. Thank you.
[Translation]
Senator Gignac: Thank you. I have two questions for the Canadian Taxpayers Federation. At the start of the pandemic, you published an economic recovery plan that featured a $20 billion tax cut. The plan also included a $30 billion in federal budget cuts. Those cuts included a reduction for senators’ and MPs’ salaries. However, at the start of the pandemic, people most affected by the measures were those in lower income brackets, who pay almost no taxes, because they work at minimum wage in restaurants, hotels and businesses. We know that 35% of taxpayers don’t pay taxes.
Two years later, as we speak, anyone can change their mind. Do you think that your proposed recovery plan was a good one? Studies show that if it had gone forward, it would have worsened the recession and taken us back to the economic depression of the 1930s, no less. When people are worried, they don’t spend and then governments have to do it. So everyone has the right to change their mind or make mistakes. I’m just curious to know if, two years later, you still hold the same opinion. I also have a second question.
[English]
Mr. Terrazzano: Senator, first, I want to say, with respect, I’m going to do my best to answer your question. I do need to improve my French, so I do apologize there.
If I’m getting your question correctly, what we’re very concerned about with regard to pandemic spending, sure, there are areas of the pandemic spending that we’re concerned about and we’ve been vocal about, with a lot of the corporate welfare that happened. I’m not just talking about helping the gym or the restaurant down the street keep the lights on during government lockdowns; I’m talking about some of the other stuff that happened on top of that, like Air Canada.
We are also concerned with, for example, political parties dipping into the wage subsidy that was not meant for them. Of course, the Bloc Québécois didn’t do that, and we’ve given them kudos.
Where we were really concerned with the pandemic spending was the $200 billion of new spending announced during the pandemic that had nothing to do with COVID-19, especially when that comes on top of a budget before the pandemic where the government was already spending all-time highs. That’s what we’re very concerned about.
We’re very concerned about the new money that was created during the pandemic that’s driving up the prices, which is making it very difficult for people who were already having a tough time stretching their incomes before the inflation. I hope I answered your question closely.
Senator Gignac: I think that cutting taxes is not always the best way to go. It depends on the situation. Most of the time I could agree — and we agree with a lot of your work — that the government has to spend more carefully. I totally agree on this one. Using the U.K. experience recently, where the prime minister and the finance minister had to resign because, in fact, what was going on was the currency was going down big time, and pension funds experienced huge losses on their bonds and stocks because it was a dogmatic government that believed that cutting taxes for companies and people was a recipe. It seems that the people have decided differently.
My second question. On your website, the mission of your federation is to identify things where there is excessive spending, and you ask for more transparency, but on your website I was unable to find anywhere a report regarding your compensation or even if the board of directors is paid or not. You have received $5 million from taxpayers in the last year, so I’m just curious — since you sometimes act as a back-seat driver to explain to the government how to manage money — I’m curious for the people, the taxpayers to have a good idea how efficient you are in managing money and if you froze your compensation during the pandemic, since you recommend to cut the wages. So I’m just curious in terms of transparency. Maybe you have access to that, maybe you don’t, but I would like to receive this information.
Mr. Terrazzano: If I can answer, but I also have to provide a correction, with respect, senator. We receive not a single penny from the government, not a single penny from taxpayers, never have, never will, just a slight clarification.
At the beginning of the pandemic, I actually took a quite significant cut, but again I’m one of the lucky ones, especially in the private sector, because so many people took huge pay cuts, maybe lost their jobs. I have friends myself — they own small businesses — who were worried they couldn’t keep the lights on with their savings. Of course, they feel like it was quite a slap in the face when they found out that the people who were supposed to represent them took pay raise after pay raise after pay raise.
In terms of who funds us — I appreciate the question — it is on our website as well. In 2020-21, we raised $4.8 million on the strength of 39,792 donations. The average donation is around $120. We have 30 —
Senator Gignac: Sorry to interrupt you. I read that. I have access to all that. More about disclosure regarding how you spent the $5 million you received last year. How much for compensation? Is the board of directors paid or not? I support a lot of the things you are doing, by the way, because Canadian taxpayers need to know how the money is spent. I recognize that you do not receive any money from government — thanks for that — but some organizations, for the sake of transparency, will release an annual report regarding their spending and disclose the compensation of the executive and the board of directors.
