THE STANDING SENATE COMMITTEE ON NATIONAL FINANCE
EVIDENCE
OTTAWA, Tuesday, June 4, 2024
The Standing Senate Committee on National Finance met with videoconference this day at 9:02 a.m. [ET] to examine the subject matter of all of Bill C-69, An Act to implement certain provisions of the budget tabled in Parliament on April 16, 2024.
Senator Claude Carignan (Chair) in the chair.
[English]
The Chair: Honourable senators, before we begin, I would like to ask all senators and other in-person participants to consult their cards on the table for guidelines to prevent audio feedback incidents.
Please take note of the following preventative measures in place to protect the health and safety of all participants, including the interpreters.
[Translation]
If possible, ensure that you are seated in a manner that increases the distance between microphones. Only use a black approved earpiece. The former grey earpieces must no longer be used. We also ask that you keep your earpiece away from all microphones at all times. When you are not using your earpiece, place it face down on the sticker placed on the table for this purpose.
Thank you all for your understanding.
I wish to welcome all of the senators as well as the viewers across the country who are watching us on sencanada.ca. My name is Claude Carignan, senator from Quebec and chair of the Senate Committee on National Finance.
Now I would like to ask my colleagues to introduce themselves, starting on my left, please.
[English]
Senator Smith: Larry Smith, Quebec.
Senator Marshall: Elizabeth Marshall, Newfoundland and Labrador.
Senator MacAdam: Jane MacAdam, Prince Edward Island.
Senator Ross: Good morning, Krista Ross, New Brunswick.
Senator Pate: Welcome. I’m Kim Pate, and I live here in the unceded, unsurrendered territory of the Algonquin Anishinaabeg.
Senator Kingston: Joan Kingston, New Brunswick.
Senator Loffreda: Welcome. I’m Senator Tony Loffreda, Montreal, Quebec.
[Translation]
Senator Oudar: Good morning. Manuelle Oudar from Quebec.
Senator Galvez: Rosa Galvez from Quebec.
Senator Gignac: Good morning. Clément Gignac from Quebec.
Senator Forest: Good morning. Éric Forest from the Gulf senatorial division in Quebec.
The Chair: Honourable senators, today we will continue our study on the subject matter of all of Bill C-69, An Act to implement certain provisions of the budget tabled in Parliament on April 16, 2024, which was referred to this committee by the Senate of Canada on May 9, 2024.
We are pleased to welcome with us today some senior officials from Finance Canada, Justice Canada and the Financial Transactions and Reports Analysis Centre of Canada. Thank you all for agreeing to participate.
There are several topics and measures to cover. Different speakers are planned depending on the questions posed. We have asked Mr. Glick and Mr. Demeter to take a seat at the table, but we understand that they will not be able to answer all the questions. When a topic touches on a particular official’s area of expertise, he or she may come forward to the table.
Since this is more of a question period, there will be no opening remarks from the main witnesses this morning. So we can start immediately with the question period. You will have five minutes.
[English]
Senator Marshall: Thank you to all the witnesses who are here. I’ll just start near the beginning of the legislation, the bill.
Can somebody speak to the amendments that were made to the alternative minimum tax under Part 1, paragraph (l)?
Okay, Mr. LeBlanc.
We had studied that in the Banking Committee. Can you just start with the changes? Then I have a couple of other questions.
Pierre LeBlanc, Director General, Personal Income Tax, Department of Finance Canada: Sure, and I’d like to thank the senator for her question.
The alternative minimum tax for the personal income tax system is essentially a parallel tax calculation with the intent of ensuring that those with very high incomes don’t benefit excessively from deductions, credits and other tax preferences.
In Budget 2023, the government announced what was basically an overhaul of the alternative minimum tax, and there were key changes. The rate was increased from 15% to 20.5% — in other words, from the first personal income tax rate to the second.
Another key change was that there was a basic exemption for the alternative minimum tax, and this was increased very significantly. It had been $40,000 since the alternative minimum tax was introduced in 1986. It was increased to about $173,200. That’s the start of the fourth federal tax bracket.
Another key change was essentially to broaden the alternative minimum tax base. Before Budget 2023, before that proposal and before what you have today in Bill C-69, only certain measures were disallowed. Basically, under the proposal that you’re considering as part of your deliberations, half of most deductions and credits would be disallowed, reducing the extent to which, under this parallel tax calculation, people can benefit from these preferences.
One exception is that there was an important change in the most recent budget — Budget 2024 — where the government decided that 80% of the charitable donation tax credit would be allowed for the purpose of calculating alternative minimum tax. In other words, only 20% would be disallowed.
Senator Marshall: I understand. I understood it when we talked about it at the Banking Committee before the budget came down. Is it the donations? Because the donations were a big issue. Is that the major change being made?
Mr. LeBlanc: If you look at the changes that were announced in Budget 2024 — in other words, the adjustments to the proposals — that was the major one.
Senator Marshall: I understood everything up to that point.
How does it get operationalized? Say, for example, if I were a high-income person and I submitted the regular calculation, does the Canada Revenue Agency, or CRA, automatically calculate to make sure the taxpayer pays the 15% or 20%? Is that done automatically? Or is it the obligation of the taxpayer to do the calculation two different ways?
Mr. LeBlanc: Thanks for the question.
Under our self-assessment tax system, it’s the responsibility of the taxpayer to satisfy their tax liability. In this case, it’s filling out Form T691, which is to calculate the alternative minimum tax liability. The CRA, in its regular course of ensuring compliance with the tax system, would treat this like any other measure in making sure that people comply.
Senator Marshall: That’s great. Thank you. Can someone speak to the money that’s owed to the small businesses? Is that in paragraph (h) of Part 1 summary? There’s an issue. I see somebody coming up to the desk.
A lot of the tax measures I tried to relate back to the actual budget book, so I’m wondering if it’s in the budget book and whether I’ve identified the right page.
Jenna Robbins, Senior Director, Strategic Planning and Policy, Business Income Tax Division, Department of Finance Canada: It is in Budget 2024. As to the part of the bill — I don’t know if Rob has that?
Robert Demeter, Director General, Tax Legislation Division, Department of Finance Canada: You’re right. It is Part 1, paragraph (h).
Senator Marshall: That’s the money that is owed to the small businesses —
Mr. Demeter: That’s the measure of the return, yes.
Senator Marshall: Is that on page 213 of the budget book? That’s only $1.2 billion, and I thought a lot more was owed to small businesses.
