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I call this meeting to order. This is meeting number 121 of the Standing Committee on Finance.
Our orders of the day, pursuant to the order of reference of Tuesday May 7, 2013, is to begin our study of
We have a full meeting with officials today.
The way I'm suggesting we proceed is that we do it by part. We'll ask the officials to give a very brief overview, for instance, of part 1, and then we will deal with all questions from part 1, and then we'll move to part 2, part 3, and part 4.
We do have a full meeting, and I'm sure members have a lot of questions.
Welcome back to the committee to all of you.
Mr. Cook, if you could give a brief overview of part 1, then we'll have questions from members.
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Thank you, Mr. Chair, members of the committee.
I'm here today with Sandra Phillips, the associate assistant deputy attorney general of the tax law services of the Department of Justice; Sean Keenan, director of the personal income tax division of the Department of Finance; and Geoff Trueman, who is director of the business income tax division of the Department of Finance.
To give you a brief overview, I'll go through the measures as set out in the summary, and then we can turn to the committee's specific questions.
Part 1 contains a number of measures that were announced in budget 2013. The first relates to the adoption expense tax credit. Specifically, certain expenses are eligible for the adoption expense tax credit if they are incurred during what's known as the adoption period. What this measure does is to extend the adoption period by allowing it to start at the earlier of the time that an application to register with a provincial ministry responsible for adoption is made, or with an adoption agency licensed by a provincial government, and the time at which an application for adoption is made to a Canadian court.
The second measure relates to the first-time donor super credit. This measure provides for an additional 25% tax credit for a first-time donor on monetary gifts of up to $1,000 in donations. A first-time donor is defined in the legislation as a person who has not made a donation since 2007, and this credit is available on a one-time basis for taxation years 2013 to 2017. The credit can be split between an individual and a spouse.
The next measure relates to the deductibility of expenses for safety deposit boxes. This measure provides that expenses for the use of a safety deposit box of a financial institution will no longer be deductible. This applies to taxation years that begin after March 20, 2013.
The next measure relates to the dividend tax credit. In order to ensure better integration of dividends other than eligible dividends received by an individual, this measure adjusts the gross-up factor and dividend tax credit associated with dividends.
The next measure relates to taxes in dispute and charitable donation tax shelters. This measure allows the Canada Revenue Agency to take collection action on up to 50% of the taxes, interest, and penalties in dispute in respect of a tax shelter that involves a charitable donation. That's in respect of the donor and the donation tax shelter.
The next measure relates to the mineral exploration tax credit for flow-through share investors. This measure extends that credit for one additional year, and it's applicable to flow-through share agreements entered into before April 2014.
The next measure relates to manufacturing and processing machinery and equipment. It provides that the 50% straight-line capital cost allowance rate currently available to machinery and equipment on a temporary basis be extended for an additional two years. It will apply in respect of equipment and machinery acquired in 2014 and 2015.
The next measure relates to reserves for future services and provides that the reserve currently available under paragraph 20(1)(m) of the Income Tax Act in respect of future services and goods to be provided is not available in the context of reclamation obligations.
The next measure relates to credit unions and would provide a phase-out of the additional deduction, allowing credit unions to access the small business tax rate on amounts that would not be eligible for the small business rate. This measure will be phased out over the current year to 2016.
The next measure relates to information requirements regarding unnamed persons. Currently, in order to obtain a judicial authorization to require a third party to provide information in respect of an unnamed person, the CRA must apply to a court for judicial authorization using an ex parte application. That is an application without notice to the third party. What this measure would do is actually streamline the measure by requiring the CRA to provide notice to the third party. This would allow the third party to participate in the actual judicial application and obviate the need for potential judicial review after the application has been heard.
The next measure relates to international banking centres. In recognition of the fact that the international banking centre rules haven't been used by any financial institution since 2007, what this measure would do is repeal the international banking centre rules in section 33.1 of the Income Tax Act.
There are additional measures contained in part 1. The first relates to caseload management for the Tax Court of Canada. This measure would do three things. It would update the monetary limits for access to informal appeals. In the case of income tax appeals, it would change the informal appeal limit from amounts of tax of $12,000 to $25,000. In respect of losses of a taxpayer, it would change the informal appeal threshold from $24,000 to $50,000. It would introduce an informal procedure appeal limit in respect of GST/HST appeals of $50,000.
As well, it would allow the Tax Court to separate issues. Currently, the Tax Court must deal with all issues at once relating to a particular taxation year of a taxpayer. What this measure would do is allow taxpayers and CRA to agree to deal with some issues separately. Perhaps if there's a question of law that could advance more quickly, that could be dealt with in one decision, and then the questions of fact could take their normal course without holding up the question of law issue. As well, on application, it would allow the Tax Court to hear appeals affecting groups of two or more taxpayers that arise out of substantially similar transactions and provide that the results of any applicable decision would be binding on all the taxpayers involved.
