I call to order this 59th meeting of the Standing Committee on Finance. We are being televised.
Pursuant to the order of reference of Monday, May 14, 2012, we're studying Bill C-38, an act to implement certain provisions of the budget tabled in Parliament on March 29, 2012, and other measures.
We have a number of officials here today. I want to thank them for being with us.
Colleagues, as you know, we were discussing part 1 of the bill, and I had a speaking order I was following. Actually, Mr. Jean has two minutes left in his round, if he wants. Then I have Mr. Marston next.
Mr. Jean, you have two and a half minutes.
Actually, I'm looking for my glasses, Mr. Chair. Without them, I seem to be at a bit of a disadvantage, the older I get.
Indeed, we had just finished off relating to the filing of the tax returns, the electronic preparation of those and the savings to taxpayers. I wanted to talk a little bit about something the witness had mentioned relating to charitable donation tax shelters. There was something mentioned in relation to “not-registered”. That was one of my questions.
I'm not sure if you can remember what your comment was in relation to that—I can't imagine that you would. I should have taken better notes, and I apologize for that.
One thing also mentioned in relation to item J, under “Eligible Foreign Organizations and the Reporting Requirements of Registered Charities”, was “a gift from the Government of Canada”. It was referred to two or three times--“a gift from the Government of Canada”. When you were speaking about those charities and about a gift from the Government of Canada, were you talking about the tax deductibility or the tax consequences of receiving those gifts, that money?
We were referring to an actual gift from the Government of Canada, which is separate from the taxability or the ability to get a charitable donation receipt.
Currently, under the Income Tax Act, once a foreign charitable organization has received an actual gift from the Government of Canada--for example, a monetary gift, even if it's a nominal amount--once it has received that gift it is then eligible to be registered with the Canada Revenue Agency. That gift from the Government of Canada acts as a sort of trigger that allows the foreign organization into the system.
The proposed amendment is maintaining the requirement for a gift from the Government of Canada, but it also requires the Minister of National Revenue, in consultation with the Minister of Finance, to register that foreign organization as a qualified donee.
Sorry, you're referring to the changes that are set out in part 1 of the budget implementation act. In the actual budget materials at the start of the supplementaries, there's an outline of the cost of the various measures. If you'd like, I can just mention them.
In terms of the measures that are in part 1 of Bill , the measure with respect to RDSP plan holders will be approximately $1 million. The cost with respect to the mineral exploration tax credit for flow-through share investors would be $130 million for the year in which there is the expansion.
Really, those are the only major costs that are outlined in the budget materials for the particular budget measures that are included in this budget implementation act.
In terms of the way this measure works, just to clarify, this measure is with respect to gifts given by a registered charity or an RCAAA to a qualified donee. It doesn't apply in the context of a donation made by an individual or a corporation to a charity in the first instance.
With respect to the purpose, as I believe I indicated to the committee yesterday, it's whether it can reasonably be considered that a purpose of the gift is to support the political activities of the recipient of the gift. So where the charity or RCAAA is genuinely making a gift and genuinely providing a direction that it is not to be used for political activities, then that would largely be sufficient.
There is an objective analysis.... The only reason I hesitate is to preclude someone using it as a shield.
I'll let my CRA colleague make some comments.
The consideration of what's reasonable in the circumstances is a test that we often use in the Income Tax Act. Basically, it requires an objective analysis. As I indicated with respect to what is a purpose of the gift itself, the CRA, as administrator of the Income Tax Act, has ultimate responsibility, at least in the first instance, to make a determination based on the facts of the situation as to whether they feel it can reasonably be considered a purpose or not. Where the charitable organization disagrees with that, there is a procedure where ultimately a determination, if it goes that far, could be made by the courts.
To return to Ms. Nash's question, you went through the costs of two of the tax measures, the mining tax credit and the RRDPs, in this part. What about the other measures? Can you take us through all of the tax reductions—all of these measures in part 1—and tell us what the expected annual cost will be to the treasury? You've done that with two of them, but not with the others.
When the impact is, you're saying, too small to provide an estimate.... Could you inform us what that means: too small to provide an estimate? It seems hard to comprehend that any measure could not be quantified in some way. Is it less than $100 million a year, or is it $10 million a year? At least provide us with a range.
And have you calculated the total tax expenditures of these measures in part 1?
I just want to clarify one point with Mr. McCauley.
We've had this issue before, and CRA has been very explicit about it. I think it's important to note, because there is often a lot of discussion in the media and elsewhere on the government's actions or inactions with respect to the charitable sector and certain charities. I want to emphasize your answers, Mr. McCauley, in terms of there being no political direction given whatsoever. And if there were, CRA officials would frankly disregard it. They themselves would make the decision with respect to any auditing or oversight of charities with respect to the law.
I want you to answer that very clearly, for the committee's sake.
I'd like to pick up on a comment that Mr. Rajotte made about the charitable tax credit. I want to thank you for your clarification. The Minister of Natural Resources had talked about environmental and other radical groups, and the Minister of the Environment had talked about charitable organizations engaging in money laundering by using donations for political activities. There has been a great deal of apprehension about the charitable tax credit.
As I understand it, fewer than 2,000 of the 85,000 charities in Canada take foreign donations, the largest being organizations like CARE Canada and World Vision Canada. The only environmental organization in the top ten is Ducks Unlimited.
I'm unclear what the minister is referring to. Have CRA officials clarified to ministers that this is an arm's-length process, and not a process that can be used for targeting opinions they don't like?
With respect to the point of order, the reality is that members have a fair amount of leeway in terms of what they can say. If it's a point of order, I mean.... Political debate has a fairly wide ambit in the House of Commons. As members know, the Speaker gives fairly wide ambit to that, and obviously we do so as chairs of committees.
