Proceedings of the Standing Senate Committee on
National Finance
Issue No. 9 - Evidence - May 17, 2016 (Afternoon Meeting)
OTTAWA, Tuesday, May 17, 2016
The Standing Senate Committee on National Finance met this day at 2:10 p.m. to examine the subject matter of all of Bill C-15, An Act to implement certain provisions of the budget tabled in Parliament on March 22, 2016, and other measures.
Senator Larry W. Smith (Chair) in the chair.
[English]
The Chair: As we were this morning, we are continuing with our deliberations of Bill C-15. Welcome, all. I am Larry Smith, senator from Quebec and Chair of the National Finance Committee.
I will introduce our members one more time: from British Columbia, Senator Neufeld; from the Rock — Newfoundland — former Auditor General, all-time good, strong leader of Senate activities, Senator Marshall; and Senator Mockler from New Brunswick.
We'll continue our consideration of the subject matter of Bill C-15, the Budget Implementation Act, 2016, No. 1.
We welcome back from the Department of Finance Canada, Trevor McGowan, Chief, Tax Legislation Division, Tax Policy Branch. Welcome again. We also have Robert Demeter, Chief, Business Property and Personal Income, Tax Legislation Division, Tax Policy Branch — former outstanding all-Canadian tackle; and Pierre Leblanc, Senior Chief, Quantitative Analysis, Personal Income Tax Division, Tax Policy Branch.
We also have Pierre Mercille, Senior Legislative Chief, Sales Tax Division, Tax Policy Branch; and Gervais Coulombe, Senior Advisor, Sales Tax Division, Tax Policy Branch.
Thank you very much for your participation. We are ready to resume. We have until 3:25 p.m. We have to get back for Question Period. Let's attack this and see if we can finish that first section off, and hopefully a little more.
Trevor McGowan, Chief, Tax Legislation Division, Tax Policy Branch, Department of Finance Canada: During the morning session, there were questions we endeavoured to go away and find the answers to. I could quickly relay what we discovered during the lunch break.
The Chair: That would be great, Mr. McGowan.
Mr. McGowan: First of all, with respect to the measure withholding for non-resident employers with qualifying non-resident employees — this new streamlined certification system — the question asked was: How many people will this benefit? The estimate is that it would help around 7,000 employees — 7,000 non-residents who would no longer need to obtain an individual waiver from the Canada Revenue Agency. That would be in respect of approximately 600 employers.
In 2009, 7,860 waivers had been issued. So that would represent a significant decrease in the red-tape burden.
We were also asked questions relating to the Canadian Wheat Board, specifically how unit-holders are disposing of their units. Unfortunately, my colleagues in the Tax Legislation Division weren't able to answer or didn't have that information. They suggested somebody from Agricultural and Agri-Food Canada would be better suited to know the commercial dealings of the Canada Wheat Board right now. That was something we weren't able to find an answer on over the lunch break.
Pierre had one more.
Pierre Leblanc, Senior Chief, Quantitative Analysis, Personal Income Tax Division, Tax Policy Branch, Department of Finance Canada: In the context of the discussion of education credits, you had asked about educational institutions outside Canada and how the requirements worked there.
A tuition tax credit can be claimed for institutions in Canada; it's pretty broadly post-secondary education institutions. Outside Canada, it has to be full-time attendance at university in a course leading to a degree. There, it's a little more restrictive. Also, the course has to be a minimum of three consecutive weeks. That's another restriction.
For those, it can be a college or other post-secondary education when someone is living in Canada and commuting to the States. That's slightly different, and there are certain rules around that.
Broadly speaking, those are the rules.
The Chair: Thank you, Mr. Leblanc. Let's continue.
Mr. McGowan: Moving back to Part 1 of Bill C-15. We were on clause 44, which is on page 56 of the bill. That deals with the labour-sponsored venture capital corporation tax credit which, as we had discussed earlier, is being reinstated. When it was to be phased out, the phase-out was legislated, and this change simply undoes the phase-out. So it restores the LSVCC credit.
Clause 45 on page 56 is another consequential amendment relating to the repeal of the education and textbook tax credits. It is amended to remove a reference to "student eligible to claim the education tax credit'' and replace it with new term "qualifying student.''
Clause 46 on page 56 relates to regulation 102 or the withholding for qualifying non-residents in respect to qualifying non-resident employees. It provides that if an employer fails to withhold in respect of an employee, and it's later determined that the employee, in fact, did owe Canadian tax, it provides that as long as the employer made reasonable enquiries into the status of the employee, it's not going to be liable for penalty for failure to withhold, provided that it had a certificate saying that it doesn't have to withhold.
Clause 47 deals with two measures relating to information sharing. Those are information sharing for the collection of non-tax debts and information sharing with the Chief Actuary. These amendments are in Part 1 to the Income Tax Act, although my colleagues in later parts of the bill will have identical information-sharing measures in respect of their acts.
