Mr. Chairman, committee members, on behalf of the Chartered Professional Accountants of Canada, thank you very much for the opportunity to appear before the committee today.

As mentioned, my name is Bruce Ball. I'm a national tax partner of BDO Canada—my day job—and I'm also a member of CPA Canada's tax policy committee.

My comments today will focus mainly on the income tax legislation in part 1. We are going to just focus on a few specific things, just to highlight some concerns we have.

In addition to being a member of the CPA tax policy committee, I'm also the past chair of the joint committee on taxation of the Canadian Bar Association and CPA Canada; it was called CICA Canada when I was chair. As I mentioned, we have identified some concerns in the legislation that I want to address. I'm going to break my comments into two parts. We had some comments on immigration trusts but also on domestic trusts as well, and I'm going to start with them.

The bill eliminates the graduated rate taxation of trusts and estates. We're not here to question the policy because we recognize the government's right to change policy, but the bill also contained a number of changes that affect just the taxation of trusts from a practical perspective. These changes weren't really part of the budget but they were included in clause 26 of part 1. I'll just focus on a couple of issues with them.

The one thing I'll mention is that the joint committee I was chair of in the past did send a letter in September to the Department of Finance just to outline some of these concerns. I'm just going to touch on a couple of them.

The one that has the most interest I think, and the one we have the most concern about, is a change that affects some special purpose trusts, like a spousal trust, a trust that someone may set up for their spouse. Without getting into technicalities, with these trusts when the person passes on there's a gain that generally arises, a deemed gain. The new legislation effectively attributes this deemed income to the deceased's estate, even though the deceased's family may not be beneficially interested in the property.

The trust is jointly liable, the trust where there's the deemed income that's realized, but when it's passed out to the beneficiary's estate it is a joint liability and the beneficiary's estate will be the primary taxpayer from the point of view of whom the assessment will be issued to. We thought that was unfair.

It's a complicated area, but our concern really is that there's this deemed income that will arise for certain estate beneficiaries, their families, yet they won't actually be getting the assets that give rise to the income. In a lot of situations those assets pass to someone else.

Just in a similar vein, if the income arises in the trust and then it's allocated out to someone else, if there's a loss to the trust in a subsequent year, which there often will be because of planning that a lot of people do after someone passes away, there's quite often a capital loss. It's unclear if the legislation, the way it's written right now, would allow that loss to be carried back to apply against the income from the prior year because it's been allocated out to someone else.

The joint committee letter I mentioned, which was sent in September, lists some other concerns as well, but those were the two main ones we identified.

Our recommendation is that we'd like to really work with the Department of Finance more. Our suggestion is that those parts of the bill be withheld until they could be discussed a little bit more. They really don't relate to the graduated taxation on estates; they really relate to something else.

The other thing that was recognized in the joint committee's letter was just the change for immigration trusts, the changes to section 94 of the Income Tax Act. These changes had actually survived a number of tax changes over the years, and people believed that they had five years if they set up one of these trusts.

Our main issue here is the fact that these changes were made without grandfathering. We thought it was appropriate that people who set up these trusts in good faith should be able to get their five years of tax exemption, as they believed they had when they set up the trust in the first place. We believe that grandfathering should be allowed.

Thank you for your attention. I'd be more than happy to answer any questions you have.

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