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Results: 1 - 15 of 45
View Blake Richards Profile
CPC (AB)
Can you briefly walk us through the effect of some of those choices in those optional provisions?
Stephanie Smith
View Stephanie Smith Profile
Stephanie Smith
2019-02-05 11:43
One of the provisions that was not in the initial provisional notifications is article 4 on dual resident entities. A decision was made by the government to adopt this provision. It was generally in line with the policy and with a number of prior tax treaties that had been negotiated by Canada. Adopting such provision will allow us to have a greater consistency across our tax treaties for resolving cases of dual resident entities involving non-individuals.
There was also a decision in article 5 effectively to allow countries that currently have committed to providing for an exemption system to change that to a credit system to ensure that taxpayers are not inappropriately getting double tax or a lower rate of tax. It won't have an impact specifically on Canada's elimination of double taxation, because we currently, in our treaty policy and in all of our tax treaties, already provide for foreign tax credit, but it was viewed that allowing other countries to ensure such similar protection was desirable.
Article 8 was another provision that was proposed to be included. Article 8 applies to dividend transfer transactions. The way the tax treaty works is that it has two withholding rates. Our domestic rate would be 25%. Treaties generally reduce that rate to 15% or 5% if the particular corporation to which the dividend is paid has a certain threshold of holdings or control in the dividend-paying company.
The provision in article 8 provides that to obtain the lower rate, they must have exceeded the threshold of ownership or control for a minimum of 365 days prior to the payment of the dividend. This is to avoid artificial transactions in which they increase their ownership just prior to their dividend paying date. It was viewed as something that would be beneficial and that the CRA would be able to administer. It is something that we propose to include in the updated notifications.
Similarly, there is article 9, which deals with capital gains from alienation of shares or interests of entities that derive their value primarily from real property. Generally speaking, under a tax treaty, the source country in which the company that derives its value from real property exists would retain its right, on a disposition of those shares or other interests, to tax that disposition to the extent that the value of the shares principally derive their value from real property.
There were some abusive transactions in which companies, just prior to the distribution of those shares, put a lot of cash into the company such that the value of the real property fell below the threshold, or they sold a property prior to that specifically to avoid the source country having the right to tax. The treaty provision now would ensure that if that threshold were crossed at any time in the 365 days preceding the disposition, the source country would have the right to tax that provision. Including that in Canada's tax treaties was seen to be desirable.
View Greg Fergus Profile
Lib. (QC)
I have one last question.
Could the provisions on the taxation of dividends and capital gains have a negative impact on foreign corporations establishing subsidiaries in Canada?
Stephanie Smith
View Stephanie Smith Profile
Stephanie Smith
2019-02-05 11:53
I'm not sure I would describe it as a disadvantage, because this is a provision that will apply bilaterally. It will apply to dividends being paid both to and from Canada. Yes, if you're talking about a foreign parent company with a Canadian subsidiary, it would impose the discipline to receive the lower withholding rate. To get the lower withholding rate, they would have to have maintained that ownership threshold throughout the required period. It's the same thing with respect to the capital gains. That would work a little differently because that's about a source taxation. Yes, it is a bilateral provision: both Canadian and foreign entities would be expected to meet these conditions.
Trevor McGowan
View Trevor McGowan Profile
Trevor McGowan
2019-02-05 11:55
I would, if there's time.
Thank you for the question. As you pointed out, it's a very technical area, and so, I'm going to have to answer in English.
You mentioned not giving a disadvantage, and also building upon an earlier question by Mr. Julian,
When we talk about the principal purpose test or anti-treaty abuse rule, certain tax advantages are accorded to our treaty partners. For example, on capital gains, a treaty partner might be exempt on a disposition of shares of a Canadian entity. That's part of Canada's tax policy, and it's common throughout the world. Of course, there are jurisdictions, as we discussed earlier, such as the Cayman Islands, with whom Canada does not have a tax treaty. Tax planning strategies have been effected to achieve tax benefits that have been negotiated under a particular tax treaty, with one of our treaty partners, by entities resident in a country with whom Canada does not have a tax treaty.