Information sharing for the collection of non-tax debts relates to information obtained by the Canada Revenue Agency. The Canada Revenue Agency does not simply enforce the collection of taxes owing; it also collects in respect of non-tax debts — student loans and things like that. This measure would allow the sharing of information obtained by the Canada Revenue Agency in the context of its tax collection with the other members of the Canada Revenue Agency engaged in the collection of non-tax debts.
The practical implication would be that debtors who might owe money under more than one program — first of all, you have the administrative efficiencies within the Canada Revenue Agency where you don't have two people working in parallel not knowing what the other is doing and duplicating efforts. From the debtor's perspective, you do not have two different CRA debt collectors calling you, knocking on the door and leaving you wondering why they are duplicating efforts.
This allows information sharing within the Canada Revenue Agency for this specific purpose.
Second, there's information sharing from the Canada Revenue Agency with the Office of the Chief Actuary. This is information that can be shared with the Chief Actuary. It's masked data in order to protect the privacy of taxpayers, but it can be shared solely for the purpose of enabling the conduct of actuarial reviews of pension plans established under the Canada Pension Plan Act and the Old Age Security Act.
The Chair: Just before you answer the question, we welcome Senator Linda Frum who is helping us out today. Of course, Linda, in your book you have Bill C-15, and we are on page 57, just to position you so that you come into the situation and understand what we're trying to do.
We welcome you.
Of course, Senator Marshall, you have a question.
Senator Marshall: Yes, I did, on the sharing of information. Privacy is an issue now, but would this amendment have gone through our Privacy Commissioner? I don't know if that's the right title of our access to information. We have an officer of Parliament who is concerned with the privacy of residents. Anything regarding the sharing of information, would that have gone through the Privacy Commissioner? I don't know if that's the right title or not.
Mr. McGowan: I believe so. In connection with the collection of non-tax debts, information sharing within the Canada Revenue Agency the Privacy Commissioner was contacted, but they don't provide an opinion in advance of a program being put in place that it will comply with Canada's privacy rules. Rather, they agree to the continued monitoring of the system to ensure that Canadians' privacy rights are respected once the sharing of information has begun. The same monitoring would occur with the Office of the Chief Actuary.
Senator Marshall: I can kind of see the first part, to collect information if there's money owed to the government, but the information going to the Chief Actuary would be information, for example, if you have a RRSP, things of that nature, if you have investment income. Is that the type of information that would go to the Chief Actuary?
Pierre Leblanc, Senior Chief, Quantitative Analysis, Personal Income Tax Division, Tax Policy Branch, Department of Finance Canada: This is my understanding. Trevor mentioned the Old Age Security Act. Part of the Old Age Security Act is the recovery tax on high-income individuals.
The Chief Actuary projects for 50-plus years. To be able to project those, they will want a detailed sense of the Canadian senior population for how much income people have and how much they can project it to be, who will be subject to that. It's basically that sort of statistical information that would allow the chief to do its projections.
Senator Marshall: The government can do almost anything, but taxpayers would have RRSPs. They would have investments, probably in stocks and bonds. They would have various levels of, probably, dividend income and interest income. I'm wondering exactly what type of information is going over to the Chief Actuary and if that really meets our privacy legislation. I don't know. It's just a question.
Mr. McGowan: Next is clause 48 on page 57. These contain definitions that are relevant for the purpose of the synthetic equity arrangement measure we discussed. That's the one where artificial deductions are generated through the use of the combination of the intercorporate dividend deduction and the use of derivative financial instruments to pass the economic exposure to a tax-indifferent investor.
Many of the defined terms that are used in the rule are contained in this measure and put into section 248. They include dividend rental arrangement, which is the definition that's being amended and, most importantly, the definition itself of synthetic equity arrangement. That is an arrangement where there's a share and, with respect to that share, the economic exposure to the share, expressed as opportunity for profit and risk of loss, is transferred to a tax- indifferent investor.
So the definitions used in the context of the synthetic equity measure are contained in this clause.
There's also another consequential amendment to the synthetic equity rules. It's technical but involves the disaggregation of portfolio holdings. Put simply, if you have 100 shares and eliminate the economic exposure to 70 of them, you can't say that you've only eliminated 70 per cent of the economic exposure to 100 of them. It looks at them individually.
The next measure is clause 49. It's on page 65. We discussed earlier the measure relating to charities investing in limited partnerships. This contains the actual rule that allows that and contains the restrictions on what kinds of investments in a limited partnership the charity can make. Again, to reiterate, the partnership has to be a limited liability partnership, and the interest must have limited liability. There's a 20 per cent ownership cap, and the partnership must deal at arm's length with the charity.