Ms. Robbins: I have my budget document, but I didn’t bring it to the table. I can grab it in a minute. The fuel charge return, the Canada Carbon Rebate for Small Businesses, is going to small businesses and backstop provinces. For the fuel charge years 2019-20 to 2023-24, $2.5 billion is being returned.
Senator Marshall: Is that in the budget somewhere? What page of the budget book is it on?
Ms. Robbins: It is in Chapter 4, on page 201.
Senator Marshall: What chart is it in? Is the chart on page 213?
Ms. Robbins: In the end-of-chapter tables? It is there as well, but it has a funny kind of presentation because it’s sort of showing the reprofile from what was previously booked, how this money was going to go out originally when it was an ACCC program, and how it will go out now as a refundable tax credit.
Senator Marshall: Can you send something to the clerk to show where the other part is? All I have is the $1.285 billion.
[Translation]
The Chair: While Mr. LeBlanc is here, I have a technical question on the same subject. The minimum tax exemption has gone from $40,000 to $173,000, and in the explanation in the question and answer document, it says it’s to account for inflation from 1986 to today. However, I checked, and if inflation is taken into account, it would be about $84,000, not $173,000. That’s double. That’s a big advantage for these people. Why didn’t we just take inflation into account to give a break to people who have quite a bit of means?
Mr. LeBlanc: Thank you for the question. You are absolutely right. It’s not just to take account of inflation. It’s really a much more generous exemption. It’s to target people with very high incomes who use a lot of deductions, credits and other tax preferences. It’s really to better target the measure.
The Chair: Is this a gift we give to rich people?
Mr. LeBlanc: These are people who have to pay more. It’s not really a gift.
The Chair: They take it and it pays for a coffee. Thank you.
Senator Forest: According to the latest Fiscal Monitor, it looks like Canada could miss the target of limiting the deficit to $40 billion by $10 billion. We understand that there are year-end readjustments, but we’ll really have to be very creative and imaginative to meet this target, because we’re talking about a 25% gap.
In her budget, Minister Freeland certified that the shortfall in 2023-24 would be maintained at or below the 2023 budget projection of $40.1 billion. In your opinion, is this commitment by the minister considered a suggestion, or is it really a firm commitment to be met?
Mr. LeBlanc: Thank you for the question. We’re here to talk about the measures included in Bill C-69. We can’t really comment on the government’s budgetary policy. So, we have nothing to add to what the Deputy Prime Minister said during her appearance last week.
Senator Forest: Thank you. I’m going to continue on balanced budgets. Canadians are really worried. We’re talking about refocusing spending, eliminating 5,000 positions and cutting $4 billion over five years. Given our history, I asked the Parliamentary Budget Officer at his appearance what he thought about the situation in terms of the ability to meet these targets. I’ll quote him:
With the objectives, targets or ambitions that the government announces in budgets, off-budget or in economic updates, I don’t believe that the pace of spending will ease. In fact, when you make a graph showing the future profile of spending with each economic update to the budget, you see that there is only one trajectory. The government’s own forecasts are successively revised upwards.
Does it worry you that Parliament’s most senior officer says he no longer believes the government’s forecasts?
Mr. LeBlanc: Thank you for the question. I’m sorry to have to give the same answer. We’re people from the Tax Policy Branch and the Financial Policy Branch. We’re here to explain the measures included in this bill, but the government’s budgetary policy is not our area of expertise. So I can say no more.
The Chair: I understand. I don’t want to put you in a difficult position, but you do advise the minister. She asks you questions and she allows you to validate hypotheses that may be put forward. I understand your point of view, but it’s delicate; still, I imagine it’s the kind of information someone in the room has, otherwise it’s worrying.
Mr. LeBlanc: I would add that if you have questions about the costs and the financial effects of the measures included in this bill, we will, of course, be happy to provide that information.
The Chair: So, the answer is a non-answer.
Senator Forest: If I approach the question from another angle, the minister has set targets; so, as a result of the enlightenment she has received from across the public service, what is the strategy for achieving the 5,000-position target?
The Chair: Can anyone else answer? We don’t want to—
Senator Forest: —turn the knife in the wound.
Mr. LeBlanc: No, but I’m sorry; we really do have the same answer.
The Chair: So, I understand that no one in the room is part of the strategic plan to cut 5,000 positions.
Mr. LeBlanc: Yes.
Senator Forest: I have no more unanswered questions.
Senator Gignac: I thank my colleague for giving me more time.
Welcome, witnesses. My questions are going to be on Division 16 of Part 4. I believe this question will be for Ms. Hamel.
Good morning, madam. We’ve heard from a lot of witnesses on the Banking Committee, since its mandate was to examine Division 16 of Part 4. We’ve heard a lot of testimony. I’d like to come back to the consultation process you held. In April 2021, there was an advisory committee on the open banking system, and there were many steps. Can you tell us more about that?
Also, what was your reason for choosing the Financial Consumer Agency of Canada? The Standing Senate Committee on Banking, Trade and Commerce, which will be reporting shortly, since we’re at the pre-study stage, has expressed reservations about this federal agency.
Judith Hamel, Director General, Financial Services Division, Department of Finance Canada: My name is Judith Hamel, Director General, Financial Services Division, Department of Finance Canada, within the Financial Sector Policy sector. With me today is my colleague Graham Page, Senior Analyst, Financial Services Innovation, Department of Finance Canada.
Thank you for the questions. In terms of the consultation process, it’s been a long process over the last six years to arrive at the framework that is presented in the context of the 2024 Budget. First there was an advisory committee that was set up and produced a report. In what year?
The Chair: In April 2021.
Ms. Hamel: In April 2021, there was this report, which was a first step to inform the government. This was followed by the appointment of an open banking officer within the department, for a term of 18 months, until the end of 2023. His main task was to advise the government on setting up a framework for consumer-oriented banking services. To this end, he set up several working groups. He was supported by a secretariat within the department, so the Financial Services Innovation team acted as a secretariat to the head of open banking. There were four working groups covering specific aspects of the consumer-focused banking framework; within each of the working groups, there were representatives from the industry, obviously, consumer groups, provincial regulatory agencies, and also the provinces. In addition, potentially involved federal agencies acted as observers to these working groups.
Senator Gignac: I don’t know if you listened to the testimony of the Acting Commissioner of the Financial Consumer Agency of Canada at the other committee. His answers were a little disturbing; he said he was Acting Commissioner. In Division 16, it says that we’re going to create a new Deputy Commissioner position, and that we are going to hire him or her. It says that the Commissioner needs to be hired, because he’s only Acting Commissioner; once the new fellow is found, we’ll start looking for the new Deputy Commissioner, because he’s going to report to the Commissioner.
