Proceedings of the Standing Senate Committee on
National Finance
Issue 9 - Evidence - November 29, 2011
OTTAWA, Tuesday, November 29, 2011
The Standing Senate Committee on National Finance, to which was referred Bill C-13, An Act to implement certain provisions of the 2011 budget as updated on June 6, 2011 and other measures, met this day at 9 a.m. to give consideration to the bill.
Senator Joseph A. Day (Chair) in the chair.
[English]
The Chair: Welcome, honourable senators. I know that a number of others will be arriving, but I would like to start on time since we have quite a bit of work ahead of us in the next few days.
[Translation]
This morning, we are going to start our study on Bill C-13, An Act to implement certain provisions of the 2011 budget as updated on June 6, 2011 and other measures.
[English]
As well, we have been examining the Supplementary Estimates (B). We should have the translation completed soon with respect to that report, which we are hoping to circulate tomorrow. As soon as possible, we will proceed with the review of the report in committee. Running parallel with the report on Supplementary Estimates (B) and the supply bill is this second budget implementation bill.
Senators will recall that we dealt with the first budget implementation bill last June. Although Bill C-13 is a little over 600 pages, it contains many schedules, so do not panic. In order to put this into a ``Coles' Notes'' summary, we have asked the Minister of State (Finance), Mr. Ted Menzies, to appear this morning to give us an overview. We will spend approximately one half hour with the minister on that overview, so not all honourable senators will be able to participate in questions to and answers from him. Following that, we will hear officials from the Department of Finance Canada and other departments. We will try to hear from as many witnesses as possible in order to understand the 22 parts of this bill.
Without further ado, I welcome Mr. Ted Menzies. Sir, the floor is yours.
Hon. Ted Menzies, P.C., M.P., Minister of State (Finance): Thank you, chair. I appreciate being invited here. As I said to you when I walked in the door, I would be nothing without the officials that are here to answer the difficult questions; so I will defer to them for some of the technical issues that I am sure you will have. I always enjoy appearing at Senate hearings. We get some good questions and thoughtful responses from our finance officials, so I am looking forward to this.
The Chair: You give good answers, too.
Mr. Menzies: I referred to the fact that in a former life before politics I would appear at both House of Commons and Senate standing committees; but I often heard better questions from senators — perhaps more thoughtful. I always enjoy coming back here, even though it is in a different role. I will make my comments brief to allow time for your questions, which are very important to us. As I mentioned, I have many officials here to support me. In fact, we have so much support, that they are not all in this room. There may be a short time lapse if there is a question on a specific item for which we need to bring someone in from an adjoining room.
I quickly congratulate the chair, the deputy chair and all members of the National Finance Committee for beginning their examination on the consumer price gap between Canada and the United States, which is an important study. We were talking about it on the way over here and the number of witnesses you have lined up to appear. That highlights how important the matter is to Canadians. Black Friday issues were in the media last week, and we noted that our Canadian businesses are actually fighting back. It is an important and timely issue, so I encourage you to find out what you can about it. I understand that the study will be very comprehensive; and we are looking forward to your findings. I, along with many Canadians, would encourage the committee to continue their important work. Consumers are certainly looking forward to the findings.
The short title of Bill C-13 is the Keeping Canada's Economy and Jobs Growing Act. From the outset, I want to assure this committee that our government is focused on what matters to Canadians: creating jobs and promoting economic growth. This proposed legislation represents an important part of Canada's response to today's economic challenges and our plan for tomorrow's economic opportunities. Indeed, the Keeping Canada's Economy and Jobs Growing Act includes key elements of the next phrase of Canada's Economic Action Plan: a low tax plan for jobs and growth.
While Canada has the strongest job growth record in the G7 with nearly 600,000 net new jobs created since July 2009, basically the end of the recession, the International Monetary Fund is projecting that we will have among the strongest economic growth in the G7 over the next two years.
As we all know, we are not immune from global economic turbulence, which we witness almost daily through the ongoing events in the United States and the European Union. That is why we need to stay the course and implement the next phase of Canada's Economic Action Plan to protect and grow our committee. This plan assists Canadian families, helps our communities and assures our long-term economic sustainability, while working to ensure that we maintain our course for balanced budgets. This is a plan that parliamentarians and all Canadians have examined and debated since last March — over eight months ago. This is a plan that has won wide approval, including from Canadians last May. In the words of the Canadian Institute of Chartered Accountants:
This budget charts a course that will help Canada be competitive in attracting investment while establishing a fiscal framework that sets the stage for sustainable recovery and economic growth.
Bill C-13 represents a vital part of that plan as it legislates many of its key elements. While time does not permit me to explain each measure in detail, I would like to highlight some of the positive economic measures in today's legislation that support job creation and economic growth in Canada. For example, the very popular hiring credit for small businesses encourages about 525,000 small businesses in Canada to bring new employees on board. The Canadian Federation of Independent Business said that this is a major help to small firms in growing their workforce.
Today's bill also helps to support job creation by expanding tax support for clean energy generation, extending the Mineral Exploration Tax Credit, simplifying customs and tariffs, and extending the accelerated capital cost allowance for investments in productivity for improving machinery and equipment for Canada's manufacturers. I note that the last measure has been particularly welcomed by the manufacturing sector. The Canadian Manufacturers & Exporters said:
Manufacturers are looking for new customers, they are re-engineering their products, they have to re-tool their business, so this is the time that they are making investments.
What this does is increase the cash that they have up front to invest in new technology and I think that is extremely important. It's what companies need . . .
Today's bill does more than that, in particular to help families and our communities by legislating a permanent annual investment of $2 billion in the Gas Tax Fund to provide municipalities with predictable infrastructure funding. One of two requests from the Federation of Canadian Municipalities was to legislate this so they could put it in their budgets and count on it; and the other was to rethink our Building Canada Fund to ensure a new generation of that. This was one of their requests. They were thankful for what had happened during all the stimulus spending and they rightly asked for this to be legislated. That was a simple form of responding to them.
As well as forgiving loans to new doctors and nurses in underserved rural and remote areas and helping apprentices in the skilled trades and workers in regulated professions by making occupational trade and professional examination fees eligible for the Tuition Tax Credit, we also introduce a volunteer firefighters tax credit, a new family caregiver tax credit, and the new children's arts tax credit for children's arts, cultural and recreation programs.
Before moving on, let me underline the importance of Bill C-13's provision to municipalities to make permanent the $2 billion Gas Tax Fund. For the benefit of committee, let me share what the FCM actually said:
. . . it's extremely important going forward that we have reliable funding that we can count on. It will certainly give municipalities what they need to be able to plan financially, in terms of the work that needs to be done . . . .
Today's legislation also takes key steps to show increased respect for hard-working Canadian taxpayers by phasing out the direct subsidy of political parties and by closing numerous tax loopholes that allowed a few businesses and individuals to avoid paying their fair share of taxes.
In my opening comments, I have only highlighted a few of the many extremely positive measures in the proposed Keeping Canada's Economy and Jobs Growing Act. There are positive measures important to families, communities, businesses and our economy — positive measures for which we would like to have your support.
As I mentioned earlier, the global economic recovery, especially in Europe and the U.S., is tenuous at best and very fragile, as we all see and hear on a daily basis. What is more, even though Canada has the best job growth in the G7, we all recognize that there are too many Canadians are still unable to find work. That is why we must work together and proceed with the next phase of Canada's Economic Action Plan to grow our economy. That is why I would ask for this committee to move forward with this jobs and growth bill as a priority. We would appreciate all of your support in getting this done, as I think Canadians would.
I will now turn it back to you, chair, and I am happy to answer any questions.
The Chair: Thank you, Mr. Minister. I will turn first to the deputy chair of our committee, Senator Gerstein from Toronto.
Senator Gerstein: Thank you very much, minister; welcome to our committee. On behalf of a majority of the members of this committee, I would like to compliment you on the steady hand that you are keeping on the Canadian economy during this period of great global economic turmoil. I do have a question as well.
Now, I have to tell you that I am confused. It is not the first time in my life and I am sure not the last. Last week, I had the privilege of speaking at the introduction of second reading of Bill C-13, and an honourable colleague opposite made the comment after my remarks:
I would also like to stress to this chamber that my honourable colleague indicated that over 100 infrastructure projects were very successful and created jobs. However, I would like to highlight . . . that the government had absolutely no data to relate in regard to the infrastructure spending that was done and to the number of jobs that were created. Therefore, this is pure assumption that is not based on any kind of data.
The reason I am confused is that there was a piece on Global News from Andrew Jackson, Chief Economist from the Canadian Labour Congress, who said:
Roughly that's true, since the worst part of the recession, we've created 600,000 jobs. We even have more jobs in Canada than we had at the beginning of the recession.
Further, Glen Hodgson, Chief Economist of the Conference Board, also agreed with the government's projection of 220,000 jobs being created as a direct result of the plan. I would be curious as to your thoughts on it and how you view the number.
Mr. Menzies: Thank you, senator. I am sure it was a riveting speech. That is what prompted the question.
You will hear us repeat the job numbers and that ``almost 600,000'' figure. I like to term it this way. We are asked in the House of Commons, ``You have no plan for jobs.'' I said, ``Actually, we do have a plan. The plan is working, and so are almost 600,000 more Canadians than at the end of the recession, and that matters to Canadians.'' I do have to reflect on my earlier comment: If there is one Canadian that wants to work and has not found a job, then that should be our focus, namely, to ensure that there are opportunities.
The job numbers are a challenge. We did not really know how to validate them, so we went to some of the folks like the academia and the private sector, the Conference Board, the University of Toronto and their economic analysis program, and used this model-based approach rather than a project-based approach. Many of our programs were not project based. The example I will use is the Home Renovation Tax Credit. Three million families actually took advantage of the Home Renovation Tax Credit. That multiplies into a lot of Canadians. For example, we well overused ours, I think to the benefit of many of the supply industries all around our small hometown, for two bathrooms plus a lot of extras. That story is repeated all across this country.
How many people did that put to work? Quite a few more, perhaps, than we can actually quantify for those businesses. That relates to one-in-three owner-occupied homes that took advantage of the Home Renovation Tax Credit.
Is the 600,000 accurate? I would certainly say it is. In fact, the Federation of Canadian Municipalities suggested that the economic action plan ``has been a success, in our view, because it has provided employment and it has provided needed work on infrastructure . . . .''
The University of Toronto did some of this analysis on the model-based approach. The Rotman School of Management said that this approach was reasonable and, to quote them, ``possibly even too conservative. If they had asked us to do it using our model, we would have actually gotten a bigger number.'' I think we are being — and I am sure you are surprised — conservative in our estimates. I go back to the comment that there are still Canadians looking for work.
Senator Gerstein: Thank you for that clarification.
Senator Callbeck: Thank you, minister, for coming here this morning. I wanted to ask you about the non-refundable tax credits. You mentioned three of them, which are introduced here: family caregiver, children's art and volunteer firefighters. My understanding is that they come off the amount of tax owed. If you do not owe any income tax, you do not get a credit, right?
Mr. Menzies: Yes.
Senator Callbeck: There are a lot of people in this country who do not pay income tax. They are at the low end of the scale. To my way of thinking, they are the ones who need this credit the most. Why would the government not make this a refundable tax credit?
Mr. Menzies: Sorry. Is that the end of your question?
Senator Callbeck: That is the start.
Mr. Menzies: I thought you were going to continue.