The next measure is clauses 50 to 54. These relate to the replacement of the Canada child tax benefit and the universal child care benefit with the Canada Child Benefit. These are the provisions that repeal the UCCB or universal Canada child care benefit, as well as the Children's special allowances or the portion of it that replicates the UCCB, and that relates to children under the protection of the state. Again, that's being replaced with the new Canada child benefit.
The Chair: That's extinguished exactly when? Is the date January 1 of this year?
Mr. McGowan: July 1, 2016 is when the UCCB —
The Chair: New rules come in as of July 1.
Mr. McGowan: That's right; the new ones come in.
Clause 55, on page 67, again relates to the withholding by non-resident employers with non-resident employees. It provides an exclusion from the requirement for the non-resident employees to file Canadian information reporting, where the rest of the rules apply. So you have a certified non-resident employer and qualifying non-resident employee so that they're not subject to Canadian tax.
This exclusion exempts them from having to file a Canadian tax return or information return. The remuneration, with respect to that employee is up to $10,000.
A sister amendment is in clause 56 relating to that which confirms that, in any other case, they are required to file Canadian tax returns.
Clause 57, on page 68 of the bill, is another consequential amendment to the Labour Sponsored Venture Capital Corporations measure. Again, consistent with the previously enacted phase-out of the LSVCC rules, no new labour sponsored venture capital corporations can be registered. This, in effect, undoes that so that new ones can come on line, provincially anyway.
Clause 58, on page 68, is a consequential amendment to the synthetic equity arrangement rules. In those rules, the defined term "permanent establishment'' is used. It generally means a fixed place of business in Canada. There's a specific definition of that term in section 8201 of the income tax regulations, and that definition is used for the purpose of the synthetic equity arrangement rules. This just amends regulation 8201 to include a reference to the new synthetic equity arrangement rules in which the term is used.
Clause 59 on page 69 relates to the children arts and fitness credits. As we discussed, the maximum amount of qualifying expenditures for those credits will be halved in 2016; and the credits are repealed for the 2017 and subsequent taxation years. This regulation prescribes certain programs of physical activity for the purposes of the children's fitness tax credit and artistic activities for the children's arts credit; along with the repeal of those credits the relevant regulation is being repealed.
The Chair: For folks who are possibly watching on television, we look at some of these clauses with the concept that's initiated, or a rule or system that's repealed, and we see it in one part of the document. Then there are some modifications or other extensions of that same rule change 10 pages or 10 articles later. Why can't it be put together so that it seems a little more logical and user-friendly? Is there a reason for that? If it's confusing to us, those watching must be even more confused in terms of the alignment.
You would think that if you have a change, whether it's child tax credit or flow-through shares, whatever you're looking at, you would want to list it so it goes 1, 2, 3, bang, it's done, as opposed to page 15, page 35, page 65 and all these attachments. What is the thought process? Maybe there's logic to it, but it seems a little strange.
Mr. McGowan: That's a completely fair comment, and I happen to completely agree. That has been pointed out in previous appearances. The short answer is that we tried to lump them together by a measure but were not able to do so. My colleagues at the Department of Justice said that wasn't something we would be able to do.
We've tried in the explanatory notes or the clause by clause that's contained as part of the briefing package to point out where else the rules are relevant. It was explained to me when I was told we weren't allowed to group them in that manner is that when you're amending one act, such as the Income Tax Act of 2,500 pages or so, different things appear in different places; and that's naturally how it falls. Definitions are in section 248 and the regulations are down below. The bill, in this case Part 1 of Bill C-15, follows the ordering of amendments in which they appear in the act being amended.
Unfortunately, we had to start with the section 55 amendments because they were the first ones in the Income Tax Act that were affected by the bill. It proceeds in that way up until you get through numerically all the provisions of the act, followed by the regulations. We had tried to get them organized as different divisions within Part 1 or something but were not able to do so.
I don't fully understand the reasoning myself, but we were told that the bill had to follow where the amendments were in the act.
The Chair: We appreciate the fact that you've set up the addenda with more explanations for some of the various changes. It's just that some of the sequencing here is not the same either. Again, it's tied to that basic question. It sounds like it's been done this way for quite a few years and this is the way it's done. I just wonder, over time, whether someone will try to realign it so it's a bit more user-friendly.
Let's continue.
Mr. McGowan: Similar to what we had just discussed in clause 60, page 69, there's an introduction of regulations relating to the school supplies tax credit. The new school supplies tax credit will be 15 per cent of up to $1,000 in qualifying expenses. The qualifying expenses can include both consumable goods, such as glue and glitter, et cetera, and more durable goods like books, games, puzzles and containers. The list of durable goods that can qualify for the credit is contained in the bill in clause 60.