When you're talking about the obtaining or losing of an advantage, part of the anti-avoidance, anti-treaty abuse rules in the multilateral instrument would have the effect of preventing non-treaty partners from accessing these treaty benefits. As between treaty partners, it might have a certain effect. In the broader context, where we don't have treaties with everyone and countries generally want to ensure that their treaty policies have force and are respected, it does have that additional benefit of not providing or extending treaty benefits beyond the intention for which they were negotiated and entered into. That applies on both sides of a bilateral agreement vis-à-vis third parties.
View Francesco Sorbara Profile
Lib. (ON)
Welcome, Trevor and Stephanie.
Thank you for the testimony to date. First, I'm going to refer to article 8 of the MLI and our decision to opt in on the dividend transfer transaction. Originally we did not opt in, and then we decided that we would.
Can you give us some colour on that?
Stephanie Smith
View Stephanie Smith Profile
Stephanie Smith
2019-02-05 12:20
In some senses, I think the government took a very prudent approach originally, because there was a relatively short time frame between the completion of the multilateral convention and the initial signing ceremony and there was a desire to ensure that there would be sufficient time to appropriately review the treaty network to ensure that implementing such a provision through the MLI would be appropriate in all of the treaties that were likely to be covered, and also to have some time to ensure that the Canada Revenue Agency thought they could administer it.
Mark Cameron
View Mark Cameron Profile
Mark Cameron
2019-01-28 16:04
Thank you.
I'd like to thank the committee for inviting me to appear this afternoon with such a distinguished group of fellow witnesses. I'm the only person here today who's not an economist. However, I have spent a lot of time in committee rooms like this over the years as a staffer to MPs and ministers, so I suppose I'm here to provide simultaneous translation from “economese” to English.
Canadians for Clean Prosperity is a not-for-profit organization that promotes market-based solutions to environmental challenges. In particular, since our foundation five years ago, we've been advocates of revenue-neutral carbon taxation as the best response to the challenge of climate change for the reasons that my fellow witnesses have given. We've also been active in the debates over carbon pricing across Canada, at both the federal and the provincial levels.
Today I want to talk about why carbon pricing, and the current federal approach with the carbon pricing backstop legislation, is so important and how it can help contribute to the international search for answers to climate change.
I note that the committee is studying the international leadership component of the pan-Canadian framework. I want to suggest that what Canada is doing with carbon pricing under the framework, and the federal backstop legislation that ensures its consistency across the country, is in fact an internationally significant precedent.
If Canada succeeds over the next few years in bringing together a national carbon pricing framework supported by the backstop, we will position ourselves as leaders internationally, and there is good reason to think that other jurisdictions, especially the United States, will take notice. If, on the other hand, our attempt to build national-scale carbon pricing falls apart due to politics, then Canada will serve as a warning lesson about the difficulty of carbon pricing, which may discourage further international action.
As you know, there are several different forms of carbon pricing, and Canada has had some experience with almost all of them.
First, there is a straight carbon tax, generally charged on all fossil fuel combustion, which British Columbia was a pioneer in implementing. In many ways, the B.C. carbon tax brought in under former premier Gordon Campbell is the textbook model of how a revenue-neutral carbon tax is supposed to operate. It has been extensively studied, including through the work that Dr. Rivers and others have done.
Second, there is cap and trade, where a jurisdiction-wide cap is set on emissions and where firms need to purchase allowances, usually through an auction, in order to emit. The European trading system and the Western Climate Initiative, based out of California, are two of the most prominent examples. Quebec is—and, until recently, Ontario was—a partner in WCI and brought this model of cap and trade to Canada.
Another variant is sometimes called “baseline and credit”, where firms are given a baseline level of allowable emissions, often based on the intensity of emissions as compared to their industrial sector. Depending on whether their emissions are above or below the baseline, they either have to purchase credits or can earn credits.