In short, will we be ready in November for Part 2? He was saying that the agency didn’t have the skills required to meet the new mandate. We’re talking about Part 1, it’s urgent and we have to move quickly, because the second bill is coming, but the agency to which we’ve given the mandate is being restructured, because it doesn’t have the required skills. I was wondering why we had to move so quickly and why we had to make a decision quickly, because in the end, the agency in question isn’t ready to take on the mandate…. They’re going to take on the mandate. The other question is: why didn’t you give the mandate to the Office of the Superintendent of Financial Institutions (OSFI), which is used to interacting with the provinces?
Ms. Hamel: One of the reasons the provisions were included in the budget bill is to give the Financial Consumer Agency of Canada a chance to get ready to perform its new duties. We are well aware that the agency does not currently have the expertise. However, none of the other agencies have it either, since it’s a new activity. Wherever the government decided —
Senator Gignac: I don’t mean to put you on the spot. I have one last question. I am concerned about governance, in that there won’t be an independent board of directors. The agency’s mandate will expand, so they will look for outside expertise and maybe hire some top gun. As I understand it, everything will be up to the finance minister’s discretion. There is no independence, unlike with the Bank of Canada, which has its own board of directors. The Canada Pension Plan Investment Board also has its own board of directors.
Are you open to the idea of reviewing the governance model in the fall, when the act is reviewed? It’s a matter of dealing with the provinces. For example, Desjardins is the largest financial institution in Quebec and is under provincial jurisdiction. It will have the option of joining the new system, and it no doubt will. Are you prepared to review the governance model in the fall, even if we adopt Division 16 of the bill this month?
Ms. Hamel: I will tell you what steps we’re taking next. Once again, the provisions in the bill under study are a first step in setting up a framework for consumer-driven banking. Consultations are ongoing with the industry, the provinces and consumer groups. We have heard the same concerns as you have. The discussions we’re having now will inform the department’s decisions and positions regarding the second bill.
Senator Gignac: Thank you for the explanation.
[English]
Senator Smith: I have a question for the Finance Department regarding Division 16 of Part 4, relating to the consumer-driven banking framework. As I understand it, Finance Canada is responsible for creating the framework, which would include technical standards as well as definitions. The legislation before us allows for both consumers and small businesses to direct their data to be shared with financial institutions, but there’s no clear definition of “small business.”
What sort of guidelines are being used to determine what constitutes a small business?
Graham Page, Analyst, Financial Services Innovation, Department of Finance Canada: As you’ve alluded to, we’re still consulting with industry and provinces. That’s part of the development of the legislation that will be in the budget implementation act, no. 2, or BIA2 for short. There is no definition of small business yet because we’re still determining what the next step will be in terms of that scope.
Senator Smith: Do you have a timeline for when the completed framework will be ready to be implemented by the Financial Consumer Agency of Canada, or FCAC? I’d like to get a sense of how much work is remaining in this regard. Where are you in this process?
Mr. Page: There is the legislation before you in the budget implementation act, 2024, no. 1, or BIA1, and there will be additional legislation brought forward in the fall in BIA2. That will round out the legislative framework.
Senator Smith: It will round out the legislative framework, but where will you be in terms of actual implementation of the management process? This is a process, right? How long will it take to get the process in place once the legislation is passed?
Mr. Page: Once the legislation is in place, a regulatory development process will follow, and then the FCAC will be ready to implement. Finance is not responsible for the implementation. The FCAC is overseeing the framework.
Senator Smith: Paragraph (a) of Part 1 summary would effectively crack down on short-term rentals, like Airbnb, by denying income tax deductions for owners of non-compliant short-term rentals.
Could you provide us with an explanation for this change? What prompted the federal government to introduce this new rule?
Mr. Demeter: Thank you for your question.
The intention of the measure is to support the work of provinces and municipalities that have taken steps to restrict the use of short-term rentals that are non-compliant with provincial and local laws. We want to encourage those properties back into the long-term housing supply in Canada.
Senator Smith: Have you already set up the criteria which will measure whether this occurs in the marketplace, in terms of the Airbnb rentals? I am trying to get an understanding of what makes them ineligible to claim business deductions. At the end of the day, what is going to make them ineligible?
Mr. Demeter: The administration of the measure itself would be driven by the Canada Revenue Agency. That question is better directed to the Canada Revenue Agency in their determination of —
Senator Smith: Who makes up the policies? Is it the Canada Revenue Agency, or is it yourselves? I’m just trying to understand the balance between the different departments. It’s easy to say that department is responsible, so we’re not, but you’re working together, as I understand it. Is the policy in place, or when will the policy be in place so that you can actually work with Canada Revenue Agency to make sure it’s being monitored properly and that people are following the rules?
Mr. Demeter: I believe the policy is reflected in the measure. The Department of Finance develops the policy and the intent of the measure. As I say, the intent of the measure is to support the work of provinces and municipalities that have taken steps to restrict or regulate, in their particular regions, the use of short-term rentals and appropriate circumstances.
That feeds into the provinces and municipalities and their determinations of what constitutes a compliant versus non-compliant short-term rental.
Senator Smith: Once this policy is implemented, do you have any sort of projections of the financial implications? Are you targeting or measuring or estimating the type of revenue or the amounts that could be returned, through some form of penalties, to the government?
Mr. Demeter: It’s challenging in this case to determine that with the information available. It’s challenging, in general, with tax integrity measures, to put an expected revenue figure on it.
Senator Smith: I’m just looking for the cohesiveness between the departments on the implementation and execution so that it becomes clearer to understand. That’s all. Thank you, sir.
Senator Kingston: My question, I believe, is for Mr. Demeter. It’s regarding Division 12 of Part 4, on the federal transfers.
What steps regarding the collection, sharing and use of health information will provinces and territories be required to take to qualify for the Canada Health Transfer top-up payments guaranteeing 5% minimal growth?
I’m looking at the object of this plan. What are you missing now from the provinces that you’d like to enhance and incentivize?
Galen Countryman, Director General, Federal-Provincial Relations Division, Department of Finance Canada: Thank you for the question. As part of the federal health funding package from last year, one of the key objectives from the federal government was to improve the collection of comparable data nationwide across jurisdictions, basically, to help Canadians have a better sense of how the health system is performing and achieving its objectives.
That was a key objective. Health Canada has been working with provinces and territories to develop a set of common indicators with CIHI, the Canadian Institute for Health Information, and to get provinces and territories to agree to commit to filing that information to CIHI. It will be up to the Minister of Health to determine whether the provinces have made sufficient progress in that regard to be eligible for the Canada Health Transfer 5%guaranteed top-up payments.