I would respond at by saying that of course this is not going to encompass everyone. One of the ones that I would reflect on would be the volunteer firefighters tax credit. Most of these people are business people in small towns. Here, I will use my own communities. I represent only rural communities. Every one of those communities has a volunteer team of firefighters that I would remind everyone were very active on Sunday putting out fires left, right and centre because we had 144-kilometre-an-hour winds blowing down power lines and starting fires all over the place. Our firefighters were out picking people up off the road as semis flipped over in the wind. We cannot say enough good things about our firefighters. They were out there in frightening situations. We gave them a non-refundable tax credit because the majority of these individuals have jobs that they leave to go do this kind of work. It helps replace some of their lost income, but it also helps these volunteer teams recruit new members. Everyone is busy raising families, and there has to be a bit of a financial incentive to encourage these people to come forward.
With our over 120 different tax reductions, we have taken a million low-income Canadians right off the tax roll; they do not pay taxes. Is a non-refundable tax credit going to impact everyone? No, but the other initiatives we have taken to reduce their taxes have meant that an average family of four has $3,000 more dollars left in their pocket. We put in place policies that impact the largest amount of people that we can.
Senator Callbeck: I know what you mean by volunteer firefighters because I come from a province where we have hundreds of them. They provide a tremendous service, and they are out there in all kinds of weather, putting their lives at risk. I think they all deserve this credit. That is why I really am disappointed with this. There are people who are out there fighting fires, putting their lives at risk, that are not going to be able to get this credit, simply because they do not pay income tax. I live in a province where wages are not the same as in Ontario and some other parts of Canada. I find it very difficult to understand why the government would not make this available to all firefighters. I would also like to ask where the $3,000 and the 200 hours come from.
Mr. Menzies: They came from the Firefighters Association.
Senator Callbeck: They agreed to those?
Mr. Menzies: They requested that.
Senator Callbeck: Do you know how much it would cost to make this refundable and available to every firefighter, especially the ones I am concerned about at the bottom of the pole? They are the ones that need it the most; yet they are being cut out of this benefit.
Mr. Menzies: I can certainly ask if one of my officials could give us that number. However, 85,000 is the estimated number of firefighters that will actually be able to benefit from this. They have been asking for this for many, many years, and they did not ask for a refundable tax credit. We offered them what they asked for. Long before we were even in government, they asked for this and were rejected. We put forward exactly what they asked for.
Senator Callbeck: You say that 85,000 will benefit?
Mr. Menzies: That is my understanding.
Senator Callbeck: What is the total of volunteer firefighters in Canada?
Mr. Menzies: Sorry, 85,000 may be the total. I do not have the number at my fingertips to tell you how many will benefit from it.
Senator Callbeck: What about the family caregivers and the people who were asking for the children's arts refund? Did they not want this refundable?
Mr. Menzies: I would have to go back and look at their submissions, but there is a huge financial impact to making it refundable. To be very honest with you, the children's arts tax credit will benefit many higher income individuals, probably more so than really low income, or non-tax paying, families. Do they need a bigger tax credit than those low income or lower income Canadians? We are trying to make it fair to everyone and impact the most people.
Do we have an official who might give us those numbers?
The Chair: Minister, we will be dealing with that specifically, and the officials are here. We will make note of that question. In the event that we cannot get an answer, we may be back to you. However, I fully expect that your team will have those figures.
Mr. Menzies: I am sure they have more answers than I do.
The Chair: Thank you.
Senator Lang: Welcome to the guests. I would just like to refer to the amendments to the Motor Vehicle Safety Act. I want to set the scene for all senators.
Prior to this amendment coming forward, if a Canadian was coming up the inland passage to Alaska, landed in Skagway, rented an American vehicle and got to the border, they were turned back. Up to now, if you were a Canadian renting an American vehicle, whether it be an RV or otherwise, you would get turned back at the border because it was an American vehicle. If you were an American and you rented an American vehicle, you could come in, have your holiday, and not be turned away at the border.
From the Yukon's perspective, we are very pleased to see this amendment coming forward. It is something we have been requesting for a long, long time. It has been very difficult for individuals who have planned a month's visit and get turned away at the border; their whole life goes upside down. Because they are isolated situations, you do not hear a lot about them.
I noticed that the maximum period is 30 days and that you may apply for an extension. I do not know if you have this, Mr. Minister, but perhaps you could tell us how the 30 day period was struck. What does one have to do to apply for a longer extension if one is having a month and a half holiday in an American vehicle in Canada?
Mr. Menzies: I honestly do not have the answer to that question. I would hope that one of our officials could answer that, perhaps later on. I do remember you raising that point with me in an earlier discussion, in our pre-budget consultations. Other people have raised it with us, too. I honestly do not have that answer, senator.
The Chair: We will make note of that.
Senator Lang: I know time is short, Mr. Chair, but I thought it was important to get on the record.
The Chair: I think the question will get answered before we finish with our study of Bill C-13.
Senator Nancy Ruth: You talked about the manufacturers' write-down of equipment to help stimulate growth and development. This also includes computers. Is it only available to manufacturers, or can other businesses also write- down computers or any other such equipment?
Mr. Menzies: If I recall correctly, in Budget 2010 we actually had an accelerated capital cost allowance specifically for computer equipment because we realized —
Senator Nancy Ruth: In one year.
Mr. Menzies: That was for 2010. Then we expanded it to a 50 per cent straight line for eligible assets. I would encourage you to ask one of the officials what, specifically, the eligible assets are.
The original intent was for it to apply to equipment that is required to upgrade to be able to build new products for new generation. We reduced tariffs, at the same time, in Budget 2010. You will remember the thick document, Budget 2010, and all of the tariff reductions for equipment coming into Canada. Then we have given the accelerated capital cost allowance on the manufacturing equipment so that our industries can catch up after their struggles.
The Chair: Thank you, Mr. Minister. The first half hour of our session is concluded. We would like to now bring to the table all of the government officials to assist you. You are welcome to stay as long as you are able, but we will ask other people to join you.
We will call on those who will be dealing with Part 1 from Bill C-13. We will be dealing with clauses 2 to 103. It is the largest part and deals with the amendments to the Income Tax Act and related regulations.
Mr. Menzies: Mr. Chair, if it is okay with you, I have a couple of cabinet meetings I need to prepare for. I can see from the last couple of questions that the level of intelligence is well above me, so I will leave you to the officials. I ask your indulgence to leave the meeting.
The Chair: Thank you Mr. Minister.
In this session, we want to understand the government's position with respect to this 600-page document. In the next two sessions, we will deal with members of the public who are impacted by the legislation. In order to understand the impact we have to understand the purpose.
Mr. Lalonde, we welcome you back. You know the exercise we go through. We like reference to the sections because that helps us when we do the clause by clause; probably in a week's time or so. If we have already seen this bill and the clauses, it is a lot easier for us to go through the clause by clause.
Mr. Cook and Mr. Lalonde are here with respect to Part 1. This deals with amendments to the Income Tax Act and related regulations, sections 2 to 103.
Gérard Lalonde, Director, Tax Legislation, Department of Finance Canada: Thank you very much. As mentioned the last time I was here, it was going to be one of the last few times for me to show up. In fact, this may well be the last time. It is always a pleasure to come to the Senate committee. Mr. Cook is the fellow who will be taking over the role that I have traditionally played over the last few years. He will be answering most of your questions today and I will step in when the grizzled, old grey-haired man has to talk a little bit.
I will let Mr. Cook do the talking. He is our chair of the Interdepartmental Tax Legislation Review Committee. As honourable senators may know, while most departments rely on the Department of Justice to produce their tax legislation, the Department of Finance has historically been a little different. We have an in-house team — the tax legislation division — that produces our tax legislation in conjunction with the Department of Justice. We get the imprimatur of the Department of Justice on all our income tax legislation. However, we have a bit of a different process compared to most of the other departments in government — at least on the income tax side — hence the Interdepartmental Tax Legislation Review Committee. We have people from the Department of Justice there, as well as people from the Canada Revenue Agency and any other relevant department that may be involved in any of our particular income tax legislation.
Ted Cook, Senior Legislative Chief, Tax Legislation Division, Department of Finance Canada: Simply, we are here to respond to any questions you might have with respect to Part I of the bill.
The Chair: You can assume we have taken a look at Part 1. Colleagues will know that this deals with the area where we have some questions with the minister previously; the non-refundable tax credits. The minister just referred to the various non-refundable tax credits. I would also like you to talk about the RSP aspects that appear there, what we are trying to achieve and what the problem was. I think those are the two major areas that are covered by these various sections 2 to 103. If there is anything more please let us know now.
Mr. Cook: If the chair would like I could speak about the three credits mentioned by the minister and give an overview of the RSP. Would that be helpful?
The Chair: It would be helpful, and if you can refer to any of the sections 1 to 103 that will also help us move along more quickly.
Mr. Cook: There were three credits mentioned in the minister's discussion, first being in respect to the volunteer firefighter tax credit, the second was the family caregiver tax credits and the third being the children's arts tax credit.
With respect to the family caregiver credit, it is found primarily at clause 23 of Bill C-13 and it amends section 118 of the Income Tax Act.
The Chair: Is it page 64 of the bill?
Mr. Cook: That would be on page 50.
The Chair: Yes, that is it. Is it on the English side?
Mr. Cook: That is correct.
If you look at clause 23(1), the family caregiver tax credit — and this is just an example — it provides that in the context of the spousal or common-law partner credit there is an extra $2,000 if the spouse or common law partner is dependent on the individual by reason of mental or physical infirmity. There is an additional non-refundable credit of $2,000 for the person who takes care of a spouse or common-law partner. It is also available in the context of taking care of a child or in-home care of a relative.
The Chair: Fundamentally, is this increasing by $2,000 thousand?
Mr. Cook: The non-refundable credit; that is correct. I would just point out from a structural perspective that with the way the act works, this just sits within the existing credits relating to spouses and common-law partners. In that sense, the non-refundability is the same as the credits that they are augmenting.
The way the family caregiver tax credit works is primarily where you are dependent on someone by reason of physical or mental infirmity.
With respect to the volunteer firefighter tax credit, it is clause 25 of the bill. That should be on page 58 of your printout, if you have the same one. That adds a new section 118.06 of the Income Tax Act, and provides a $3,000 non- refundable tax credit for volunteer firefighters.
It prescribes the type of activities that the volunteer firefighter must undertake; they must be responding to and being on call for firefighting or related emergency calls, attending meetings by the fire department and participating in required training. As was noted previously to the committee, in order to be eligible for the credit, the individual must undertake 200 hours of activity during the year. If the minister so demands, the individual must provide a certificate from the relevant fire chief that they have filled in the 200 hours.
The one thing I would note is there is an existing exemption for honoraria received by volunteer firefighters of up to $1,000; that is exempt from income. We have put in a rule where the honoraria is in the Income Tax Act, so the individual will choose whether they wish to have the $1,000 honoraria received tax free or take the tax credit. The individual can choose which is preferred for their own tax purposes.
The Chair: You heard Senator Callbeck's question. Can you answer that now so we can move forward on this one? How many volunteer firefighters would this impact?
Mr. Cook: I think the number of 85,000 was a general reference to volunteer firefighters. I do not know the number of hours or anything like that. Based on the actual revenue estimate and the number of dollars per firefighter, the number of firefighters impacted by this would be somewhere between 30,000 and 35,000 volunteer firefighters that would be taking the full amount of the credit.
