Feds backtrack on deferring Income Tax Act changes

By Palak Mangat July 21, 2021

It was a decision by the “elected” Liberal government to defer the implementation of Bill C-208 to next year, Finance Canada officials told the house finance committee yesterday — much like it was the Liberals who have since reversed that call.

Several department officials testified to the committee, which met for an emergency meeting yesterday, including director general of the tax policy branch Trevor McGowan and Miodrag Jovanovic, associate assistant deputy minister at the branch.

At issue is Bill C-208, which received royal assent on June 29, one day before the department issued a release stating the legislation would not kick in until January 1, 2022.

Amid a firestorm of criticism from industry groups and legislative and constitutional experts, who noted the country’s Interpretation Act stipulates legislation comes into force the date it receives royal assent unless otherwise specified, the feds backtracked on the deferral on Monday.

The changes to the Income Tax Act are designed to make it easier for small- and medium-sized businesses to pass on their companies to family members. Rule changes lower the tax burdens on existing business owners by allowing them to claim profits from the sale of shares to their adult child or grandchild as capital gains, rather than dividend payments.

Monday’s release, which said it “replaces” the previous release announcing the deferral to next year, also made it clear the feds intend to bring in amendments to the Income Tax Act to “safeguard against any unintended tax avoidance loopholes” that may be ushered in by the changes brought forward through Bill C-208.

“In terms of who made the decision, the press release stated the government proposed to introduce legislation. That’s a reference to the elected government of Canada,” said McGowan, later hinting under testy questioning from Conservative MP and Finance critic Ed Fast that the same group is responsible for the deferral.

Fast was among the opposition MPs who tried to zero in on who had decided to defer the implementation of the bill, which was introduced by party colleague Larry Maguire.

McGowan, Jovanovic and another departmental official who joined the meeting repeatedly avoided delving into such details, saying they were not at liberty to discuss the advice they provide to cabinet members, as it would fall under cabinet confidence. McGowan alluded to a minister being involved in the decision to defer but stopped short of naming names.

The two-hour meeting, which was called by Liberal MP and chair Wayne Easter, who voted for the bill, sparked accusations the Conservatives were “spinning their tires.”

“There’s no air in this balloon,” said Liberal MP Peter Fragiskatos, noting the department has since course-corrected, and urging his colleagues to “focus on the concrete.”

Earlier in the day, the committee heard from the house’s law clerk, Philippe Dufresne, who said he was happy to see the feds clarify the confusion. “Parliament is supreme and it has privileges and fundamental authority,” he said. “That continues to be my position.”

Yesterday’s meeting ended with a successful push from Conservative MP Pat Kelly, whose motion calling on Deputy Prime Minister Chrystia Freeland to testify before the committee about the matter within two weeks passed.