Senator Kingston: Is there any particular thing being done in this upcoming year? This is the starting point for how this information will be collected. What are the priorities for the collection of the information?
Mr. Countryman: That question is better directed to Health Canada officials who are more engaged with the provinces and territories. I’m not an expert in the specific measures they’re trying to achieve. I know they’re trying to be in common. There will be some flexibility because the systems are different from province to province, but they’re trying to achieve some commonality across the board.
Senator Kingston: Thank you. I guess I’ll have to ask Health Canada.
Next, I want to ask about Jordan’s Principle as described in Part 1 summary, paragraph (c). Was the tax-free characterization of this income, as proposed in Bill C-69, specified in Jordan’s Principle when it was developed?
Mr. LeBlanc: Thank you for the question. It’s common for trusts like this, where you have two things: Some amounts are going to those who have suffered harm, and those amounts are typically non-taxable. Then you have the trust itself. The trust can earn investment income as a steward of these funds. The measure you have in Part 1 (c) has been done for other trusts of this nature. It’s basically to ensure that the investment income earned by the trust itself remains non-taxable.
When the settlements are reached, they sometimes have general language about how these amounts will be treated, but it requires, obviously, legislation to put that into effect.
Senator Kingston: In a follow-up to that, for what reasons are these credit amounts not indexed to inflation, similar to other personal tax credits? What would be the current value of these credits if they were indexed since their inception?
Mr. LeBlanc: I’m sorry, senator, to which amounts are you referring?
Senator Kingston: You were saying some of these credits went to individuals. Other credits are indexed to inflation —
Mr. LeBlanc: Generally, if you have a settlement of this nature which is the result of a class-action lawsuit — and I can only speak in general terms here — you have those who are eligible to receive amounts as a result of the settlement. The amount would depend on the nature of that settlement. I would imagine that sometimes it would be a one-time amount, or there could be periodic payments. That’s outside the tax system. A trust has been set up essentially to be the steward of these funds. This is to ensure that when investment income is earned by the trust, it is non-taxable.
Senator Kingston: If there are ongoing payments, they would not be indexed to inflation then?
Mr. LeBlanc: I am sorry not to be able to speak to that, but that would depend on the agreement reached in the settlement.
Senator Kingston: Thank you.
Senator Ross: Good morning. I have a question about the Clean Technology Manufacturing Tax Credit. I’m wondering if you can give me a sense of the changes between what came out in Bill C-69 and the draft legislative proposals — what the changes are and why.
Ms. Robbins: Thank you for the question. I didn’t introduce myself earlier. I’m Jenna Robbins, tax policy, Finance Canada.
There are a couple of things here. The draft legislation came out in December. The bill looks very much like the draft legislation. There are very limited changes, and, in particular, there are no policy changes from the December release to now. It’s mostly just in the technical drafting and to provide clarification in certain cases where we heard from stakeholders that the draft was unclear as to the meaning.
The second part is that Budget 2024 introduced proposed changes to make the credit more accessible to certain critical mineral projects that are polymetallic in nature, where they mine more than one critical mineral. Those proposed changes are not included in Bill C-69. Those would come in future legislation. Draft legislation for those changes is targeted for the summer.
Senator Ross: What I’m hearing from industry is that projects that would be eligible for these credits would often take 12, 15 or even more years to develop, but the credit period seems to be capped at 10 years. Can you give me a sense of why that would be?
Ms. Robbins: Thank you for the question.
The period that has been chosen for this credit — as well as for the other clean economy credits — is up to 2035. This is generally aligning with the greenhouse gases, or GHG, targets that the government has and aligns across the suite of credits.
Senator Ross: I also read that many of the potential Indigenous projects won’t be eligible for this. Is that accurate?
Ms. Robbins: Thank you for the question.
I think I might need more detail as to the nature of the projects and why they’re considered ineligible.
Senator Ross: My understanding is that it’s because of the set-up of the corporation — that an Indigenous project does not meet the requirements that are needed in Bill C-69.
Ms. Robbins: It will depend on the project. The credit is available for corporations. To the extent that an organization or an entity is not a corporation, they would not be able to access the credit.
Senator Pate: My question relates to the Charter Statement for Bill C-69. This question will be partly for Justice Canada and partly for Finance Canada. It is particularly regarding the detention of migrants in federal prisons.
Despite significant human rights concerns that legal and human rights experts have raised — including before the Senate National Defence Committee last week, where the Honourable Allan Rock noted the potential for several Charter and human rights concerns related to these provisions — the gap in the Charter Statement seems indicative of the broader concern about using omnibus legislation to fast-track consideration of these types of measures with significant potential impact for human rights abuses.
I’m curious as to why there’s no discussion of Bill C-69’s provisions on detention of migrants in federal prisons in the Charter Statement. Could the Department of Finance please elaborate on what steps were taken and who was consulted to assess the human rights impacts of this measure prior to the inclusion of it in Budget 2024 and Bill C-69?
Mr. Demeter: My name is Robert Demeter. I’m from the Tax Legislation Division of the Tax Policy Branch. I don’t believe we have anybody here to speak to that, but that’s something we can possibly come back with.
Senator Pate: Could you provide that in writing? That would be great. I’ll move to another question.
The 2023 costing of proposed changes to the alternative minimum tax, or AMT, by the Parliamentary Budget Officer, or PBO, indicated that there’s a considerable uncertainty as to the magnitude of the behavioural responses — that’s a quote. The potential for taxpayers to arrange their finances differently to avoid paying taxes is particularly significant, given that the AMT will now focus narrowly on Canadians with the most income — a group that has the most resources to also carry out tax planning and, more importantly, tax avoidance.
Given the importance of ensuring all of us pay our fair share, what concrete steps is the government taking with respect to the AMT to ensure these measures are aimed at those with the most resources and effectively capture that demographic?
Mr. LeBlanc: Thank you for the question, senator.
I can mention a couple of things. First, in the estimate of the fiscal impact for the alternative minimum tax changes that we provided in Budget 2023, we wanted to be prudent. Therefore, we did take into account the fact that we expected some — what we call — behavioural response after or as a result of these proposed tax changes. We think we were prudent in that regard. It is a measure that we think — even with these prudent adjustments — will increase tax rates meaningfully, especially for those with the highest incomes.
I’m thinking of the chair’s question earlier. Really, the idea of increasing the threshold and increasing the rate from 15% to 20.5% is really to focus the alternative minimum tax at the very top of the income distribution. Otherwise, I would say that the government is always looking at how it can maintain the fairness of the tax system through policy changes — we’ve seen some important ones in Budget 2024 — to improve the fairness of the tax system.