The Chair: Her question was how much would it cost if this was a refundable tax credit?
Mr. Cook: I do not think that is a figure we have here for the committee.
Mr. Lalonde: I will take this one on. I know Minister Menzies was quite confident that we had that number, but we do not have that on hand. The reason is that this credit was designed to be a non-refundable credit and was costed in that way.
Non-refundable credits are not something new to the tax system. As Mr. Menzies was fielding some of the earlier questions, I was trying to visualize section 118 of the act. That brought me through a good number of pages with the various personal income tax credits. Therefore, instead, I tried to visualize the Income Tax Act return, which I am familiar with from filling them out each year.
If you go through the return, you will see a number of personal income tax credits there. We have the children's fitness tax credit, the new arts tax credit, the education tax credit, the tuition tax credit, the disability tax credit, the transit tax credit, the charitable donations tax credit, the CPP tax credit, the EI tax credit, the equivalent to spouse tax credit, the medical expense tax credit and everyone's favourite, the basic personal tax credit. Those are the ones that came to mind, but there are probably a couple more that escape me right now.
Those credits are all non-refundable credits. The reason behind that is they are designed to eliminate the tax that would be paid on the amount of money used to fund those expenditures. They are not designed to be a grant offered through the tax system.
That differs from something like the Canada Child Tax Benefit, which is designed to be refundable. It is designed to be a grant through the tax system and operates on that basis.
The Chair: Like the HST refund.
Mr. Lalonde: The HST refund is refundable. It is designed to provide more progressivity through the sales tax system. Generally speaking, with a sales tax, it does not matter how much money you make, you get to pay sales tax when you buy something that is taxable. In order to make the sales tax system more progressive, there is a refundable tax credit for those people on the lower end of the scale. It is deliberately refundable. Hence, when those were introduced, they were costed as refundable measures.
These three recent tax credits, and the long list I presented just a minute ago, were designed to be non-refundable tax credits. They were designed to eliminate the tax on those expenditures. Hence, if you have no tax payable, that function has already been fulfilled through other tax credits in the system like, for example, the basic personal tax credit.
Minister Menzies mentioned that as a result of various measures over the recent years, three million people had been taken off the tax rolls. That is another reason why those people would not be taxable.
The Chair: I will go to Senator Callbeck on this issue before we go back to Mr. Cook because I thought we could quickly answer her outstanding question. I am not sure if that answers it or not.
Senator Callbeck: As I understand it, there are 85,000 volunteer firefighters and 30,000 will get the credit. That means there are 55,000 volunteer firefighters who put their lives on the line who are not going to be able to take advantage of this credit.
Mr. Lalonde: I have no knowledge of whether those numbers are correct or incorrect, so I will take you at your word. However, again, the way these credits are designed is to ensure that they relieve the tax against the income on which the credit applies.
In the case of the volunteer firefighter tax credit, there is an existing and alternative mechanism for volunteer firefighters who may get a stipend from the organization with which they work. Under that, $1,000 of income can be excluded. These are complementary provisions that can apply for those who would not otherwise wish to use the credit.
The Chair: I understand Senator Ringuette has a supplementary on this issue. That is taking Mr. Cook away from his general going through what is there, but we will not have to come back to this again. Does any other senator have a question with respect to this specific item?
Senator Marshall: The question follows up from the previous question. What savings were you projecting to the taxpayers who are eligible for this credit? It is a savings to the taxpayers but it is a cost to the public purse, so there must be an estimate. For this tax credit, what is the savings to the taxpayer? I would have a similar question for all the other credits, but could you give us a number for this one?
Mr. Lalonde: We have numbers that were produced with the budget that gave the overall cost of the measure to the government, which translates into the savings to taxpayers at large. Tax savings for any particular taxpayer could vary from the maximum, which is a $3,000 base times 15 per cent, so that is $450. If they cannot claim the full amount of the tax credit, it would be less than that.
Senator Marshall: That would be $450 times the number that would be eligible. What number did you say were eligible?
Mr. Lalonde: There is $3,000 that is eligible, with a 15 per cent credit, so 15 per cent of $3,000 is $450. That would be worth a tax credit deductible against payable of up to $450.
Senator Marshall: How many people were you estimating would take advantage of that tax credit?
Mr. Lalonde: Minister Menzies mentioned 85,000, was it?
Mr. Cook: The revenue figure provided in the budget is $15 million. If you look at $15 million per year and if you assume, on a rough basis, that everyone was taking the full $450, that would give you between 30,000 and 35,000 individuals claiming the credit.
The Chair: Was that just for the firefighters?
Mr. Cook: That was just for the firefighters.
Senator Ringuette: Mr. Lalonde, you referred to the fact that it was the design of credit application. You will understand that when it is a non-refundable tax credit, the people who have hardly any income will get absolutely or practically nothing. This is designed for the volunteer firefighters who have a higher income, and therefore it includes discrimination in that if you are a volunteer firefighter and your income is $20,000 a year, this measure will be at least minimum. If you are a volunteer firefighter at $80,000 a year, then you get the full credit. This measure in its design that you have referred to is discriminatory as to whether the volunteer firefighter is in a higher income bracket than another one in a lower income bracket.
However, you will say to me that it is policy and that you cannot answer policy.
Mr. Lalonde: I do not think I would use the word ``discriminatory.'' I would use the concept that it is designed to reduce tax payable but not designed to go into a negative tax or a grant where no tax is payable.
I mentioned a long list of personal income tax credits that are already in the system, and a good question would be the following: If one were to go to a refundable system, are these new tax credits more important than, for example, the disability tax credit or the transit tax credit or the tuition tax credit?
Senator Ringuette: Mr. Lalonde, that was not the scope of my question at all. You did not answer the question.
Mr. Lalonde: Those are kinds of policy questions that the government of the day had to look at and come to a conclusion on in developing our answers.
The Chair: We have 40 other government officials from whom we have to hear. I will now ask Mr. Cook to finish up his presentation of the first 103 sections of this bill, and anything that you have not talked about, I assume that the government does not really need. Could you proceed on that basis?
Mr. Cook: I think I will move on to the third tax credit that was mentioned, which is the children's arts tax credit. It is found at page 55, I believe, of your print. It is clause 24.
This credit is largely modeled on the existing fitness tax credits, only extending to the kinds of activities that relate to arts, intellectual development, visual arts, music — anything that encourages intellectual development. An eligible program is provided that provides a significant amount of arts instruction, that kind of thing, then a tax credit of up to $500 is available. It is just consistent with the operation of the existing fitness tax credit for children.
The Chair: Are these all non-refundable?
Mr. Cook: That is correct.
The Chair: Is the $500 like the $3,000? You multiply it by 15 per cent?
Mr. Cook: That is right.
The Chair: Fifteen per cent of $500 is what the maximum amount would be.
Mr. Cook: That would be $75, I believe.
The Chair: Thank you. You do not know the question everybody has been asking, namely, what is the total impact for the government? How many people do you think will be taking advantage?
Mr. Cook: The revenue estimate in the budget for it is $105 million per year. If you assume everyone taking it is taking the full amount, then approximately 350,000 people would be claiming the credit.
The Chair: That is $75 each.
Mr. Cook: That is correct.
The Chair: Is there anything else in these sections that we should be aware of?
Mr. Cook: You had asked generally about the RRSP. Would you like me to speak to the RSP changes?
The Chair: That would be helpful for honourable senators to understand what that is all about, why it is necessary and what you are trying to achieve.
Mr. Cook: The main provisions with respect to the RRSP measure can be found at clauses 63, 64 and following.
The Chair: Is that page 102?
Mr. Cook: Yes, it is 102 in my book. I think probably the easiest way to explain is that the government had implemented rules with respect to tax-free savings accounts in the last year or two. In order to deal with avoidance transactions in the RRSP context, what has been done in this budget measure is to extend the rules with respect to tax- free savings accounts, which have been relatively well accepted to the RSP context as well. A portion of Part XI.01 of the Income Tax Act, which deals with tax-free savings accounts, has been expanded to deal also with RSPs and registered retirement income funds.
The Chair: Why was that necessary? What mischief are we trying to eliminate?
Mr. Cook: The CRA has indicated to us that avoidance schemes around the use of RSPs are one of their top priorities and put out risk to about 3 per cent or $5 billion of RSP savings. What we are concerned about depends on the individual taxpayer. The basic scheme of the RSP is you have a certain amount you are allowed to put in each year to your RSP. You receive a tax deduction for that. It grows tax free, and when you take that money out, it should be subject to income tax at that time. A number of schemes have developed where individuals were either using transactions between RSPs and outside the RSP to put more money in their RSP if they are younger so they have a greater pot of money growing on a tax-deferred basis or develop ways to take out money out of the RSP that do not create taxable income. For example, you might set up a series of transactions that allow you to get a loan from the RSP so that you just received a loan rather than payment out of the RSP, so there is no income inclusion. These rules are trying to ensure that both amounts that are put into the RSP and the amounts that are coming out are taxed appropriately.
The Chair: Are you satisfied that the rules here will make sure that that is achieved?
Mr. Cook: As I say, rather than developing a new full set of rules, the rules we have in the budget actually piggy- back on the existing rules with respect to tax-free savings accounts, which have shown to be fairly robust.
The Chair: Were there any other points in these first 103 sections that you wanted to bring to our attention?
Mr. Cook: Those are the main ones that tend to be of interest to people.
The Chair: Senators may have other questions, and I will start with Senator Runciman.
Senator Runciman: Some of my issues were directed at the minister, but there is also the last issue you talked about with respect to prohibiting transfers. It is amazing the schemes that folks come up with, as we have seen in this committee, in finding innovative ways to avoid taxation.
How big of a problem has this been since the institution of TFSAs? Is there a handle on dollar amounts and potential taxation dollars lost?
Mr. Cook: In terms of the dollars involved, the budget estimate of the impact of putting in these RRSP rules is approximately $100 million per year. As I had indicated, certainly from what we understand from the Canada Revenue Agency, this is one of their highest priorities. Obviously, when you have activities that are broadly available, then the potential impact on the tax system as certain types of plans start to take hold can be quite significant.
Senator Runciman: There is nothing you can do to address that in a retroactive way; it was a loophole that was exploited, and that is the end of the story until we close it. Is that right?
Mr. Cook: Certainly the rules that are in Bill C-13 apply on a prospective basis in the sense that they will apply to income going forward.
Senator Runciman: The area you were talking about with defined benefit pension plans and allowing a larger portion of a commutation payment to be paid into an RRSP, for example, apparently only covers an employer going insolvent. What was the rationale for that? If a company is experiencing difficulty in terms of ongoing funding of a defined benefit pension plan and they wrap it up in an agreement with employees — I guess this is really a policy issue. I just wonder if there should not be some sort of recognition.
If we are going to do this with a plan that has gone insolvent, should we not recognize a voluntary move to another type of pension plan?
Mr. Cook: Maybe I can talk a little bit about how that particular measure operates. I do not know whether to call it a technical issue or not, but it is fairly narrow in the sense that you may have someone who has a particular pension entitlement from their employer, such as $30,000 per year or whatever it is, and because of the financial distress of the employer, that pension entitlement is pared back to maybe $25,000 per year. As a result of that reduction in the pension entitlement, the amount of commuted value that can be transferred on a tax-free basis from that pension to an RRSP is reduced.