Whether something's appropriate or not, as a point of order I would say that this is not a point of order, Ms. Nash. If a member is attacking another member, then obviously that is a point of order and I would step in.
I would just encourage members, and perhaps I'll use this opportunity, in terms of the budget implementation act, to try to keep our points on policy as much as possible. We can disagree with each other on policy in a very passionate way without making comments about other members of the committee. I would encourage members to use the strength of their arguments against the arguments of the other member, rather than saying something about the other member. I say that to all members at this point. Let's use the strength of arguments against the other arguments. Let's not say something about other members as we make our debates. I would just ask, as your chair, that this is the method we should follow.
We are at hour 48 here, so this is going to get a lot more intense, and I think we should do this as respectfully as possible. I would just ask you as your chair.... You have a fair amount of ambit in terms of what you can do with respect to your rhetoric as members, and I don't want to limit that, but I would just advise you and encourage you to use the strength of your arguments with respect to other members' arguments, rather than with respect to what you may think of other members.
Thank you very much, Mr. Chair.
I'll continue as I was, through the chair, indicating as a comment that the ministers are not here to respond to any allegations made about them, or to correct the record, as we would say. We have officials who are here to gladly answer questions about the BIA. This side has chosen to try to provide as much time as possible to opposition parties, who continue to say repeatedly that they don't have enough time to study this bill. So I would recommend, Mr. Chair, that perhaps we could focus in on the BIA-1 questions, and leave the political rhetoric to the politicians, as, frankly, the ministers aren't here to defend themselves or to correct the record.
Those would be my comments.
I do want to also thank one of our officials for clearly stating that what was alleged by Ms. Nash was not in fact correct. I believe he will continue to do that if these kinds of suggestions continue. So I would hope that we don't use our time in a way that is not producing the results we are looking for, which is to understand the bill so that we are educated enough to vote on the bill at the end of the day.
Having said that, I'm going to pass my time once again to opposition members to make sure they have every opportunity to learn about the bill, so that they are educated enough to vote on it. I would hope this continues on a better vein.
I would just like to take a few moments to clarify, and to say that Ms. Nash's comments were correct. So just to be on the record, those comments were right.
Regarding the charitable organizations, I think the chair has mentioned that we don't want CRA to be political regarding charities, but what is happening in this bill is that we're giving the right to the minister. Yes, Mr. McCauley, you said that CRA will give advice and then the minister has to follow it. That's not how I read it. What I really hear is that it provides the Minister of National Revenue with the authority to suspend the tax receipt privileges of a registered charity if the charity devotes resources to political activities in excess of the limits set out in the Income Tax Act.
So, yes, the CRA will be monitoring that, and, yes, there's the argument of what is reasonable, and CRA will look at it. At the end of the day, it's the Minister of National Revenue who will make the decision.
I apologize if I was unclear.
The authority is delegated to officials within the agency. For example, revocations—even now, I don't see a number of them—are taken at the director general level. As I mentioned, we keep a very clear line between the minister's office on the political side and the decisions we take that are delegated to us through the tax system. I apologize if I didn't make that clear, but those authorities, decisions to revoke, are made within the agency.
Mr. McCauley, I am satisfied with the integrity that we see from the people before us here today, and I'm not suggesting that the government lacks any faith in your integrity, because I think it's important.
One of the problems we've had that politicizes these hearings is the kind of rhetoric that occurs from time to time in the House, and of course one was quoted earlier today relative to environmentalists and people from outside the country and that kind of thing. Then following that event, when you get into a situation that we now find before us—a change—it's potentially significant, but something we don't believe had been asked for from your department. So with regard to the eligible foreign organizations and the reporting requirements, was that a request from your department? Was that a need you thought should be filled and suggested to the minister?
That's fine. I'm not trying to press you too far on this.
The reality of the situation is that whether either side of this room has a concern about it, there has been a certain amount of reaction within the public with regard to this particular issue because of those comments in the House. I think it's fair for us to delve into it in a reasonable fashion to find out where it came from and why, because it's got the taint of a potential situation where somebody in authority might push for something. If that's not the case, we certainly want to rule it out. We certainly also want to understand that in your case, as you've indicated, you have independence. If we happen to be the government or someone else is—God bless us, even if the Liberals come back, and I said God bless us, so I think we're safe—you'll still have the same integrity.
The thing here is, contrary to the view that we shouldn't necessarily dig into this, I think it is very important that we make clear the integrity of our officials and our departments. I want to thank you for being clear on that.
I'll go to a question that's a little simpler. There's a part of the changes to the demands for tax returns that talks about the fact that it now could be done online. Of course many things are happening online these days, so it's understandable. I'm concerned, because in the past would you not have sent a registered demand letter? I've had discussions with the parliamentary secretary about cases in the Hamilton area of people who were very neglectful and hadn't done their tax returns for a long time and how we could address that side of it. I guess the aspect of it is oftentimes people delay that first year and then they're nervous or frightened to get involved with the CRA after that.
If you're sending an e-mail, how do you confirm that the intended person has received it? Would you send a registered letter as well to the person who's the problem?
Thank you very much, Mr. Chair.
I want to go back to the changes made to the Governor General's compensation.
Reviewing the methodology around this, the government's assuming that he's earning at least $134,000. Of course he's earning other income that's not related to his position; that was clarified earlier. You're assuming in terms of the calculations we've made that he will pay the top marginal tax rate on all of his salary as Governor General, instead of a portion of the salary in each of the tax brackets, as Canadians would do.
Why did you calculate it that way? Why wouldn't you assume his taxes would be paid at different percentages based on different strata of income, based on thresholds of income within the tax system?