Next, we get into the coordinating amendments. Clause 61, on page 69, deals with the Labour Sponsored Venture Capital Corporations Tax Credit rules. They were to be repealed, or they're currently legislated to be repealed effective January 1, 2017. This was in a previous budget implementation act. If Bill C-15 does not receive Royal Assent by the end of the year, the parts of the other bill that would repeal a number of measures relating to the Labour Sponsored Venture Capital Corporations rules would kick in, and they would be repealed. If Bill C-15 receives Royal Assent by the end of the year, those will be overturned and they won't be repealed. If it does not receive Royal Assent by the end of the year, then they will just be reintroduced at the start of 2017.
Clause 62, page 71, contains a number of amendments that are consequential to the introduction of the new top marginal income tax rate for individuals, which is 33 per cent currently on income in excess of $200,000 and is indexed. It's contained in Bill C-2 along with a number of other top-rate consequential amendments.
As I noted earlier, a number of rules in the Income Tax Act, either explicitly or implicitly, are based upon the top marginal tax rate. When the top tax rate changes, the rules based upon that top tax rate have to change.
The first of these is the charitable donation tax credit. That one doesn't have to be changed, but it is being increased. It currently provides a 15 per cent credit on donations up to $200 and 29 per cent on donations in excess of that. For people subject to the top 29 per cent tax rate, it effectively gives them a deduction in respect of their other donation. For individuals with incomes that are below the top marginal rate of 29 per cent, it provides an additional incentive to donate. This bill would introduce a more generous charitable donation tax credit to the extent that an individual has income subject to the top marginal rate of 33 per cent, they can get a charitable donation tax credit of 33 per cent. If your income is below that or it's not taxed at the top marginal rate, you still get the 29 per cent credit. This is an increase for individuals who have incomes subject to the top marginal rate in the charitable donation tax credit.
Senator Marshall: I take it the impetus for that is to encourage taxpayers in the higher tax bracket to give more because they will get a bigger credit. Is that the objective?
Mr. Leblanc: There are a couple of perspectives. Certainly, it provides a strong incentive, which will increase. That's an important consideration. Another important consideration, and here I think I'm building on what Mr. McGowan just said, is that when individuals donate more than $200 they will get a tax credit rate for those donations that's at least their marginal tax rate, if not better. This will make sure it continues to apply, including for individuals with taxable income in excess of $200,000 who will pay the 33 per cent rate.
Senator Marshall: How do you measure, after the fact, the effect of these tax changes? When you make them you're anticipating a certain outcome, or that taxpayers will react in a certain fashion. Do you follow through after and look to see that it's had the desired impact and whether you're on the right road or not?
Mr. Leblanc: Sure. We can say at the Department of Finance we're evaluating on an ongoing basis how the tax system is functioning, and that includes any changes that have been recently introduced to the tax system.
As you may know, every year we release a report on federal tax expenditures. In the most recent report released in February there was a study of the effect of tax incentives on charitable donations, and there was found to be a strong effect. I'm obviously not talking about this particular change, because it has just been proposed, but generally, over the years.
Senator Marshall: Will you know next year?
Mr. Leblanc: You will want to see 2016 tax data, so it will be a few years.
Robert Demeter, Chief, Business Property and Personal Income, Tax Legislation Division, Tax Policy Branch, Department of Finance Canada: If I can add to Pierre's comment, the movement of the rate up to 33 per cent serves as an incentive. Your question was focused on the higher net worth donors, and in that respect I think the move ensures that it does not serve as a disincentive. It keeps them whole as far as the incentive to donate, that they wouldn't feel that they're getting less out of making a donation.
Senator Marshall: What's the source of all the tax changes in the bill? Does everything come from within the Department of Finance, or do all departments channel in their suggestions? How do you come up with all these changes? Whose brainchild is this?
Mr. McGowan: There are a number of sources for these changes. Some technical tax changes are generated internally at the Department of Finance. Others come from the Canada Revenue Agency that identifies new loopholes and things that aren't working properly. A number come from industry as well. I mentioned the new streamlined withholding regime, and that's something that a lot of industry groups, tax executives and institutes, have been asking for, for a while.
In addition, as was mentioned, a number of the tax amendments — like the Canada child benefit and the Northern residents' deduction — are part of the platform. They come from taxpayers as well.
There is one last thing to mention about the charitable donation tax credit, and that is that Bill C-15 was tabled after the budget. The budget, Bill C-2, which contains the top marginal rate, was tabled, I believe, in the house on December 8. That itself contains an enhanced 33 per cent charitable donation tax credit, and that's the base of this rule. The budget announced two further refinements based on our continuing work on the bill and comments received. The version that is in Bill C-15, regardless of which bill receives Royal Assent first, is the version that would be enacted going forward. The version that you'll see in Bill C-2 is older, but because of the tabling dates and the uncertainty the newest amendment was put into Bill C-15 as well. You will see this in Bill C-2, and it's not a mistake; it's just that the Bill C-15 version is more refined.
The Chair: Mr. McGowan, the Prime Minister, in his election campaign, had talked about asking people who earned more money to give more so that government could help the middle class. It was reported in the media that the cost of the increase to 33 per cent for those earning over $200,000 was about $1.9 billion per year.