It was felt that was inappropriate because the lump sum that is being transferred just relates to that original pension entitlement. Therefore, what these rules allow for is the commuted value that can be transferred on a tax-free basis to be based on the original pension amount as opposed to the reduced pension amount.
Senator Runciman: It is in recognition of the reduced entitlement.
Mr. Cook: That is correct.
Senator Runciman: Not simply with the transfer and the insolvency issue.
I have a couple of other questions with respect to the temporary accelerated capital cost allowance. It ties in somewhat with the line of questioning that Senator Marshall was pursuing.
When you make these decisions in terms of this kind of initiative and the issue with respect to green investments as well, what is the process within the ministry in terms of calculating the impacts? We are talking about increased productivity and increased green investments. Are those just pie in the sky? How do you approach those when you are trying to define what the future impacts will be?
Mr. Lalonde: The Department of Finance, in particular the Tax Policy Branch, is of course divided up into a number of divisions. Both Mr. Cook and I are from the Tax Legislation Division, and we produce tax legislation and come here and try our best to explain what that legislation does.
In terms of the process for costing and trying to get some handle on the economic result of any particular measures, those are handled by other divisions, such as the business income tax division and the personal income tax division, that are staffed by, generally speaking, economists. I am not an economist but a lawyer, so I am on a bit of a limb when going on about these economic analysis issues.
The answer I can give is that these are costed and the economic impacts of these measures are forecast. The costing is a little more accurate. The economic impacts depend on taxpayer take-up, and they are projected using reasonable economic assumptions, of which I cannot get into. The upshot of the matter is that obviously incentives such as these push economic incentives in a certain direction. For example, an increased capital cost allowance will incent, in this example, manufacturing and processing industries to invest in new capital equipment earlier than what they might otherwise do.
Senator Runciman: This is a question related to conversations within the ministry, perhaps if they occur or not.
We have members from the Banking Committee here today, and I think it was the Banking Committee that was referenced last year in terms of the TFSA. That committee recommended a one-time $100,000 contribution being allowed, primarily for older Canadians who do not have as many years to take advantage of this excellent initiative on the part of the government.
Has there been any discussion surrounding that recommendation from the Banking Committee that might occur?
Mr. Lalonde: I am not sure I can answer that question right now, to tell you the truth, for a couple of reasons. First, I am not personally aware of it. That would have been a role of the personal income tax division. Second, if it were being seriously considered as a measure of the government, it is not something that I could talk about in this venue in any event.
Senator Ringuette: Mr. Lalonde, I remember the last time you were before us you said it would be the last time you would be appearing, so I see that they cannot live without you.
Mr. Lalonde: I guess it was the penultimate time.
Senator Ringuette: With that being said, you did indicate that economists within the Department of Finance do economic impact assessments on each of these regulations. I would like for the department to table with this committee those impact assessments for the first part of these new regulations. That would answer Senator Marshall's inquiries and mine too with regard to these non-refundable tax credits providing a greater benefit to higher income families and individuals and not to lower income earners.
I am counting on that information being tabled with the clerk before too long. I would certainly like to see that before we have any kind of a vote on Bill C-13.
Mr. Lalonde: I would really appreciate it if you could remind me what it was I had said. It sounds like you are referring to regulatory impact assessment statements. Is that correct?
Senator Ringuette: Yes.
Mr. Lalonde: A regulatory impact analysis statement, a RIAS, is produced for any of the income tax regulations that are processed through Governor-in-Council procedure. The regulations that are attached to this bill are not being produced through Governor-in-Council procedure, so they would not have the RIAS associated with them, if that is what you are thinking about, although they do have the economic impacts as reported in the budget documents.
Senator Ringuette: Yes, but would it not have them on an individual regulation per regulation basis?
Mr. Lalonde: It sets out in the budget the budgetary impacts of the various measures. It can be that in the case of an income tax regulation, you might have to amend two or three subsections, and I do not know if that is the case in this particular example or not.
Generally speaking, however, even if there were regulatory impact analysis statements, as I have mentioned in the context of the income tax regulations, if you had a series of amendments that achieved one result, you would report the effect of that per result. Hence, the figures reported with the budget documents would be relevant in this example. Mr. Cook happens to have them here with him, so he could give some indication of the numbers associated with the income tax regulation changes. I think the major one is the extension of the manufacturing and processing accelerated capital cost allowance.
Senator Ringuette: Just a second, Mr. Lalonde. Before we use the committee's time to read a slate of those, I think, Mr. Cook, if you could table these documents you have with the clerk, we will look through them. If additional information is required then we will bring you back and ask for further information. Is that okay with you?
Mr. Lalonde: Before Mr. Cook agrees, you should all have the document. It is the budget document, so you should all have it already.
Senator Ringuette: We have the budget document, but the budget document does not include the economic impact assessment that you referred to. That is what we are looking for, so that I and Senator Marshall and other senators around this table can have a clear view of the economic impact for taxpayers and for government.
Mr. Lalonde: At the beginning of Annex 3, is it in the budget document, Mr. Cook? They have a table there of all of the costing figures for each one of the measures.
Senator Ringuette: Does that include also — which I am sure the government would provide or look into before putting forth legislation — what income brackets would be more affected and how many people in these income brackets?
We are looking at quite a slate here of non-refundable tax credits. Non-refundable tax credits, I reiterate to you again, provide a greater incentive to the higher end income brackets than to the lower end. I want to know what that will impact.
What we have to deal with, right now, in Canada, is that 1 per cent of the Canadian population is getting richer to the detriment of more than 60 per cent of the Canadian population which is getting poorer. I want to know if these non-refundable tax credits are going to increase that income divide instead of reducing it.
Mr. Lalonde: I do not know if the department has incidence tables on the availability of this credit by income range. If the department does, I can ask if those materials can be provided, but I cannot assure you that they exist.
The Chair: Senator Ringuette, we are running down on time.
Senator Ringuette: Second round. I have quite a few questions here.
The Chair: We have 55 government people waiting to be heard here, and we have now an hour and a half.
Senator Callbeck is next on my list. Are you satisfied with the answer you got earlier?
Senator Callbeck: No, I cannot say that I am satisfied. I, too, would be interested in seeing the information that Senator Ringuette is asking for.
Mr. Lalonde: As I indicated, I can ask back at the department if it is available and go from there.
Senator Ringuette: Not if it is available; that it has been done. If it has been done then it has to be tabled here.
Mr. Lalonde: I think that is what I meant. I was not trying to play games with honourable senators.
The Chair: Senator Callbeck, anything further?
Senator Callbeck: No. I have expressed my concern before on these non-refundable tax credits. I just cannot understand why the government would be bringing them in as non-refundable, when, as Senator Ringuette has mentioned, a large per cent of the population is getting poorer. Here we are bringing in credits that are absolutely worthless to people who do not pay income tax.
The Chair: This is getting into the third reading policy argument as opposed to being able to understand what is in this particular bill. The policy reason for why it is that way is another step, and we are going over into that other step.
Senator Marshall: I wanted a brief explanation on the changes to the charitable donations. In the last couple of budgets there were changes made. I remember last year we talked about the changes in the disbursement quota. I think that was in last year's budget. Now we are talking about a further change entitled ``limiting the tax benefits of donations of flow-through shares,'' and there is a reference there to closing a tax loophole. Could one of you just explain that?
The Chair: This is clause 26, I think, of the bill.
Senator Marshall: Under Part 1.
Mr. Cook: The measure being referred to relates to donations of flow-through shares. In particular, this is aimed at types of transactions which seek to double up the tax assistance provided to flow-through shares with charitable donation deductions or credits. Flow-through shares are a particular type of share issued by junior resource companies. These are junior resource companies which, because they are in the exploration stage, may not have enough income to use all their expenses.
Flow-through shares are a particular type of share that allows the company to flow through those expenses to the investor, who purchases the share, up to the cost of the share. When you buy a flow-through share you are allowed to deduct, as an expense when you purchase it, the expenses that are flowed up from the company.
As a result of that, the adjusted cost base of a flow-through share is then set to zero. When you dispose of the flow- through share you then have a capital gain on the full amount in your proceeds at disposition.
The way that ties into the charitable donations is that donations of publicly listed shares are exempt from capital gains taxation. A number of plans have been set up that seek to marry up a person who wishes to donate to a charity with someone who seeks to acquire a flow-through share. These transactions usually happen over the course of just one day. An individual who wants to make a donation to a charity will acquire a flow-through share, they will deduct the expenses related to that flow-through share, they donate the flow-through share to a charity, and then again on the same day that flow-through share is sold to the investor who wanted to acquire it in the first place.
As a result of doing this, the tax assistance involved with the donation can then be up to 90 per cent of the donated amount. That use of both of those tax incentives at the same time is overly generous. What the proposed measure would do is simply require that when a person donates a flow-through share to a charity, that they receive a capital gain up to the amount of their original cost of the flow-through share.
Senator Marshall: There were a number of budgetary measures that closed tax loopholes, but I would have thought that those tax loopholes would have been pervasive. Was that a pervasive problem or was it several isolated cases? How pervasive was that problem?
Mr. Cook: It is not pervasive as yet, but we had noticed that it was a growing trend in the charitable sector, so action was taken at a fairly early stage in order to prevent it from being pervasive.
Senator Peterson: I have a quick question on the financial assistance for physicians in underserved rural areas. There is a note in there that it is $8,000 a year, up to $40,000 for physicians who begin to work in an underserved area. What does that mean? Do they have to stay there in order to get the full amount? Why would it not say that to begin with?
Mr. Cook: Senator, the amendment in Part 1 is a fairly narrow, technical one, which just ensures that when there is a forgiven amount with respect to the kind of loans that are being talked about, there is no income inclusion for income tax purposes. The actual measure for the forgiveness of the loans is, I believe, in another part of this bill. Other officials could respond to your question as to how it operates.
Senator Peterson: Is there any similar type of program now for practising physicians to attend in rural areas? This is a real problem in rural areas. Would I find that somewhere? You have no other program?
Mr. Cook: I am sorry. That would be outside our bailiwick.
The Chair: There is a lot more in this particular bill and we just do not have time to go into all the different items, but I thought perhaps Senator Peterson might have asked about clause 89 with respect to the Saskatchewan Pension Plan. Is that something that was in the budget that is now here to be elaborated?
Mr. Cook: It was previously announced before the budget, and then in the budget it was mentioned as a previously announced measure. I would describe it as a fairly technical measure in the sense that to ensure the Income Tax Act operates, contributions to the Saskatchewan Pension Plan are deemed to be premiums paid to an RRSP. Basically, it deems the Saskatchewan Pension Plan to be a registered retirement savings plan for certain purposes for the act so that contributions to it will be treated as contributions to an RRSP for tax purposes. Overall contribution limits will apply in the same way.
The Chair: In this particular bill, the budget implementation bill, there are also a number of other items that were referred to or promised by the government earlier than the budget in June of this year, and that is one of those items?
Mr. Cook: That is correct.
The Chair: How about the forgiveness of loans for doctors, nurse practitioners and nurses? I think it is a very good initiative. I had not recalled having read about that previously.
Mr. Cook: As I mentioned to the honourable senator, our role in Part 1 is very small. The only thing we do in Part 1 of the bill is make sure that, where loans are forgiven under this program, that they are not included in income of the taxpayer involved. In Part 1 there is only a technical measure related to it, so I think another official would be better to speak to the program.
