Proceedings of the Standing Senate Committee on
National Finance
Issue 20 - Evidence - November 5, 2014
OTTAWA, Wednesday, November 5, 2014
The Standing Senate Committee on National Finance met this day at 1:50 p.m. to study the subject matter of Bill C-43, the Economic Action Plan Act 2014, No. 2.
Senator Joseph A. Day (Chair) in the chair.
[Translation]
The Chair: Today, we are continuing our study on the subject matter of Bill C-43, A second Act to implement certain provisions of the budget tabled in Parliament on February 11, 2014 and other measures.
[English]
Yesterday we completed our review of the clauses contained in Part I of the bill. There are four parts in total. We finished clause 95, in Part 2 of the bill, which is amendments to the Excise Tax Act, GST/HST measures, and related text. Today, we will begin at clause 96, which can be found on page 271 of this 500-page bill. Honourable senators, we're over halfway through,
From Finance Canada, we welcome back Mr. Pierre Mercille, who is the Senior Legislative Chief.
Pierre Mercille, Senior Legislative Chief, Finance Canada: Clause 96 is an amendment that is related to a particular GST/HST rebate. It's proposed to clarify the provision and close a potential loophole.
Currently, a non-profit organization that is not a charity and is not entitled to a public service body rebate, may qualify for the GST/HST public service body rebate applicable to charities, only if it operates certain health care facilities. This measure amends the GST public service body rebate rule. It clarifies that a non-profit organization that qualifies for the public service body charity rebate, only because it operates certain health care facilities, is entitled to claim the rebate. But, this is only to the extent that the GST/HST it incurs relates to operating those facilities. The rebate is not intended to apply in respect to other activities of the non-profit organization.
[Translation]
Senator Chaput: Could you please give us a concrete example?
Mr. Mercille: This is a situation that was brought to our attention by the Canada Revenue Agency. This is a non-profit organization, a health care organization that provides advanced care for seniors, but that was also running another type of apartment where there are fewer services. In these cases, the other apartments are like apartments that someone else could take, and these services are exempt under the GST, which means that the tax does not apply to the renter, and the renter cannot claim tax credits on these inputs.
Senator Chaput: Do these apartments that are run by these health care institutions have the same purpose or are they apartments for the general public?
Mr. Mercille: They can be more luxurious apartments, but apartments where there are no health care services. To determine what kind of health care institution is qualified to receive a reimbursement in this case, the Canada Revenue Agency looks at the criteria to determine why people are asking to go and live at that kind of institution, and it is generally because they are not able to care for themselves, either mentally or physically. Those are the kinds of criteria the agency looks at to determine the difference between the various types of housing available based on the various services.
Senator Chaput: This applies only to housing. It seems to me that in the previous budget, or a few years ago, there was also talk about health care institutions that had parking lots where they rented parking spaces. Would this apply in that kind of case, as well?
Mr. Mercille: It is totally different.
Senator Chaput: It is totally different. Okay.
[English]
The Chair: Seeing as there are no other questions, we'll go on to clause 97.
Mr. Mercille: Clause 97 includes another amendment to ensure that the pooled registered pension plans are subject to similar treatment as registered pension plans that are under GST/HST.
This clause essentially extends an existing GST/HST rebate for registered pension plans, so that pooled registered pension plans may also qualify for the rebate of up to 33 percent of the tax paid. This is generally determined based on the extent to which a PRPP receives contributions from contributing employers.
The Chair: So, the rebate is limited to 33 per cent?
Mr. Mercille: It's a maximum of 33 per cent, as a function of the number of contributing employers, as a proportion of the total employers.
Clause 98 relieves GST/HST from the service of refining a metal to produce a precious metal, where the service is supplied to a person that is a non-resident of Canada and who is not registered for GST/HST purposes. Essentially, these services will be treated as exported services. Generally, the GST doesn't apply on exports.
[Translation]
Senator Chaput: I was wondering what metal was doing in here, but it is still in relation to the GST, is that correct?
Mr. Mercille: This is a service provided in Canada that takes items containing precious metals. It is a refining service that produces pure metal. So, when services are provided in Canada, they are usually taxable, but in this case, because the service is provided to an unregistered non-resident, it would be considered exported, and is therefore not taxable.
Senator Chaput: No, my question has to do with why the refining service is included here and not other services. How was this service chosen?
Mr. Mercille: It is a rather special situation that was brought to our attention. Normally, the situation that this amendment targets would not have been the subject of an amendment, but should have been included under the existing regulations.
What is specific here is that these are refining services, where the goods of several people are being put together in a pot and heated, and then other goods are being made. Because the item is not the same as in the beginning, the agency decided that the current rules would not apply. So these are technical amendments.
[English]
The Chair: Can you tell us where this concept came from? Was it in one of the budgets? Does it apply forever hereafter or just for a limited time frame?
Mr. Mercille: No, it comes from a representation made by the taxpayers to the Department of Finance. It will apply for the future. It also fixes what was there in the past. The intention was that those kinds of services would not be taxable. If you look at the coming into force, it allows the relief of transactions since 2010. But, after that, it's ongoing.
The Chair: I did see 2010, and then ''before April 8, 2014,'' but then after that —
Mr. Mercille: April 8, 2014, is the date this was first announced for consultation, through a news release of the Department of Finance.
The Chair: Okay. It wasn't in the budget document.
Mr. Mercille: The announcement was made following the budget.
Mr. Mercille: The last GST amendment is clause 99. Again, in this bill, it's an amendment that is consequential to the other pooled registered pension plan amendments. It's a simple consequential amendment with a definition.
It provides that the definition ''manager'' of an investment plan in the selected list of financial institutions regulations is amended to provide that in the case of the pooled registered pension plan, the manager is the PRPP administrator of the pooled registered pension plan as newly defined in this bill. This is another rule to accommodate the introduction of those plans under the GST/HST legislation.
The Chair: I guess we're all knowledgeable about pooled registered pension plans. It seems that there are no questions. That concludes your part of this bill, Mr. Mercille. Thank you very much. You gave us two full days. We appreciate your help very much.
Mr. Mercille: I'm going to stick around until Part 3 is done.
The Chair: Okay, but he will have top billing on this one, you understand that?
Mr. Mercille: Yes.
The Chair: We're moving to Part 3 of four parts. We've been through two of the four parts. Part 3 is quite short: Excise Act amendments.
We're pleased to have with us from Finance Canada, Mr. Adam Martin, Tax Policy Officer, Excise Act. Mr. Martin, thank you for being here. You were here yesterday, so you know generally how we move along on these matters. I'll leave it to you to explain the various initiatives and why they're desirable.
Adam Martin, Tax Policy Officer, Excise Act, Finance Canada: I'll talk briefly about the proposed amendments in Part 3 of this bill. As you mentioned, it's a short part covering clauses 100 and 101, starting on page 279.
Both of the these clauses introduce a technical amendment that complements the legislative tobacco changes implemented in the first budget implementation act, which received Royal Assent on June 19, 2014. By way of background, Budget 2014 announced an adjustment of the excise duty rates on cigarettes to account for inflation since 2002. Specifically, the excise duty on cigarettes was increased from $17 per carton of 200 cigarettes to $21.03. This rate change was effective February 12, 2014, which was the day after the budget. To ensure that the rate changes were applied in a consistent manner to all cigarettes, Budget 2014 also announced an inventory tax of $4.03 per carton of 200 cigarettes held at the end of budget day.
Currently, the Excise Act, 2001 provides authority to the Canada Revenue Agency to refund the excise duty imposed on tobacco products that are destroyed or reworked in accordance with that act. However, the CRA does not have the authority currently to refund the inventory tax that was imposed in Budget 2014. Therefore, clause 100 amends the Excise Act, 2001 to allow the Canada Revenue Agency to refund the inventory tax on destroyed or reworked cigarettes, in line with the existing refund of the excise duty. This measure applies as of February 12, 2014.
Clause 101 also amends the Excise Act, 2001 in the same manner by extending a similar refund provision to duty-free shops, as they will be subject to a similar cigarette inventory tax for future inflationary adjustments. As a result, this measure would only apply as of December 1, 2019.
That completes my summary.
The Chair: Duty-free shops do not have an excise duty, but they still have what you call an ''inventory tax.'' Is that correct?