As Sean was saying, assuming the measure is actually passed, then part of the process is to provide some guidance on exactly what we would consider to be humanitarian. I think it's certainly likely to be very consistent with what Sean was saying.
But there's a distinction between understanding what humanitarian assistance is and the actual charitable registration process. In a number of instances we have found that Canadians give through existing international organizations, such as the Red Cross and others, and often find that this is the most immediate way to provide relief. This is a measure in which there are some particular....
For example, in this case, New Zealand, with the government, wanted to initiate a process to establish some separate identification. That's why we went through that process. A lot of giving takes place through existing international aid organizations, which are often seen to be quicker, with infrastructure in place. That would not change.
I want to go back to the piece around charities and political activities and perhaps get it reaffirmed that this is not a new rule, that this is a rule that has been in place. Certainly if a food bank says they're concerned about food issues in their community, that's not deemed political activity. This is something Revenue Canada is used to.
What you will have is some tools and support—predominantly, I think, and most importantly, around education. We talk about.... The opposition is throwing out all sorts of different groups, of course with political overtones to those groups. But it has been very clear that charities, regardless of the charity, perform an incredibly important role.
The CRA is responsible for administering and for continuing what has been done all along. Again, this is not a change in the rules around what charities can do in terms of political advocacy.
Do you have any comments? Have I accurately...?
I just want to follow up on that, Mr. McCauley, with respect to Mr. Brison's question.
The rules, as they are now, apply equally to all charities. And the rules, if they change, if the bill passes, will apply equally to all charities.
You can engage, but it has to be directly related to the objects of the charity as well. There are a couple of tests related to political activities, neither of which are changing.
But you're right, partisan is prohibited.... Political purpose, absolutely under all circumstances, and those political activities have to be subordinate to, directly related to, your purpose of a charity.
And yes, they have to be maintained at less than 10%.
I want to thank the officials for answering these questions.
One of the questions I had that you reasonably answered was what could be construed as misuse of a receiving charity. I think you answered that pretty clearly.
For a long time here—let's say in the last three, four, five months—there have been conversations about U.S. groups trying to gain political influence in Canada and funding into charities. I recently read a book—without naming the book, because I don't want to promote anybody here—that talked about a certain religious group from the U.S. that is establishing links to Canada and making donations into organizations here whose view was to train folks to be more in conformity to their belief structure back in the U.S. The purpose was to have these people educated, as Mr. Brison said, in the techniques or organizing or operating campaigns to assist a political party of their choice in this country.
Would there be any violation, in your mind, anywhere in that process? I am trying to be as general as possible, because it could be anybody on any issue, but that is consistent with what I've read.
I would like to make a comment on the authorities given to the Minister of National Revenue with respect to the intermediate sanctions and with respect, in particular, to political activities.
We've taken an existing authority, which is currently in place with respect to the obligation to maintain books and records and have them available for inspection and those kinds of things, and have used it for that particular purpose.
Probably the larger change with respect to authority has to do with the foreign charitable organizations. I guess what I'd point out to the committee is that currently under the Income Tax Act there is no consideration at all by the CRA. It is automatic registration if you meet the conditions.
The Department of Finance provided us with some information as part of this section of the budget implementation bill. There's a section on increasing transparency and accountability for charities. There are questions such as “What impact will the changes with respect to political activities have on charities?” There are actually some guidelines as to which activities are prohibited, which are charitable, and which are political. Under “prohibited”, it says:
|| Prohibited political activities are those that are partisan, (i.e., involving direct or indirect support or opposition for a political party or elected official)
If an organization that had a tax number had, for instance, on its website, “Building Canada's Conservative Movement”, and if in fact on its website it had a section called “What's Your Type?”—this is not one of those personal types of sites—and it said “Answer fifteen questions and see what type of conservative you are”, and if in fact it had a list called “What We Do” and in that list on this website it said “Conservative T-shirts”, and if it had a section called “Donate”—
Mr. Chair, I know you have indicated that you would give great latitude. I certainly appreciate that. But I think Mr. Brison is getting into a level of detail that is far beyond the scope of this bill, certainly in terms of assessing individual organizations, which is the job of the experts who deal with this every day.
I would perhaps ask if you believe, under my point of order, that he's sort of exceeded that great latitude you have given us with regard to this conversation today.
Thank you, Ms. McLeod.
I'm simply seeking clarification, because in the information provided to us from the Department of Finance, it lists activities that are prohibited, those that are charitable and as such are allowed, and those that are political and as such would have to be limited to 10% of a charity's....
I'm asking what kinds of activities would.... It's important, as legislators, that we understand this. This is from the Department of Finance. We were provided with this.
Just continuing on the line of charities and political activities, as you may know, this committee, the finance committee, in fact had been studying charities and charitable donations. We've heard from charities—everything from food banks to health organizations—that do advocate for some political change based on the clients they serve and the work they do.
There's a whole range of political activities, of course, that organizations are engaged in, from community organizations to national organizations, including everything from the David Suzuki Foundation engaging in environmental advocacy to the Manning Centre and the Fraser Institute. There are many organizations.
But on this particular change, with the pass-through changes that are being proposed here, do you have any sense of what share of charities or what number of charities could be pushed over their 10% ceiling by making this change? Do you know how many charities could potentially be affected by the change that's in this bill?
I'm going back to what Mr. Brison brought up earlier because I am interested in that line of questioning, and I've been able to formulate what I consider to be a fairly good question in relation to it. I went on a website called Canada's Culture. I'm wondering how you judge whether it's 10% or not. For instance, that particular website promotes voting for the Liberal Party of Canada. I'm wondering whether or not that would be included if that's a charity, a non-profit group. How would you quantify whether it would be 10%?