The Chair: The other is the Canadian amateur sports, and all those sections dealing with Canadian amateur sports. What is going on there?
Mr. Cook: What is going on there is Registered Canadian Amateur Athletic Associations. Essentially, we are moving the treatment to them to be consistent with those of registered charities. We are just making sure that the RC Triple As are subject to the same governance rules and the same rules around registration and revocation, all that sort of stuff, as registered charities currently are. As well, up until budget, RC Triple As only had to operate primarily for the purpose and have as their primary function the promotion of sports. That has been changed. It has to be their exclusive purpose and function. Again, that is to make it more consistent with the operation of charities, which have to be operated exclusively for charitable purposes.
The Chair: Previously, amateur athletic associations had a special non-tax status and now you are bringing them into the requirement that they must be like other registered charities?
Mr. Cook: That is correct.
The Chair: Does that summarize it?
Mr. Cook: That is a fair statement.
Senator Callbeck: My question pertains to the RESP. As I understand it, you are widening that. For example, aunts and uncles could set up an individual fund for a child that they are related to; is that right?
Mr. Cook: That is correct.
Senator Callbeck: Does that just apply to relatives, or can someone who is not a relative decide that they would like to set up a fund for a certain child?
Mr. Cook: The measure that is in the bill does not go to whether or not plans can be set up for an individual but actually deals with transfers between plans. Under the existing rules, certain people, such as aunts and uncles, can set up plans for an individual. However, if that individual did not go on to complete their education, then the money was essentially trapped in that one individual RESP. With respect to parents who set up plans, they can set up family plans and the money can be transferred amongst siblings.
All the measure does in Bill C-13 is to allow money to be transferred from one individual plan to another individual plan, where the plans have been set up before the person is 21.
Senator Callbeck: It really does not widen it, then?
Mr. Cook: No. It is not intended to widen the scope of for whom RESPs can be set up. All it is intended to do is that where a plan has been set up and the individual will not be using the money, to allow it to be transferred to an RESP of a sibling.
Senator Lang: If I could refer to the capital cost allowance and capital costs as it applies to the oil sands. It says that the deduction rates for intangible capital costs would be amended so that they are aligned with rates in the conventional oil and gas sector. What are the implications of that? Does that mean they will be paying more eventually, or what is the effect of this?
Mr. Cook: The effect of that is that certain expenses that are currently deductible at the rate of 100 per cent, or currently deductible, will be deductible at the rate of 30 per cent. Those are pre-production-type expenses. For expenses relating to acquiring rights to explore, for example, the deduction rate will go from 30 per cent down to 10 per cent. As the oil sands are developed, it has been found, in fact, the way they operate is more like the conventional oil and gas sector, and all these do is provide that the rates at which expenses are deductible will be consistent with other producers.
Senator Lang: This means that there should be a significant increase in taxes paid to the Canadian government, in view of the fact that deductions will be less; is that correct?
Mr. Cook: When this budget change is fully implemented, it is expected that it will generate revenue on the order of about $75 million per year.
Senator Ringuette: In my briefing book here, it says that Part 1 extends eligibility for the Mineral Exploration Tax Credit by one year.
Does the Mineral Exploration Tax Credit apply to exploration outside of the country? We have so many mineral companies doing exploration outside our borders.
Mr. Lalonde: No, the METC is for exploration in Canada. It is a tax credit associated with flow-through shares, as was mentioned before. If you buy a flow-through share from one of these junior mining corporations, you can get also get the METC.
Senator Ringuette: Are you saying that the Mineral Exploration Tax Credit is only applicable for exploration in Canada and not outside?
Mr. Lalonde: That is right.
The Chair: Is that the section that has been extended for one year and one year only?
Mr. Lalonde: This year it has been extended for one year. The year before it was extended for one year as well.
The Chair: I recall that in the past it was extended for one year and one year only. To my recollection, this goes back at least five years, and maybe more, where it has been extended for one year and one year only. This is obviously a government matter and you just write the legislation to reflect the policy decision. However, I want to confirm that you have been writing that clause for quite a few years now.
Mr. Lalonde: It has become easier and easier to draft, that is correct.
The Chair: Honourable senators, unless you have other questions with respect to the government's position on clauses 1 to 103, I propose that we go on to Part 2, clauses 103 to 109.
Thank you, Mr. Cook and Mr. Lalonde, and we wish you well, Mr. Lalonde, in your new ventures.
We will now deal with Part 2 of Bill C-13. We are dealing now with the Softwood Lumber Products Export Charge Act, 2006. There are amendments to that act in this bill. We are dealing with clauses 104 to 109, and we are pleased to have with us Mr. Colin Bird and Mr. François Rivest.
Colin Bird, Director, Softwood Lumber, Foreign Affairs and International Trade Canada: Thank you. This is a far shorter part of the bill than the previous part. It relates to export charges that we impose on softwood lumber exports to the United States under the Softwood Lumber Agreement.
It does two things. First, it implements an international arbitration ruling from January that requires Canada to increase export charges on shipments to the United States from Ontario and Quebec. Second, it provides more flexibility on when exporters can get refunds under the act, when appropriate.
I am happy to take any questions on the arbitration implementation and my colleague Mr. Rivest is happy to take questions on the refunding provisions.
The Chair: How did it happen to get before the London Court of International Arbitration?
Mr. Bird: There is a dispute settlement mechanism under the agreement that requires matters in dispute to be referred to that court. That was the venue selected when the treaty was negotiated in 2006. The measures at issue were provincial measures from the Ontario and Quebec governments about which the U.S. government had concerns. They referred the matter to arbitration in January of 2008 and the decision of the arbitration tribunal was issued in January of this year.
The Chair: The matter was referred to the London Court of International Arbitration by Ontario and Quebec?
Mr. Bird: No, the matter was referred to arbitration by the United States government.
The Chair: That was on behalf of the industry in the United States?
Mr. Bird: That is correct.
Senator Ringuette: I recall that in 2006 the Harper government said that the softwood issue with the U.S. would be resolved and there would be no more cost at the eleventh hour, even though we were winning the process. What has been the cost to the federal government of this referral?
Mr. Bird: The Softwood Lumber Agreement is quite complex. Many issues of interpretation arise in it. At the time it was negotiated, it was fully anticipated that there would have to be a mechanism in it for resolving issues. In fact, money was set aside under the agreement for this kind of dispute settlement.
These are measures to which the United States took exception as circumventing the taxes that were applied to exports from Ontario and Quebec. We would have liked to be fully vindicated when the measure was taken to the tribunal.
Senator Ringuette: That is not my question, Mr. Bird. My question is this: What has been the cost to the federal government of this specific referral to the London Court of International Arbitration?
Mr. Bird: The award is in the form of an ad valorem additional charge to the Softwood Lumber Export Tax.
Senator Ringuette: What has been the litigation cost to the federal government of bringing this to the London court?
Mr. Bird: Are you asking for the costs of the lawyers and mounting the defence?
Senator Ringuette: Exactly.
Mr. Bird: I do not have a precise figure for you. I am sure we could provide that to the committee.
Senator Ringuette: Could you provide that as soon as possible?
Mr. Bird: Certainly.
Senator Ringuette: There is currently an issue with regard to B.C. lumber supply that will probably result in another referral to the London Court of International Arbitration. Will the federal government, i.e., the taxpayers, have to absorb these costs?
Mr. Bird: We are mounting a full defence on the second dispute, the B.C. timber pricing question, and that is being paid for out of the revenue raised through softwood lumber export charges.
Senator Ringuette: That will be an additional cost to the taxpayer, notwithstanding the result in the B.C. lumber supply dispute.
François Rivest, Director, Softwood Lumber Controls Division, Foreign Affairs and International Trade Canada: It is not a cost to the taxpayer. The fees are paid out of the charges applied to the lumber exports to the United States. Therefore, there is no cost to the Government of Canada.
Senator Ringuette: These fees are paid by the softwood industry, are they not? As far as I know, they are taxpayers.
Mr. Rivest: They are charges applied to lumber exported to the United States. Litigation costs are taken from those charges.
Senator Ringuette: Basically, the softwood lumber act of 2006 has not resolved the softwood lumber issue. It has only extended it exponentially and probably for an indefinite number of years and at a high cost, not only with regard to litigation but also with regard to our softwood lumber industry. Whether the litigation costs for the federal government come from the fees charged to the softwood industry or elsewhere, the bottom line is the taxpayer. I want to know what the fees are.
The Chair: They have undertaken to provide those to the committee.
Mr. Bird: Yes, we will provide those.
Senator Ringuette: ASAP. Thank you.
Senator Peterson: Does the Government of the United States currently hold any funds that are under challenge by the Government of Canada in this matter? What would that number be?
Mr. Bird: No. This is arbitration on the Ontario and Quebec programs, so no funds from this arbitration are held by the U.S. government.
Senator Peterson: Will we find this issue on the softwood lumber with some other groups coming before us?
Mr. Bird: Not in respect of this arbitration. I am not sure what you might be referring to.
Senator Peterson: I have one other question: With the collapse of the U.S. housing market, will this give you some breathing room for the Government of Canada to get this matter resolved much more quickly since there is less pressure from the U.S. forest industry?
Mr. Bird: There is always pressure when you have a difficult economic situation. Certainly, the industry in both Canada and the United States is under pressure. That said, the indications we have from the industry is that they strongly support the predictability that they see as being provided by the Softwood Lumber Agreement. Certainly, we heard from the governments and industry in Ontario and Quebec that they support the prompt implementation of this measure.
Senator Gerstein: Mr. Bird, the softwood lumber issue was resolved in 2006. That challenge of interpretation, in my view, could be classed as a normal course and if they are challenged, you have to defend them vigorously. Is that a fair statement?
Mr. Bird: It is certainly fair to say that there were over 25 separate legal proceedings under way when the Softwood Lumber Agreement came into effect. We now have a much more constrained dispute settlement mechanism, and we no longer have over $5 billion in Canadian duty deposits held in the United States.
The Chair: Thank you Mr. Bird and Mr. Rivest.
I ask government officials on Parts 3 and 4, tariff items, to come forward.
[Translation]
Patrick Halley, Chief, Tariffs and Market Access, Department of Finance Canada: I am going to start with section 3 and my colleagues can join me for section 4, if they wish.
Section 3 has to do with simplifying customs tariffs. Budget 2011 simplifies customs tariffs in order to facilitate trade and lower the administrative burden for companies and government.
Three major types of changes have been made. All the changes are neutral in terms of revenue and the rates of customs duties that apply to imports into Canada.
[English]
The first group deals with the reduction of customs processing burden. We are reducing the number of tariff items by approximately 13 per cent in the bill to facilitate the classification of importing goods into Canada. An issue was raised by a number of stakeholders, including the Canadian Federation of Independent Business, who said it was a major issue for small- and medium-sized enterprises. We are also removing many so-called end-use provisions in the Customs Tariff. These were introduced over the years further to specific requests by companies; and they come with an administrative burden that is extra. The issue was also raised by many stakeholders including the Canadian Manufacturers & Exporters, the Canadian Association of Importers and Exporters and the Canadian Apparel Federation.
The second group deals with the modification of the structure of the tariff. We are making these changes to make the act more transparent and user friendly for stakeholders and businesses. There is also a technical modernization of the Customs Tariff. We are doing a bit of housekeeping and removing obsolete provisions and clarifying certain authorities in the act. These are in sections 111 to 145 and Schedules 1 and 2.