Could you walk us through the thought process in the minds of the people who drew this up? Was there ever a thought of making it revenue neutral so that you would take X number of dollars from the wealthy to distribute amongst lower income folks without creating a hole? If you create a hole there will be other holes in other areas. I just wondered what the thought process was.
Mr. McGowan: I think that relates to the rate changes in Bill C-2. As I understand, the initial suggestion, as part of the platform, would be that the increase in the top marginal rate would offset the decrease in the second marginal rate and, in that sense, it would be revenue neutral. I know that the Department of Finance officials — and Pierre, being an economist, can speak to that in much more detail than I can — ended up with different costing measures that you'll see reflected in the budget and the backgrounder that accompanied Bill C-2.
In terms of the decision-making process and what the correct rates should be, there's not much I can say about that. As Department of Finance officials we provide the data and the analysis of what different options will cost and what the impacts of those options will be, to our best capacity, and then put that information forward.
The Chair: Mr. Leblanc, do you have any other comments? It appears, looking at it briefly, that the money that comes from the highest group of income earners will be distributed to lower income earners, but people earning $160,000 and $170,000 will benefit from it, too.
What constitutes the middle class in your own mind? Was that given thought before this was put together? It doesn't look like it makes a lot of sense to take money from folks earning more than $200,000, and give it to people earning between $130,000 and $180,000. Isn't there a group underneath that that should get most of that money? I'm just trying to understand it.
Mr. Leblanc: I think what you could say, as Trevor did, is the government followed through on its commitment. It committed in the platform to reduce the second rate to 20.5 per cent from 22. It decided it was an important priority. Even if you compare the lowest personal income tax rate and the second rate, you're going from 15 per cent to 22 per cent, which was a pretty big jump. Reducing the second rate by a percentage point and a half from 22 to 20.5 per cent would be an improvement: taking a rate that's pretty high and reducing it down.
I think what you can consider is there's always a trade-off between targeting and simplicity. You do have those with incomes in the second bracket, which ends at $90,563, getting $679 in 2016, and from there to $200,000 and the 33 per cent rate kicks in, but that would keep the tax system pretty straightforward. You would still have your basic rate structure, with the new rate. I think that was considered.
The thing is that there can be considerable economic effects even if someone's income is higher than $90,563. They're not affected on the margin, but if they're deciding whether to stay in the workforce or retire, just to take an example, their income might be $100,000, but it might go down to $50,000 or $60,000 if they retire, in terms of taxable income. That would improve the incentive to keep working, so those incentives can be important too.
The next of the consequential amendments relate to employee profit-sharing plan contributions, over contributions to an employee profit-sharing plan. The tax is determined by reference to the top marginal rate. It has increased to 33 per cent, following the increase in the top marginal rate from 29 to 33. There would be a similar increase in respect of the tax on personal service business income. These are essentially incorporated employees, so they're not independent, small businesses. They're really employees who are providing employment services, not independent contractor services, through a corporation. The tax system treats them essentially as employees by limiting the deductions they're entitled to take, and also here by introducing a new 33 per cent tax rate so that there's not a lower tax rate, in effect through using one of these personal services businesses.
It also amends the definition of relevant tax factor in the foreign affiliate rules. This relates to the foreign accrual property income that I had mentioned earlier in the context of the offshore insurance measure. That taxes, in Canada, certain passive offshore income on an accrual basis. The relevant tax factor, which is relevant in determining how much credit is given for foreign taxes, is being decreased from 2.2 to 1.9, following the increase in the top marginal rate.
The capital gains refund mechanism that applies for mutual fund trusts. Mutual fund trusts, like other trusts, pay tax at the top marginal rate. When they become entitled to a refund of capital gains tax paid in order to fund redemptions, then the refund rate that's used should reflect the top marginal rate at which they pay tax. That's being changed from 14.5 per cent, being half of 29, to 16.5 per cent, being half of 33.
Increases to the Part XII.2 tax rate are proposed from 36 per cent to 40 per cent. Part XII.2 taxes tax on certain distributions from trusts resident in Canada to preferred beneficiaries, but largely non-residents or certain other tax exempts. That is intended to prevent a non-resident from earning income in Canada through a trust and obtaining a lower rate of tax than they would enjoy if they earned it directly.
This additional rate of Part XII.2 tax brings their ultimate level of Canadian tax up to the same as if they had earned the income directly. With the increase in the personal tax rate, then there would be a corresponding increase to the Part XII.2 tax rate in order to preserve the rough parity between those two rules.
Lastly, amending the recovery tax rule for qualified disability trusts to use the new top 33 per cent tax rate as well. Again, that previously used the former 29 per cent tax rate.
That's it for Part 1, if there are no questions.
The Chair: So far so good.
Mr. McGowan: My colleagues can take over.
