Welcome to our new members to committee. It's nice to see you again.
It's a very great pleasure for me to be back here.
Pursuant to the Order of Reference of Tuesday, January 30, 2007, we have before us Bill .
We have appearing before us today, no stranger to this committee, Madame Diane Ablonczy, Parliamentary Secretary to the Minister of Finance.
I understand that you have some comments to make, Diane, so please proceed.
Thank you, Mr. Chairman.
This is my second time representing the minister in front of this committee. It's always a pleasure to wear another hat, so to speak.
The purpose of this meeting is to discuss Bill , the Sales Tax Amendments Act, 2006. The intent of this bill, I'm sure you all know, is to implement measures aimed at increasing the fairness, efficiency, and ease of compliance in administration of the sales tax system. The Minister of Finance spoke in the House when he tabled this bill. He said:
||Canada's New Government is committed to reducing taxes and eliminating red tape. We believe this will make our economy stronger and that it will give a competitive advantage for Canada.
The bill we're discussing today reflects that commitment. We want to make sure that our tax system is fair for all taxpayers, and with Bill we are moving in that direction. I will outline how we are doing that in a moment, but first I'd like to take a moment to make a few remarks about Canada's new government improving the fairness of Canada's tax system in general.
We believe that like charity, tax fairness begins at home. That's the approach we took in Budget 2006, a budget that delivers real results to individuals and families. It did so in a focused and fiscally responsible way. We started by lowering the GST to 6%. We also delivered broad-based personal income tax relief combined with targeted tax cuts, cuts that over two years will provide almost $2 billion in tax relief for individual Canadians. That, of course, is more than the last four Canadian budgets combined.
These cuts, Mr. Chairman, will remove about 655,000 low-income Canadians from the tax rolls altogether. That is good news for over half a million Canadians and their families. As a result, Canadians will have even greater opportunity to keep more of their hard-earned dollars so they can invest in the things that matter most to them and their families.
In recognition of the Canadian entrepreneurial spirit, and the fact that it helps drive our economy, Budget 2006 also delivered on the government's promise to reduce business income taxes. This action will create an environment for jobs and growth, which in turn will make Canada's tax system more internationally competitive. But this new government has not and will not rest on those laurels. We recognize there is more work to be done.
In October, the finance minister announced a tax fairness plan for Canadians. The plan will restore balance and fairness to the federal tax system. It will protect Canada's long-term economic future and ensure that the tax burden is not unfairly shifted onto the backs of hard-working individuals and their families.
The plan increases the age credit amount, and for the first time ever in Canada, seniors will be able to split their pension income.
We didn't stop there, Mr. Chairman. Along with this fall's economic and fiscal update, the Minister of Finance, before this committee, released Advantage Canada: Building a Strong Economy for Canadians. This is a long-term, national economic plan designed to make Canada a true world economic leader.
Among other initiatives, this comprehensive plan will further improve tax fairness by featuring a reduction in taxes for all Canadians.
Getting to the substance of Bill before us, the bill complements the initiatives I've just outlined.
Mr. Chair, a point of order.
I appreciate that the parliamentary secretary has a speech. When I was parliamentary secretary I too had speeches.
The Chair: I recall that.
Hon. John McKay: You will recollect as well, Mr. Chairman, that I generally didn't inflict my colleagues with the canned speech from the minister, and we went directly to business. I'm inviting all members to ask the honourable member to simply skip the speech and get to business.
Mr. Chairman, Bill complements the measures I've just outlined by increasing the fairness of the sales tax system. It increases fairness for many individuals with special needs, it increases fairness for charitable organizations, and it eases compliance for a wide range of businesses and other organizations.
Let me illustrate for the committee how Bill C-40 will help meet the government's goals of ensuring fairness in Canada's tax system.
The GST/HST measures contained in the first part of this bill are principally aimed at improving the operation of the GST/HST. These proposed measures will also ensure that the sales tax legislation is in accordance with the policy intent when the law pertaining to these measures was first introduced.
In some cases, adjustments have been made to the legislation as originally proposed in response to representation from tax and business communities. This illustrates the importance this new government attaches to the consultation process. Time, I'm sure the honourable member who just spoke will be glad to hear, does not permit me today to outline everything in this comprehensive bill.
Some hon. members: Hear, hear!
Ms. Diane Ablonczy: So what I would like to do now is touch on the key measures in this bill and then open the floor, of course, to questions and discussion.