I will be happy to take questions.
Senator Ringuette: You indicated that this is a tax neutral part of the budget. However, you are reducing tariffs on more than 1,100 items, which is 13 per cent of the current total of tariff items. How can you explain that?
Mr. Halley: It is a structural change to the Customs Tariff. The changes follow the broad tariff relief measures in budgets 2009 and 2010. Without getting too technical, identical types of products would all be duty free and, therefore, we would collapse them into one category to simplify tariff classifications for businesses and importers. All the changes are revenue and tariff neutral. This will affect only tariff items that have the same tariff rate applied to them.
Senator Ringuette: The Minister of Finance indicated to this committee a few months ago regarding the cost of retail products in Canada that $5 billion per year is collected in excise tax. Will any of these measures reduce tariffs that increase the cost of consumer goods in Canada?
Mr. Halley: No, this is all tariff-rate neutral. As you will recall, I came to this committee with some of my colleagues at the launch of your study on consumer price discrepancies between Canada and United States to speak about the tariff rate. In this bill, they are all tariff-rate neutral. There are no changes to the rates applied. There were a number of changes in Budget 2009 and Budget 2010. Last Sunday, the minister announced new measures regarding tariffs on Canadian businesses.
Senator Ringuette: The Minister of Finance is taking no measure to reduce tariffs that would reduce the cost of consumer goods for Canadians?
Mr. Halley: This bill simplifies the structure to facilitate trade.
The Chair: We will move to Part 4 shortly, which deals with tariff items. The minister's announcement last week is not reflected in this proposed legislation. Is that correct?
Mr. Halley: That is correct. That was done by the authority of the Governor-in-Council under the Customs Tariff.
Senator Callbeck: My question is about the goods imported by mail or courier for personal or household use that are valued at less than $500. Is a tariff applied to such goods?
Mr. Halley: Maybe I can speak quickly to Part 4 and then answer your question. Part 4 concerns sections 146 and 147 and Schedule 3 of the bill. These are changes to facilitate the processing of non-commercial imports under $500 coming by post or by courier. This will lead to further efficiencies in the Canada Border Services Agency, which will remove the necessity for border officers to classify goods that have a simple description and would come by postal stream, for example, clothing. Under the specific tariff item, because there are 8,400 tariff items in total, we will try to simplify the border officer's job with respect to the classification of these goods. That will lead to certain cost savings and will allow the CBSA to proceed with automation of those classification functions as part of a modernization process. The courier industry was seeking further efficiencies in the way that these imports were being treated. That is what we are doing in Part 4.
Senator Callbeck: Right now, are there tariffs on these goods that are under $500 that come by mail or by courier?
Mr. Halley: There is a postal and courier remission order whereby there are no duties and taxes for imports valued at $20 or less. Above that threshold, all applicable duties and taxes are payable. This measure here is simply to facilitate and streamline how these shipments are being treated by the Canada Border Services Agency, recognizing that there are almost 2 million shipments a year under the postal program and half a million under the courier program.
Senator Callbeck: The bottom line, then, is that there must be more money collected in tariffs, right? How much do you estimate?
Mr. Halley: Under these programs, right now they would be classified without differentiation with respect to the way that they would have been imported. Therefore, I could not tell you, for a certain piece of clothing, how much of it came through the normal commercial stream, how much came through the normal postal stream and how much came through the courier stream. They would all be classified as this particular type of clothing. If these changes are put into the customs tariffs, then you will be able to track down what products come in under what streamline product classification. This system would be in place after that.
Senator Callbeck: Have you no estimate of how much more will be collected in tariffs?
Mr. Halley: This is simply with respect to the classification processes. These are expected to be tax and duty neutral because they will provide an option. This is simply for the convenience of the courier companies that use this process to expedite the way they have importation treated.
Senator Ringuette: It is easier to help UPS and FedEx.
Mr. Halley: On the postal side as well.
Senator Ringuette: No, we know who lobbies the government.
The Chair: Colleagues, we are getting into Part 4, which is good because we are moving along here. I know that Wendy Guard and Steven Bell, from the Canada Border Services Agency, are both here. If you have specific questions of them with respect to Part 3 or Part 4, we should bring them down as well.
The next person on my list is Senator Lang from Yukon.
Senator Lang: I just want to go back to the previous question as far as the tariffs are concerned to get it clarified for anyone who is listening.
My understanding is that there were significant tariff changes taken over the course of the last number of years, which actually lowered costs to the consumer. Second, what you are doing now is categorizing them so that they can come across the border in a much more expeditious way. If that is done, then it will take a lot less time on behalf of the people working at the border to expedite them across the border and free the traffic at the border stations. Is that correct?
Mr. Halley: That is a good characterization of the attempt of what we are trying to do here. After the large tariff cuts that were undertaken over the last two or three years, some residual administrative burden remained. We are trying to remove that.
With respect to the low-value imports in Part 4, that is something specific to the postal and the courier industry. However, you are correct; this should help consumers and importers with respect to the administrative burden that they are facing.
Senator Lang: To conclude on this, then, the consumer should be paying less, at the end of the day, with the number of steps that have been taken over the last number of years from the point of view of what you are responsible for; is that correct?
Mr. Halley: I think the tariff cuts that have been done over the years to assist Canadian businesses will obviously help both Canadian businesses and Canadian consumers by flow-through savings to them.
As I said, these are revenue neutral changes. You are right in terms of the efforts that have been done on the tariff side for the last two or three years.
The Chair: It is understood that Part 3 is revenue neutral and will make no changes, just a simplification. I have asked the Canadian Border Services Agency officials who have been here to join us as well with respect to Part 4.
Senator Lang: On the question of expediting these products across the border, what is forecasted in respect to the time that will be saved by those people actually processing this through the border from the point of view of operations? Do you have any estimates of what it will do or how it will work?
Steven Bell, Senior Program Advisor, Commercial Border Programs Division, Canada Border Services Agency: We do not have a specific estimate for you at this time. We are going from 8,000 tariff items to basically three baskets in order to simplify the process. We do not have the analysis at this time in order to give you an exact savings in time.
Senator Lang: To conclude this, it should be substantial from the point of view of the operation?
Mr. Bell: Yes.
The Chair: They are not able to help us.
Wendy Guard, Manager, Postal and Courier LVS Programs Unit, Canada Border Services Agency: Border Services officers presently visually inspect all the shipments that are going through. There are 32 million of them. To use a tariff classification of 8,000 goods and to simplify that will save significant time. How much, we are not sure yet. However, even seconds or minutes make a difference for each parcel.
The Chair: Are we now discussing the changes proposed in Part 4, entitled ``Facilitating Low Value Imports,'' as opposed to the consolidation and the tariff neutral Part 3 that we have talked about previously?
Mr. Halley: That is right. That would pertain to Part 4.
Senator Nancy Ruth: I wanted to step back a bit and ask about the end use provisions, most of which you have removed, is that correct? In the statement, it says ``many of the so-called end use provisions.'' What are the ones that are left? Why are they left and when will you get rid of them?
Mr. Halley: That is a good question. You may recall in Budget 2010 that most of the tariffs on manufacturing inputs were removed immediately. Some of them were put on a gradual elimination schedule. Therefore, the end-use provisions that are being removed at this time deal with tariffs that are no longer in existence. There are still some that are gradually being reduced. As they are being gradually eliminated, we will certainly remove those end-use provisions.
Senator Nancy Ruth: They will be wiped out by when?
Mr. Halley: By no later than January 1, 2015, is what we legislated in Budget 2010 for certain products.
Senator Ringuette: In regard to the Canada Border Services Agency, you have officers on site at different Canada Post import warehouses. Those are huge. Am I right in supposing that you also have the same kind of services for courier companies?
Ms. Guard: It is slightly different with the courier industry. They usually hire a broker to do the actual classification process, whereas, in the postal stream, it is the actual border service officer who makes the determination and does the classification. We do have officers who go and clear courier shipments and do the examinations.
Senator Ringuette: Exactly. Is there a cost to the courier company when you have your officers doing that?
Ms. Guard: If the courier wants an expedited service — in other words, if they want us to be there before the regular hours of business — or if they want us to handle their shipments in advance of someone else, they pay for that service. It is a cost-recovery service.
Senator Ringuette: It is a cost-recovery service. Therefore, reducing the number of tariff codes would reduce the number of required hours of service and, therefore, also reduce the probable costs of service?
Ms. Guard: No. It will save the courier industry the labour costs of hiring people who know about the tariff and can actually classify the goods to the proper degree that is normally required now. They will be able to have junior officers able to simply classify the goods based on the —
Senator Ringuette: This measure, even though it is revenue neutral to the government, will reduce cost to the courier companies, for instance UPS, FedEx, Purolator, et cetera?
Ms. Guard: That is what they tell us.
Senator Ringuette: Thank you.
The Chair: Thank you, Senator Ringuette and Ms. Guard, Mr. Halley and Mr. Bell.
We will now move immediately to Part 8. There has been a request that we go to Part 8 first for witness timetables. That is on page 199. It is very short, and it deals with certain changes to the Employment Insurance Act, section 160. We should be expecting Mr. Ray Cuthbert, Director, Legislative Policy Directorate, Canada Revenue Agency; Mireille Laroche, Director General, Employment Insurance Policy, Human Resources and Skills Development Canada; and Mark Hodgson, Senior Policy Analyst, Labour Markets, Employment and Learning, Department of Finance Canada. Would someone like to tell us what we are trying to achieve, and why this section is necessary?
Mireille Laroche, Director General, Employment Insurance Policy, Human Resources and Skills Development Canada: The purpose of this section is to provide a one-time premium refund to small businesses. In order to be eligible, small business had to pay, in 2010, employers premium of $10,000 or less and must have seen an increase in their premiums in 2011. The difference between the two levels of premiums will be reimbursed to the employer, to the maximum amount of $1,000.
To be eligible, businesses do not have to apply. This will be automatically administered by the CRA, and the refund will be in the form of a credit that will be applied to their payroll deduction amount.
The Chair: Is the automatic nature of this — not having to go through the paperwork — something new, or is this modeled on some other activity?
Ray Cuthbert, Director, Legislative Policy Directorate, Canada Revenue Agency: My understanding is it has occurred in the past, in programs like the New Hires Program that did it many years ago.
The Chair: I commend you for doing that. It cuts down on paperwork and the work of the small business owner, and I think that is something that should be encouraged.
Senator Callbeck: How many businesses will be affected by this $10,000?
Mark Hodgson, Senior Policy Analyst, Labour Markets, Employment and Learning, Department of Finance Canada: It is estimated that about 525,000 employers are at that size or below.
Senator Callbeck: How many small businesses do we have in Canada?
Mr. Hodgson: I do not know that number off the top of my head.
Senator Callbeck: We do not know what percentage of small businesses this will help?
Mr. Hodgson: If I recall correctly, it is in the order of 85 per cent of employers, but I would have to check that number and get back to the committee.
Senator Callbeck: Could you get those numbers, please? It would be very helpful.
This is called a hiring credit, but my understanding is that you do not have to hire to get it. Am I right?
Ms. Laroche: In order to get the credit, you need to have an increase in the amount of employee premiums you will pay. Technically, you do not need to hire; you just need to see an increase. However, most likely, in order to be able to receive this credit, you will have to have additional employees.