I understand where the 10% and the word “exclusive” come from. Do the laws clearly state it has to be exclusive work toward that charity? The judicial interpretation of that by the courts over the years has been that 90% is considered exclusive, so 10% can be something else. Is that correct?
In this particular case, for instance, legalization would obviously be something that this particular organization would want. And if they advocated for the Liberal Party to be elected or for that member in that area, would that be considered to be contravening the section? That's my first question.
Second, I'm not sure how this would be considered, but if the Green Party endorsed another party before they had a member of Parliament, would they be a charity or a non-profit group? I guess they'd be a political party because they endorsed the Liberal Party for the same purpose, for the same reason, for legalization.
But I'm wondering about the issue with Canada's Culture. Would that be a contravention, and how would you judge whether or not it would be within the 10%?
It's a threshold issue in terms of how the legislation is structured. The Income Tax Act requires that the charity operate exclusively for charitable purposes and conduct exclusively charitable activities. A specific provision in the Income Tax Act provides that as long as you're devoting substantially all of your resources to those charitable purposes, you can devote some of your resources to political activities.
That particular rule in the Income Tax Act is where we find the requirements that those political activities have to be...the term is “ancillary and incidental” to the charitable activities of the organization. That's also where we have a specific exclusion that what we've been calling the prohibited political activities do not include the direct or indirect support of or opposition to any political party or candidate for public office. The prohibition with respect to partisan political activities is specifically in the Income Tax Act. So if you cross those hurdles and you devote some portion of your political activities, then the Income Tax Act deems all your resources to be deemed for charitable activities.
The act does use the term “resources”. So an assessment has to be done in terms of what constitutes the resources of the charity, because obviously a charity has financial resources but may also have human and physical resources that are used for their purposes. So that's the overarching structure of the act with respect to political activities.
I don't know whether my colleague from the CRA has any specific comments about....
I call this meeting back to order, the 59th meeting of the Standing Committee on Finance. We are continuing our discussion of Bill .
We have with us here witnesses from both CRA and Finance. We want to thank them for staying with us tonight. We're on part 1; I believe we're just finishing it up.
I do have a note from Mr. McKay that he has a question.
Are there any other members at this point who want to be on the question list?
Okay, we'll start with Mr. McKay with part 1, please.
Thank you, Chair. Thank you for your generosity.
I apologize for not being here earlier, but I'm not a regular member of this committee.
The issue is with respect to political activities and those that are partisan. I can imagine that this leads to some interesting conversations as to what is or is not and whether one breached or did not breach.
Can you explain how this is going to be different from what currently exists?
With respect to political activities, the measure in part 1 essentially provides a look-through rule to the Income Tax Act. So as a general matter, what constitutes a political activity for a registered charity or a registered Canadian amateur athletic association? What is a political activity at its base level will not be changing as a result of this bill. What is changing is that we put in a definition of political activities. It's not a definition that defines political activities in the normal sense; it's just a definition that says political activities include the making of a gift where a purpose of the gift can reasonably be considered to support the political activities of a qualified donee who receives the gift.
Essentially it does not change, from an overall perspective, what constitutes a political activity, but rather where funds are given from one registered charity or a registered Canadian amateur athletic association to another qualified donee. Currently, under the act, where these kinds of gifts are made, it's automatically considered to be for charitable purposes for the charity giving the gift. What the provision does is simply provide a look-through rule that says to look at the purpose of the gift, and if a purpose of the gift is to support political activities of the recipient and the qualified donee, then that will be considered a political activity for the registered charity or RCAAA.
We're all partisans sitting around this table—well, maybe there are some exceptions, but I don't know who they are. If we go to a church and advocate for a particular activity, whatever the activity might be, and that church, for whatever reason, decides that we're going to donate to what might be considered an entity, where is it that the church gets itself in trouble?
Mr. Cook and Mr. Keenan, thank you so much for being with us tonight.
We'll bring the officials forward for part 2.
Welcome to the committee. We had an overview of part 1, which I think was helpful. Perhaps one of you can do an overview of part 2. Then we'll have questions from members.
Part 2 of the bill includes an amendment to the Excise Tax Act that deals both with the GST/HST and excise taxation. I'm going to cover the GST/HST measures, and Ms. Di Primio will be covering the excise taxation measure.
First, in respect to the GST/HST, I would like to say as a background that the GST/HST generally applies on all supplies of property or services made in the course of a business of any sort, unless there's a specific exclusion in the legislation for it. This bill adds a few more exceptions in the health care sector.
Part 2 of the bill amends the Excise Tax Act to exempt pharmacists' professional services from the GST/HST. These services, for example, can include ordering and interpreting lab tests, administering medication and vaccination, and changing drug dosage.
In addition, currently in the Excise Tax Act, a prescribed list of diagnostic health care services, such as blood tests, are exempt from the GST/HST when ordered by certain health care professionals. These health care professionals can be doctors, dentists, registered nurses. Part 2 of the bill amends the Excise Tax Act to expand the exemption for those diagnostic services to include those ordered by pharmacists, when the pharmacists are authorized to issue such orders under provincial law.
Part 2 of the bill further amends the Excise Tax Act by expanding the list of GST/HST zero-rated medical and assistive devices that are specially designed to assist individuals in coping with a chronic disease or illness, or a physical disability, including the circumstances in which certain devices can be zero-rated.
For those who are not familiar with that kind of language, zero-rated under the GST legislation essentially means taxable at a rate of zero, fully released from GST/HST.
In terms of circumstances in which a medical device can be zero-rated, the list is expanded to include certain devices supplied on the written order of a registered nurse, an occupational therapist, or a physiotherapist, as part of their professional practice. In the past, those medical devices had to be issued on the order of a medical doctor. The list of zero-rated medical devices is also expanded to include blood coagulation monitoring or metering devices and associated test strips and reagents.