Mr. Martin: There's a special duty that applies on imported cigarettes delivered to duty free shops. Prior to Budget 2014, it was at a lower rate of $15 per carton of 200 cigarettes. This budget eliminated the rate difference, bringing it up to $21.03. Budget 2014 did not impose an inventory tax on cigarettes held at duty-free shops for the current increase. However, going forward in 2019, all cigarette excise taxes will be adjusted to account for inflation. At that time, an inventory tax will apply to cigarettes held by duty-free shops.
The Chair: Can you remind us what legislation dealt with destroying cigarette products?
Mr. Martin: These have to be destroyed in accordance with the Excise Act, 2001. For imported cigarettes, it may fall under the Customs Act.
The Chair: Is that a fairly common activity these days?
Mr. Martin: This reflects the fact that some cigarettes may become stale or may go beyond their shelf life. It's a pretty low percentage and reflects the fact that some cigarettes may be returned to a licensee and destroyed; and they get the excise tax back. It simply ensures that the inventory tax is also refunded.
[Translation]
Senator Chaput: How can that be controlled? What proof does the department need from merchants?
You are talking about tobacco that is reworked or destroyed. Destroyed, I can understand. Perhaps it is past the expiry date or is too old. But what does reworked mean?
[English]
Mr. Martin: Examples or reworked tobacco could be that there are various brands of cigarettes, premium cigarettes and discount cigarettes. One example could be cigarettes that are reconstituted into other cigarettes. They might be destroyed and the tobacco used for another product. That could be a re-working of one tobacco product into another. At that point, when the tobacco is reworked into another product, the excess duty would again become imposed on that product, whatever its reconstituted form.
Senator Chaput: Is that already happening?
Mr. Martin: Yes. Currently, there are provisions for tobacco that is reworked under the Excise Act, 2001.
Senator Chaput: How do you know the numbers of whatever products they are? How do you control that?
Mr. Martin: The CRA has to supervise some of the destruction of these products, so there are provisions to ensure that tobacco duty had been paid on those products and there has to be proof that they were either destroyed or reworked in order to get the refund. That would be administered by the CRA.
[Translation]
Senator Bellemare: I would like an idea of what this costs. What we are seeing — for the benefit of Senator Chaput, I found the list of costs in table A2.1, which is on page 365 of the French version of the budget — there are two lines there on tobacco taxation that provide the impact of supplementary revenue. That is the second line. What will the government gain from that? Some $10 million? In other words, what is the financial impact of this measure? I know part 1 of the budget implementation also talks about tobacco and that it yielded a lot, $3.25 billion over five years. Are you talking about a return of $51 million for the government? Is that it?
[English]
Mr. Martin: The figures being referred to in Budget 2014 are the estimated impacts of the inflationary increase in the rate on tobacco products. This particular measure would not have a fiscal impact, as it's a technical adjustment to make sure that the current refund provisions extended for the excise duty on tobacco products that are destroyed or reworked also apply to the inventory tax, keeping in mind that the inventory tax is really just for products that straddle the budget date. For anything after Budget 2014 announced the rate increase, all tobacco products would have been subject to the new rate and, as such, would be afforded the $21.03 as a refund under the current provisions in the Excise Act, 2001. This is for products straddling Budget 2014.
The Chair: Could you explain that again? The inventory tax concept is just for a limited period of time? I understand that the excise duty would increase so we no longer need the substitute inventory tax.
Mr. Martin: Correct. The inventory tax is meant to ensure that the rate adjustment applies to all cigarettes fairly. Tobacco products that may have been stamped, i.e., manufactured or imported, before budget day but made it to a retailer, would have had the previous $17 embedded in the retail price; whereas anything manufactured after budget day would be required to pay the $21.03. The inventory tax is really applied to products held at the end of the day of the Budget 2014 announcement. It's those products that we're talking about.
However, the budget also announced that going forward to ensure that tobacco tax rates retain the real value, there would be an automatic adjustment every five years beginning in 2019. These provisions would also ensure that future inventory tax increases would be subject to the same refund provisions as the excise duty.
The Chair: This is the first time I've come across this term ''inventory tax.'' I understand the concept of trying to catch those ones already in the hands of retailers to make sure that the same amount of revenue goes to the government. Is it used for anything other than tobacco? Do we see this in other products?
Mr. Martin: To my knowledge, it is not used for other products. For tobacco in the past, there have been minor inventory taxes reflecting GST offsetting increases; but at that point, we're talking about much smaller increases than $4.03. It's common in the tobacco framework, but I'm not sure about other applications — none that I'm aware of, at least.
The Chair: Thank you. If you learn that it has been used for other products, it might be helpful to know; otherwise we'll just think of it in terms of tobacco.
You've given us a general background. Does that cover both clauses?
Mr. Martin: That is both clauses, correct.
The Chair: I see no more questions. Thank you very much for explaining to us the changes in the Excise Act.
Now, honourable senators, we will allow our witnesses to move on and get back to other things, and we will move to the next part, which is Part 4.
[inaudible] — from our colleagues in other committees, which will be good. When their reports come in, we'll bring them in to explain to us what the issues were.
The first division is Division 1, and then we'll go to Division 8. Shall we start with Division 1? We will begin with Part 4, Division 1, on intellectual property, and it appears on page 281 of the act itself.
From Industry Canada, which is responsible for the patent part of intellectual property at least, is Denis Martel, who is a Director, Patent Policy Directorate; Mesmin Pierre, who is Director, Copyright and Industrial Design Branch; and Agnes Lajoie, who is the Assistant Commissioner, Patent Branch, Canadian Intellectual Property Office.
I believe that we'll find that we will be starting out with industrial design and then moving into patents in this particular series of amendments. Who will be the spokesperson for your group?
Denis Martel, Director, Patent Policy Directorate, Industry Canada: We're planning that I will do some of the introductory remarks, and then my colleagues will speak more specifically on some of the details of the cost.
The Chair: You can give an overview, if you like, just to say what you're trying to achieve, which would include a number of sections, but then we'd like you to go on a clause-by-clause basis because that's the way we'll be asked to approve or not approve. So, if you could explain the clause, what it's trying to achieve and if it's consequential to something else, that's all you need to say, but hopefully you'll explain the something else before or after that. So you go ahead. You have the floor.
Mr. Martel: Thank you, chair. Thank you for the opportunity to be here today. Also, I wanted to thank you for the roles that you play in advancing the understanding of IP. I know you've been playing a role, and I'm sure it will help today.
I just wanted to give a bit of context of what led us here. In March 2013, the House of Commons Standing Committee on Industry, Science and Technology released a report on Canada's IP regime, concluding that the regime is strong in Canada.
There are many areas where Canada provides more than the minimal requirements that are required under the international obligations. However, there are some areas where Canada's system could be improved. Then, the report recommended strengthening the enforcement against counterfeit products, and the government introduced Bill C-8, the Combatting Counterfeit Products Act, which is currently, as you know, in the Senate at the first reading.
The report also identified a need to support Canadian businesses on the global stage and to ensure that the administration of Canada's IP regime is internationally compatible and streamlined. To do so, the report recommended that the government ratify key international IP agreements, including the Patent Law Treaty and the Hague agreement for industrial designs.
It is the latter recommendation that brings us here today.
[Translation]
In January 2014, the government tabled in the House of Commons five international treaties on intellectual property to indicate that it intended to accede to or ratify these treaties. That followed on the committee's recommendation.
The Economic Action Plan No. 1 contained amendments that were necessary for the Trade-marks Act and, now, in Part 2, Part 4, Division 1 we are dealing with amendments to the Industrial Design Act and the Patent Act.
[English]
The purpose of the amendments to the Patent Act and Industrial Design Act is to make our legislation compliant with the requirements of the Patent Law Treaty, which we refer to as PLT, and the Geneva Act of the Hague agreement. Both treaties deal strictly with administrative matters. They do not consider substantive issues related to either patent law or industrial design law. Both of these treaties are applicant-friendly treaties. They require fewer forms. They allow electronic use of filing documents. They require notifications by the patent office before actions are taken if an applicant misses deadlines, for example, and they provide for longer grace periods.