Mr. Hodgson: It simplifies the administration of the credit by comparing the total EI premiums paid by an employer in 2011, over 2010, rather than having employers apply, submit forms and prove that they have hired additional people.
Senator Callbeck: There was a rate of increase. As long as the business pays no more than $10,000, is it 5 per cent that the rates are going up?
Senator Ringuette: They were supposed to go up 10, but it was reduced to 5.
Senator Callbeck: I am trying to figure out why this would be called a hiring credit for small business because you do not have to hire, as I understand it, in order to get the credit.
Mr. Hodgson: The naming of the credit was a choice of the government.
Senator Callbeck: That is fine. Thank you.
Senator Marshall: I was wondering if you could define ``small business.'' It is restricted to small businesses, so what are the criteria?
Mr. Hodgson: In this sense, ``small business'' is represented by an employer with total EI premiums of $10,000 premiums or less in 2010. How you define a small business is not exactly precise. People have different ideas in their head of what a small business is — three employees, five, ten. How much you pay and how many employees you have determines where the $10,000 limit would be. At the upper end, someone who is paying all of their employees the maximum insurable earnings or higher would have nine employees, representing $10,000 in premiums. If they had people being paid half the maximum insurable earnings, around $22,000 each, they would have about 18 employees.
Senator Marshall: That is all.
The Chair: Have you done the calculations of the impact of the increase in the employer's portion of annual Employment Insurance? The increase of 5 per cent is about $500, if you were paying on $10,000 last year?
Mr. Hodgson: The premium increased by 5 cents not 5 per cent.
The Chair: Oh, sorry, not per cent, five cents on a hundred.
Mr. Hodgson: Per hundred dollars of insurable earnings, that is correct. On the total of $10,000, it could be $500.
The Chair: That is what I was very quickly calculating here. Without hiring anyone, the employer will have to pay $500 more because of the increase. How does this legislation impact on that? Does the employer get back the $500, up to $1,000?
Mr. Hodgson: They would.
The Chair: That is the way I was reading this. Thank you.
Senator Ringuette: The technical definition of an SME is employing less than 500 employees. Going back to an employer whose premiums were $10,000 or less, what would be the payroll for an employer to be paying $10,000 in premiums?
Mr. Hodgson: I do not have the precise number in front of me, but if they are paying $10,000 it would be on the order of a $500,000 payroll.
Senator Ringuette: A $500,000 payroll.
Mr. Hodgson: The employer premium is 1.4 times the employee premium, which is approximately 225. I can get you the precise number of the exact dollar figure of the payroll, but it would be on the order of $450,000.
Senator Ringuette: That could mean 10 employees at $45,000 income?
Mr. Hodgson: Yes. It could be 20 employees at $22,000. It could be 40 employees there are a lot of part-time, lower wage employees. It depends on the nature of the business.
Senator Ringuette: To follow up on Senator Day's question — the $500, 5 cents increase for the employer with this tax credit — what is the estimate of the number of employees this could generate for SMEs? It seems there is no relation in regard to the increased number of employees, whether they are student employees, temporary, seasonal or full-time or part-time. There is no relation whatsoever in regard to employment creation; only in to the increase in payroll. From my perspective, this might reduce the premiums paid but it does absolutely nothing in regard to an incentive for job creation. For all the advertising that was paid for by the federal government to promote this program, it is not really what it is promoting. It is kind of false advertising.
The Chair: Thank you, each of you.
[Translation]
I understand that you have another meeting, Ms. Laroche. Thank you.
Mr. Hodgson, you are staying with us for another section.
Mr. Cuthbert, thank you very much for participating in this meeting.
[English]
Let us deal with Part 5 first. We have David Swol, Director General, Canada Education Savings Program from Human Resources and Skills Development Canada. Part 5 is found at page 193 and comprises sections 148 and 149.
Could you tell us what the amendments to the Canada Education Savings Act amendments are and what is trying to be achieved?
David Swol, Director General, Canada Education Savings Program, Human Resources and Skills Development Canada: Absolutely. This is a technical amendment to the Canada Education Savings Act. The purpose is to align the changes introduced in Budget 2010 pertaining to the allocation of child benefits between parents who share custody of a child. This is very much a consequential change, after reviewing our legislation and looking at our program in terms of making sure that we can align our benefits with the previous announcements in Budget 2010. These additions to the Canada Education Savings Act are consequential to the passing of Budget 2010 in December 2010.
In terms of our program, we offer three incentives. There is the Canada Education Savings Grant. There is also the Additional Canada Education Savings Grant. Those are thresholds. The Canada Education Savings Grant is eligible for anyone opening up a Registered Education Savings Plan, an RESP, and contributing up to $2,500 per year. On the first $2,500, there is 20 per cent paid. The Additional Canada Education Savings Grant is for individuals who have a net family income of varying thresholds, varying between $41,000 and approximately $81,000. Depending on your net family income, you would be eligible for the Additional Canada Education Savings Grant of 30 per cent or 40 per cent. We also offer the Canada Learning Bond. These technical amendments to our act pertain to the Additional Canada Education Savings Grant, so that within our legislation we could comply with the changes made in Budget 2010. However, when our legal advisers reviewed our legislation we saw that there was one component — the Additional Canada Education Savings Grant — that needed to be amended. This is what this proposal will do.
The Chair: That is helpful. I do recall having studied the bond and the grants in previous years, which you have now reminded us of.
Senator Lang: Perhaps you could expand on exactly what the Canada Learning Bond is?
Mr. Swol: Certainly. The Canada Learning Bond is to help low-income families save for post-secondary education. Unlike the Canada Education Savings Grant, the Canada Learning Bond just requires low-income families to open up a Registered Education Savings Plan. If they are in receipt of the Canada Child Tax Benefit, the CCTB — meaning they are in a low-income situation — they are eligible to receive $500 per child in the initial payment. If they remain within the low income threshold they are eligible for an additional $100 a year, up to a maximum of $2,000.
Senator Lang: Do you have any idea of how many Canadians out there are taking advantage of this? Is it substantial?
Mr. Swol: Just over it 81,000 children received the Canada Learning Bond in 2010.
Senator Ringuette: I would like some clarification, Mr. Swol. In regard to family income between $41,000 and $81,000, you said that provides for additional grants going from 30 per cent to 40 per cent? Did I hear that right?
Mr. Swol: That is correct. There are income thresholds. Depending on the income threshold of your net family income, the basic grant is 20 per cent on the first $500. If you have a net family income of over $81,000, you receive 20 per cent on the first $500 of your contribution; that is a matching grant.
If your income is between approximately $41,000 and $81,000 — the thresholds are indexed annually, so they do change a slight bit — you are entitled to a 30 per cent matching rate on your first $500. If you are below $41,000, you are entitled to 40 per cent on your first $500.
Senator Ringuette: In comparison to the other measures that we saw of non-refundable tax credits, this measure seems to indicate a balance in regard to the income level of the family and the savings that they set aside to provide for learning.
Mr. Swol: For post-secondary education.
Senator Ringuette: Yes, post-secondary education for their kids. At least this is a balanced approach.
The Chair: Thank you very much, Mr. Swol. We appreciate you explaining this to us; keep up the good work.
We will go on to Part 6, children's special allowances. It is one section.
Mr. Hammond, you can see the approach we are taking. You have one section to explain to us why this is necessary. It is at page 195 of the bill, Part 6, clauses 150 and 151. Could you explain this to us?
Blair Hammond, Manager, International Policy and Regulations Section, Canada Revenue Agency: Yes, Mr. Chair. I am a manager at the Canada Revenue Agency and I am here to assist you in relation to Part 6. This is the component of the bill that proposes amendments to the Children's Special Allowances Act and its Regulations.
A children's special allowance is a tax-free monthly amount anywhere between $290 and $599, paid under the Children's Special Allowances Act to federal, provincial or territorial child protection agencies, in respect of a child under 18 that the child protection agency maintains.
The Government of Canada seeks to help support Canadian children but as it happens, certain children are falling through the cracks. There are two pillars to the regime: the Canada Child Tax Benefit regime that is there to assist parents; and the Children's Special Allowances Act that I am talking about today, which is there to assist and help provincial child protection agencies maintain child wards.
The problem is that today, for various reasons, child protection agencies often want to find alternative care arrangements for Crown wards that are institutionalized or in the care of foster parents. Therefore, they sometimes place them in the care of guardians, which they continue to subsidize. However, as soon as the child leaves the institution or the home of the foster parents, the province's entitlement to receive the children's special allowance ends.
This measure proposes to have children's special allowances paid to provinces' and territories' child protection agencies, so that even while a child is maintained in the care of a guardian, they continue to maintain them.
Senator Runciman: How would this work in terms of the flow-through? Would the funds go to the provincial government agency and then to Children's Aid, for example? If an individual had been a former Crown ward, was in care and custody of a guardian, would the money be allocated from that local or regional agency? Is that the way you see it?
Mr. Hammond: Yes. My understanding is that the application for the child's special allowance is made by the agency, generally speaking, that is overseeing the child. Therefore, the benefits program area of the CRA will make the payment specifically to the applicant, which could well be a child's protection agency directly as opposed to the province wholesale.
Senator Runciman: You are going into a fiscal year and you are budgeting for something like this. Is there an envelope that is automatically transferred to the province; and if it is not utilized or if there is an increasing requirement, is there some top-up provision? How would that work?
Mr. Hammond: It is up to the provinces to apply for the children's special allowance. It is incumbent upon them to make the application, but once they make the application and it is processed, the money is made available to the province or the child protection agency, as the case may be. This is a measure that proposes to kick in as of January of next year.
Senator Runciman: The province assesses the number of qualified applicants, in consultation with their regional or local agencies, and submits an application on that basis, is that right?
Mr. Hammond: Yes. They would have to assess how many guardians they are subsidizing that are caring for former Crown wards. They would take stock of that, and on the basis of that information, they would make the relevant applications.
Senator Runciman: What would this mean to a guardian financially on an annual basis?
Mr. Hammond: When the child's special allowance is paid to the province or the protection agency, the money goes into their coffers. It positions them to either maintain the subsidy that they are already providing or to consider topping it up in view of the extra money that they are receiving from the federal government.
Senator Ringuette: On the other side of the coin, in regard to these proposed transfers to provinces or protection agencies for those kids, essentially this program was put into place to meet the needs of the kids, not the needs of the parents. What kind of guarantee will you have from the provinces or these agencies that these funds will be used for the children?
Mr. Hammond: At the CRA, we will receive the applications that are submitted to us; and to the extent that the application is valid and the province is entitled to the money, the monies will flow.
It is really entrusted to the provinces to make those decisions on what they will do with the money. However, having consulted with all the provinces — and there are five provinces, to our understanding, that have kids in these alternative care arrangements, which are at-risk children typically — it would appear that they fully intend to make sure that these monies go to position them to do more vis-à-vis the children that they are charged with maintaining.
Senator Ringuette: But you have no written agreement. This is a presumption. You have no agreement that these monies will be used specifically for the kids themselves for buying clothing, access to sports, et cetera.
You are going to transfer a bulk of money to provinces and hopefully they will submit the information for the children they are to care for, but there are no guarantees. There is nothing in writing to ensure that these funds are directed for the kids. This is all an assumption.