My colleague Rob talked about tax integrity measures — closing unintended loopholes where appropriate — and also providing funding to the Canada Revenue Agency to reduce tax evasion. If you take all those things together and in the context of this measure, that will have a meaningful impact.
Senator Pate: Because of the carry-over system, the AMT, including the new amendments proposed in Bill C-69, was characterized by at least one director of a wealth management company — CIBC Private Wealth Management — in an interview with Bloomberg as a “prepayment” rather than a system for raising new revenue. He said:
The good news, however, is that in almost every case, the minimum tax is really just a prepayment. It is recoverable. There’s a seven-year carry-forward to the extent that your ordinary tax exceeds minimum tax in a future year.
Do you agree with this assessment?
Mr. LeBlanc: I agree that the carry-forward is an important element, and there certainly is an element of prepayment. That said, in Budget 2023, we estimated that the measure would increase federal revenues by about $3 billion over five years. There’s a modest reduction in that because of the change that I was describing to Senator Marshall — the change related to the charitable tax credit — but it remains a fact that, over time, the alternative minimum tax will raise a significant amount of revenue. Therefore, clearly, what you heard is an overstatement.
Senator Galvez: My question is for Part 4, Divisions 11 and 13. Division 11 amends the Financial Administration Act to require certain banks and other financial institutions to disclose prescribed information for federal payments accepted for deposit.
My first question is what the problem was initially so that we needed to do these changes. And then, what do you recognize as “prescribed information for federal payments”?
Nicolas Marion, Senior Director, Payments Policy, Department of Finance Canada: Thank you for the question.
It’s important to understand that it’s helpful for Canadians to know the benefits and payments they receive from government. The amendment in the budget implementation act will provide regulation-making authority to advance regulation to prescribe labelling for government payments. Having a standard where all financial institutions use clear labelling is for the benefit of greater transparency for all Canadians.
Senator Galvez: Can you please give us an example of how a label will be improved and how it will be clearer for everybody?
Mr. Marion: Canadians now receive a number of different payments, such as tax returns, the child benefit, GST benefits, the Canada climate rebate — a number of different types of payments and benefits from the government.
The intent here is to provide regulation-making authority so that if institutions were not adopting existing standards as it relates to the labelling of these payments, the government could come up with regulations prescribing them and compel financial institutions to use appropriate labelling in consumer statements and online banking reports.
Senator Galvez: When you initially considered these initiatives, I believe, it was because of transparency, normalization and harmonization, but was there other information indicating that, in the future, you will follow the same type of initiative?
Mr. Marion: Part of the genesis for this regulation-making authority is us acquiring an understanding that not all deposit-taking financial institutions approach labelling in a clear and concise way. There are standards for all government-type payments as it relates to their labelling; however, in canvassing a number of financial institutions, it became clear that there wasn’t a common approach taken by all, even though there are standards in place.
Senator Galvez: My other question is with regard to Division 13, concerning amendments to the Pension Benefits Standards Act to require that the Superintendent of Financial Institutions publish certain information relating to pension plan investments. It also amends the Pooled Registered Pension Plans Act to require that plan administrators provide specified information by written notice to certain persons when they become members of a pooled registered pension plan.
Would the forthcoming regulations for these pension benefits standards regulations require large federally regulated pension plans to discuss the distribution of their investment, both by jurisdiction and by asset type?
Kathleen Wrye, Director, Pensions Policy, Department of Finance Canada: Yes, senator, you are correct. This proposed amendment is in relation to the Budget 2024 announcement that the government would be requiring the Office of the Superintendent of Financial Institutions, or OSFI, to publish information regarding the investments of large federally regulated plans, and that would be by jurisdiction and by asset class.
Senator Galvez: Will this include, for example, knowing in which types of projects our pension plans invest?
Ms. Wrye: It’s not anticipated that this will go into that level of detail. We’re looking by jurisdiction — Canada, the U.S. and certain other countries or regions. It’s difficult to be exhaustive, but there will be consultations through the regulations on the categories proposed.
One thing the department is looking at is what kind of information Statistics Canada already collects regarding jurisdictions and asset classes. As noted, the intent about trying to engage with provinces and territories is to come up with a standard, uniform approach that other governments could join the federal government in doing. We are looking to know what some of the broad asset classes are, but not by specific project.
Senator Galvez: Recently, we have heard from many reports and from news in the media that our pension plans invest larger funds outside Canada and very little in Canada and that they have offices in major cities around the world.
Isn’t it important that Canadians know this information but also know where pension plans are investing, because of new risks that are there?
Ms. Wrye: Thank you very much for the question. Certainly, and part of the proposed measure is to increase transparency for Canadians about where pension plans are invested. This measure would only apply to those federally regulated pension plans, which does not include any of the large “Maple 8” plans. The government will be engaging with provinces on similar disclosures, as well as with some of the other large plans not in our jurisdiction.
Those are some of the considerations being taken into account, looking more at by-country or by-region types of disclosures. To get into by-project disclosure, I’m not sure whether that kind of data is possible or whether it could be put into a format that is easily understood. I would note that most of the “Maple 8” plans have extensive annual reports where they provide some of this information already. It’s just not in a uniform, standard format where it can be compared easily across plans and jurisdictions.
[Translation]
Senator Galvez: Thank you.
Senator Dalphond: I would like to finish up with a small clarification about Senator Galvez’s questions on Division 11, which concerns the disclosure of information by the banks. Thank you for coming back to the table, Mr. Marion.
Am I to understand that what actually triggered the government’s interest in requiring the disclosure of payment-related information was the carbon tax rebate? This payment is sent to all Canadians in most of the eight provinces under the federal system, who often don’t know why they are receiving money and don’t make the connection between the carbon tax and the rebate.
Mr. Marion: Thank you for the question, senator.
Senator Dalphond: I read it in the paper.
Mr. Marion: It’s true that some items regarding the disclosure of information on the rebate and the carbon tax were reported in the media. That said, when we polled the financial institutions, we realized that they have a patchwork approach to disclosing information about government payments. The provision in the budget implementation bill could effectively cover all payments made by the government.
Senator Dalphond: Thank you, Mr. Marion. My other questions relate to Division 34 of the bill, which concerns information sharing in relation to money laundering. The proposed provisions would authorize information sharing about the movement of money to make it easier to seize funds that are often held under a variety of names and numbers. Quebec, for example, has a proceeds of crime forfeiture act. It relates to civil, not criminal, proceedings. As I understand it, this information is not currently being disclosed.