The Hague agreement is an international registration system that provides an option to obtain protection for industrial designs in several jurisdictions with a single application to the World Intellectual Property Organization.
As indicated in the bill's overview, the amendment to the Industrial Design Act is to make the act consistent with the Hague agreement and give the Governor-in-Council the authority to make regulations for carrying this into effect. I believe that, on industrial design, there are 12 clauses and the key one is clause 104. It relates to the content of an application. So it specifies and, essentially, simplifies what is required in the applications.
Clause 105 clarifies the rules for the design registerability. It also clarifies the rules regarding the request for priority. The priority date, in the context of this, is the date at which a design is considered novel versus what is in the marketplace.
The other key change is in clause 106, and it refers to the terms of protection, which is being increased from 10 to 15 years.
The major benefit to acceding to the Hague agreement is that the applicant will have the option to protect their design in several countries by filing one application with WIPO, in one language, and paying one fee. This will lead to reductions in cost, administrative burdens and the risk of errors.
The Chair: This may be a convenient place to stop and just have you explain what WIPO is. I don't think you should assume that everybody here understands what WIPO is. I'm not sure that you should assume that everyone understands what an industrial design is. Why don't you tell us what an industrial design is and how that is different from a patent?
Mr. Martel: Yes, certainly. For an industrial design, we refer to an object, so it's often about the shape of an object. We're talking, for example, about NIKE shoes. You may have the side of the shoe that is unique and that has a special design. It could be the shape of a table. For example, Target has an industrial design on a particular type of table, the way the legs and the top part of the table are done. It could be a bottle from Coca-Cola. All of these shapes are, essentially, registered, and that's what we mean by industrial design.
This is in opposition to a patent, which is related to an invention. It is a bit more conceptual, if you like, and a bit more removed from a use.
Regarding your first question about WIPO, the World Intellectual Property Organization, it helps every country. Patents and trademarks are, essentially, national rights, but you need an organization that helps with collaboration and working among patent offices or trademark offices. The WIPO has that function of sharing best practices and also, when it's agreements like this, they negotiate. Countries come together to negotiate what we could do.
The Chair: Thank you, Mr. Martel. I think that's helpful. It gives us a background.
Clauses 102 to 113 deal with industrial design. Have you told us everything you want to tell us about these various clauses? You started talking about a clause 105, but there are a few before that.
Mr. Martel: Yes. I wanted to highlight what we consider the key changes of the PLT, but clearly to accede to the PLT there are a few other changes. I highlighted the lower form applications, the design and the terms, but I would turn to my colleague Mesmin Pierre to do that.
The Chair: We'll go from clause 102 to 113, but before we do that, Mr. Pierre, I have two colleagues who have asked to intervene on the comments Mr. Martel has made.
[Translation]
Senator Bellemare: My question is a general one and has to do with what you just said about all the provisions. Last spring, as part of the implementation budget No. 1, a problem was raised by the industry on trademarks. In your statement, you spoke about trademarks, and there is now intellectual property in terms of industrial design. Do you think that some people will not be very happy with these amendments? Will they generate some controversy, or have you already consulted the parties concerned so that everyone is in agreement with the changes in the act?
Mr. Martel: Basically, we had targeted consultations, given that this was in preparation for a bill. These consultations were held with stakeholders who were often involved, so patent agents. The comments were very positive. So it is very different from what you saw with respect to trademarks. A few times, we received comments about improving the system and we were able to incorporate them. What you are seeing here in part reflects the comments from people; consultations were held and comments were included for both industrial design and patents. The comments were generally very positive. Therefore, we expect more support from the industry.
Senator Bellemare: If I understand correctly, these comments are also coming from the industry. It is not just people from the departments who hold the registries?
Mr. Martel: No. The consultations were held with individuals who did not represent their organization, who worked outside the government, so, patent agents and industrial design agents.
Senator Chaput: I would like to ask two quick questions. We are talking about industrial design, and I find that interesting. How many of these designs are there? Are they only from Canada?
Mesmin Pierre, Director, Copyright and Industrial Design Branch, Industry Canada: When we talk about industrial design, as my colleague did, we are talking about patterns; we are talking about creations that are seen only by the eye.
The Canadian Intellectual Property Office handles about 3,500 applications a year. This is a growing sector, and not just in Canada. Other countries that are also members of the World Intellectual Property Organization have a section dedicated to industrial design. I cannot provide exact figures, but we are talking about several millions of dollars around the world. For example, we think that this sector contributes several billion dollars to England's economy. As you mentioned, this is a sector that covers anything from water bottles to cars, and that has quite a significant impact on the economy.
Senator Chaput: Are those 3,500 applications a year just in Canada?
Mr. Pierre: That is just in Canada. The bill we are proposing would aim to allow Canadian companies to apply in Canada and to designate foreign countries, as well, and vice versa. Therefore, we expect there to be a significant increase in the coming years with respect to industrial design rights in Canada.
The Chair: Thank you, senator. Mr. Pierre, you have the floor. Perhaps you could start with clause 102.
[English]
Mr. Pierre: Division 1 of Part 4 amends the Industrial Design Act to make it consistent with the Geneva 1999 Act of the Hague agreement, concerning the international registration of industrial designs and to give the Governor-in-Council the authority to make regulations for carrying it into effect. Allow me to walk you through the 12 clauses.
Clause 102 speaks about definitions. This bill adds the definitions of ''Convention'' and ''country of the Union'' to the list of definitions in the sections to ensure that all relevant terminology in the act is defined.
Clause 103 speaks about the register of industrial designs. This bill states that the content of the register will be prescribed by regulations. Contents of the register may also serve as evidence in court.
With respect to clause 104, subsections (1) and (2) speak about applications to register a design, as well as the element of filing date. With respect to the application to register a design, the bill clarifies the mandatory contents of an application, no longer requiring a description of the design or an acknowledgement that the design was not in use by any other person. With respect to a filing date, the bill states that the filing date of an application is the date on which the minister receives the prescribed information.
Clause 105 groups a number of elements, including examination, refusal of an application, criteria for registerability, priority, novelty, publication and exclusive right.
With respect to examination, the bill sets out the basic requirement for examination, while details pertaining to the examination itself will be set out in regulations.
On refusal of an application, the minister shall refuse an application for registration if satisfied that the design is not registerable. If not so satisfied, the minister shall register the design and notify the applicants.
With respect to the criteria for registerability, the bill clarifies the requirement for registerability of a design in Canada.
On priority, the bill also clarifies the definition of priority date and the requirements for requesting priority.
On novelty, the bill clarifies the novelty tests and sets the grace period for disclosure of the design to 12 months before the priority date of the design.
On the element of publication, the bill indicates the minister will make available to the public information relating to the design registrations. It further allows the applicant to defer the publication of their design registration and the date for such publication will be set out in regulations.
Finally, for clause 105, the bill clarifies that exclusive right in relation to the design is granted upon registration.
The Chair: Mr. Pierre, a lot of these sections say that this will be outlined in the regulations, as set in the regulations, or the criteria for examination in the regulations. Have these regulations been generated? We saw regulations with respect to income tax become part of the law itself, but in this instance I'm assuming that is not the case since we haven't seen them here. Have they been generated? Have they been circulated for consideration for those in the industry?
Mr. Pierre: Not yet, Mr. Chair. The regulations will be drafted and follow the process that is normal. We will also be consulting stakeholders during that time frame.
Senator Chaput: Those regulations will be drafted once this is —
Mr. Pierre: That's correct.
[Translation]
Senator Bellemare: A quick question just came to mind. Does it ever happen that the same design is submitted elsewhere in another country and there is a conflict? That two different groups have the same idea or have created a design that is almost the same. Is anything done at that point?
Mr. Pierre: It is a national system, but cooperation is international. We have a database that we use to carry out a substantive examination, because Canada is designated as a country that does substantive examinations, unlike countries that have a registration system. With a registration system, you submit something, and it is recognized for having the right, while we do a thorough review of what already exists in public, not just here in Canada. In the United States or in European countries, the examiners working at our offices can validate whether this application is new or not. Should prior art be found or should it be determined that the design is not new, we can issue an objection and state that it already exists elsewhere, and therefore no rights will be granted.
Senator Bellemare: The bill does not really amend previous practice, aside from the details and deadlines?