This amendment parallels the amendment that was explained earlier in respect of income tax.
The list of zero-rated medical devices is also expanded to include corrective eyeglasses or contact lenses supplied under the authority of an assessment record produced by a person who is entitled under the law of the province in which a person practises to produce the record authorizing the dispensing of corrective eyewear. Essentially, this follows recent provincial law changes where opticians have been authorized in certain circumstances to conduct vision assessment and to produce records of the assessment that authorizes the dispensing of corrective eyewear. Before, it had to be a prescription on the order of an eye care professional.
Part 2 also amends the Excise Tax Act to add the drug isosorbide-5-mononitrate to the list of GST/HST zero-rated non-prescription drugs that are used to treat life-threatening diseases. In this case this drug is used to treat congestive heart failure.
Part 2 also amends the Excise Tax Act to allow charity and qualifying non-profit literacy organizations prescribed by regulation to claim a rebate of the GST and the federal component of the HST they pay to acquire printed books to be given away for free.
Another amendment in part 2 implements a legislative requirement relating to the Government of British Columbia's decision to exit the HST framework. Essentially, the amendment removes references to British Columbia in the Excise Tax Act.
The last GST amendment is basically an amendment to the Excise Tax Act and related regulation, to change the treatment of rental vehicles temporarily imported by Canadian residents. The effect of the amendment is to fully relieve the GST on those vehicles imported by Canadian residents if the Canadian resident has been outside the country for at least 48 hours. If the Canadian resident has not been outside Canada for at least 48 hours, the GST will be levied on a partial basis. The way this works is that under the legislation there'll be a fixed amount per week associated with a type of vehicle. For example, a car is $200. So when the Canadian resident, bringing that foreign-based rental vehicle into Canada, says he's going to be in Canada for two weeks, the tax will apply at the applicable rate of two times $200.
These are the amendments related to GST and HST in part 2.
Lucia will now talk about the excise taxation measures.
In the area of excise taxation, part 2 of the bill also includes proposed amendments relating to the green levy on fuel-inefficient vehicles as well as the excise tax on automobile air conditioners. The first measure is very similar to the proposed GST relief that Mr. Mercille described, relating to foreign-based rental vehicles. Essentially, the green levy as well as the automobile air conditioner excise tax would be fully relieved on foreign-based rental vehicles that are temporarily imported by Canadian residents into Canada for non-commercial purposes and for no more than 30 days.
Part 2 of the bill also includes proposed amendments to ensure that the application of the green levy will not change, even though the recently announced that vehicle fuel consumption testing requirements will be changing. These proposed amendments ensure that the green levy will continue to be determined by reference to the current test method that's used to measure fuel efficiency ratings so that there will be no change.
There is one last measure in part 2 of the bill. It's similar to a measure discussed yesterday and earlier in relation to the Income Tax Act. Essentially, the Minister of National Revenue, and by virtue of that the Canada Revenue Agency, is relieved of the requirement to issue demands to file a return by registered or certified mail. Instead the demand can be issued by regular mail. This applies not only to the Income Tax Act, but to ensure consistency across all federal taxation statutes, it applies to the GST legislation, the non-GST portion, and the excise taxes and duties as well.
These are all of the measures in part 2 of the bill.
I first want to comment that the measures Ms. Nash was just asking about are very positive. We're talking about what it will cost, but being in the health care field, I know that a nurse practitioner could do something but then would have to send the patient to the doctor, so there would be that additional cost.
I suspect we're going to have provincial savings also in terms of better utilization of our physicians. That, of course, isn't my question, but because it's something near and dear to my heart, I was so glad to see it in this budget.
My question is a quick one. It's regarding B.C.'s decision to exit the HST. Just this week, British Columbia, which made this choice, announced their date to exit: April 2013.
Are we going to have any kind of gap in legislation? Will we “exit” them before they have the transition? Can you just briefly talk about how this is connected together?
In Canada, the green levy excise tax applies at the manufacturers' level or at the time of importation. At the manufacturers' level, it applies when it is delivered to the purchaser, which is usually a dealer. So the underlying policy rationale for the green levy is not only to raise revenues but also to discourage the production of fuel-inefficient vehicles.
Presumably, the rental vehicle from, for example, the United States has already been manufactured outside Canada, so it would not be subject to the green levy. Then, when it's being imported for less than 30 days, it wouldn't be consumed in Canada, so the relief is applied on that basis. It would also probably be administratively more costly to administer at the border than to allow this relief for these very short temporary importations.
It is important to understand that, before the recent change was made to the Motor Vehicle Safety Act, vehicles rented abroad could not enter Canada. In budget no. 2 of last year, we included an amendment to let foreign cars enter the country.
When these vehicles were not allowed to enter Canada, there was no tax relief on the importation of such vehicles. That meant that import taxes were charged on the full value of the vehicle when it arrived at the border. The purpose of the new measure is to promote tourism, because this amendment is part of the tourism strategy. We wanted to make it easier for tourists who rented a vehicle abroad to travel.
I will give you an example. Some people were going on an Alaskan cruise, leaving from Vancouver. They took the boat and arrived in Alaska, where they decided to rent a vehicle to visit more of the state. They figured that, while they were there, they should also take advantage of the opportunity to visit the Yukon. When they arrived in the Yukon, the vehicle could not enter Canada. If this change had not been proposed, the vehicle would be taxed on its full value and people would not come to Canada to visit the Yukon.
We'll turn to part 3—just kidding. It's to see if you're paying attention.
We will turn to part 4.
Part 4 is a much larger section than parts 1 and 2, so we will deal with them in divisions, and we will start with division 1 of part 4. This is with respect to measures with respect to the Auditor General of Canada.