Is that something that you are willing to do?
Mr. Terrazzano: Well, we do have —
The Chair: For clarity, please, rather than prolonging the answer. I think you’re doing it right. Answer the question, please.
Mr. Terrazzano: In our annual report we do have the salary ranges as well. Look, my boss knows exactly how much I make. We can continue to arm-wrestle over what the CTF is doing, but we’re here representing 235,000 Canadian taxpayers who are super concerned with the fact that the government — which was essentially the biggest spending budget in history — is now going $20 billion over that.
Senator Gignac: Since you recommend to the representatives and senators to cut their wages, I think that if we have a clue how much you earn, the taxpayers will be able to judge if the senators — you understand, so just in terms of transparency. I will stop here. If it’s not available, it’s not available, that’s it.
Mr. Terrazzano: Like I said, we do have the ranges in our annual report. I can go on Google right now and find that.
Senator Gignac: Why not put that on your website? It would be a good idea, since I wasn’t able to find it. Thank you.
Mr. Terrazzano: If I may, we don’t even see that from the government. The federal government, unlike the vast majority of provinces, doesn’t even have a sunshine list, so we don’t even see that from our own government. Taxpayers pay the bills, and we don’t even have a sunshine list federally.
The Chair: Mr. Terrazzano, if there is any additional information — please, Senator Loffreda, you’re on the list to ask questions.
Mr. Terrazzano, on the questions that were asked by the senator, if you want to provide more clarity, I would invite you to send it in writing to the clerk because we have the same common denominator. It’s all about transparency, accountability, predictability and reliability. You have that in this committee, and your objective is there — we have the common denominator, and I believe that, yes, you’re entitled to make comments and make recommendations to governments. We are entitled to ask questions, so that we can bring clarity and due diligence, and that is what we’re doing tonight. I thank you for being here.
Senator Smith: A question for the Canadian Bar Association.
You noted in your submission that there are already extensive internal regulations and professional guidelines for lawyers when dealing with client trust accounts. I think that the problem, however — and Senator Galvez and others have raised this — is that at the end of the day we don’t know that illegal actors are being turned away by lawyers. It’s not an attack on the association. It is, I think, just a fact that we can’t judge what we don’t see, and this change would shine a light on this issue; it would expose potential illicit actors.
Do you not agree that this additional level of scrutiny would help fight tax evasion and avoidance?
Mr. Bowman: Thank you for that question, senator. I fully understand where you’re coming from. The existing tax system relies on people filing their tax returns honestly every year, signing on them that it’s true, correct and complete, and the bad guys don’t do that.
Within the legal profession, tens of thousands of other humans, they have obligations to file their own taxes. They have obligations to their Law Societies, and they’re subject to regulatory scrutiny, just as a taxpayer is subject to scrutiny by the Canada Revenue Agency.
Our submission is imposing a reporting obligation on the entire profession, where subject to these issues of solicitor-client privilege, otherwise, we know that the vast majority would file to the best of their ability, on time, just as they do their personal taxes.
The challenge here is that the proposal places a burden on the entire profession in order to try to find a relatively small number of bad actors, bad actors who are, by hypothesis, in contravention of their obligations as professionals and, in fact, not entitled to the protections of the profession when they’re offside.
So in a sense, it’s a question of proportion.
The interference with the relationship of, potentially, all lawyers with many of their clients is a cost that the entire administration of justice would bear in order to try and get some who are not inclined to do the right thing to do something that they will say is privileged or will somehow rationalize not to do. Finding the bad actors this way disrupts the profession and its relationships with its clients and likely doesn’t motivate the bad actors.
Senator Smith: If you look out in terms of real estate, and if you look at places like British Columbia that were extremely hot markets during the pandemic, and you look at the 2019 report from the British Columbia government, an estimated $5.3 billion was laundered in the province’s real estate market during the previous year. Is there a way that everyone can work together within the profession, and with Canadians, to try to reduce, at least, this type of challenge or problem that exists? I’m not trying to attack the bar association. I’m not trying to attack the legal profession.