The bill also provides a measure to streamline the provision of relief for Canadian Forces members and police officers deployed on international operational missions. Currently, for missions that are assessed at risk level 2, in order to receive the tax relief available under the Income Tax Act, the mission must be prescribed by regulation. What the new measure would do is allow the Minister of Finance, on recommendation of the Minister of National Defence or the Minister of Public Safety, to designate the mission, and that designation would implement the tax relief for the members involved.
Part 1 also contains a technical amendment with respect to registered disability savings plans. In order to clarify the application of a measure that was introduced in budget 2012, allowing qualifying family members to open an RDSP for a beneficiary whose contractual competence is in question, this measure would simply ensure it is clear that the qualifying family member who opens the RDSP can continue to hold that RDSP on behalf of the beneficiary.
The final measure contained in part 1 of the bill relates to Canadian-source income for non-resident pilots. In a recent Tax Court of Canada case, Price v. The Queen, the Tax Court indicated how complex it was to determine the Canadian-source income of non-resident pilots. In order to deal with this issue, we have introduced a simplified determination of income for non-resident pilots. If a flight takes off and lands in Canada, the income associated with that flight will be Canadian-source income. If the flight takes off or lands in Canada and the other end of the flight is outside Canada, it will be 50% Canadian income. If a flight takes off outside Canada and lands outside Canada, there will be no Canadian-source income.
Those are the measures that are contained in part 1.
Welcome again, Mr. Cook and the other officials. We appreciate you being here. Thank you for the earlier briefing that we received on Bill .
I'd like to focus my time on the subject of credit unions and the tax changes for credit unions.
Many Canadians have experience with credit unions and other forms of cooperatives. They play an important role in investing in their communities, which distinguishes them from banks, because they have a social mission as part of their makeup. They're also generally much smaller than banks. Vancity, which is the largest credit union, is some 16 times smaller than the smallest of the major banks.
My question is around the purpose of these tax changes. It says that the goal is to create a level playing field with the private sector. Do you really think that credit unions are playing on an even playing field, or ought to play on an even playing field, with the large financial institutions?
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Perhaps I'll make some introductory comments, and then Mr. Trueman can talk a little bit more.
What this measure deals with is an additional deduction in excess of the small business deduction, which is available to Canadian-controlled private corporations.
The small business deduction is available on the first $500,000 of income for corporations whose taxable income is less than $10 million, and then it's phased out as taxable income increases up to $15 million.
Over time, when the additional deduction was first introduced, the structure of the small business deduction back in the 1970s was significantly different, and the limit on the small business deduction was actually based on cumulative taxable income. The policy concern that was being addressed in the 1970s, when the additional deduction was first introduced, was that because of the statutory requirements on credit unions that applied, it would prevent credit unions from replenishing their ability to access the small business deduction in a way that other corporations could do.
The small business deduction structure has changed significantly since the 1970s, so the same technical policy reason for the additional deduction is not the same. Now the ability to access the small business deduction is based on taxable capital as opposed to cumulative taxable income.
That's just some background on how the additional deduction came about.
I think I'll just pass it to Mr. Trueman. He can speak more specifically to your policy question.
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With respect to that, I can't respond directly to the number of Canadians. I can explain our analysis and the general impact.
The safety deposit boxes are not recorded on the T1. How much is paid by Canadians for safety deposit boxes is buried in investment and carrying charges.
In terms of the number of Canadians involved, we do know that the market for safety deposit boxes is roughly $200 million per year. We understand that it is split between individuals and corporations, roughly equally, so $100 million each. Beyond that, the cost of an individual's safety deposit box can vary widely, between $40 to $450 per safety deposit box. Of course, an individual or a corporation may have one or more safety deposit boxes.
Those are the parameters we work with, but in terms of the actual number of individuals, I can't respond to that.
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Currently, for the level-two missions that can be prescribed under the income tax regulations for income tax relief, the prescription process requires the passing of regulations.
There is an interdepartmental committee that assesses the risk of all international missions. There's a task force commander, and he or she assesses the risk on the ground, at the site where the mission will be undertaken. They come back to the committee and then the committee assesses the risk of the mission. Based on that risk assessment, the mission is given a certain risk level.
Then the Minister of National Defence, or the Minister of Public Safety, in the case of police officers, brings forward, essentially, a decision for the cabinet to prescribe these missions. Once that decision is made that those missions can be prescribed, the Minister of Finance goes through the process of prescribing the missions in the income tax regulations, which involves another submission and the regulatory process.
That process has been criticized for taking a considerable amount of time. Because the missions are small and oftentimes involve very few soldiers or police officers, it takes a long time, and it takes a while for the Canadian Forces members to get their relief.