The Chair: Thank you, Mr. Mercille. We are on page 75, if I understand correctly.
[Translation]
Pierre Mercille, Senior Legislative Chief, Sales Tax Division, Tax Policy Branch: To start, I am going to explain part 2. It contains amendments to the excise tax and the GST/HST. These measures were announced or confirmed in the March 22, 2016 budget. Part 2 begins at clause 63 and ends at clause 71.
[English]
Now I'm going to explain the measures in the order in which they appear in the bill. There are not too many moving around, compared to my income tax colleagues' parts.
The first GST/HST measure in this bill is found at clause 63 on page 75, as mentioned. It is a simplification measure of a technical nature. It provides that interest earned in respect of demand deposits, as well as term deposits and Guaranteed Investment Certificates with an original maturity date not exceeding 360 days is not to be included in determining whether a business will be treated as a de minimis financial institution for the purpose of the GST/HST.
This measure will allow businesses that are not usually considered financial institutions to engage in basic deposit-making activity, for example earning interest by depositing money in the bank, without that activity leading it to be treated as a financial institution for GST/HST purposes.
These businesses may not be subject to specific financial institution rules. One of those is the obligation to file a more detailed financial institution GST/HST annual information return that regular businesses don't have to file; and also they have access to simplification rules for input tax credits.
The next measure is found in clause 64, page 77. It's a relieving amendment. It provides that when a charity makes taxable supplies of property or services in exchange for a donation in circumstances in which an income tax receipt may be issued for a portion of the donation, then only the value of the property or service supplied will be subject to GST/ HST, as opposed to the full value of the donation, as is currently the case.
I want to clarify that this is a relieving amendment. There's no GST on donations if the donor doesn't get anything in return for his donation. This is not affected by existing rules that provide for exemption, basically in the course of fundraising activities. It's only when it's a taxable supply made by a registered charity.
The next measure is probably the most complex one in this bill, but I'll try to simplify it. It's found at clauses 65 and 66 — both together. It starts on page 78 and ends on page 83.
This is also a fairly technical measure that deals with a situation where an insurer in Canada contracts for reinsurance with a related party outside Canada.
Currently, there are special GST/HST imported taxable supply rules for financial institutions that require a financial institution in Canada, including an insurer, to self-assess GST on certain expenses incurred outside Canada that relate to its Canadian activities. So it's a self-assessment mechanism on services acquired outside of Canada.
The measure clarifies that two specific components of imported reinsurance services acquired from a related party outside Canada do not form part of the tax base that is subject to the special GST/HST imported taxable supply rules. This means the self-assessments for financial institutions.
I will give a bit more detail. The two specific components are what, in general insurance and reinsurance terms, are called ceding commissions and the margin for risk transfer. For the first one, the exclusion of ceding commissions relating to reinsurance contract, again this is when an insurer in Canada contracts to have his insurance policy reinsured outside of Canada. The exclusion for ceding commission reflects the fact that they represent the reimbursement of expenses incurred in Canada that were already subject to GST/HST in Canada. If they were not excluded, there would be a risk of double taxation.
The exclusion for the margin for risk transfer reflects the fact that it represents a pure financial element of reinsurance that is GST exempt when it's applied in Canada. That's why it is carved out; if it came from inside Canada, it would be exempt. This is a technical amendment raised by industry, because they have concerns about the double taxation and whether it was basically leading to the right policy result.
The next measure, clause 67, was previously announced and confirmed in Budget 2016. It amends the GST/HST legislation to permit the sharing of taxpayer information within the Canada Revenue Agency in respect of non-tax debt under certain federal and provincial government programs. This is similar to what was explained just before for the income tax part.
There's an additional amendment here. To provide greater consistency among tax statutes, the measure amends the GST/HST legislation to permit information sharing in respect of certain programs where such information sharing is already permitted under the Income Tax Act. So it's just to ensure uniformity among the tax statutes that have those provisions to protect taxpayer information.
The next measure is found at clause 68 on page 85. It clarifies that the GST/HST generally applies to supply of purely cosmetic procedures provided by all suppliers, including registered charities. This is consistent with the long- standing GST/HST policy that elective, purely cosmetic procedures are not part of the general relief for basic health care services and are taxable.
What are we talking about here? Taxable procedures generally include surgical and nonsurgical procedures aimed at enhancing or altering an individual's appearance, such as liposuction, hair replacement procedures, botulinum toxin injection, teeth whitening, et cetera.
Senator Marshall: When I read that, I understand you talk about liposuction, hair replacement and hair removal. What other dental work would there be other than teeth whitening? I think about people getting crowns on their teeth for appearance purposes. Is that taxed now, and will it be taxed in the future?
Mr. Mercille: If it's medically necessary and in the dentistry world or for reconstructive purposes — somebody has an accident and loses teeth and they have to be repaired — that's exempt. It's when it's purely cosmetic.