Mr. Bowman: No.
Senator Smith: But is there not a way working together that this situation can improve, because it seems to be something that has existed for some period of time?
The Chair: Within 30 seconds.
Mr. Bowman: One of the elements in the proposal is the remaining component of reporting on bare trust, so properties that are held through trust structures that are not lawyer trust accounts but just bare trusts registered on title, those will have to report. So that will come out from this proposal if it goes forward: expanded reporting of trust relationships outside the legal profession.
The Chair: Thank you, Mr. Bowman.
Senator Galvez: My question is for Mr. Franco Terrazzano. I agree with you that we have to use every single taxpayer dollar efficiently and effectively. Money expenses, luxurious expenses by officials for sure are not acceptable, and using the money the government gives for bonuses to CEOs is not good either. I agree completely.
You also said that the government has given money to steel companies, Loblaws, to the motor companies, and you answered Senator Marshall that the growth fund is not necessarily the right vehicle to incentivize or promote economic growth.
My question is the following: All of the different examples that you say are a bad thing — it’s not big money. The big money is, for example, the subsidies that are given to the oil and gas industry that go between $8 billion and $12 billion per year. Do you agree that if we want to be effective and efficient with the taxpayers’ dollars, we should also be looking at reducing these subsidies that we give to the oil and gas?
Mr. Terrazzano: Senator, with respect, we don’t want corporate welfare for any industry. We say lower taxes, cut red tape. We don’t want subsidies for any type of industry, but now I guess the question is what a subsidy is.
We look at the niche, boutique tax credits. We look at loans, loan guarantees, just direct grants as subsidies. If that is what is going on, we say scrap that for every single industry — that’s within the first page of corporate welfare, that chart right there.
You mentioned small money. I don’t think what I’ve said is small money, but in our report — which I’m happy to forward to you if you’d like — we identified $38.4 billion, around there, of corporate welfare that has been announced since 2017. Included in that, we did identify — if I can just pull it up here — about $1.6 billion that was announced in 2018 to Alberta’s energy sector subsidies. But this isn’t that some companies are paying lower taxes than what the government wants. We’re talking about specific subsidies such as niche boutique tax credits, loans, loan guarantees and direct grants.
I will point out that we’ve also identified — and this is annual operating costs — $3.1 billion in annual federal tax credits for businesses in 2023. That number was from the government’s 2022 report on federal tax expenditures.
Senator Galvez: Thank you.
The Chair: Thank you.
Senator Boehm: Thank you very much, chair. Mr. Terrazzano, you referred repeatedly to your submission. We never got it. I think it went to the other place, what we call the House of Commons. We look forward to getting that, and I think the chair may ask you the same thing.
We heard from the Parliamentary Budget Officer yesterday, and in the public accounts there is a requirement to report. This is an IMF requirement, and it’s been delayed a number of times. This year’s public accounts were not tabled until October 27, so seven months since the end of the last fiscal year, on March 31. The IMF, of course, has fairly strict financial reporting guidelines. We’ve had pandemics and other concerns as well that have affected things.
I’d like your thoughts on a very specific question: What concrete steps would the Canadian Taxpayers Federation recommend the government take to improve fiscal transparency and timeliness of reporting?
Mr. Terrazzano: A fixed date for the public accounts, I think, would probably be the most obvious first step. I remember even last year it was even later.
Senator Boehm: This has been an ongoing problem over several governments, I would add. Thank you, chair.
Senator Duncan: My question has been asked. Thank you, Mr. Chair.
Senator Bovey: I just want to say I appreciate your comments about salary increases that MPs and senators got through COVID. As my colleague Senator Boehm said, they’re legislated. If I may give a word of caution: I’m well aware that many of my colleagues gave those increases back to charity, so I think there’s a difference between what the salary was and what the net take was because I know an awful lot of people gave that away. Just a note of clarification.
Mr. Terrazzano: Should I respond?
Senator Bovey: It’s not a question, but please respond if you want.