Will this change what is done in practice? Will the agency voluntarily provide information to the provincial Attorney General? Will it say, “Here is some information that could be useful to you under your proceeds of crime forfeiture act?”
Erin Hunt, Director General, Financial Crimes and Security Division, Department of Finance Canada: Thank you for your question. I am Erin Hunt, Director General of the Financial Crimes and Security Division at Finance Canada. With me are two colleagues from Finance Canada, as well as Patricia Bennett, from FINTRAC.
That’s an excellent question. I will start, and if my colleagues have anything to add, we can provide further information. The bill is designed to bring provincial and territorial forfeiture offices into our regime to receive direct disclosure information from FINTRAC in order to prosecute in their area of civil asset forfeiture. The goal is to include them directly in the regime. At present, they can receive that information from provincial police or other agencies, but the goal is to give them direct access to that FINTRAC information.
Senator Dalphond: They will have access to the FINTRAC database?
Ms. Hunt: FINTRAC has to reach a certain level of information, a threshold, before it can disclose that information to one of the recipients. If the information reaches that level and relates to the work of those civil forfeiture offices in the provinces and territories, FINTRAC can disclose that information.
Senator Dalphond: Will that be done automatically or will the Attorney General of Quebec, who is responsible for the Act respecting the forfeiture, administration and appropriation of proceeds and instruments of unlawful activity, have to contact FINTRAC first and ask if they have information about a particular person? Do you identify a certain number of transactions that meet the threshold and that trigger a red flag, and then tell them that they should pay attention to a particular person?
Ms. Hunt: That’s a good question. I will turn it over to FINTRAC so they can explain all of that. Actually, there are two ways of doing it.
Patricia Bennett, Manager, Partnership, Policy and Analysis, Financial Transactions and Report Analysis Centre of Canada: Thank you for the question.
[English]
The way that the Financial Transactions and Reports Analysis Centre of Canada, or FINTRAC, works operationally with the disclosure recipients is to provide information once a threshold has been reached. It will provide financial intelligence to those disclosure recipients. In order to assist FINTRAC in reaching those thresholds, all of our disclosure recipients are able to provide voluntary information records to us to help point us in the right direction to understand priorities, key areas of interest and key targets that disclosure recipients are working on. That would help us meet our disclosures threshold.
While there’s not a direct-query capability, there is a strong relationship between us and our disclosure recipients whereby we communicate, and we learn from them what their priorities are through their voluntary information.
Senator Dalphond: So it’s a very interactive process?
Ms. Bennett: That’s right. We have a strong relationship while maintaining that arm’s-length distance between them because we’re not a law enforcement agency. However, a lot of discussion is ongoing on a regular basis with those who are undertaking investigations and how we may best be able to support them.
Senator Dalphond: And you don’t provide this information if it’s in the framework of a criminal prosecution because you will need a warrant from a judge to provide information, yes?
Ms. Bennett: That’s right. Yes. Thank you for the question. Our disclosures to law enforcement are considered financial intelligence, so they are not evidence in criminal proceedings. However, they provide disclosure recipients with a capacity to further their investigations for those criminal processes.
Senator Dalphond: Thank you.
Senator MacAdam: My question is on Part 4, Division 34, as well. The FATF, the Financial Action Task Force, the international standard-setting body on anti-money laundering and anti-terrorist financing, has recognized private-to-private information sharing as an important tool for disrupting money laundering and terrorist financing.
Have any members of the task force recently strengthened their information-sharing frameworks? Are the proposed changes in Bill C-69 modelled after some of those best practices?
Justin Brown, Senior Director, Financial Crimes Policy, Department of Finance Canada: As you mentioned, the FATF has acknowledged that private-to-private information sharing is an emerging best practice. It can be very useful in combatting financial crimes.
There are several jurisdictions, including FATF members, that have frameworks in place already. There are different models depending on the country. Two jurisdictions we have looked at very closely are the United States and the U.K. They have both allowed this type of information sharing for a number of years. However, in recent years — I think three or four years ago — the United States took administrative action to further encourage the use of their information-sharing framework, especially by large financial institutions. Last year, I believe, the U.K. made legislative changes to its financial crimes law to strengthen the ability of its equivalent reporting entities to share information for the purpose of combatting financial crimes.
We reviewed the models in those jurisdictions in terms of developing the legislation contained in the bill. It’s not exactly the same. The legislative framework in Canada, the Charter, the view on privacy protections in Canada are somewhat different than in other jurisdictions. While this bill targets the same objectives, the way it’s modelled is slightly different. I’d say what’s particularly notable about the approach taken in Canada is the bill would allow for the prescription of a role specifically for the Office of the Privacy Commissioner of Canada, or OPC. Putting in a role specifically for the privacy protection authority in the Canadian approach, I believe, is unique internationally.
Senator MacAdam: Under the proposed changes to enhance information sharing, will individuals be made aware of instances where the information which they provide to a reporting entity is shared with one or more other entities?
Mr. Brown: The legislation would provide an exception to the general principle of privacy, which is informed consent to disclosure. That is the nature of the exception. It would be done under specific thresholds and conditions. First, this is under Canada’s anti-money laundering legislation, so it is specified to entities that are already regulated by FINTRAC for anti-money laundering purposes. The information could only be disclosed for anti-money laundering, anti-terrorist financing and anti-sanctions evasion purposes. There would be a threshold that obtaining that consent would have to risk compromising those objectives.
Further to that, as mentioned, regulations would spell out specific processes that reporting entities would need to follow, and there would be oversight roles for the Office of the Privacy Commissioner and FINTRAC.
Senator MacAdam: As a follow-up, what recourse would be available to individuals who believe their information has been shared inappropriately?
Mr. Brown: There are coordinating and consequential amendments with Canada’s privacy law. PIPEDA, the Personal Information Protection and Electronic Documents Act, exists currently, and there’s new privacy law being considered by Parliament right now.
All of this would remain subject to Canadian privacy law, including the existing and, potentially, the proposed powers of the Office of the Privacy Commissioner. That would include a complaints process, an investigation process by the OPC and other powers to ensure that people’s privacy rights are protected.
Senator MacAdam: Thank you.
Senator Loffreda: Welcome to our witnesses. My question is for Finance Canada. We have been analyzing and studying open banking for six years now. Bringing it forward with the existing framework, do any areas concern you with respect to completing open banking once and for all? While 47 countries have adopted open banking, we’re the last country in the G7 to adopt it.
There are some concerns among senators with respect to administration and oversight. What are your thoughts on that? How long do you think it will be before we put it in place?