First, there is little doubt that Canadians want to have an affordable health care system that is there for them when they need it. To this end, Bill C-40 proposes to continue GST/HST exemption for speech language pathology services indefinitely. It also exempts health-related services rendered in the practice of the profession of social work.
Mr. Chairman, this new government is also sensitive to the special needs of persons with disabilities. As you may know, the existing GST/HST rebate for specially equipped vehicles applies only to purchases and importations of new vehicles. The proposed amendment in Bill C-40 will allow purchasers and importers of used motor vehicles that are specially equipped for persons with disabilities to receive a rebate of the GST/HST paid on the portion of the purchase that is attributable to the special equipment.
Canada's new government recognizes the important contribution made by small businesses to our economy, and we want to provide them with an environment that will allow them to grow and prosper. Bill C-40 responds to these needs, introducing measures that will ease their compliance with the sales tax legislation. For example, the scope of certain rules has been expanded to remove unintended impediments to the use of provisions that could exempt businesses from the GST/HST. This bill also proposes amendments to the legislation to better accommodate special import arrangements between businesses in certain situations where goods and services are supplied outside Canada to a Canadian customer. These amendments and others contained in Bill C-40 reflect policy initiatives to improve the application of the GST/HST. This will ease compliance requirements for Canadian businesses and allow them to flourish, Mr. Chairman.
Turning now to excise measures, the second part of Bill C-40 contains measures to implement minor refinements to the Excise Act, 2001, related to tobacco and alcohol. These proposals will improve the operation of the act and more accurately reflect current industry and administrative practices.
One such example is a proposed modification of the exemption of excise duty for small wine producers to take into account that smaller wine licensees may not have their own packaging facilities or equipment. The proposed amendments also permit wine that is packaged on behalf of a wine licensee to be covered by the duty exemption. This proposed amendment will simplify administration and compliance for small wine producers and allow them to concentrate their efforts on producing and promoting their excellent Canadian products.
As I mentioned, this bill also proposes amendments related to the taxation of tobacco products. Bill C-40 proposes to extend the requirements so that the origin of all tobacco products be identified, including those for sale at duty-free shops or for export. This ensures consistency with the Framework Convention on Tobacco Control, an international treaty on tobacco control sponsored by the World Health Organization.
Of course, committee members probably do not need to be reminded that this bill comes about as a result of extensive consultation with the alcohol and tobacco industries. The proposals in this bill are therefore expected to be received favourably by industry.
Part 3 of the bill contains measures pertaining to the air travellers security charge. The charge, as members know, was implemented following the events of September 11, 2001. Among other technical measures, Bill proposes that the charge not apply to air travel that is donated by an air carrier to a registered charity that arranges free flights for individuals as part of carrying out its charitable purposes. This would include, for example, flights made for medical purposes.
In closing, Mr. Chairman, the amendments proposed in Bill are intended to maintain a fair and efficient sales tax system. For businesses, this bill also promotes ease of compliance and administration. Moreover, the business community supports the introduction of this bill as it represents improvements to the administration and efficiency of the tax system.
I now welcome the questions that are burning in the minds of my colleagues on this committee and welcome the officials from the Department of Finance who have joined us here today to clarify any technical questions you may have about the bill.
Thank you very much, Mr. Chairman.
Elsewhere, I'm very interested in the subject of industrial hemp. Until very recently, tobacco was grown in the Lanaudière region. Tobacco fields could be turned over to industrial hemp crops. Pilot projects are currently under way. As mentioned in the briefing materials, industrial hemp has many uses. In fact, 99.99% of the plant can be used.
The use of industrial hemp for agricultural purposes is discussed at length in the briefing materials that we received, notably its use as pet food or feed for wild birds. I'd like to know if the proposed amendments will apply to all forms of tax relief on supplies and importations of grain, seeds or mature hemp stalks, even ones intended for industrial use. For example, door mouldings can now be manufactured from industrial hemp.
Under the circumstances, will seeds, mature stalks and importations of grain qualify for the proposed tax relief?
Thank you very much, Chair.
Good morning, and thank you for your presentation.
It's our understanding that, for the most part, we don't have too controversial a bill here, that mostly it's housekeeping. It's introducing quite a number of changes, but they're small and hopefully positive, for the most part. At this point, we're not seeing this as anything to get ourselves all twisted up about. In fact, if everything holds up, this should be a fairly smooth process.