The new process being proposed is that the Minister of National Defence, or, in the case of police officers, the Minister of Public Safety, would write to the Minister of Finance. There would essentially be an exchange of correspondence between the ministers such that there would be satisfaction that the process had been followed properly for assessing the risk, that the process hadn't changed, and that the intention of the provision was still applied. Then the Minister of Finance would designate the missions under the designation process and that information would be posted on the website, which would be a much more expedited process allowing soldiers or police officers, when they're on a mission, to know with greater certainty that they would indeed be eligible for the tax exemption.
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I'll have to give you a little more than a yes or no—sorry—because we talk about growing credit unions and large credit unions.
Eligibility for the additional deduction is not linked to the size of a credit union. The income that is eligible for the additional deduction for any credit union in a year is equal to the difference between 6.7% of its members' deposits and shares and its cumulative income over time.
As a credit union grows over time, and deposits and shares increase, the amount of income eligible for the additional deduction will increase over time. It may be the case that a credit union that is not growing, for example, will hit its cumulative limit sooner than another credit union. That ability to access the additional deduction can be restored in a subsequent year when there is growth in member shares and deposits for a credit union.
We had a look at the data just to verify, and the vast majority of the large credit unions are able to access the additional deduction. As an example, in one year we saw a large credit union hit its cumulative limit. In the following tax year, there had been sufficient growth in their base of deposits and shares that they had restored access to the additional deduction. So it's not linked to size; it's linked to how the test actually works.
We will move to part 2. I believe some of the officials are staying, and there will be some changes. We want to thank those officials who will be departing from the table and then welcome part 2 officials.
Colleagues, as you know, part 2 deals with implementation of certain goods and services tax and harmonized sales tax measures proposed in the budget. It also amends the Excise Tax Act and the Excise Act 2001.
I'll again look to colleagues, just in the interest of time, to indicate to me who has questions. We'll allow our officials to get settled.
Perhaps we'll have our officials just introduce themselves, and instead of an overview I think we'll go right to questions.
Monsieur Mercille, do you want to introduce yourself and your colleagues?
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In terms of the circumstances you're outlining, I'll just go back and repeat what the provision provides.
Basically, in what we've outlined in the provision, we've tried to identify what “qualifying health care” service is and what will be entitled to the exemption. It just means “a supply of property or a service that is made for the purpose of”. We've tried to provide some sort of guidance or direction in terms of these types of services that are exempt and will continue to be exempt.
I'll just read it:
“qualifying health care supply” means a supply of property or a service that is made for the purpose of
(c) treating, relieving or remediating an injury, illness, disorder or disability,
(d) assisting (other than financially) an individual in coping with an injury, illness, disorder or disability, or
(e) providing palliative health care.
Any service that is provided for one of those purposes will continue to be exempt, and largely those services are already exempt. It's been the policy since the introduction of the GST. Those are the types of services that are provided for one of those purposes and will continue to be exempt.
So in the case you just illustrated, the type of assessment you outlined would generally be to assess a learning disability, a disorder, with a particular individual. That would be the type of service that has been exempt and would continue to be exempt.
If specifically you were looking for the provision, that would be included under assisting an individual “in coping with an injury, illness, disorder or disability”, as well as “treating, relieving or remediating an injury, illness, disorder or disability”.
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Probably what you'll have in the case of somebody who is injured is that they will have an initial treatment. They will go see their doctor. The doctor will assess them, treat them for their illness, their particular injury. Those will all be part of the general treatment provision. There will be X-rays, different tests done.
If those tests, those examinations, those reports were done in the context of a treatment for a medical purpose, those are exempt now, and those will continue to be exempt.
If, in a court case, they asked for those types of reports, assessments, that were done in the context of the treatment, those will continue to be exempt, and those have been exempt.
If, however, something is done subsequently, and it is done after those initial treatments, and it is done simply and solely for the purpose of the legal proceedings, the insurance proceedings, then those would not be tests or examinations or reports—for example, some of the items you've listed—that would have been done for a health care purpose, and those would be subject to GST.
Thank you for coming today. First of all, the reason it would be more appropriate for Mr. Shipley to ask questions on HST and GST is that I'm from Alberta and we don't have provincial sales tax there. I thought that was more appropriate, and I hope we'll see all the provinces turn that way.
I'm from the oil sands, and I recognize what's going on in this country. Right now, we have a fantastic economy, the best quality of life in the world, in my opinion. It's primarily because of the resource revenues. But that is going to end sometime.
My question is about what was done in relation to the changes in our tariffs. I'm talking about a program that has received some notoriety, the GPT program, to which changes were made to support manufacturing. In particular, there were 80 or 90 countries on the GPT list.