We have Mr. Boissonneault.
Welcome to this committee.
Would you like to give an overview of this section for us?
Sure. This division has two groups of clauses. The first section of clauses, from 170 to 192, amends a number of acts to eliminate the requirement for the Auditor General of Canada to undertake annual financial audits of certain entities and to assess the performance reports of two agencies.
The government is making these changes at the request of the Auditor General of Canada. The AG proposed these amendments as cost-saving measures that will result in a more consistent treatment of all federal entities. They will allow the Office of the Auditor General to reallocate resources to core priorities.
There are 12 legislative amendments in this section. The majority remove the requirement for the AG to undertake annual financial audits of certain federal entities from their enabling legislation. This will result in a treatment of these organizations that is consistent with that of other federal departments. This is because the government had previously decided not to require audited financial statements of individual departments.
Departments and department-like organizations are of course still subject to scrutiny as part of the annual audit of the summary financial statements of the Government of Canada.
As well, these organizations will still be subject to periodic performance audits by the Auditor General, as in the past.
The set of amendments in this part of the bill also removes the requirement for the Auditor General to conduct assessments of performance reports of two agencies, the Canadian Food Inspection Agency and the Canada Revenue Agency. These assessments—and again, they are not performance reports of themselves, they are assessments of performance reports—have been deemed to be unnecessary and inconsistent with the treatment of other similar federal agencies.
Changes to this effect are also going to be made for the Parks Canada agency, but that is not part of this division. It will be addressed in division 9.
The Auditor General will also eliminate financial audits of five other organizations on the basis of his own authority, so they are not addressed in this bill.
All of the affected organizations have been consulted about these changes.
The remaining clauses in this division, clauses 193 to 204, indicate the year in which the audits will end for each case. These changes are going to be phased in over a two-year period.
Currently, these organizations receive a financial audit on an annual basis by the Auditor General. They are also captured by the Auditor General's audit of the government as a whole through the summary financial statements. To that extent, there is some duplication happening.
The obligation to conduct a financial audit is required by legislation. This is something that's not done with other similar organizations that do not have that requirement in their legislation, so there's also an inconsistency.
In the Auditor General's view it's unnecessary, and the implication is there's minimal risk because they will continue to have their financial statements audited. Moreover, the performance audits that happen on a regular cycle are unaffected.
So because of the importance of CRA, it was determined.... Well, CFIA is kind of important, too. In terms of some of the organizational changes that are taking place at CFIA, and that will take place in the next few years, and some of the concerns around governance for things like food safety and the performance around that, it just seems like a very strange time to eliminate the AG's audit function on CFIA.
I guess broadly, within the committee, at a time when we're going through an expenditure review process and when the Auditor General's function, in part, is value for money, operational efficacy, and that sort of thing, this is something that I would have thought we'd want more of, not less. I know that's a bit of an editorial, but it just seems like a very strange time to be going in this direction.
On the timing of the decision for the Auditor General to scale back from some of these agencies, was that concurrent with the reality of his budget being reduced, or would that have been...?
No. The Auditor General was not part of the review base.
He was requested to look for efficiencies wherever he could, as were other departments and agencies that were not part of the review base. This is what he concluded.
The motivation also is, to go back to your premise, a feeling that these particular exercises were onerous and taking away from core priorities, which includes performance auditing, which is more central to the role of the AG.
I used to be part of a past expenditure review committee. What happens is that you ask the departments and agencies to submit those areas where they would potentially reduce, so the Auditor General was asked to provide or to volunteer areas where they could actually reduce their costs.
So this process of the Auditor General reducing his audit function—or their audit function—of all these agencies, except for the CRA, came as a result of a request by the government for him to reduce the costs or the budget of the organization.
The Chair: You have about 30 seconds.
“Opportunity” is a euphemistic way to look at this. I mean, the Auditor General was asked to reduce his expenses and find ways to do it. He found a way to do it and did a prioritization, which he had to do.
I just think that as a committee we have to wonder whether it's prudent to reduce the audit function of government during a period of expenditure review. That's something that I think all of the Conservatives would agree with, in that even with a strong, stable, national Conservative majority government—
Some hon. members: Hear, hear!
Hon. Scott Brison: —these things are continually very important.
Mr. Mike Wallace: You finally got the point.
I would like to pick up on what Ms. Nash was saying.
You mentioned that the Auditor General was going to make these recommendations. I would like you to clarify the following, which you presented in the Senate. It is more or less the same issue. I will have to read it in English because it is from the “blues”.
||The Auditor General was not part of the strategic operating review. However, the Minister of Finance had written to the Auditor General last summer to request that they adhere to the spirit and intent of the review. In response, the Auditor General identified these changes as well as a number of....
It goes on.
So basically the Auditor General didn't really volunteer as much as he had been asked to volunteer by the .
Given the line of questioning, I thought it might be important to state that we have invited the Auditor General as a witness. We hope he will attend. Mr. Boissonneault is being asked many questions and having to hypothesize about the AG's thinking. He's nodding his head, so I just want to flag this for the comfort of my colleagues on the other side, that we will have an opportunity to delve into that, I hope, with the AG when he's here.
Again, I just wanted to make that comment so that Mr. Boissonneault isn't left in the position of continually having to speculate on what the AG was or was not thinking.
I did have to ask them a couple of things. Turning it on, I got.
Sir, when I see this government changing the constitutions of three provinces to increase federal control over the financial affairs of those territories, and that is being done without public consultation, by adding the changes to Bill , it leaves me—and I'm not expecting you to respond to this part—with a sense of something that's trying to be snuck through. We have a 400-page document here.
I find it ironic, when one considers the fact that the stated fourth pillar of the government's northern policy is improving and devolving northern governments.