However, I do have a couple of questions. Obviously there's the concern we've raised around ATMs and the fees being charged to citizens. Any time we see something here, as we're noting, that gives to a bank a benefit that doesn't exist right now in some fashion, then we'd at least like a clarification.
Now, I think I understand exactly what's happening, but let me just briefly read what we have and then you can comment. I would quote to you, from the summary of the bill, the following:
||Business Arrangements: provides transitional GST/HST relief on the initial asset transfer by a foreign bank that restructures its Canadian subsidiary into a Canadian branch;
Can somebody give that to me in ordinary language, please, so that I know exactly what's happening there?
There was a change to the Bank Act. Before, a foreign bank that wanted to operate in Canada had to incorporate a company, incorporate the bank, to operate as a full person, basically. Since the change to the Bank Act, foreign banks have been entitled to operate as a branch.
Basically, the legal person is still the foreign bank; they have only a branch in Canada. Before, they were not allowed to operate as a branch in Canada. Now they're allowed to. Maybe when they came to Canada the first time the bank could have chosen to operate as a branch and not necessarily as a subsidiary of the foreign bank. To do that now, what could have happened is that when transferring assets from....
Let's say they want to close the subsidiary and just operate as a branch. There would be a sale of assets. Usually when there's a sale of assets, there's GST applying. Under the GST we have rules that basically allow for a rollover of transactions when there's the sale of a business. But in this situation, where you receive representation, the existing rule would not apply in every case.
So basically we put in place a transitional measure. For a certain period of time, the foreign bank can use the new rollover provision to avoid payment of tax on the restructuring of their operations.
It would be interesting, Chair, over the years to get the Auditor General's take on the money that was raised, how it was raised, what was done with it, and then how effective those systems have been.
The other thing I just wanted to ask, if I've got time, and I know I'm running out quickly, was on the Nova Scotia bill, the part for the changes to address Nova Scotia issues. It was passed in 2001.
Has Parliament introduced any changes prior to this? The time lag is what I'm looking at. It's over half a decade between when a province made a move and then there needs to be a reciprocal move on the federal side, but we're just doing it now. Was it introduced earlier and didn't get through, or does it normally take this long between provincial action and then reciprocal federal action?
It's a little bit particular in this case, because the policy decision on the amount and who gets the Nova Scotia housing rebate is a provincial decision. When the province harmonized to the HST system, the legislation itself was in the federal act, so there are always a certain number of dealings between the provincial and the federal government.
These measures, I believe, have been amended. I think they were originally announced in 2001. I believe they were amended in 2002, to the person who could actually qualify.
We were not consulted on their announcement, and basically when they announce something, from taking it and putting it into legislation, sometimes there's further policy development to be done at a smaller level, but this still takes time. But this was put forward in 2002 as a news release by the government.
Colleagues, having no amendments and seeing no other urgent indications of a desire to enter into discussion, we will proceed now to clause-by-clause.
(Clauses 2 to 157 agreed to on division)
The Chair: Shall the short title carry?
Some hon. members: On division.
Some hon. members: Agreed.
The Chair: Shall the title carry?
Some hon. members: On division.
Some hon. members: Agreed.
The Chair: Shall the bill carry?
Some hon. members: Agreed.
The Chair: Shall the chair report the bill to the House?
Some hon. members: Agreed.
Some hon. members: On division.
The Chair: Thank you very much to our witnesses.
I will now invite Mr. Baker and other guests to come forward from the Canada Revenue Agency so that we can deal with, pursuant to Standing Order 81(5), supplementary estimates (B) for the fiscal year ending March 31, 2007, vote 1b under Canada Revenue Agency, which was referred to the committee on Thursday, February 22, 2007.
We're going to give Revenue Canada officials a few minutes to arrive because we're ahead of schedule.
We'll move immediately to an in camera session. I'll ask the cameras to be shut off now, please.
[Proceedings continue in camera]
[Public proceedings resume
To our guests, thank you for your patience. We are glad to see you again.
Pursuant to Standing Order 81(5), supplementary estimates (B) for the fiscal year ending March 31, 2007, we are dealing with vote 1b under the Canada Revenue Agency, referred to the committee on Thursday, February 22, 2007.
The chair invites Mr. Baker, the deputy commissioner and chief operating officer of the Canada Revenue Agency, to make a presentation, sir.
