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Third Reading of Bill C-29, A second Act to implement certain provisions of the budget tabled in Parliament on March 22, 2016 and other measures


Honourable senators, I rise to speak to the amendment to Bill C-29. Bill C-29 was referred to the Senate Committee on National Finance in the fall. It's quite a large bill, and committee members spent a significant amount of time reviewing the various clauses. During committee meetings this fall on Bill C-2, Bill C-29 and Bill C-35, we consistently heard from witnesses that the tax code is extremely complex.

The last time Canada's tax code had a major overhaul was back in 1966, 50 years ago. All witnesses who testified said that the many amendments over the years have made the system unnecessarily complex and expensive, which brings me to clause 44 of Bill C-29 and the proposed amendment before us today.

Last Wednesday evening, tax expert Mr. Kim Moody appeared before the Finance Committee to discuss Bill C-29. Mr. Moody is a renowned Director of Canadian Tax Advisory with the tax law firm of Moodys Gartner. He is a chartered professional accountant. He made some general comments on Bill C-29 and then elaborated on the amendments to the small-business deduction rules, as per clause 44.

Mr. Moody stated that Bill C-29 contained significant amendments, with some of the amendments being quite controversial within the tax and business community. He stated that the bill contains amendments that tax the brain of even the most senior tax practitioners, himself included.

With respect to clause 44, he said he could appreciate the policy intent of the government of trying to restrict access to the small- business deduction in situations where it was not originally intended. However, he said Bill C-29 goes beyond simple targeting. He said the proposals are far-reaching and apply to many routine situations where, in his opinion, they should not. Overall, he said, the existing small-business deduction rules are complex, and Bill C-29, with clause 44, will make the rules horrifically complex.

He also said Bill C-29 ". . . is without a doubt within the top five in terms of complexity."

Like a true accountant, he summarized his comments and recommendations, and he put them into six comments. I'm just going to outline them here for you because they are fairly concise.

First, he says:

. . . I agree that inappropriate small business deduction multiplication should be curtailed.

He said he's been an advocate of that for years. He said:

The principle of one business, one small business deduction is a good one.

His second comment was:

. . . the current proposals are far too broad and imperfect.

The third comment was that, ideally, he felt there should be a rethink of clause 44.

Number four, failing a rethink, the new rules should be targeted much better with minimal crossfire collateral damage as a key objective.

Number five, targeting should be broad-based and not exclude certain groups, sectors or businesses.

Finally, number six, any rethink or targeting should include simplicity as a key objective.

Departmental officials also testified before the committee on December 2. To give you an idea of the complexity of clause 44, the briefing book prepared by departmental officials includes 14 pages on clause 44, while the clause itself in the actual bill is nine pages long.

Departmental officials briefed us on all amendments, and there was some discussion of the impact of clause 44 on medical practitioners and other professional groups. Departmental officials estimate that clause 44 in Bill C-29 will raise about $70 million in additional revenues. Of course that's a point I'm always asking. It seems when we went through every section of the bill, I asked if that would raise revenues or is it going to cost the government money? Every single section we looked at is going to raise revenues for the government.

I did question them about the accuracy of the $70 million figure, but they assured us that the costing for Bill C-29 was fully comprehensive.

However, the primary concern of the committee focused on the impact on professionals, especially health care providers. As indicated by Senator Eaton, changes may influence physicians to dismantle their health care clusters or move to another country with more competitive tax regimes.

During the meeting with departmental officials, we did discuss the impact on physicians and other professionals with respect to clause 44. I would like to reference a recent article in which David Dodge raises concerns about clause 44 in particular.

As most of you will know, David Dodge is a former Deputy Minister of Finance and a former Governor of the Bank of Canada. When he speaks, most people will listen. I'm going to summarize a couple of things that he was quoted as saying in an article that struck a chord with me. It starts off by saying:

Donald Trump will cause an "enormous" tax competitive problem, warns former Bank of Canada governor David Dodge, who predicts that the new U.S. presidency will threaten Canada's ability to grow the economy by attracting and retaining professionals who earn six-figure salaries. . . .

Mr. Dodge's comments come as doctors in Canada warn they've reached a tipping point in terms of high taxes and poor working conditions that will force many to consider packing their bags.

The article states that when the House of Commons Finance Committee looked at this bill, Wayne Easter, the Liberal Chair of the Committee, "had appeared sympathetic at times to the doctors' concerns during public hearings on a budget bill that contains a controversial clause that will limit some physicians' access to the small-business deduction.

There seemed like there was some recognition that clause 44 might be a problem.

Now, the Ontario Association of Radiologists said that many Canadian doctors will choose to work in the United States because of the federal tax change and that it is misleading for the government to tell low- and middle-income Canadians they won't be affected by the tax change, because many doctors are now considering whether to leave Canada.

The final point that I'd like to make with regard to the article is that NDP Finance Critic Guy Caron said he would like the Finance Committee on the Commons side to study whether the rate should continue to apply to professionals such as doctors and lawyers.

So it seems like there is some kind of recognition that clause 44 may be a problem.

The most disturbing testimony I heard during our committee meetings on the bill was the testimony from doctors. They informed us that they presently practise in group medical structures and that they use and benefit from the small business deduction. Senator Eaton elaborated on that in detail.

The Canadian Medical Association has indicated that it has heard from its members, and their research suggests that doctors will simply leave the group structure if they don't have the benefits of the small business deduction. These multi-specialty groups teach tomorrow's doctors, conduct research into cures and also research into new and safer procedures.

We were told that Canadian researchers are among the most quoted in scientific publications. Innovation developed by Canadian doctors ensures the ongoing evolution of our health care system. Senator Eaton and Senator Ataullahjan gave some examples. Canadian doctors were the first to develop the pacemaker, the first to do a single lung transplant, and currently lead development of no-incision heart valve replacement. They are also working on other initiatives.

We look at the bill from a financial perspective, but thing that struck me was what kind of impact this is going to going to have on our health care system. We hear of the different reports that are being released on the health care system in Canada. For example, a recent international survey was released that indicates Canada ranks below average in 19 out of 20 areas measured in the health care sector.

The Fraser Institute compared health care systems in 28 high- income countries. Canada was included, and it found that Canada is among the most expensive universal access health care systems in those 28 countries. It ranks third highest for expenditure on health care as a percentage of GDP and fifth highest for health care expenditure per capita. Despite this level of spending, it has significantly fewer physicians.

So those are the issues that raise concerns with me. What is that clause going to do to our health care system? How will limiting access to the small business tax deduction affect our health care system? Do we really know? I don't know. Based on discussions that we had with Finance officials, I don't think they have a good handle on it.

I'm a former Minister of Health in Newfoundland and Labrador, and when I heard the testimony of the doctors, what struck me was what is this going to do to our health care system? There is going to be a certain part of our system that's at risk of being dismantled.

The testimony that we received from our witnesses has given me reason to doubt the wisdom of clause 44. For this reason, I am supporting the amendment.

Honourable senators, the new small business deduction rules should be given a complete rethink.