Mr. Pierre: That is right. The bill allows us to align ourselves with international standards and practices so we can join the Hague agreement and properly administer the national system in compliance with the Hague system, the international system.
Senator Bellemare: Are you able to explain a little what the requirements between the two are?
Mr. Pierre: The requirements will be the same as for our national system, with the exception of certain coordination aspects, with the extent of the right. For example, we currently have a maximum of 10 years to join the Hague. There is a 15-year term. We are making these adjustments to avoid a two-tier system, at the national and international levels, to harmonize the system with other countries.
The Chair: Thank you. You may continue with clause 106.
[English]
Mr. Pierre: Clause 106 extends the term of protection from 10 years to 15 years.
Clause 107 removes the existing provision that states that protection will not extend to features dictated solely by the function of the article or any method of manufacture or construction.
Clause 108, transfers, limits the requirements for the registration of transfer of registered design and design applications, and provides for removal of the transfers.
Clause 109 speaks to the extension of time and provides that any time limit that expires on a day when the office is closed for business will be extended to the next business day.
Clause 110 with respect to electronic communications will ensure that any document or fee may be provided in electronic form. The details will be set out in the regulations.
Clause 111(1) to (3) are with regard to the rule-making authority and provide the authority to make regulations regarding, among other things, the processing and examination of applications, payment of fees, request for priority, and the form and contents of applications. It also provides authority to make regulations carry into effect the Geneva Act of the Hague agreement.
Clause 112 contains transition provisions. Generally, applications with a filing date under the old act will continue to be dealt with under that act with some exceptions. However, those without a filing date will need to be resubmitted to the office.
Finally, Clause 113, on the issue of confidentiality, makes a consequential amendment to the Access to Information Act to ensure that design applications remain confidential.
This, Mr. Chair, concludes the industrial design clauses.
The Chair: As I was reading through this and listening to your presentation, I thought that it would have been easier for you if you had just said we will have an industrial design act and regulations that will define everything in it. That's the cynical view of what you've just described as everything will be in the regulations.
We're asked to pass this proposed legislation without knowing what all these terms are that will be in the regulations: how it's going to be examined, what the certificate will look like, how you claim priorities, and all of those things. This is on the extreme side of compromising the role of parliamentarians in looking at proposed legislation and really not knowing what we're ultimately passing. Do you have any comment on that, or is that view too cynical?
Mr. Pierre: If I may, the element is to give us a legislative framework, under which we can actually accede to the Hague agreement, which was the intent of these amendments, and the mechanics of how we administer the system to continue to work with the World Intellectual Property Organization, WIPO, to fine-tune the mechanics of how we move forward. However, we do need to set that legislative framework in order to make those changes.
The current Industrial Design Act in Canada dates to 1861. Being able to accede to the Hague would require us to make sure we have some of those provisions in place in order to administer the Hague system appropriately. This is the challenge that we currently face.
Mr. Martel: If I may add, I understand your point.
The structure proposed here, having the legislative framework followed by some regulations, follows the structure of the current act. The regulations for industrial design or the Patent Act, for that matter, are quite exhaustive. It is more to see those concepts of how to record a transfer of industrial design between two parties. The term of protection is key in the bill and is not in the regulations. The key parts for setting some of the parameters for applications will be in the legislation; but some minute things will follow in the regulations.
We're following the same structure as the current system by trying to put some things in the bill that are transparent for you to approve.
The Chair: Thank you for your comments.
Seeing no other comments, I thank Mr. Pierre for his industrial design exposé. We'll go to the patent side of things, starting at clause 114. Who will do that?
Mr. Martel: I'll say just a few things on the Patent Law Treaty, administered by the World Intellectual Property Organization, for which the aim is to simplify and harmonize administrative practices among national intellectual property offices.
The key amendments proposed in the bill are: reducing requirements to obtain a filing date, and a number of clauses deal with this; requiring an applicant to be notified for a date before an action is taken, a key concept being introduced here that is in the vein of being applicant friendly, such that CIPO will not take action before giving notice to an inventor.
There is also allowing an applicant to perform certain administrative tasks themselves. Usually they are patent agents, but now we allow inventors to do certain tasks. Again, a few clauses deal with this.
There is also introduction of grace periods before application of sanctions affecting the rights and a number of clauses dealing with that, as well.
When we talk about the benefits of ratifying the PLT, they are: the reduction of red tape, simplified filing requirements, reduced risk of errors and lost rights, and lower costs, as well.
In terms of going forward, I'll let Agnes speak. Because many clauses deal with different topics, often it's easier to group them, but we can do a clause-by-clause knowing it may be repetitive as well.
The Chair: That's fine.
[Translation]
Agnes Lajoie, Assistant Commissioner, Patent Branch, Canadian Intellectual Property Office, Industry Canada: Good afternoon. I am pleased to present the provisions regarding the amendments to the Patent Act.
[English]
We will start with clause 114. Section 2 of the Patent Act includes a large number of definitions in reference to the different sections of the act. This clause amends the definitions of ''filing date'' and ''legal representatives'' of the Patent Act as a consequence of the amendments to section 28.01, subsection 36(4) and section 49 of the Patent Act. Again, it's just an alignment with the terminology and numbering.
I'm sure you'll be happy to hear about clause 115. It's about paper reduction. It's an old act. For example, subsection 4(2) of the Patent Act makes reference to paper documents. Of course, the change is to remove that reference. It is the same thing for models and specimen in order to facilitate electronic communication. We're already functioning in an electronic world, but having the support in the act certainly helps in modernizing and aligning with the PLT.
The Chair: The patent now won't be one of those lovely documents with the big seal of Canada on it? We're not going to see those anymore?
Ms. Lajoie: This is more what's coming in. What's coming out as far as granting patents under the seal of the government, the Commissioner of Patents, we're not there yet. There are definitely certain things under consideration, but certainly not under the scope of the PLT. But, yes, modernization of the tools and means is something we have in mind.
Clause 116 amends subsection 7(1) of the act. It's again an alignment of terminology to substitute the concept of ''transfer'' for that of ''assignment,'' as a consequence of the amendments to section 49. Again it's just alignment of terminology.
Clause 117 is again paper reduction. As my colleague mentioned, it may be redundant, but again this clause amends sections 8.1 and 8.2 to facilitate electronic submission of documents and ensure that the definition of ''electronic'' is broad enough to encompass similar but unforeseen forms of information and communication.
Clause 118 and the series of clauses following that are about rule-making authority. I previously heard your comments and questions concerning that. But subsection 12(1) of the act provides rule-making authority for a number of issues that are already covered in the regulation. This is the structure we have in place right now. For subsection 12(1) of the act, we want to amend this to provide rule-making authority for dealing with the registration of transfers. It's a consequence of the amendments of section 49, so it's an alignment of the regulations with the Patent Act.
The PLT, we have to keep in mind, is administrative in nature. There are a lot of small things where of course we need the authority in the act, but it will be materialized during the regulation process.
If we go to clause 118(3), it introduces paragraph 12(1)(i.1) of the act to provide general rule-making authority for carrying into effect the PLT itself.
The Chair: I think you've already touched on those.
Ms. Lajoie: You're okay for the series.
The Chair: For 118, they're all giving you the authority to do things.
Ms. Lajoie: Yes, for various little initiatives.
The Chair: In regulations that we'll see later on.
Ms. Lajoie: Yes, of course you will.
Clause 119 amends section 15 of the act and introduces section 15.1 to clarify circumstances where a person must be represented before the patent office and by whom they may be represented. Allow me to give you an example.
Right now, an applicant must be represented by a patent agent. It's only the patent agent who can interact with the office, including paying maintenance fees. This will allow the applicant the option for himself or herself to pay the maintenance fees, not having to deal with their agent. This is something that is certainly appreciated. When we talk about reducing costs for companies and applicants, this is an area where this ability is definitely supporting that objective.
The Chair: What about preparing and filing applications?
Ms. Lajoie: This doesn't change in the sense if the applicant is not the inventor. So if you have the inventor being the applicant, himself, the inventor can do it himself. However, if it's an applicant that is a company, then there's still a need to have a patent agent to represent the person in order to file an application. But you will see later, when we talk about the filing requirement, that we have also added flexibility there.