Mr. Terrazzano: I understand that it’s legislated. We don’t see that as being any fairer for taxpayers and recognize that people did give money to charity through the pandemic. We believe charitable giving is great, but that’s still subsidized by a higher taxpayer salary. What we’ve been calling for at the very least is similar to what happened in response to the 2008‑09 recession, where at the very least we saw legislated salary freezes.
The Chair: Thank you. For the last question, we’ll go to Senator Loffreda, who is the sponsor of Bill C-32.
Senator Loffreda: Thank you, Mr. Chair. Sometimes I get passionate about our work, so sorry. I’ll come to see Mr. Terrazzano after the meeting and clarify a few things that I wanted to clarify or get answers to.
But I do have an important question which is on Bill C-32, and once again for the Canadian Bar Association. Senator Gignac did bring up the mention of a specific case and whether it was discussed with government. We did receive your letter that you addressed to our chair. You specify on page 3 of your letter:
An exception for all lawyers’ trust accounts would not impair the CRA’s ability to enforce the ITA, and an exception is appropriate in view of the constitutional importance of protecting solicitor-client privilege.
To what extent have you discussed this with government officials? Maybe you didn’t have enough time to get into it. Have you discussed it with the Canada Revenue Agency as to what other options were available, instead of bringing this in?
I appreciate that the explanatory note in the Charter Statement was released only yesterday, and I didn’t expect you to have it with you. But I’d like you to read it, maybe, and get back to us with your opinion on that. At times I’ve said a good call is 80% listening, and I always like to do that. Take a look at the opinion and get back to us as to what you feel our Minister of Justice has specified and why he thinks that’s not the case. It’s very important, because I respect your opinion, which is why I’m asking.
To what extent did you do that and why do you feel it’s still being done? Why is it necessary? I expressed my views as to why I felt it was necessary at the beginning of the first round of questions. I’d like to hear why it’s not necessary, and why Canadians should not worry about all the concerns we have, especially in this geopolitical environment. I can tell you, I get a lot of emails every day that we’re not doing enough.
[Translation]
Mr. Bujold: Thank you very much, Senator Loffreda. Thank you for suggesting that we send our written comments on the document you referred to. We will do it after agreeing on a deadline with your committee’s chair.
Since 2018, we have done everything possible for an association to do, as I said in the letter we sent you. I didn’t mention it, but that letter was written jointly with accountants from relevant accountants’ association. Recently, we have taken joint steps with the Federation of Law Societies of Canada and opened a dialogue with the Minister of Finance. We’ve also had some discussions with the Minister of Justice.
Obviously, the government has its priorities. Several bills are moving ahead at the same time. We are delighted to be here today to talk about it with you. We hope that the impasse on the House of Commons side will end, so that we may have the same conversation and take similar steps.
At the risk of repeating myself, we think that this is a very clear legal matter that cannot brook any exceptions, and these provisions have already been unanimously overturned by the Supreme Court. Unfortunately, they will be overturned again because of the way the bill is currently written. That is why we are speaking before you today.
We will provide the document you referred to, and will be pleased to continue the conversation, as needed, to find solutions.
Senator Loffreda: Thank you.
[English]
The Chair: This brings us to the end of our meeting, honourable senators and witnesses. To the witnesses, your testimonies, comments and answers will certainly help us focus again on the four principles of our committee, which are transparency, accountability, reliability and predictability. In the event that you want to add to the questions that were asked, you can do that in writing, as long as you want to add on to the question that was posed.
I’ll now direct my comments to Mr. Terrazzano. Please submit to us your 80-page report. It was not brought to our attention, and it was not circulated to members of the Finance Committee in the Senate. I’ve been informed that you did it at the House. We would appreciate it if you can send that ASAP. We have a time frame for receiving written answers, which is the end of day on Tuesday, November 29, 2022.
To the witnesses, thank you very much for again accepting our invitation. There’s no doubt that as we look at Bill C-32, it is about doing our due diligence and keeping in mind that Canadians want answers. We are a vehicle for providing a report to the Senate of Canada that will highlight and give comments by the senators as we debate Bill C-32.
That said, honourable senators, our next meeting will be next Tuesday at 8:30 in the morning. On this, I now declare the meeting adjourned.
(The committee adjourned.)