Senator Day - Question Period - Ministry of Finance - Small Business Tax

Question Period - Ministry of Finance

Small Business Tax

October 3, 2017

The Honourable Senator Joseph A. Day :

Minister, welcome back. My question also relates to the proposed changes respecting taxation of private corporations and the tax planning strategies involved.

The government consultations concluded yesterday. We’re reacting to the letter that you sent, which Senator Mockler just referred to, where you indicated you’d be pleased to see if the Senate could help out, and we’re pleased to improve legislation and policy development at any time.

My concern is that we’re about to send a committee out across the country, and we haven’t heard from you yet. You have indicated there will be changes to these proposals. It would make no sense to be out there studying something you’ve already decided to withdraw.

Could you help us with what changes you’re contemplating with respect to these announcements so we can be studying the real thing?

Mr. Morneau: Well, thank you, honourable senator, for the question.

As you pointed out, our consultations finished yesterday. In these consultations, as is typical, we receive a huge number of the submissions right near the end. It would be a sign of disrespect if I told you that we have come to conclusions on what changes and improvements we can make less than 20 hours after the close of consultations.

What I can tell you is that we have seen some key themes occur during the course of those consultations, and we are going to make sure that we address some of those. I can identify five key themes for you, and then maybe I can talk about some technical things we have seen already. That’s not necessarily exhaustive; these are just examples.

What have we heard? We’ve heard from people that it’s critically important that small businesses retain the ability to invest in their business and communities. You probably know that means they need to be able to retain some level of income within their business so they can make those investments. We’ve heard that, we know it’s important, and we’re listening to that. We want to make sure we have a methodology in place that doesn’t change that opportunity for small businesses.

Second, we’ve heard from farmers, fishermen and small business owners across the country that they’re concerned, in the example of the family farm, about their ability to transfer from one generation to the next.

Clearly, it would never be our intent to impose rules that make it more difficult for the continuation of the family farm. We will make sure we won’t impose any rules that will have any unintended consequence to make it more difficult for that to happen. That’s an important consideration.

Third, we heard from women entrepreneurs and women professionals that they’re concerned that they have the ability to take time off work for family situations, or for other situations potentially, and what they’ve been doing, in some cases, is using their Canadian-controlled, private corporation to save so they can average out to a lower tax rate when they are off. We want to make sure that that advantage continues, and that we don’t, in any way, disadvantage women. That’s important to us.

We’ve stated repeatedly, but we have also heard from people, that keeping the tax rate low is important. We believe that a low small business tax rate and a low corporate tax rate are important incentives in our economy. We do want to keep that tax rate low. We’ve heard that; that’s our intent. We want to make sure it has the desired impact, of course, that it encourages business activity, but that’s an important principle.

Finally, we’ve heard from a number of people that they’re concerned that there is administrative effectiveness. The example people have used is for those people who have family members working in their business legitimately, they want to know that the way they verify that they’re working in the business is not too onerous, that it’s administratively effective. We’re committed to finding a way to clarify and to make that administratively effective for them.

Those are five key themes. But there are specific issues we’ve heard as well that we need to take into account. We’ve heard from people, for example, that they’re worried some of the tax planning they’ve used in conjunction with the proposed plans we put in place could put them in a position where they might have double taxation upon death. Clearly that’s not our intent. The reason you go to consult is to hear about the tax planning that is not always visible to the Department of Finance. We’re going to make sure that is not an outcome because that would be an unintended consequence.

I will give you an example that I heard at the town hall meeting in the last couple of days. A senator already made reference to this meeting. One of the people in attendance spoke about the fact that he had saved in his company rather than by putting money into an RESP for his children. I suspect he probably had kids currently in university and didn’t have the room to go back and get the gains from the RESPs.

As you think about making changes, you need to think about what the consequences are for individuals who might be caught in similar situations. That means we’ll probably have to find some way to grandfather what people have been doing in the past so they’re not impacted negatively. Their actions were legitimate. We also need to make sure we consider those issues and find a way to make sure that we don’t have a consequence that we really didn’t intend.

I can’t give you chapter and verse. I think those are a few things. It would be helpful for the Senate to have the opportunity to speak to people, remembering that we only put out draft legislation on two of the three measures that we’ve talked about, so there is still a requirement for draft legislation on the third, on past investment income, to come out. Your hearings would be very helpful in that regard.

As I said, I’m happy to have another occasion to come before the Senate Finance Committee, and I think that your work would be very helpful in getting us to a positive conclusion.