Alberta's specified gas emitters regulation, brought in under the Conservative government there in 2007, was an example of that. The current carbon competitiveness incentive regulation, which was designed with the help of fellow panellist Andrew Leach, and the federal output-based pricing system for large industry are based on this model. I'd add that both the Saskatchewan and the Ontario governments have very similar proposals for their industrial carbon pricing. Today, Saskatchewan actually has in place an output-based pricing system at $20 per tonne for its industrial sectors.
Yet another variant of carbon pricing is sometimes known as “carbon fee and dividend”. Under carbon fee and dividend, which is really a variant of carbon tax, a carbon fee is charged on all combustion emissions. The resulting revenue is then returned by government as an equal per capita dividend to all the citizens of the jurisdiction.
This model has had quite a lot of popular, grassroots support and some political support in the United States. Two organizations, the Citizens' Climate Lobby and the Climate Leadership Council, have been active proponents of the fee and dividend model. Several bills with bipartisan support have been introduced into the U.S. Congress based on fee and dividend models, although so far none have actually made it to a vote in the House of Representatives or the Senate.
In early 2018, a number of prominent American leaders and major corporations put their support behind a carbon dividend plan promoted by two former Republican secretaries of state and treasury, James Baker and George Shultz. If there is any type of carbon pricing that has a chance of succeeding politically in the United States with bipartisan support, it would likely be some version of a carbon fee and dividend system. The closest thing we have to a carbon fee and dividend system in the world today is the federal carbon pricing backstop legislation. It charges a direct fee, the fuel charge, on all fossil fuel emissions in provinces that fall under the backstop, and, by law, the federal government is required to return all revenue to the province or territory that it is collected in.
Last fall, the federal government announced that 90% of the fuel charge revenue would be returned directly to households as direct rebates, which would be equal per capita for the first tax filer in every household, with proportionate amounts for the spouse, or second filer, and dependent children. The remaining 10% would be redistributed to small business, schools, hospitals, and other organizations facing the carbon price.
Analysis, including research done by my fellow witness Dave Sawyer for Canadians for Clean Prosperity, shows that this kind of fee and dividend system would leave most households better off. In fact, the federal government estimates that eight out of 10 Ontario households would be better off after the federal climate action incentives.
What we're seeing play out in the four provinces in Canada, accounting for roughly 50% of our population and GDP, is the first large-scale test of how a fee and dividend model could work in practice. If this is seen to be positive and succeeds in reducing emissions while keeping most consumers and households whole from the price impacts, then this is going to be an important example internationally that will be looked at closely in the United States and elsewhere.
If it is undermined, and Canada unravels the progress we've made on carbon pricing, then we're going to make the path to carbon pricing much more difficult for other countries, which would not want to repeat the negative experience here. We've seen this happen with Australia and the recent protests in France. Where there is resistance to carbon pricing in one place, it can undermine progress in others. On the other hand, a successful implementation, as we've seen in the U.K. or British Columbia, can be a positive model to encourage action elsewhere.
Getting carbon pricing and the federal backstop right over the next few years is a key piece of Canada's international leadership on carbon pricing, and I hope the committee's report will reflect that.
Thank you very much.
View Blake Richards Profile
CPC (AB)
Thanks, Mr. Chair.
I appreciate your being here.
I want to ask you a little bit about an issue relating to the so-called dividends that the Canada Mortgage and Housing Corporation is paying out to government revenues—almost $6 billion over the last couple of years. What that essentially is telling us is that we're seeing homeowners paying far bigger premiums than necessary and are seeing $6 billion flowing to government. It's almost like a taxation, I suppose, in a way.
What I wanted to ask you about, though, taking a look at that almost $6 billion—$5.7 billion, anyway—is what that money would look like in the hands of taxpayers. What would it look like circulating in the economy rather than in the hands of the government?
I'm just curious as to your thoughts and your opinion on that.