Senator Marshall: Is there another list? Because the examples that are given there are just examples. I'm sure that there are only a few examples provided. Is there a more comprehensive list somewhere? It would seem to me that that part of the bill is really going to scoop up a lot of items. I'm wondering, am I reading more into it than —
Mr. Mercille: Yes, actually, this amendment is very limited in scope. Essentially, what a dentist, a doctor — other health care services — how they are provided is not affected by this.
What came to our attention is that supply made in a hospital, for example, some of them were taxable. If the same supply had been made through the foundation of the hospital, which was a registered charity, then that supply would have been treated as exempt.
Essentially, this is to level the playing field and address situations where charities started to provide health care services and tried to basically take advantage of the broad exemption for charities in respect of many of their activities.
Since it was against the long-standing GST policy in respect of health care, which is to relieve the medically necessary or something that is covered by a provincial health plan, this was going against the long-standing policy.
Senator Marshall: What estimate is provided with regard to the value of that initiative under clause 68? I was looking in the budget book, and the only thing I think it would fit under would be on page 258 under "other Budget 2016 measures.'' It doesn't seem to be itemized on the previous page.
Mr. Mercille: If you take the document — tax measures, supplementary information — and this was essentially the budget, and this document was attached. It goes with it. It used to be inside; now they did a separate booklet.
All the tax measures are itemized in here, and there's a cost of the measure.
Senator Marshall: What's the value of this one? How much does the government think that it is going to benefit by this amendment?
Mr. Mercille: There's not much data on what has been addressed. It's the kind of situation that we want to address now so it doesn't spread over Canada. In this document, it's essentially a dash. It means it's a small amount — less than $500,000.
I have no more precision on whether it is 10,000.
Senator Marshall: For that clause, if the government wanted to be aggressive, that could be quite a good source of tax revenue.
Mr. Mercille: Yes, but the measure is not here to change the long-standing policy. It's just to address anomalies in the application of the policy.
For the next two clauses, I am going to treat them together because the effect is similar. It's 60 and 70 on page 85. They are very short. Essentially it proposes adding insulin pens and insulin pen needles, as well as intermittent urinary catheters that are supplied on the written order of a practitioner for use by a consumer named in the order. We're going to add those to the list of GST/HST-relieved medical and assistive devices.
The Chair: That's exciting.
Mr. Mercille: It's to respond to comments from taxpayers.
The Chair: Sorry. I have to add a little levity, colleagues.
Mr. Mercille: The last amendment in this part can be found at clause 70 on page 86. It was previously announced, but it was confirmed in Budget 2016. The amendment provides GST/HST relief for feminine hygiene products.
[Translation]
This completes the description of the measures contained in part 2.
The Chair: To get back to what you were saying, did the industry propose these legislative amendments, or did the department request changes to the regulations?
Mr. Mercille: Certain amendments were proposed to us. Normally we conduct consultations with the associations, and they point out certain problems. Some claim that this is not the right way to do things. Sometimes the department is in agreement; other times it is not.
As for the amendments relating to catheters or needles for insulin pens, people consult the Canada Revenue Agency to obtain an interpretation of the law. This happens mostly when new products are introduced, or when people are not sure whether the taxes apply.
The CRA representatives arrive at conclusions without knowing whether the Department of Finance would agree with their conclusions. It is the CRA that contacts taxpayers regarding fiscal matters. We do so as well, but the CRA is a larger organization and it answers taxpayers' questions on a daily basis.
The Chair: do you have any other questions for M. Mercille?
[English]
Are you done?
Mr. Mercille: Yes.
The Chair: Do we have anything else to do this afternoon?
Mr. Mercille: I think you can do Part 3 if you're quick.
The Chair: Let's start Part 3. We've got 12 minutes, so you'll do this rapid-fire before we get back to Question Period.
Thank you, sir.
[Translation]
Gervais Coulombe, Senior Advisor, Sales Tax Division, Tax Policy Branch: Good afternoon; my name is Gervais Coulombe and I am the acting senior excise advisor.
Part 3 contains amendments to the acts that deal with various excise taxes on products like tobacco, alcohol and fuel.
Today I will present three measures. I want to specify that all of these legislative amendments were in the Budget 2016 budgetary plan, or were otherwise made public before the budget.
[English]
The first measure I would like to present to you today relates to the excise tax on diesel. It is found in clauses 72 to 74, which you will find on page 86 and following in the budget bill.
As you may know, the Excise Tax Act imposes an excise tax on diesel and aviation fuels manufactured and delivered or imported into Canada at the rate of 4 cents per litre. There are only a limited number of provisions that relieve the application of that tax on diesel fuel. The measures that we're proposing here ensure that excise tax relief for diesel fuel used as heating oil or to generate electricity is targeted to specific instances. Over time, court decisions have expanded these relief provisions.