Ms. Hamel: The fact that other countries have put in place a system before us is actually helpful in being able to learn from them and from their experiences.
In terms of timelines, we are hoping to finalize the legislative framework for consumer-driven banking by BIA2, so in the fall of the current year. As Graham Page mentioned, there will then be a regulatory process. Following the regulatory process, there will be an implementation period. After that, consumer-driven banking would be in place in Canada.
Senator Loffreda: What have we learned from the other 47 countries that have put it in place, what best practices? Can we learn from other jurisdictions?
Ms. Hamel: Yes, absolutely. The decision to move ahead with a system that would be overseen by the government is one of the lessons we learned by looking at examples in other jurisdictions. Similarly, looking at the EU experience, it became obvious that having a single technical standard for the system was preferable to having multiple standards in place at the same time.
Senator Loffreda: There is a level of discomfort with respect to the co-ops, for example, in our province of Quebec, the caisses Desjardins regulatory bodies with respect to the provincial co-ops.
How do you see that going forward and taking place? Where do you see the provincial governments’ place in all of that, given that open banking will be federally regulated?
We have put an administrator in place. There are certain questions around the capacity to govern: why not an independent agency such as OSFI, which could have opened up a different division with respect to overlooking and overseeing the open banking concept rather than doing what has been done here? Does that concern you?
Ms. Hamel: Graham can jump in, but based on international experiences, consumer-driven banking often resides with consumer protection agencies and consumer protection bodies in the various countries. That was maybe an argument in favour of having it reside within the FCAC.
What’s currently proposed in this bill is that provincially regulated financial institutions would be able to opt into the system.
Senator Loffreda: And they will opt in.
Ms. Hamel: They will opt in. Well, we don’t know if all of them will opt in, but they will have the possibility to opt in, and we have indication that many of them are interested in joining the system. But it will still be subject to their provincial regulators for the purposes of all other activities than consumer-driven banking, but also for consumer-driven banking should provincial regulators decide to impose additional conditions.
Senator Loffreda: I’d like to have Graham Page’s take on that, but when it comes to consumer protection, would the provincial laws be in force, or would they now be federally regulated? If a consumer in Quebec, for example, has an issue with open banking, who will govern that issue? Who will regulate that issue?
There is some concern from the caisses Desjardins and from some of the co-ops across the country with respect to what I have already mentioned.
Ms. Hamel: In the framework as presented, if the issue relates to one of the rules around consumer-driven banking — but, again, these rules are not set by the current bill. They would be forthcoming in the BIA2.
Senator Loffreda: Right. Yes.
Ms. Hamel: This is only the governance, scope and process to identify the technical standard. We are planning to develop common rules for participants, to assist them.
If the issue is related to a common rule related to consumer-driven banking, then it would be FCAC overseeing it, yes.
Senator Loffreda: They would oversee it, and the consumer protection laws in the provinces no longer apply?
Ms. Hamel: No. It wouldn’t be superseding provincial law.
Senator Loffreda: Do you see the provinces agreeing to that?
Ms. Hamel: We are in discussion with the provinces right now, as I said to Senator Gignac. We’re certainly discussing with all of them, and they are all interested in the work around consumer-driven banking. They want to be part of the development.
Senator Loffreda: So, you are discussing with the stakeholders, which are the provinces, with the co-ops. They have a large share of the market. In Quebec, the co-ops have close to 50% of the market. Why weren’t those discussions held previously? We have been looking at open banking for six years now. Why are you telling us those discussions have to take place?
We all know that the provinces want to rule or regulate what is under their jurisdiction, so why is it so late in the process? When I previously asked why it has taken so long for the open banking framework to come forward, they told me to ask the Finance Department.
Ms. Hamel: Conversations are not just starting now. They’ve been ongoing for a significant period of time. I said that we had four different working groups to discuss aspects of open banking, but we also had a more general discussion with all participants of the working groups to discuss governance. The conversations are not just starting now.
Senator Loffreda: You’re comfortable with what has been put forward, the framework, and it will be improved going forward is what I hear.
Ms. Hamel: Yes. The idea is to have a framework that works for all Canadians.
Senator Loffreda: And it will be improved going forward, according to discussions you’re currently having with the stakeholders.
Ms. Hamel: Correct.
Senator Loffreda: Good.
[Translation]
The Chair: Senator Oudar, did you have a question?
Senator Oudar: I have three questions about the provisions of the Canada Labour Code and federally regulated employees. I don’t know who can answer my question. The first pertains to the right to disconnect, which will result in big changes for more than 500,000 Canadians. This provision has not received much attention, but it is very important for the coming years. We see in the budget —
The Chair: Can anyone answer these questions about the right to disconnect? That’s the problem with an omnibus bill.
Senator Oudar: I will ask my question and would appreciate receiving written answers. This measure applies to 500,000 Canadians. The budget allocates $3.6 million to Employment and Social Development Canada. That funding is already in the 2024–2025 budget. In reading the bill, however, we can see that this provision is not coming into force. It will come into force by order-in-council, but employers will not be required to develop their policies until a year after it comes into force. As a result, workers might not benefit until 2026.
How do you explain the difference between the immediate allocation of $3.6 million to Employment and Social Development Canada, since the provision will not have any effect until at least 2026? That is my first question.
The Chair: No one can answer? We will take note of the question and ask someone.
Senator Oudar: My second question pertains to page 291 of the budget. Thirty million dollars are allocated to fight sexual harassment in the workplace. That’s wonderful! That money is allocated to the justice department to deal with complaints and redress, but there is nothing about preventing sexual harassment. I would have liked to hear someone talk about prevention.
The Chair: Can anyone answer? Not this time either.
Senator Oudar: Nobody? Bad luck. Maybe I will be luckier with my third question. It pertains to Divisions 21 and 22 of the budget and the misclassification of workers. This is an important measure. For those of you not familiar with the issue, the goal is to combat tax evasion.
Under the budget, it will apply to a lot of workers. It involves an employer misclassifying someone as self-employed when they are in fact an employee. This is an important measure for the finance minister, Ms. Freeland. The budget includes measures in this regard.
The budget says that this measure applies to 41,000 workers, including 63% of workers in the trucking industry, as well as workers in courier services, postal services and telecommunications. That includes delivery people, artists and freelancers, who are all vulnerable workers. First, I have a question about the number: I think the figure of 41,000 workers is several years old. Do you have more recent estimates?
The Chair: There will be people at tomorrow’s meeting who should be able to answer your questions.
Senator Oudar: I have a supplementary question about redress.