Do you have any further information as to why this has been enough of a priority for the government to add it to Bill ?
If I understand your explanation, the finance minister didn't mandate that he wrote to the Auditor General and asked him, in keeping with the spirit of other cuts, whether he would identify some cost-saving measures, and he did so.
In terms of how this came about, we know that the government hired a number of consultants last September to the tune of $90,000 a day, and they were to advise the government on how to cut $4 billion at the time, on an annual basis, to federal departments. I don't know whether those consultants were retained for an extra year, but they had the potential to be retained for an extra year.
Did those consultants contact the Auditor General? Do you know whether their analysis in your department was what led to these particular changes in oversight being recommended by the Auditor General?
Thank you very much for being with us here tonight. We appreciate your answers.
We will bring forward officials for division 2, life-annuity-like products.
Welcome to the committee. Thank you for being with us here.
If one or more of you would like to give an overview of division 2 for the committee, we would appreciate that, and then we'll have questions.
Division 2 deals with annuity-like products. As the committee members may know, there is currently a prohibition in the legislation that clarifies that banks are prohibited from engaging in the business of insurance, and this includes the issuance of life annuities. Primarily this is because a life annuity is based on an expectation of death—or an expectation of life, I suppose—and that risk is most appropriately addressed and dealt with by the regulatory regime applying to insurance companies.
In December 2011 the minister announced that the government would propose an amendment to prevent banks from offering annuity-like products, to ensure that the risks associated with these products are appropriately addressed by the insurance regime.
The amendment that you see in division 2 is to clarify the prohibition against banks offering annuity or annuity-like products.
I would really like to move on. Do we have any other questions on this division?
My understanding from the finance department is that the three officials in front of us can also address divisions 10, 11, 16, and 30. I hope we can do that, rather than go to division 3, PPP Canada, just so we can....
Okay. I don't have this in both official languages, but I can seek to have it translated.
Essentially, part 4 is split up into divisions with officials. My understanding, and I can be corrected by officials, is that the officials before us are addressing five sections. These are the only five sections that are sort of combined with these three officials. All other divisions are addressed by distinctly separate officials.
Is that correct, Ms. Pearse?
This goes back well into the history of the Bank Act. There was originally an overarching prohibition against both foreign and domestic government involvement as owners of federally regulated financial institutions. That general prohibition has gradually been opened or loosened, or made more flexible, for certain types of investments.
There was a provision added on financial institutions that allowed financial institutions owned by a foreign government to have a wholly owned subsidiary in Canada. For example, the State Bank of India, which is owned by the Indian government, has a subsidiary in Canada. There are other examples of similar kinds of government-owned financial institutions having subsidiaries in Canada.
Likewise, there was an amendment in 2009 that would allow the Government of Canada to inject capital into Canadian federally regulated financial institutions to ensure financial stability, in the national interest of Canada.
Certainly these funds are allowed to invest in other sectors of Canada's economy and there are different checks and balances in place, depending, of course, on where the investment is. Is that accurate, would you say?
Really, the banks have been at a disadvantage in terms of some other areas.
The briefing notes provided to us by the Library of Parliament indicate that, “eligible agents would be allowed to use the voting rights attached to any share purchased in a financial institution.”
I can understand why, in the context of what is being presented to us, that the eligible agents could use their vote within the imposed guidelines on a foreign property by the Banking Act, for example.
My question is the following. Why are there two different rules for the eligible agents and for the other government organizations, which could also invest but not use their right to vote?
Not unless the bill passes tonight.
There are existing limits for small, medium, and large financial institutions in Canada. For a small financial institution, any investor or owner can own up to 100% of that institution. Medium-sized institutions, anything over $2 billion in assets, have to be 35% widely held. In other words, any individual owner can only own a maximum of 65% of that institution. The intent there is to move the institution toward greater disclosure of their financial statements and business plans. Currently, any institution above $8 billion is required to be widely held. No individual owner can have more than 10%, or 20% with the approval of the Minister of Finance, of voting common shares. That regime does not change with these amendments.
The good news is that Mr. Caron asked one of my questions, so that will cut it down a bit.
In terms of your presentation, and talking about the ministerial tests that they applied, I read here that part of his consideration will be the financial resources and the business record of the purchaser. If I understand this correctly, the purchaser will put up a certain amount of cash value to buy equity in a firm. You would think that there would be something that said what the status of the place is they're buying into, as part of that test, you know, the viability of a given bank, just for an example.
On that side of the equation, is there any ministerial test they would look at? I'm thinking of let's say a privately held pension fund that wants to buy into a bank. Our banks are in good shape—we have a good reputation for that—but it seems to me that they're looking at the purchaser, as opposed to where they're putting the investment. Is there a counter to that anywhere?
Division 11 sets out legislative amendments to strengthen oversight of the Canada Mortgage and Housing Corporation and to ensure that its commercial activities are managed in a manner that promotes the stability of the financial system. The proposed changes are part of the government's efforts to strengthen the housing finance system. The proposed legislative amendments include additional objectives for CMHC to ensure that its commercial activities promote and contribute to the stability of the system, including the housing market; legislative and regulatory authorities for the Minister of Finance in respect of CMHC's securitization programs and any new commercial programs; authorities for the Superintendent of Financial Institutions to review and monitor the safety and soundness of CMHC's commercial activities and report to the CMHC board of directors and the Ministers of Finance and Human Resources and Skills Development; and the addition of the deputy minister of the responsible department, Human Resources and Skills Development, and the Deputy and Minister of Finance to CMHC's board of directors as ex-officio members.