First we propose to define heating oil for excise tax purposes as fuel oil that is consumed exclusively for providing heat to a home, a building or similar structure and is not consumed for generating heat in an industrial process. This would ensure that the relief provided for heating oil applies only to heating with respect to buildings, as originally intended, and not for industrial purposes or use, such as diesel fuel used as part of an explosive blasting agent.
We also propose to remove the generation of electricity exemption for diesel fuel used by or in any vehicle, including a conveyance attached to a vehicle of any mode of transportation.
As such, no relief will apply to fuel used to produce electricity in a train, a ship, an airplane or any conveyances attached to such vehicles, irrespective of the purpose for which the electricity is used.
The relief would, of course, continue to apply for electricity generated in other circumstances, such as by power plants, particularly in remote communities or in the Magdalen Islands in Quebec. This measure will apply as of July 1, 2016.
We have access to more details on that measure on pages 63 to 64 of the supplementary tax information to the budget.
If I may, I would move to my next measure. This one is going to be a short one; it's on clause 75. It's simply an amendment to ensure that the information-sharing rules for the collection of non-tax debt that have been explained by Mr. Mercille and Mr. McGowan previously are implemented in the Excise Act, 2001, which is the statute dealing with the taxation of alcohol, spirits, wine and tobacco products. Otherwise, it's exactly the same meaning. This measure will apply as of Royal Assent.
The last measure I have here on that bill is found in clauses 76 to 78. It's supposed to be on pages 90 to 92 of the version of the bill you have. This measure enhances certain security and collection provisions under the Excise Act, 2001, which imposes, among other things, excise duties on tobacco products. This measure is intended to help ensure that these provisions continue to protect the excise duty base. More precisely, we propose to increase the minimum amount of security that tobacco manufacturers must hold with the CRA from $2 million to $5 million.
This amendment will come into force on the later of June 22, i.e., three months after the budget, and on the day on which the current bill that you are studying receives Royal Assent and becomes law.
We also propose to give the Minister of National Revenue the authority to require security for payment of assessed amounts and penalties in excess of $10 million that are not otherwise collectable under the Excise Act, 2001, for example, when a person objects to an assessment. This amendment will apply to amounts assessed and penalties after the day on which this act receives Royal Assent. More details on those measures can be found on page 64 and 65 of the supplementary information.
These are the amendments for Part 3.
The Chair: Any questions of Mr. Coulombe?
Senator Marshall: Would there be a lot of instances of that? You were just saying that clause 76 is going to allow the Minister of National Revenue to require security. We're talking about exceeding $10 million. Are there a lot of the cases like that?
Mr. Coulombe: We have very large tobacco manufacturers. Payment can be in an even greater order of magnitude. When there is a dispute with respect to a certain amount, usually under the existing restrictions for the collection provisions, you can collect up to 50 per cent of that amount.
The current amendment would allow the Minister of National Revenue to seek an extra security to ensure that the amount at risk for the Crown is limited at $10 million.
The Chair: Any other questions? Thank you very much.
I guess, ladies and gentlemen, we have been able to conclude our activities on time so that we can get to Question Period.
Senator Marshall: We were speaking with the previous panel about information sharing, and the sharing of information with the Chief Actuary. Are we able to check with the Information Commissioner or whoever fulfills that role? Is that permitted? Would the Information Commissioner have issues with regard to that?
The Chair: We'd probably have to formulate the question and send it in for an answer.
Senator Marshall: I would like to. My understanding is that whatever is on your tax return — it's not just with regard to your Canada Pension Plan; it's with regard to your private pension plans, your RRSPs, your investments, investment income, your dividends, interest — everything is shareable. When we fill out our tax returns, I would like to know, by putting in this information, who gets access to it besides the Canada Revenue Agency and the Department of Finance? Now it's going to be the Chief Actuary. Who is going through our tax returns?
The Chair: Could I ask you to submit a one-paragraph question?
Senator Marshall: Sure. I will.
The Chair: Then we can send it off.
Senator Marshall: Perfect. Thank you.
Sylvain Fleury, Analyst, Library of Parliament: I understand what Senator Marshall wants.
Senator Marshall: Is it the information question?
Mr. Fleury: I think it's the Privacy Commissioner, but there's maybe also the access to information. I think it's the Privacy Commissioner, but I will double-check.
Senator Marshall: Perfect. Thank you.
The Chair: We will follow up.
Senator Neufeld: Another was the agriculture one. It was suggested that we go to Agriculture. Would we not just write a brief note to agricultural asking about the value of those stocks or whatever they are called, units?
Senator Marshall: For the wheat board.
Mr. Coulombe: The new G3.
Senator Neufeld: It's in regard to the wheat board. He came back and said that he couldn't answer so we should go to Agriculture. We should just write one paragraph.
The Chair: Okay, ladies and gentlemen, meeting adjourned.
(The committee adjourned.)