Clause 121 amends subsection 27(2) of the French version of the act to clarify that the document named petition is part of the patent application as it was originally filed. Again, it's only the French version, just to align. There was some ambiguity, so we took this opportunity to rectify the situation.
Clause 122 amends section 27 of the act to provide proper — to new section 28.01 and to handle the situation where the filing fee no longer required for the establishment of a filing date is not submitted on the filing date of the application. So, right now in order to obtain a filing day, the fee must be paid. This is part of the additional flexibility we provide. The filing fee can be paid later. This does not penalize an applicant who can have their filing date as they submit the rest of the material.
Clause 121 introduces section 27.01 for applicants to substitute a reference to a previously filed application for part of their application. This clause further amends section 27.1 of the act to notify the applicant of a failure to pay a maintenance fee before the applicant is deemed abandoned.
Section 28 is also amended to remove the requirement to submit a filing fee for the purpose of establishing a filing date.
Section 28.01 is introduced to allow applicants in certain circumstances to add parts to their patent application. This is the notification that my colleague was referring to before, where there will be a system by which applicants are going to be informed. Instead of counting on the fact that they should know automatically they should do it, we're introducing this notification system whereby they will be advised.
Clause 122 amends paragraph 28.1(1)(b) of the French version of the act to clarify the timing requirement associated with the request for priority as a consequence of amendment to section 28.4. Again, it is only in the French version.
Clause 123 amends paragraph 28.2(1)(a) of the act as a consequence of the amendment to section 28.4 in order for the grace period, as defined, to entirely cover the priority period.
Clause 124 amends paragraph 28.3(a) of the act as a consequence of the amendments to subsection 28.4 in order for the grace period to entirely cover the priority period.
The Chair: We have in front of us the words that you're reading. What would be really handy is if you could explain what these words mean. But I do have, and I think all of our colleagues have, the briefing book right in front of us.
Ms. Lajoie: Okay. Excellent.
The Chair: For example, you reviewed clause 123, and it says — in order for the grace period as defined. What's a grace period?
Ms. Lajoie: Under the actual system, in Canada, the grace period is when the applicant has one year to file their application, from the first filing in another country. Under the Paris Covention, we call that a grace period. For example, a Canadian applicant may decide to first file an application in the United States. They have 12 months to file their application in Canada. The benefit is that they can maintain their priority date. In a first-to-file system, this is a big benefit.
What we're proposing is an additional two-month grace period. This is additional time to claim priority. It was 12 months and it had no flexibility. We're adding flexibility. There's a window of two months, where they can file their application and benefit from the system.
The Chair: That's very helpful. That doesn't put us offside with other countries?
Ms. Lajoie: No, on the contrary. Under the PLT, we're aligned with other countries and other members of the PLT.
The Chair: Good.
Ms. Lajoie: I'm at clause 125(2). I tend to read it. I'm sorry about that. I'll try to paraphrase a bit more.
The Chair: If you're reading to remind yourself, then that's okay. We enjoy listening to your reading. I just wanted you to know that we all have that. It's just some of the words that we don't understand.
Ms. Lajoie: It's helpful to remind myself, because so many changes are happening.
Clause 125(3) defines a circumstance where an applicant can withdraw a previously filed application to their advantage. This, again, is linked to a request for priority, where there's more time. This clause is amended to clarify the timing in view of the additional flexibility that we are providing under the additional two-month grace period.
Clause 125(4) is an amendment to the English version only.
Clause 125(5) is linked to the request for priority system that I explained before.
The Chair: Why is ''priority,'' in the third line, in quotation marks? Maybe it isn't in the act, but it is on this briefing note. For some reason, it is in our briefing note. Could you explain one more time how this ''claiming priority'' works so our colleagues could understand that?
Senator L. Smith: Is there a priority period? You had the grace period. Is that the grace period in order to get the priority? Is there a length of time?
Ms. Lajoie: My experts are telling me, there's no reason why it's in brackets.
The priority claim is the first time a patent application is filed. Then, there's a 12-month period that can be used as the priority period. We're adding to the two months, in order to request that priority. This flexibility was not there before.
It's a restoration, in order to avail itself of a two-month grace period that the applicant didn't have before.
[Translation]
Senator Chaput: Is it only the two months that have changed?
Ms. Lajoie: That are new, added.
Senator Chaput: Thank you.
[English]
The Chair: Okay, I think we're starting to understand it.
Ms. Lajoie: Your questions are helpful.
Clause 126 repeals section 21, because there's a requirement in the act, where we request that the applicants have an address for service in Canada. They need to appoint a representative. We're removing that requirement. For example, let's say that we have a private inventor from another country and he needed an address in order to be represented in Canada. We're removing that.
The Chair: You're taking work away from lawyers.
Ms. Lajoie: In clause 127, it's a question of terminology between ''transfer'' and ''assignment.'' We've mentioned it before.
In clause 128, this is a situation where an applicant failed to request examination. I should talk to you a bit more about this concept of requesting examination, before I go into the details.
The Chair: It would be a good idea.
Ms. Lajoie: In Canada, applications are filed, but they are not automatically examined. The applicants have a five-year window to request examination. About 40 per cent of the applicants request examination at filing. The others, depending on their strategy, opt to wait a bit longer to request examination.
The Chair: Is there a cost saving to the applicant? Is that why they might delay it?
Ms. Lajoie: The cost saving may be for them to wait and see what's happening in other countries. The strategy may be to say that I'm doing some markets today, so I'm not going to invest my time and pay my lawyer to handle prosecutions with the patent office. They secure their filing date in Canada, but they voluntarily delay the examination step. This is just a bit of context.
Right now it's an up to five-years system. If they don't request an examination after five years, the application is abandoned. When we talk about adding notification, it means that they're going to be notified before their application is abandoned. This is the link between the notification and the request for examination.
Clause 129 is about divisional application. In the first application that is filed — in the parent application — you have more than one invention. Usually, there is either a voluntary change by the applicant or the office asks the applicant to file a divisional application. An applicant has until the last day, when an application is to be reinstated, to file their divisional application. We're changing the system by adding notification before it is abandoned, and we're adding time. Therefore, for divisional applications, clause 129 allows this change to be taken into consideration.
In clause 130, working models are no longer to be requested from the applicant. This rarely happens, but sometimes when you have ''des inventions farfelues'' — perpetual motion — then it can be tempting to ask for this. This can no longer be done because under the PLT we don't have the right to ask for models.
The Chair: So what's going to happen to all those perpetual motion models that you have in the patent office?
Ms. Lajoie: We haven't assessed the impact.
The Chair: That's not in this law?
Ms. Lajoie: No.
Clause 131(1) is an alignment with the French language. It's a simple one.
Clause 131(2) is an additional amendment to have flexibility when filing. Right now, applications have to be filed in French or English. With the PLT, the applicant can file in other languages and secure the filing date. Of course, they will be notified and we're going to request French or English. Again, it's a question of securing a filing date. This clause allows for this flexibility, as well as specifying the mechanism to make amendments. Eventually, the pages will have to be amended and substituted.
Clause 132 is about notification. Let me talk about the maintenance fee. It's an annual fee that has to be paid, starting on the second anniversary of the filing date. From that date, every year they have to pay their maintenance fee. The actual system is that they have to pay. They should know. By operation of law, if they don't, their application may become abandoned.
The change here is that before an application becomes abandoned, there is a notification system. They will be notified of a missed maintenance fee before their application is deemed abandoned. Eventually, what we want to do with that is to make sure that there are fewer people who miss their date and eventually be in a situation where the application is irrevocably abandoned and it's too late to do anything.
[Translation]
Senator Chaput: I have a question about clause 131, concerning applications that can be submitted in a language other than English or French. The bill states: ''. . . by an English or French translation . . .'' If an application is submitted in Spanish and it must be translated into English for it to be included, who is responsible for having it translated, and who pays for the translation?
Ms. Lajoie: The applicant pays, absolutely.
[English]
Clause 133 is again a question of terminology between ''transfer'' and ''assignment.''
Clause 133(2) repeals a subsection of the act as a consequence of amendments to section 49.