I will be brief in my remarks in order to provide as much time to members of the committee as possible for questions.
First, I'm joined by Jim Ralston, our chief financial officer, and Mary Jane Jackson, our deputy assistant commissioner, the number two in that branch.
Hopefully we will be able to answer any questions you have today.
This is with regard to supplementary estimates (B), where we're seeking a net appropriation increase of $35.4 million. This is comprised of a few pieces.
There's some $30.6 million related to the 2006 federal budget. Those are the costs we incur whenever there are changes in credits or rates, in order to get the information out to Canadians to adjust our systems, forms, and what have you.
There is also a $13.9 million amount for a significant project that this committee has been briefed on, in the context of the agency's five-year review, which is the corporate tax administration for Ontario. This is a very important piece of work to bring Ontario into a corporate tax agreement, so that the Canada Revenue Agency will be administering taxes for both the province and the federal government with respect to corporations in Ontario. This is the preliminary work to allow us to be ready for January 1, 2009.
There is also an amount of $9.3 million related to our role in administering the Canada-U.S. softwood lumber agreement. As you know, there are a number of financial arrangements and records associated with the companies involved, and we are administering those.
There is also an amount of $5.9 million relating to interprovincial tax avoidance by corporations. This is some additional investment we're making to address a legitimate interest on the part of provinces to make sure they're getting their fair share of provincial tax. In particular, provinces such as British Columbia are concerned that people may be trying to shift income into a lower-tax province, such as Alberta, to avoid giving B.C. the fair contribution to the fisc.
I should say that when you add all those up, it's considerably more than $35.4 million, but we have an offset in the agency of $24.3 million, related to money that's already in our budget for the offshore trust initiative. This enabling legislation has not yet been passed, so we're not proceeding in that regard yet and can reduce the net requirement to $35.4 million.
With that, Mr. Chair, I'll conclude by saying that we'd be pleased to take questions from any members of the committee.
Thank you, Mr. Chairman.
Thank you for coming before us, Mr. Baker, and congratulations on your new nomination or posting. I think you'll do a good job.
I'm going to get straight to it. The amount that worries me the most is this $30.6 million that's funding to address the legislative and policy initiatives, arising from the 2006 federal budget and also for the GST rate reduction.
If I recall, when you appeared before us—and I think Finance officials also appeared before us—we were told that the costs were going to be minimal, at maybe $5 million or $10 million tops, in terms of storing all these gimmicks or small-time tax deduction relief, whatever you want to call it, by the current government in the last budget.
Here we are at $30.6 million; it makes no sense.
You've still got a ways to go, because you haven't adopted them in processing the tax returns for 2006. That's only going to happen now in the months of March and April. Where is this going to end?
I'm going to quote somebody in your department who testified:
||...our current estimates are about $10 million to implement the GST reduction over two years. That's on a reduction of approximately $10 billion, which is the $5 billion projection of the lower tax rate for Canadians...
Where is this going to end? It's $30 million to adopt measly dollars for Monsieur et Madame Tout-le-monde. Is this an open throttle and never-ending? I don't know how to ask the question. Can you help me on this?
Mr. Chair, there are two things. I'll give you a bit more detail, breaking out the $30 million.
The money is being requested in the current fiscal year because of course for us to be ready for the tax year, we have to invest many months in advance, in particular in terms of our information systems, but as well in training. We have to adjust our guides for people filing taxes. We have to make sure that the people on the phones and taking inquiries are able to respond.
The $30 million is for many items that were contained in the 2006 federal budget. There were, of course, matters related to income tax relief for individuals. There were matters relating to the T1, as well as to the trust account system. We had measures related to personal tax credits. These include the Canada employment credit, the textbook tax credit, the tax credit for public transit passes, and the children's fitness tax credit. There is also incremental funding that was sought for processing validation and adjustment of claims, public inquiries for technical rulings and interpretations—
Without going on at length, there were many measures in the 2006 federal budget that impacted the Canada Revenue Agency. They related to income tax; they related to corporate tax; they related to the GST. They related to a number of new tax credits, several of which I managed to enumerate before the committee, all to say that this is the amount we've identified as required to allow us to serve Canadians properly with these tax changes.
We do have details, and we'd be pleased to provide members of the committee with the breakdown that gets us to the $30 million related to the federal budget.