Mr. Hammond: This change is happening within the existing scheme of the act. Fifty-three thousand children today are supported by the Children's Special Allowances Act, and here the estimates are roughly allowing children's special allowances to flow to approximately 2,500 more children that are, again, typically in the care of subsidized guardianships. No, this change is not upsetting the general scheme of the act.
Senator Ringuette: This is not addressing them, and you cannot.
Mr. Hammond: The scheme of the act presupposes that the applicant, whether it is the province, the territory or the child protection agency in the jurisdictions, is doing the job it is charged with doing — looking after those kids.
There are no strings attached, other than the strings that are making sure that the applicant is a valid application and satisfies the requirements of the act.
Senator Ringuette: I do not know. I understand you are trying to extend these benefits to all the kids, whether they are living with their parents who would make the requests under the Income Tax Act or are under the supervision of other entities.
However, there is a full slate of legislation in regard to parenting responsibilities and so forth, but as far as I know, I have not seen any slate of legislation that governs guardian agencies or so forth. I am expressing my concern that with these funds there is no certainty that they will be specifically used for the benefits of the kids or that they will be used to compensate for operation costs of these facilities.
Mr. Hammond: All I can say, senator, if it helps, is that there was full consultation with the provinces and the territories. We feel that there is buy-in at that level. It would appear not only in the Canada Revenue Agency — the Minister of National Revenue administers this act — but having talked to officials at the Department of Finance and HRSDC, there seems to be a view that this is in the best interests of children. The government wants to be seen as making sure with respect to the children who are currently not receiving any federal support that it closes that gap as best it can.
Senator Callbeck: My question has been answered.
The Chair: Thank you very much, Mr. Hammond. You have explained it well to us, and we appreciate your coming here to do so.
Part 7 is about federal financial assistance for students. This should be an interesting group of sections. Part 7 starts at page 196 of the bill, clause 152. This section deals with the family physicians initiative, nurse practitioners and nurses. Mr. Rahman and Mr. Hodgson are back to see us again.
Atiq Rahman, Director, Research and Knowledge Development, Human Resources and Skills Development Canada: We have three items covered by these clauses. The first one deals with student loan forgiveness for family physicians, nurse practitioners and nurses, who serve in underserved rural or remote areas, including communities that provide health care to First Nations and Inuit populations. Family physicians will be eligible for student loan forgiveness of up to $8,000 per year, to a maximum of $40,000. Nurse practitioners and nurses will be eligible for $4,000 a year, up to $20,000. That is the first initiative covered by these measures. I can go on to the other two, or do honourable senators wish to go to questions on this one?
The Chair: Please do the whole part for us first.
Mr. Rahman: The second initiative covered by this is transferring the authority to establish a limit on the overall aggregate student loan amount from legislation to regulations, so that the government can quickly respond to changes in circumstances that may drive up student loan demand. Again, under this provision, the authority to establish the limit will be transferred from legislation to regulations.
For the third item, there are two housekeeping items there that simply clarify the authority of the minister in certain situations where a student loan borrower provides false or misleading or information.
Those are the three items covered by those clauses.
The Chair: I have a number of senators who wish to ask questions, starting with Senator Lang from Yukon.
Senator Lang: An area that is of interest to us in Yukon is the question of the nurse practitioner or the physician and the forgiveness of these loans. How do you define an underserved rural or remote community?
Mr. Rahman: We are undertaking consultations now. We are consulting provincial and territorial health agencies as well as what there is in student financial assistance and, at the same time, physicians, nursing and Aboriginal organizations to come up with some of the design parameters to define rural and remote communities as well as what is meant by practising and other questions that we have. Within the scope of the budget announcement, there are still a few questions that we need to answer, and we are working on that now.
Senator Lang: When do you expect to have a definition?
Mr. Rahman: Once the consultation has ended, all of the definitions will go into regulations. Before implementation, they will also be made publicly available through the regulatory process. It will be implemented through the 2012-13 year as announced in the budget.
Senator Runciman: Along the same lines, I know that in Ontario, being designated as underserved area is quite a political football. People are clamouring all the time to be designated and fighting if the designation is at some point removed. You are working with the provinces and territories so that you can have a sort of a cross-Canada definition that would apply in every jurisdiction. Is that correct?
Mr. Rahman: That is the intent.
Senator Runciman: What is the commitment of physicians, nurse practitioners and nurses in terms of qualifying? What is the term of service in an under-serviced area? How long do they have to commit to being there, and if they do not follow through, what are the implications?
Mr. Rahman: That is one of the questions we are trying to answer through these consultations, especially in the remote areas. We have been hearing it is not reasonable to expect that a physician, nurse practitioner or nurse will be there for every single day of a 12-month period. That leads to the question of what requirements will satisfy the criteria here, and we are working on determining that criteria now.
Senator Runciman: If they are present eight months out of 12, and for a four- or five-year period — I believe in the military, if you go to RMC, for example, there is a four-year commitment to serving the military for having your education looked after. That is the situation you are looking at, and you have not firmed it up yet either.
Mr. Rahman: Yes, senator, and I will clarify one point, which is, as announced in the budget, for example, for family physicians, it is $8,000 per year. They will likely not be required to undertake a five-year commitment necessarily, but within a year how many months they need to serve is a question we are working on.
Senator Runciman: It will be on an annualized basis, not for a limited period of time. Is that right?
Mr. Rahman: Yes, that is right.
Senator Ringuette: In Quebec, there is provincial legislation to do the same, and it has been in place for many years now. I was hoping you would view their definition of rural and remote areas. Based on that, it already exists in legislation, so you could see how it works. Have you looked at that?
Mr. Rahman: Yes. We have talked to student financial assistance and health agencies in Quebec about how they define it, just as we have talked to other jurisdictions as well. We are taking all of that into consideration in coming up with —
Senator Ringuette: No, what I am saying is there is specific provincial legislation in Quebec to enhance physicians and nurses in remote and rural areas. Therefore, there must already be a definition, and we should see what is there and how it could be applied with regard to the definition of what is rural and what is remote.
Mr. Rahman: Yes. We are looking at that definition, and such definitions exist in other jurisdictions as well. British Columbia has its own definition, as does Ontario. We are looking at all of those definitions to ensure the definition we come up with works in all jurisdictions.
Senator Ringuette: Is it seven or eight years of university to get a physician's degree?
Mr. Rahman: I do not know the exact answer to that. It could be around that time period.
Senator Ringuette: Eight years?
Mr. Rahman: It could be eight years.
Senator Ringuette: Okay. Probably with residency it would be that long. How long would it be for a nurse practitioner?
Mr. Rahman: Again, I do not know the exact answer to that question. It could be two years.
Senator Ringuette: It is an average of six years.
Mr. Rahman: It would likely be less than that for nurse practitioners.
The Chair: A nurse is four years.
Senator Ringuette: We are looking specifically at a nurse practitioner here. It would be at least five years, if not six.
That brings me to the question of why you would have a rebate of $8,000 per year for a doctor for eight years of study and for nurse practitioners it would only be half of that for at least six years of study. It strikes me as gender discrimination because there is only two years difference with regard their education, but with respect to the credit you are providing to nurse practitioners, they are receiving only 50 per cent of the total. Should I call it professional discrimination? I will call it professional discrimination.
This does not seem to be taking into consideration the number of years it takes to get a degree either as a nurse practitioner or a doctor and the tax credit that is allotted for those professions.
Mr. Rahman: The amounts are based on the average student loans different provinces provide. Our data shows that for physicians, the average student loan debt is around the $40,000 mark. For nurses and nurse practitioners, it is about $20,000.
Senator Ringuette: Per year or overall?
Mr. Rahman: Overall debt load. When they graduate from their programs, it is the amount of student loan debt they have accrued in total. That is the amount in Canada student loans. They may also have provincial student loans. With private loans, excluding provincial loans and federal loans, is the amount of debt they are graduating with.
Senator Ringuette: Your credit is based on the amount of student loans they have outstanding. Is that right?
Mr. Rahman: That is right. This is about forgiving Canada student loans, so only the amount they have in student loans would be part of that.
Senator Ringuette: Only from that portion?
Mr. Rahman: That is right.
Senator Marshall: I have one follow-up question to the same line other senators have been asking about.
Many provinces already have programs in place. Are you looking at integrating them? For example, if you serve one year, you could get credit for both the federal and provincial programs. Is that what you are looking at?
Mr. Rahman: That is absolutely right, senator. They may not be integrated per se but, yes, they could be —
Senator Marshall: You could use the same year for the credit from the programs?
Mr. Rahman: Exactly. Depending on the definitions, they could benefit from the same program. For example, Saskatchewan recently announced a very similar program they will be implementing. In that case, the student will benefit from both programs at the same time.
Senator Marshall: Thank you.
Senator Callbeck: On the first technical amendment, it says here it will clarify the minister's authority to deny loans, grants or assistance in repayment if the borrower has knowingly provided false or misleading information.
I know the time frame is changing from five to six years, but is there anything else?
Mr. Rahman: No.
Senator Callbeck: That is it?
Mr. Rahman: There are two amendments there. One is to do with the time frame, and the other is to actually clarify the minister's authority. That is to say that right now, the legislation says that the minister in such a situation could deny student financial assistance or a certificate of eligibility. A certificate of eligibility is for the student; it tells the student how much loan he or she is eligible for. It is issued by the province, and the authority to issue that certificate has been delegated to the provinces. The authority lies with the minister, but it has been delegated to the provinces.
Now, the minister does not necessarily need both of those authorities because at the end of the day, denying financial assistance is what the outcome is. As long as the legislation says that the minister may deny student financial assistance, that will be enough without needing to interfere with the provincial administration process, the authority for which has been delegated to the provinces, the authority to issue a certificate of eligibility.
That is the clarification the first part is making, that the minister may deny student financial assistance and not necessarily refer to the certificate of eligibility any longer.
Senator Callbeck: Thank you.
Senator Nolin: I want to understand how subsection (3) of new section 9.2 would work, the use of lenders for the purpose of subsection (1). Could you explain to me how that would work?
Mr. Rahman: The Canada Student Loans Program has gone through what you may refer to as regimes. Prior to the year 2000, the student loans were actually disbursed through private financial institutions, but they were disbursed under the policies of the Canada Student Loans Program, the policies of the Government of Canada. Those student loans still exist. Students still owe money to private banks, again administered under the policies of the Canada Student Loans Program. From the year 2000 onwards, the government has been disbursing loans itself, so we refer to that as direct lending.
Therefore, any family physicians, nurses or nurse practitioners who may have a loan from the older regime, as disbursed by private institutions, will be covered by that amendment.
Senator Nolin: Thank you.
The Chair: That brings to a conclusion our work with respect to Part 7, and we have dealt with Part 8 already. Therefore, we would pick up at the next session with Part 9.
Unfortunately, our time has run out, so what I would propose, in having spoken with my deputy chair, is that we will continue tomorrow, and I hope that the government officials will be able to be here at 6:45 tomorrow evening, which is our normal time, and we should be able to finish. We have been moving along quite nicely, and we will follow the same method of dealing with these sections, starting with Part 9 tomorrow evening.
Until then, on behalf of the Standing Senate Committee on National Finance, I would like to thank those who had an opportunity to present. Those who did not, thank you for helping us nevertheless.
We are under the gun, as you know, to deal with this bill as quickly as we can, but we also have to do what the public expects us to do and thoroughly understand the bill before we pass it. That is the responsibility we are trying to meet, and we thank you for helping us try to do that.
(The committee adjourned.)