Clause 134 is about transfer, also, but this is an area where there is potential savings for the applicant. Right now, we have the requirement that the assignment document be registered in the office, and there's a fee for that. Under the PLT, we substitute the requirement of filing the assignment document to simply registering the transfer. For all those mandatory documents and fees attached to them, this will simplify the process and save money for the applicants here with the new system that is aligned with the PLT.
Clause 135 restricts the period during which a person is liable to — oh, yes. Okay. Sorry. There are some aspects I am a bit less familiar with, so I may be less fluid. I'm sorry about that.
There is liability right now built into our actual Patent Act where there's an infringement situation and reasonable compensation has to be paid to the patentee retroactively to the lay open date where the information is open for public inspection. In that case, at the normal date, which is 18 months after the filing date, or depending if it's an application originating from an international application and is at international phase in Canada, and if it comes in a language other than French or English, the patentee eventually is only eligible to have compensation at the time the information was available in French and English, to be fair with the fact that French and English are the languages Canadians use.
Clause 136 introduces the notion of intervening rights, so it's third party rights. This is in a certain way to also preserve the rights of those parties when there's an action of infringement that has happened in good faith.
Let's say that during the process a third party thought that in good faith the patent was not to be maintained or certain fees were not to be paid by the patentee and, in good faith, they start some investment and action. Again, it's a very complex situation. We will certainly have more discussion and consultation about this mechanism during the regulation process. It's really to preserve the right of third parties that in good faith invest money doing the patent process where they thought in good faith the patent was available in the public domain when in in fact there was still a possibility for the patentee to pay a certain fee, take some action and maintain their patent.
Clause 137(1) is about the new notification before an application is abandoned due to failure to pay fees and request examination. I've already talked about that, but there again, because of the complexity of the act, it comes back a few times.
The Chair: We understand that.
Ms. Lajoie: 137(2) is just terminology in the French version. There is nothing in substance there.
Clause 137(3) introduces the notion of notification before an application is abandoned, so there is delay. It's a delay before an application becomes abandoned. We're adding a window of time where applicants can still pay the maintenance fee, the due fee, or take the action requested by the office before the status of their application is changed to abandoned.
Clause 138 is an important one. It improves legal certainty to provide that granted patents can no longer be invalidated by reason of administrative mistakes or requirements not met during the time an application was pending. This one is very important. There are a couple of court cases on that. These grounds won't be able to be applied to invalidate patents because a certain fee or certain action hasn't been taken, which were administrative and detailed nature.
Clause 139 is a transitional provision, depending when the amendment of the act will impact applications filed before its coming into force and after.
Clauses 140 and 141 are also transitional provisions.
Clause 142 is the coming into force.
The Chair: I had one question. You indicated that the application could be filed and received in a language other than English or French.
Ms. Lajoie: Yes.
The Chair: That then impacts when it's laid open or published, which is typically about a year after it's filed; is that correct?
Ms. Lajoie: Actually, applications are made available to the public for inspection 18 months after the first filing date. If Canada is the first filing date, it's 18 months after the Canadian filing date, but let's say they file a U.S. application first and file in Canada 12 months later. Then it's 6 months after the Canadian filing date. The confidentiality is 18 months from the first filing date.
It can happen in situations that the lay open date in the application won't be in the language of French or English. This situation may happen.
The Chair: Do you have any provision for requiring that it be republished or re-laid open so that it could be in English or French once that translation is filed so that the Canadian public would have an opportunity to understand it?
Ms. Lajoie: It will be published as soon as we receive the document. Of course, we are automated. As the documents are received, they will be laid open. They will be available for public inspection on our website or on site at CIPO as soon as we receive the documents in the proper language. As I mentioned before, though, the date that we receive those translated documents becomes the date when a patentee eventually is eligible for reasonable compensation.
The Chair: That's why I'm asking the question. Do you have any requirement that that be done? They don't have to ask for examination for five years. Can that sit around for five years?
Ms. Lajoie: Oh, no. Don't worry. We won't have a document that is in a language that is not French or English for five years. There will be a notification where there is a window of time in which they have to complete the filing requirements.
The Chair: Okay. So that will be in the regulations? Is that where I'll find it when they come around?
Ms. Lajoie: Yes.
[Translation]
Senator Chaput: What do you think will be in the regulations?
Ms. Lajoie: Without going into detail, we are certainly going to determine the deadlines that an applicant will have to meet to submit an application in one of Canada's two official languages. The current act sets out a completion fee that must be submitted when all the basic requirements have not been met.
Senator Chaput: Let us take the example of an application that is filed in Spanish. How long is it considered officially filed before it is translated into one of the two official languages? Do you provide a deadline for the translation into one of the official languages? Do you go on the site and submit an application in Spanish translated into English or French? I do not understand.
Ms. Lajoie: I will try to be clearer. Currently, we do a preliminary analysis of the applications that are filed. We make sure that all the basic requirements have been met, with language being one of those requirements, of course. If we inadvertently receive an application in a language other than French or English, we do not set a filing date. We refuse it. For example, we check whether the application was completed in French or in English. If it was not, we consider the filing date as having been observed, but the application will be incomplete. At that point, a notice with an explanation is sent to the applicant. Then, in accordance with the regulations, we provide a deadline for meeting all the requirements. We therefore protect the right that we have granted the applicant in terms of the filing date.
Senator Chaput: The processing time will be part of the regulations.
Ms. Lajoie: Right now, they have 18 months to fill out their application. Once again, the timeframe will require consultation so that we can determine whether it is sufficient.
Senator Chaput: How many pages can an application have?
Ms. Lajoie: It varies a great deal from one technology to another, but, on average, an application is 25 to 30 pages long. Some applications are long and others are shorter.
[English]
The Chair: Thank you very much. I see no other senators asking to intervene, so I would like to, on behalf of the Standing Senate Committee on National Finance, thank you very much for being here and helping us to learn about certain portions of intellectual property and what regulations to go to to find out what it is all about.
Ms. Lajoie: Absolutely. I will be pleased to come back if you invite us.
The Chair: We will move to the next section we're charged with looking into, which is Division 8, on page 341, Royal Canadian Mint.
I am very pleased to welcome, from Finance Canada, Elisha Ram. Mr. Ram is Director, Financial Markets Division, Financial Sector Policy Branch, and he is here to tell us all about clause 185 that appears in our booklet and on page 341 in the Act.
Elisha Ram, Director, Financial Markets Division, Financial Sector Policy Branch, Finance Canada: It is a pleasure to be here again, though in a slightly different role than perhaps you have seen me in the past. Thank you, again, for the opportunity to appear before the committee.
As you mentioned, clause 185 amends the Royal Canadian Mint Act. The Royal Canadian Mint is a federal Crown corporation and, under the Act, its objective is to mint coins in anticipation of profit and to undertake other related activities.
In Economic Action Plan 2014, the government indicated that it was planning to introduce some changes to the mandate and governance of the Mint, in order to better align it with the objective of producing coins at low cost to Canadians. Consistent with that intent, clause 185 proposes to amend the Mint's mandate to specify that the anticipation of profit will no longer apply to the goods and services that the Mint provides directly to the government.
Largely, this consists of circulation coins, the coins that we all use in day-to-day life. Henceforth, the Mint will provide those coins to the government at cost, rather than on the cost-plus basis, which has been the historical practice.
The Mint also produces other goods and services for the government, including some kinds of non-circulating coins, metals and some consulting services. Those will also be provided without profit.
The Mint will continue to be expected to earn a profit on its other business lines, which include numismatic coins, gold bullion and the coins that it produces for other countries.
[Translation]
Senator Bellemare: I am curious about what that means in terms of revenue for the Royal Canadian Mint.
[English]
Mr. Ram: On a net basis, there will actually not be direct savings associated with this measure, because the Mint is fully consolidated in the government's accounts. So, when the Mint charges the government a sum of money, that sum simply shows up in the Mint's accounts and gets rolled-off into the overall government balance.
So, in the first instance, this is about transparency. We want to make sure that we know what the coins actually cost to produce. In the long run, we anticipate that there could be some savings associated with better planning. For example, if the Mint were to propose new investments in new coin technologies, we would have a better idea of how that would improve the costs that we ultimately pay for those coins.
[Translation]
Senator Bellemare: How much does it cost to produce one dollar?