Is that correct?
I apologize. That was probably my error. My wonderful colleagues here are zealous about getting to part 3.
I just have one comment. Mr. Hsu isn't here very often, so I thought in the spirit of collaboration I'd help a little bit. After 19 years of police work, I've dealt with a lot of victims of crime, and I've never had an opportunity or a situation where their original tests for their treatment were not available for court purposes. I've never had to have them do X-rays or other medical tests, because, frankly, the professionals in the health care system do a fantastic job at the onset, and then those become readily available for court purposes.
Of course, victims of crime are well taken care of, thanks to many of the measures this government has put forward, including lowering the GST, which I know Mr. Hsu's party would actually increase. So I'm encouraged by the questioning by Mr. Hsu and hopeful that perhaps they've turned the page and it's maybe led to an agreement on lowering the GST.
Nevertheless, I did want to provide him with some actual experience with regard to this. Hopefully, that helps him.
Are there any further comments by officials?
A voice: Part 3.
The Chair: According to the time limit here, I'm being very generous with the Liberal Party time, but I think it's best that we do move on.
I want to thank our officials for being here for part 2 and for responding to our questions very clearly. Merci.
Colleagues, with respect to part 3, there are a number of divisions that this committee has to deal with, so I'd like you to prioritize very much. First of all, on part 3, division 1, are there any burning questions that deal with customs tariffs?
I see there are. Okay.
I remind colleagues that we have about an hour, and we have fewer than 18 divisions, because some have been referred to other committees, but I'll ask you to be very brief and concise in your questions. We'll get the same brief and concise responses from officials, and hopefully we will get through all 18 divisions, or the ones we have to deal with.
We welcome our two officials from Finance. If you would like to introduce yourselves, we'll start with questions from members.
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Thank you very much, Mr. Chair, and thank you, witnesses, for attending.
This is sort of a threshold question, a process question, before I get into the meat of the matter, as it were, with this part and this division. I have a question for legal counsel that they can get back to us on. Many people, of course, will only read the summary of Bill , and in the summary, addressing this division of part 3, it reads as follows:
Division 1 of Part 3 amends the Customs Tariff to extend for ten years, until December 31, 2024, provisions relating to Canada’s preferential tariff treatments....
But when one looks at page 43 of the actual act, section 36 says:
Sections 33 to 35 cease to have effect on December 31, 2024 or on any earlier date that may be fixed by order of the Governor in Council.
It would appear to me that there's quite a misleading statement in the summary, because of course it could be brought in at any time before 2024, yet one would get the impression in the summary that it doesn't come in until December 31, 2024.
That's a threshold sort of legal question, and I don't necessarily know that there will be an answer from these officials, although I'd welcome one. Perhaps counsel could get back to our committee on what appears to be a discrepancy.
Thank you to Mr. Rankin, first of all, for asking more of my questions. I don't have to follow with this great lead-in about the oil sands and the economy and non-renewable resource revenues.
But I do want to talk about the manufacturing sector, because obviously long term that's the only way Canada is going to maintain its competitive advantage. It's the only way we're going to make sure Canadians have the quality of life we continue to have. I think that's why this government, in part, is doing what they're doing in relation to the GPT.
In particular, I'm interested in how 72 countries are coming off the list. I took a look at the list. The list includes countries like China, which is the number two economy in the world, and soon to be number one, if it's not today, and India, South Korea, and Brazil. We're talking about economies in the top 10 in the world, or close thereto.
My understanding of the original tariff and the preferential basis for it was to help developing economies bring their people up to the quality of life they can have, but not at the expense of our manufacturing sector. Would that be fair to say?
I appreciate your presentation, which clarified these issues for us.
Thank you so much for being with us.
Colleagues, just before I call officials, do we have questions on division 2 of part 3 dealing with financial institutions? Otherwise, I'm going to move on.
Do we have questions on division 3, dealing with the Federal-Provincial Fiscal Arrangements Act?
I'm told that we do have questions on division 4, so we will move to division 4, “Payments to Certain Entities or for Certain Purposes”.
We'll ask all the officials to come forward. This is one of the larger sections, dealing with payments to the Canadian Youth Business Foundation, Genome Canada, Nature Conservancy of Canada, Nunavut Housing Corporation, Indspire, the Pallium Foundation of Canada, and the Canadian National Institute for the Blind.
I want to welcome all of our guests to the committee.
I'll have each of you introduce yourselves and tell us which department you're from. Then we'll go to questions from members.
Thank you, Ms. McLeod.
Are there any further questions on division 4?
I want to thank our officials very much, all of you, for being with us this morning and for responding to our questions.
Colleagues, do I have any questions on division 5?
Do I have any questions on division 7?
Are there any questions on division 11?
Oh, you wanted division 5? Okay.