I should also point out that whenever we identify amounts required by the Canada Revenue Agency to implement tax measures or anything else, we have to go through quite a rigorous process with the Treasury Board Secretariat and the Department of Finance to ensure that the amounts are fair and reasonable in light of the changes that need to take place. But certainly we will endeavour, with your concurrence, Chair, to provide that breakdown to members of the committee, and we could do that in very short order. It's effectively the sheet I'm looking at right now.
Thank you for coming today. I'm relatively new and I'm trying to get my head around this. There are the main estimates, and then there are the supplementary ones, I guess you'd call it, or supplementary estimates (A), and this is the second set of supplementary estimates, the supplementary estimates (B).
Am I reading it correctly when I see that the department overall is at $3.5 billion? Where are we in total spending? Am I about right?
Thank you very much, Chair.
It's good to see you again. You will know from the work of the Auditor General that there have been concerns that she's raised in a specific chapter about supplemental estimates going up significantly in the last few years, as opposed to the years prior. I believe--and I'm going from memory now--it was about 4.5%, on average, in the five years preceding the immediate past five years, to over 10%. I want to know if this is an increase over last year, the dollar value, and if so, by roughly how much.
I see you all struggling, so I'll leave one of you to search that number--
No, that wasn't my point. It wasn't based on the base; it was based on the actual dollar value of last year's supplements.
I'll leave that with you to work on.
Chair, I'm fine having that sent. It's not something I need right this moment, but I am interested, since we're still struggling with that at the public accounts committee.
Now I'd like to deal with the issue of the $5.878 million going for the funding to implement a national initiative to address interprovincial tax avoidance by corporations. You touched on it briefly through other questions. How much tax avoidance are you speculating we're losing? How much tax avoidance, I guess, is being successful, would be the question? How much money are we losing?
If I could provide a point of clarification, the observation from the Auditor General was that people working in the international tax area of the Canada Revenue Agency have, on average, only two years' experience. I should point out that refers to two years' experience doing international tax work, but they have many, many years experience as auditors working for the Canada Revenue Agency.
International tax is the most sophisticated audit work we do in the agency, and you don't get to do that work until you have cut your teeth doing audits of various-sized corporations and working in tax avoidance and so on. So these are experienced auditors, but only having spent a couple of years—
Thank you, Mr. Christopherson.
Dealing with a point I have some sympathy for, what you've said is that as soon as you develop the expertise so that you can score on the people trying to avoid tax, they hire away your big scorers, like small market/big market NHL teams: they take away your people. Or should I argue that they are the defencemen? I don't know which analogy works best.
But is that what you're saying, that the people with the greatest expertise on the side of tax fairness get hired away for that expertise, which then creates a shortage of people who have the ability to ascertain what taxes are really owing at the corporate level, in terms of some of these international or offshore operations?
Thank you, Mr. Chairman.
Earlier, Pierre spoke about payments to private collection agencies pursuant to section 17.1 of the Financial Administration Act. The amount in question totals $18,503,000.
I believe the money collected by the agencies on behalf of the Canada Revenue Agency does not go to the CRA, but rather to Human Resources Development Canada. At least that's my understanding. Regardless, the money does not end up in the CRA's coffers.
That being said, I would imagine you evaluate the amount of money recovered, if only to ascertain if the process is efficient. Can you tell me if this process is efficient and if so, how efficient? Can you tell me how much money has been collected by these private agencies and turned over the department in question?
Perhaps, Mr. Chair, I'll make one comment and then I will ask my colleague, Mr. Ralston, to respond further.
This agreement with the private collection agents is strictly with respect to outstanding student loans. We do not use private collection agents for other types of activity. This is work that was transferred to the Canada Revenue Agency a year or so ago from HRSDC.
Those people get paid as a contingency, so by definition, if they receive a certain amount of money the government would have recovered more than that in terms of receipts. The specific amount I'm quite certain we do not have with us.
I don't know, Jim, if you could provide any more precision on that.
I would just say two simple things.
One is that this is simply to address those matters that are incorporated in the budget or in other government announcements that we're charged with implementing. Are they reasonable? I rely on the system. There's a terrific system of scrutiny. We cannot just go forward and take what we would like in support of budget measures. My colleague, Jim Ralston, described the process with the Treasury Board.
Also, we work with the Department of Finance, because before a budget measure is announced, part of the consideration is the administrative cost of doing it. We have a lot of experience doing this, and I think our record in delivering in accordance with our forecast is really quite good.