[English]
Mr. Ram: I don't have that information in front of me. You'll recall that, a few years ago, the government proposed to eliminate the penny. The reason was that it was costing us more than a penny to produce those coins. It didn't make sense. For the other coins, including the 5-cent coin, the 10-cent coin and so on, because the Mint has been introducing world-leading production technologies, it actually costs less to produce those coins than their face value. The government actually makes money by producing those coins. If ever we found ourselves in a situation where that was reversed, we would have to consider whether it still made sense to produce those coins.
[Translation]
Senator Bellemare: You do not have a precise idea?
[English]
Mr. Ram: I don't have it with me, but I would be happy to provide that information to the committee.
[Translation]
Senator Bellemare: I asked the question just out of curiosity.
[English]
The Chair: Mr. Ram, you'll recall that it was this very committee that recommended the penny be discontinued because it was costing us more.
Mr. Ram: That was an excellent decision
The Chair: You were here to help us through that, and thank you.
Senator L. Smith: Mr. Ram, the Mint will continue to be required to anticipate profit from all other business lines. What is the status of your all other business lines? Can you give us some numbers?
Mr. Ram: I can't give you the precise numbers, because the Mint doesn't publish them. If you look at the Mint's annual report for last year, the Mint earned an overall profit of about $36 million on a net basis after paying taxes. The Mint is taxable. Of that, about $10 million was provided to the government as a dividend. The balance was retained by the Mint. Those profits were distributed across all business lines, including the domestic circulation business, as well as the numismatic business, bullion and the foreign coinage. The circulation coin business has traditionally been the Mint's largest source of profit. However, even prior to the changes that are recommended or proposed in this bill, the Mint was anticipating that its numismatic business was actually going to become its largest sort of profit over the next two or three years.
Senator L. Smith: If you look at $36 million in profit, what type of gross profit do you look at? Are you looking at 50 per cent or 60 per cent? The total revenue is about $100 million or $130 million?
Mr. Ram: Again, according to the Mint's annual report for last year, total revenues were about $3.4 billion, of which gross profit was about $180 million. Profit before income tax was $48 million, and profit after tax was $36 million.
Senator L. Smith: So $3.4 billion; gross profit was $180 million?
Mr. Ram: That's right, million.
Senator L. Smith: Your net was $48 million?
Mr. Ram: $48 million was the profit before tax, that's correct.
Senator L. Smith: Could I ask you another question? Where is all your cost? Is it in equipment or in people, or a combination thereof?
Mr. Ram: It's largely materials. It's the cost of purchasing metals on the international markets. Obviously, it's a capital-intensive business to produce coins. It has made upgrades on an ongoing basis to its facilities in Ottawa and Winnipeg, but the vast majority of its costs are associated with purchasing the materials.
Senator L. Smith: Is there hedging in the type of things that you do with materials?
Mr. Ram: That question would probably be best directed to the Mint itself, but, yes, it does have obviously practices in place for managing that risk when costs go up and down.
Senator L. Smith: So you have two facilities, one in Ottawa and one in Winnipeg?
Mr. Ram: That's correct.
Senator L. Smith: How many employees?
Mr. Ram: The Winnipeg facility is the major coin production facility. There are coins produced in Ottawa as well. Ottawa also has the gold producing facilities on Sussex Drive.
Senator L. Smith: How many employees do you have?
Mr. Ram: The Mint had about 1,250 employees as of 2013.
Senator L. Smith: How would these employees be categorized in terms of skills? For instance, would there be a large group of technical employees that are related to the manufacturer of the coins with the machines, or what's the balance between your technical staff and your administrative staff, just so we gave an understanding of how you're set up structurally?
Mr. Ram: I don't have the information in front of me, but I would be happy to provide it at a later date.
Senator L. Smith: Could you provide that to us?
Mr. Ram: Absolutely, yes.
Senator L. Smith: That's a big operation.
Mr. Ram: It is.
Senator L. Smith: If I understand correctly, are you sophisticated in terms of the equipment you have to manufacture? Is it state of the art? Is it all computerized?
Mr. Ram: The Mint is considered a world leader in the terms of introducing new technology for the production of coins and introducing new alloys that help keep the cost of the coins low. If you compare the Mint's technologies to those even used in the United States, we certainly have an advantage in that regard, which helps us keep those costs low.
In the United States, for example, they are having a lot of the same problems that we used to have with the penny in that the face value of the coinage is actually below the cost of production, and that's largely as a result of technological improvements.
Senator L. Smith: How many countries do you actually deal with and who are your biggest clients or customers?
Mr. Ram: That changes from year to year depending on contracts that come in or out. Again, I don't have that specific information. I'm with the Department of Finance.
Senator L. Smith: Could you give us an idea of some of the countries you deal with?
Mr. Ram: The Mint deals with something like 45 countries at present, so it's quite a global operation. Again, I would be more than happy to provide you with that list.
Senator L. Smith: That would be very interesting. Maybe if there is an annual report, you could send that, too.
Mr. Ram: Yes, we can do that.
The Chair: We might decide as a committee to pursue the Royal Canadian Mint to look into it in more detail. That information would be helpful to us. Thank you, Mr. Ram.
[Translation]
Senator Rivard: Senator Smith has already asked the question, but I would like a clarification about the other countries. I fully understand that the Royal Canadian Mint makes coins. As for the paper currency that we can make for other countries, I understand that the Bank of Canada does the printing; that is not the Royal Canadian Mint's job?
[English]
Mr. Ram: That is true, yes.
The Chair: I was looking at the annual report for 2013. I don't know if that's the one you have in front of you.
Mr. Ram: That is the one I have.
The Chair: Do I see approximately $104 million that came from Department for Finance relating to production management and delivery of Canadian circulation coins? Is that what we're saying you're forgoing, $104 million?
Mr. Ram: I'm sorry, senator, which page is the reporting on?
The Chair: I don't have the page. Let me ask you that question. Do you know how much you are forgoing by not looking for a profit from work you're doing for the Government of Canada?
Mr. Ram: Again, I don't represent the Mint. I represent the Department of Finance. I'm actually the buy-side of that equation.
The Mint has an agreement in place with the department, a memorandum of understanding that specifies how exactly the Mint will charge the government for the production of coins. I don't have the specific number in front of me right now.
The Chair: If you could help us with that. You don't anticipate a profit. What are you anticipating or what is the Mint anticipating in losing? The financial cost of this initiative is what we're looking for. Then, should we anticipate that we will see that in the Main Estimates as an amount to be transferred to the Mint to make up for this loss of profit?
Mr. Ram: The Main Estimates do include the costs that the government pays the Mint for coinage. We update that throughout the year, for supplementary estimates as required. That is the gross amount. In the past, that would have included both the cost of the coins and the profit that the Mint was charging the government. Should this bill be passed in its current form, we would no longer be paying the Mint a profit on those coins.
The Chair: Page 81 and 82 of the report; I see that on the reference to our briefing notes here.
Mr. Ram: I apologize. I don't have those pages.
The Chair: You know the line. This is the Finance Committee. We understand the initiative, but we'd like to know how that's going to be made up. The Mint is not going to lay off enough people to make up for the lost revenue. They're going to be looking for that revenue somewhere else, presumably.
Mr. Ram: I would anticipate that well, yes.
The Chair: That's the only section for the Royal Canadian Mint.
Mr. Ram: It is.
The Chair: Thank you for being here and helping us with that. We look forward to receiving your undertakings.
Colleagues, we're going on to number 13. Number 13 I find at page 369 of the bill, Division 13. It's the Northwest Territories Act and it is one section.
We're now in the Northwest Territories at page 369, and we have from the Privy Council Office Mr. Stephen Gagnon, Director of Operations, Provincial and Territorial Analysis.
Stephen Gagnon, Director of Operations, Provincial and Territorial Analysis, Privy Council Office: Thank you, Mr. Chairman. I'll try to be brief.
The Chair: Take your time.
Mr. Gagnon: The act that enabled the Northwest Territories devolution, which took effect in April of this year, contained a provision relating to the governance of the Legislative Assembly of the Northwest Territories, and it says that no legislative assembly in the Northwest Territories can last longer than five years. This is consistent with the Charter. It's consistent with the mandates in other jurisdictions.