Yves Giroux
View Yves Giroux Profile
Yves Giroux
2018-10-30 17:22
Certainly, reducing the revenues of a Crown corporation such as CMHC and making sure that this reduced revenue is returned back into the hands of those who pay premiums would be akin to a tax cut.
What would the impact of that be? Returning, let's say, $5 billion to households, businesses or a combination of both would provide stimulus to the economy. I haven't quantified that, obviously, but that's something we can probably relatively easily calculate and determine.
View Blake Richards Profile
CPC (AB)
You're obviously saying it would provide some stimulus to the economy. It likely would also increase tax revenue, I suppose, as a result. Would it not?
View Wayne Stetski Profile
NDP (BC)
I'd like to thank my colleagues for allowing this to happen today. I'm very happy to have Laura and Judy here.
In 2007, I got a cheque in the mail from the B.C. government, which set a positive tone for bringing in the tax in 2008. It's now been in place for 10 years in British Columbia. We were accountable for our emissions. I was with the provincial government, and we had to account for every kilometre that we drove. There was, in essence, a cost to claiming that.
In the next phase, the government was taking the money and putting it into a green fund. People with ideas that would help the environment and help reduce CO2 could apply for it and put that money to good use, so that was a second version of the model. In 2008, they also reduced taxes in such a way that there was a net neutral cost to people, so it was a carbon tax, yes, but they reduced other taxes to offset the carbon tax.
Then we went to this green project model. When I was mayor of Cranbrook, we were supposed to write a cheque for $60,000 to the province to cover our CO2 costs. They agreed that if we could demonstrate we were putting that $60,000 to use to improve energy, etc., in our communities, it was a worthwhile thing to do and we didn't have to write the cheque. It was all about incentives to reduce CO2.
In the model you prefer, having looked at a number of models, are you talking about returning an equitable amount to every Canadian? Is this why people who have a lower income would benefit, so that a person who is making a million dollars a year and a person making $20,000 a year would get the same amount of money in their rebate cheque? What is the model you actually prefer?
Laura Sacks
View Laura Sacks Profile
Laura Sacks
2018-10-16 17:28
That's the pure carbon fee and dividend model that CCL has been advocating for. Again, there is a lot of fine tuning. British Columbia fine-tuned a lot of things, from corporate tax cuts to rural and northern rebates. There are many different models, and that's the one CCL has been advocating for.
I just wanted to mention, too, that as far as B.C.'s carbon tax goes, if we got rid of the carbon tax today, corporate and other business tax rates would go up right away, so we would be hearing screaming from a lot of businesses. We also have our personal income tax, where the lower two brackets have been cut; those tax rates would go up. I don't think people who are attacking B.C.'s carbon tax necessarily understand that their taxes would be going up.
Brendan Marshall
View Brendan Marshall Profile
Brendan Marshall
2018-09-26 15:39
Thank you for the opportunity to participate in this consultation process.
I'm Brendan Marshall, vice-president, economic and northern affairs at the Mining Association of Canada. MAC is the national voice of Canada's mining and mineral-processing industry, representing more than 40 members engaged in exploration, mining, smelting and semi-fabrication across a host of commodities.
Mining contributes 3.4% of Canada's GDP annually, employs just under 600,000 workers, and accounted for 19% of Canada's total overall export value in 2016. Proportionally, mining is the leading heavy-industry employer of indigenous peoples. Canada leads global mining finance with the majority of the world's public mining companies listed on the TSX.
In some respects, the government has contributed positively in recent years with policy developments and investments supporting the growth of Canada's mining sector, including in exploration, via the extension of the mineral exploration tax credit, though we support PDAC in advocating that this be renewed on a three-year rolling basis, and in northern infrastructure through road investments in the Yukon and the NWT.
In other respects, however, domestic legislative and regulatory processes with implications for project permitting and costs persist, while recent supply chain failures have damaged Canada' s reputation as a reliable trade partner. Internationally, these challenges are amplified by an increasingly unpredictable trade relationship with the U.S., whose comprehensive tax reform has significantly enhanced that jurisdiction's investment competitiveness over Canada's.