Division 11 also includes a legislative framework for covered bonds. Covered bonds are debt instruments that are secured by a pool of high-quality assets, such as residential mortgages. Until now, Canadian banks have issued about $60 billion in covered bonds under contractual, non-legislative framework. The legislative framework was announced in budget 2010 in order that covered bonds could better support financial stability by making the market for those bonds more robust and helping lenders access new sources of funding.
The framework will be administered by CMHC and will be open to federal and provincially regulated mortgage lenders. The key elements of the legislative framework include allowing covered bonds to be registered by CMHC; providing investors in these registered covered bonds greater certainty about their claim on the covered bond collateral; prohibiting the use of government-backed insured mortgages from being part of the covered bond collateral pool; and requiring that federal financial institutions only issue covered bonds under this legislative framework.
Since the budget announcement of this framework, stakeholders both in Canada and internationally have been supportive of the announcement.
I think we would all agree that promoting stability in the financial system is important, and certainly in the housing market, where there is, of course, concern about a bubble in the real estate sector, given what we've seen in the U.S. and the U.K. and other parts of the world.
How would the proposed responsibilities through CMHC help provide greater stability and perhaps address reducing the risk of a housing bubble?
The amendments in the bill are intended to strengthen the oversight of CMHC so that there would be better knowledge within the government of the risk profile of CMHC—the types of activities it's engaged in, its activities to mitigate any of those risks, and the capacity of management and the board to respond to risks within the products covered in its commercial programs.
So it provides the ability for the government to establish the terms and conditions of the securitization program and provides for OSFI to be more engaged in the supervision of that entity, as it is currently engaged in the supervision of the private sector entities that provide mortgage insurance in Canada.
It enhances the CMHC board of directors by adding two deputy ministers—one from the responsible department, Human Resources and Skills Development, and the Deputy Minister of Finance—as ex-officio members to the board.
The intent is to have a more cohesive system of oversight on the CMHC.
I just want to clarify this point. I want to make sure I understand it correctly.
The Government of Canada in 2006 decided to move to the 40-year mortgages. My understanding, and correct me if I'm wrong, is that it's not the government that makes the decision to move there. The government either allows it or doesn't allow it, but the government doesn't say “Here's a brand-new 40-year mortgage for you.” The finance minister of the government doesn't do that. It's what is allowed or not allowed.
Am I correct on that? I think we need to really clarify this point so that our committee members fully understand this.
I think where we're going is very important. It also seems there might be some relevance to the history in terms of how we got here.
Rather than have everyone try to gather the information from their memories in terms of the history, it would be very helpful if you could submit in writing to the committee a bit of the history from 2006 forward That would be very helpful, and I'd appreciate it. To have it in writing would be great.
During the period of the financial crisis there was a restriction on the ability of financial institutions globally to fund in commercial markets. In particular, commercial securitization markets effectively shut down.
One type of securitization that continued to function was the covered bond market. Part of the reason is that the covered bond has a dedicated pool of assets that stands behind the bond and is collateral in the event that the issuer, the bank, for example, were to fail. The covered bond itself would continue to function because these bonds continue to generate income that would support the payout on the bond.
These amendments are creating a legislated framework in Canadian law to support the structure of that covered bond.
I've been able to pull up several articles on the genesis of 40-year mortgages in Canada. In one of them, on October 15, 2008, CBC says:
||In an effort to stop a U.S.-style mortgage meltdown in Canada, less than a year after introducing the government-guaranteed 40-year mortgage, the Department of Finance is tightening the rules that apply to them.
It goes further, and says:
||Just over a year ago, Parliament passed a bill changing mortgage insurance by allowing a 40-year amortization period, thereby making the process of buying a home that much easier.
It also quotes the Canadian Association of Accredited Mortgage Professionals estimating that over that period of the year since the legislation was passed, 37% of all new mortgages taken from that one-year period in the fall of 2007 were for periods longer than the standard 25-year amortization. According to a TD Bank representative at the time, 60% of first-time homebuyers were opting for 40-year mortgages.
I wanted to help edify the committee in general as to the genesis of it: there was a legislative change.
We never had 40-year mortgages in Canada with no downpayment prior to 2007, is that right? It's the first time we've had them?
I thought I would perhaps take an extra round. I look forward to the report in response to Ms. McLeod's question.
I just thought members might be interested in a news release that they can find on the Finance Canada website for July 9, 2008, so not the fall of 2008, but July 9, 2008. Perhaps we'll have the staff send this out to all the members: “fixing the maximum amortization period for new government-backed mortgages to 35 years; requiring a minimum down payment of five per cent for new government-backed mortgages; establishing a consistent minimum credit score requirement; and introducing new loan documentation standards”.
I love this website. There's so much fantastic information on it. Everybody really should go to this regularly.
There's more I'd love to read, but really, I think what we should do is follow Ms. McLeod's advice, and we will have a full report on the history of the mortgage market in Canada for the benefit of all members.
Do I have any further...?
I have Ms. McLeod.
Division 16 deals with amendments to the Currency Act. The proposed amendments are necessary to implement the government's decision to eliminate the penny.
They are fairly technical amendments, and they will clarify that the government can redeem coins without “calling them in”. Calling in a coin would have the effect of removing it as legal tender, which is inconsistent with the government's announcement that the penny would retain its value indefinitely and can continue to be used in payments.
The amendments also clarify that the payments for the redemption of the coins, including the associated cost, can be made out of the consolidated revenue fund on the authority of the Minister of Finance.
I have a couple of questions. Actually we had to stop Pat Martin from coming, as he wanted to talk about the penny so much.
The briefing notes indicate that businesses will adjust their prices. For a difference of one or two cents, the price will be rounded down and for a difference of three or four cents, the price will be rounded up to five cents more. If I am not mistaken, that is how it will be.
There will be no oversight. I imagine we will rely on the good faith and goodwill of the businesses.