The act also, however, contained a transitional provision that both continued the council established under the former Northwest Territories legislation as the Legislative Assembly under the current devolution legislation, and suspended the application of what was section 11, which said that it's a five-year term. The term under the former legislation was four years.
In March of this year, the Government of the Northwest Territories passed a motion asking the Government of Canada to extend the maximum term of the current legislation to five years in order to avoid a potential conflict between a fixed federal election and a fixed Northwest Territories election.
This amendment would extend the time of the current Legislative Assembly to a maximum of five years in the event that there were, in fact, an overlap in the federal election and a Northwest Territories general election. This is consistent with the practice in other fixed election areas, such as Manitoba and Saskatchewan, to give those governments the flexibility to move past four years in order to avoid a conflict with a general federal election. I'll be happy to answer any questions I can.
The Chair: The important thing is that this was a request from the legislature of the Northwest Territories.
Mr. Gagnon: Correct, yes.
The Chair: We understand what is being requested, and we appreciate your being here to explain it to us.
Mr. Gagnon: Thank you very much, Mr. Chair.
The Chair: We will move on to Division 14, Employment Insurance Act, clause 226, at page 370.
From Employment and Social Development Canada we have Annette Ryan, Director General, Employment Insurance Policy, Skills and Employment Branch; and Helen Smiley, Director of Regulatory and Revenue Policy Design, Employment Insurance Policy. From Canada Revenue Agency, we welcome Ray Cuthbert, Director, Canada Pension Plan/Employment Insurance Rulings Division, Legislative Policy and Regulatory Affairs Branch. From Finance Canada, we welcome François Masse, Chief, Labour, Market, Employment and Learning. This is with respect to two different sections of the act. Is there one spokesperson? Mr. Cuthbert, do I see everybody looking towards you?
Ray Cuthbert, Director, CPP/EI Rulings Division, Canada Revenue Agency: Yes. As you said, we have two sections to talk about. I'll talk about clause 225. My colleagues from Employment and Social Development Canada will talk about clause 226.
The Chair: Good.
Mr. Cuthbert: Clause 225 basically covers the small business job credit, which is a two-year measure that will refund to employers a portion of their EI premiums if they're eligible. To be eligible, an employer must have $15,000 or less in employer EI premiums in the year 2015 and 2016.
The Chair: Per year?
Mr. Cuthbert: Each separate year. The credits will be calculated automatically by the Canada Revenue Agency when the employer's T4 information return is processed for those years. The credit is calculated based on a 28-cent reduction to the legislated EI premium rate. The 28 cents is then multiplied by the total of the employee insurable earnings for that employer. That is multiplied again by a factor of 1.4. The result of that calculation is the credit. The credit must be greater than $2, and no interest is payable on it. That basically is what the small business job credit is about.
The Chair: As a mathematics major, I'm inclined to ask you why the multiplying factor of 1.4, but that probably doesn't help us get to the policy side of things.
Mr. Cuthbert: I can actually explain that.
Senator L. Smith: Can you give us a simple example of that so we understand where it takes us? What is the rebate going to be? Walk us through how you would calculate it.
Mr. Cuthbert: I'll explain the 1.4 first, if that's okay. To figure out what the employee's premiums are, you multiply the legislated premium rate times the insurable earnings of that employee. The employer's portion to be paid is 1.4 times that figure; so that's where the 1.4 comes from. It's the employer's rate that they have to apply against the premiums withheld from the employees.
Senator L. Smith: If you're company A and you have X number in sales and X number of employees with insurable earnings, could you walk us through how that would work?
The Chair: You can assume the maximum $15,000, if you like.
Senator L. Smith: Just walk us through it.
Mr. Cuthbert: I'll use the maximum $15,000. I should point out that there are two legislated rates. One is for the province of Quebec, because they have the Quebec parental insurance plan, which has the result of lowering the premium rate in Quebec. For 2015, it's 1.54 per cent. The other is for the rest of Canada with 1.88 per cent as the legislated premium rate.
Essentially, to figure it out with the $15,000 in EI premiums, you have to work backwards to calculate the insurable earnings. It's not a straightforward calculation. To be able to figure out the credit, you need the insurable earnings, so you have to work backwards.
You know that the value of the credit would be the 28 cents times the 1.4, times those total insurable earnings. Without going through the calculation, to come to the $15,000 in EI premiums that the employer would pay, you need to have insurable earnings in the company of $569,908.81.
Senator Eaton: How many employees on average are you looking at for a small business? I'm sorry, Mr. Chair, I'm just following his example of interrupting. I apologize.
François Masse, Chief, Labour, Market, Employment and Learning, Finance Canada: We've run a number of examples that could prove helpful.
For an example we'll use a maximum insurable earnings of $49,500, so your employee earns $49,500. If you have 10 employees, you would be paying a total of $13,028 in EI premiums. You're under the threshold of $15,000 so you qualify. The calculation would yield you a credit amount of $1,940. Depending on the wage of your employees, then the number of employees that you can have, while still fitting under the threshold, will change.
To take a very different example, if you have part-time employees that are earning $10,000 a year, you can have 50 employees. That would yield you total EI premiums of $13,160, so you would qualify for the credit and you would have a total credit of $1,960.
The Chair: Do you have a number of those examples? You said you've worked out a number of them.
Mr. Masse: I have a page full of them.
The Chair: Can you share those with us and we'll circulate them? Not for right now, but just give them to our clerk afterwards, and they will be circulated so we'll have them to think about.
Mr. Masse: That is no problem.
Senator L. Smith: Thank you. Did you folks calculate the number of small businesses in Canada, obviously, so you could do a calculation as to how much the return across the country would be? Could you give us the estimated number of companies and what would the total cost be?
Mr. Masse: Absolutely. We're estimating that over 780,000 employers will benefit from the small business job credit. The average refund that a small employer would receive is expected to be slightly over $350 in both 2015 and 2016. The total amount that would be returned to small employers is expected to be $550 million over the two years.
The Chair: It's over two years.
Senator L. Smith: So you're talking $275 million per year?
Mr. Masse: Thereabouts, yes.
The Chair: So, $275 million per year, assuming straight line.
Senator L. Smith: How much paperwork will this take for 350 bucks?
Senator Chaput: That's my question.
Senator L. Smith: Is it part of the red-tape reduction program?
Mr. Cuthbert: You can say that, because basically the credit will be calculated automatically when the employer files the T4 information return he always files. There's no additional paper. He still has to file a return, though.
Senator L. Smith: So it's pretty well transparent?
Mr. Cuthbert: Yes.
The Chair: I have in my mind that this was an initiative previously up to $10,000 worth of premiums and now it's increased to $15,000. Do I have imperfect recollection on that?
Mr. Masse: The name changed, but there was a similar initiative before, which was called the hiring credit. When that measure was first introduced — and if memory serves, it was in 2012 — the threshold was indeed $10,000. It was renewed once at $10,000, and then the threshold was bumped to $15,000.
This measure is different. It's not exactly the same measure, but we're using the exact same threshold.
The Chair: And the other one is gone now?
Mr. Masse: It is, indeed.
[Translation]
Senator Bellemare: I just have a short question. The rate is different for insurable earnings in Quebec. As a result, small- and medium-sized businesses in Quebec will receive less than other businesses in Canada. So does that have an impact on the reduction, or rather on the benefits, that small- and medium-sized businesses will receive? Does the fact that parental insurance is completely separate and that the rate is different in Quebec, lower than anywhere else, have an impact?
[English]
Mr. Cuthbert: Essentially, if you're comparing two businesses — one outside Quebec, one inside Quebec — with the same amount of employees and insurable earnings, they would get the same amount of refund or credit, because it's the 28 cents that's important. It's not the rate.
The Chair: I have two other names on my list. I'm not sure if Senator Eaton wanted to be on the list.
Senator Eaton: He asked the question.
The Chair: I have two names on my list, but unfortunately we're asked to conclude this meeting now. The bell meant that the Senate had just adjourned, so it's not because of the bell. We'll be meeting this evening. We'll carry on where we are now at 6:45 p.m. in room 9, Victoria Building. We're moving along nicely and we'll keep going.
I hope our witnesses will be able to be there to finish this section up this evening.
This meeting is now concluded.
(The committee adjourned.)