Since 2014, according to NRCan, total projected investment into Canada's mining industry has dropped more than 50% from $160 billion to $72 billion. Immediate action by government to quell increasing investment leakage and minimize the impacts of projected low-growth scenarios is needed.
Canada's mining tax regime has been falling behind international competitors for years. Budgets 2012 and 2013 reduced or eliminated several direct and indirect mining-related tax credits in areas such as dividend withholding tax and corporate restructuring rules. Other jurisdictions have amended their fiscal regimes to better attract foreign direct investment, while Canada has not. Most recently, the Tax Cuts and Jobs Act reforms have significantly reduced Canada's mining tax competitiveness vis-à-vis the U.S. As a result, the same mine in the United States now has an approximate 40% to 50% reduction in the effective tax rate compared to Canada.
Action is required to reduce Canada's waning international mining tax competitiveness. Specifically, government should consider the following:
One, it should consider reversing, reinstating and enhancing mining tax reforms from budgets 2012 and 2013, including augmenting the ACCA to include zero declining balance to match the U.S.
Two, it should consider phasing out dividend withholding tax. Canada stands out as the only rich country that taxes all dividends paid to foreigners. Other countries' rates are 0%, such as in the U.K., or they have rules that relax or exempt from this tax, such as in Australia, Canada's primary competitor for mineral investment.
Three, it should consider enabling corporate reorganization performed by Canadian or foreign groups to be tax-free. Canada taxes 50% of capital gains realized by corporations reorganizing their businesses to concentrate on value generation, while in the U.K., for example, capital gains tax is 0% if basic criteria are met.
Four, it should consider modernizing the tax treatment of QETs, qualified environmental trusts, by extending the carry-back period from three to seven years, allowing reclamation to be deducted at the consolidated level when incurred, regardless of which mine is being reclaimed, and by making QETs tax exempt until the distribution of funds.
Five, it should consider ensuring the deductibility of mining tax payable regardless of the year in which it is paid. MAC has worked constructively with Finance and CRA officials on a solution to our challenge, which they accepted, but we continue to wait for its implementation after almost three years of engagement, and are still without a firm commitment on a timeline.
These policies and the inability to implement solutions in a timely manner are reducing the attractiveness of Canadian investment projects, increasing financing costs and administrative burdens and putting Canadian firms at a disadvantage relative to their competitors.
Infrastructure investment decisions that recognize northern challenges and opportunities through the trade and transportation corridors initiative and the investing in Canada plan have been welcomed, though the need is greater than the funds allocated. MAC is aware the northern allocation of $400 million under the TTCI was oversubscribed by greater than five times. Also concerning is that the Canada Infrastructure Bank may not recognize remote and northern challenges, potentially limiting the utility of this institution to address northern priorities.
Enabling additional mining development in remote and northern Canada is inextricably linked to the government's indigenous reconciliation and climate change agendas. The government should renew the TTCI, including the $400-million allocation to northern Canada, and recognize the unique challenges of remote and northern regions through a dedicated northern fund in the Canada Infrastructure Bank.
My final point is with respect to accelerating indigenous inclusion in mining.
The mining industry is the largest employer of indigenous Canadians on a proportional basis. Since 1974, more than 375 voluntary company-community agreements have been signed detailing shared benefits in resource development, including direct and indirect benefits such as procurement. For example, the oil sands spend with 399 indigenous businesses exceeded $3.3 billion in 2016 alone.
To strengthen and enhance indigenous participation in mining, governments should increase funding for skills training and entrepreneurship to assist indigenous peoples in securing opportunities generated by the industry. They should establish and improve mechanisms through which governments share a portion of the revenues generated from royalties, mining taxes, and/or fees in their jurisdiction. Finally, they should strategically deploy government procurement as a tool to drive indigenous economic reconciliation.
Thank you for your consideration. I would be happy to take any questions.
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