The Chair: Perhaps you can save it for tomorrow.
Senator Oudar: I will wait. There are federal government officials following these proceedings so they will be ready for the questions.
The Chair: They can prepare accordingly if they heard your questions.
I have a series of questions regarding the tax exemption for international shipping. I am having trouble with the explanation. In the notes provided for questions and answers, it says that since Singapore does not levy taxes, neither do other countries. So why would we do so here? I am having trouble with the rationale. Can someone tell me why we want to give a tax exemption to Canadian transportation companies involved in international shipping?
Mr. Demeter: Thank you for the question. As you said, the exemption is the international taxation standard that has been in effect for years. Canada’s decision to make an adjustment and to continue to offer this exemption was to encourage those companies to be more competitive.
The Chair: So they don’t have to pay taxes?
Mr. Demeter: If the companies are well structured, that’s correct, depending on their international shipping revenues.
The Chair: What is the definition of an international shipping company? Is it just marine shipping or companies that are brokerages, those that load and unload merchandise, those responsible for shipment and that contact the client and connect with the shipper for international transport? Are all of those companies international shipping companies that would receive the exemption, or is just the owner of a ship leaving one location for an international destination?
Mr. Demeter: The company has to be in the international shipping industry. It’s difficult —
The Chair: A company in the international shipping industry is not just a ship travelling between point A and point B? Is it broader than that? Are you saying that companies affiliated with international shipping are also exempt?
Mr. Demeter: The exemption is targeted.
The Chair: Who is it targeted to?
Mr. Demeter: Who?
The Chair: Can you give us a list?
Mr. Demeter: A list of the companies?
The Chair: A list in the definition.
Mr. Demeter: Yes, we can come back with a list.
The Chair: If I have a ship on the Great Lakes and I stay on the Canadian side but stop in Chicago once or twice, will all of my activities be tax exempt because I stopped twice in Chicago? We need to see the definition of that exemption. Further, what will that exemption cost in lost revenues?
Mr. Demeter: Yes, we can get back to you with an answer to those questions.
The Chair: Will you be providing a cost estimate of the exemption?
Mr. Demeter: Yes.
The Chair: Thank you.
[English]
Senator Marshall: My next question is on Division 40, the newly increased debt ceiling.
I remember when the Borrowing Authority Act was enacted. Minister Morneau was the minister at the time. Finance officials were forthcoming as to how the ceiling was calculated. When it was increased in 2020, the background materials were included in Fall Economic Statement 2020. There was a chart and a lot of information so that the reader could follow the transition from what happened in 2018 to the increase in 2020.
Now that the ceiling is being increased to over $2 trillion, is there background information available that can show us how the government went from the existing ceiling of $1.8 trillion up to $2 trillion?
Alexander Bonnyman, Director, Debt Management, Department of Finance Canada: I believe you’re referring to the first Borrowing Authority Act report in 2020 that spoke to the increase, and then we released a second Borrowing Authority Act report in March, I believe.
Senator Marshall: I saw the report you released in May, last month, but it didn’t provide background information as to how it gets to $2.1 trillion or $2.2 trillion. That’s what I was looking for.
Mr. Bonnyman: We would be happy to share that with you.
Senator Marshall: You can provide that background information?
Mr. Bonnyman: I believe so, yes. We have documents ready for that.
Senator Marshall: Why is it not publicly available?
Mr. Bonnyman: This is information that was prepared in advance of the calculation. The actual amount was not released until the number was tabled in the legislation. The calculation itself has been prepared, and we can share that information with you.
Senator Marshall: Thank you. I think it would be a good idea to share it publicly because I know there are other interested parties.
Can you also explain Subdivision A regarding the contracts?
But first, the Canada Mortgage Bonds will be excluded. It says there’s a double counting, but I can’t get my head wrapped around the double counting. How are they double-counted?
Mr. Bonnyman: The Government of Canada is borrowing money to purchase the Canada Mortgage Bonds. The return is the value, the differential on interest rates — what we refer to as the spread — between the Canada Mortgage Bond and a Government of Canada security. Given that the Government of Canada is acquiring a financial asset, then the debt is offset. If you include the debt that is being issued to purchase those Canada Mortgage Bonds and also that Canada Mortgage Bond when that second financial instrument becomes an asset of the Government of Canada, you’re artificially inflating the calculation of the Borrowing Authority Act amount.
Senator Marshall: Is that going to be indicated in the background material you’re going to provide? Because when you provided the background material back in 2020, you specifically carved out the Canada Mortgage Bond. Will I be able to see that in the calculation? I’m a former auditor, so I don’t always trust the government, so I’m wondering. Will I be able to see that in the background material?
Mr. Bonnyman: Yes. There would be two calculations: one including the double accounting amendment and one without.
Senator Marshall: I’ll be able to see that.
If there is a third round, I’ll follow up on Subdivision A.
Thank you.
[Translation]
Senator Forest: My question is about the journalism tax credits. Could someone…. If not, I will try to find another question.
My question is about part 1(f), which increases support for newsrooms with two important measures: an increase from $55,000 to $85,000 for eligible newsroom employees and a temporary increase for four years of the labour tax credit rate from 25% to 35%. A lot of people are saying this support is unfair because it excludes electronic media. In the regions, such as the Lower St. Lawrence, however, where the electronic daily newspaper is now essentially the only source of news, including both written and electronic media…. Radio and television produce news, create content and play an important role in the democratic health of our communities. Can you explain why this support is limited to written media, whose presence in Canada is shrinking, especially in the regions?
Shane Baddeley, Director, Economic Development, Department of Finance Canada: Thank you for the question. I am the director of economic development at Finance Canada.
[English]
Concerning how the credit is targeted, the credit is intended to support written journalism. If I understand correctly, you referred to a news organization that produces electronic content. To the extent that their content is written news online, it would be able to qualify. If it’s more related to audio, video and news of that nature, this is not what the credit is intended to do. When it was brought in back in 2019, it was specifically targeted to support written journalism.
[Translation]
Senator Forest: I’m not sure I understand correctly. If it is a daily newspaper that is available electronically, but in written form, it would be eligible? The newspaper La Presse is a good example. Thank you.
The Chair: I have a question about that while you are here: Why four years? In other cases, for mining exploration for instance, eligibility is renewed on a yearly basis. In this case, it is for four years. Why?
[English]
Mr. Baddeley: There are two components to this credit that are changing. One is the threshold that you can qualify for. That goes up to $85,000, and that is going to be a permanent change. The four-year component — going from 25% to 35% — is in part to recognize the transition that the journalism industry is going through. It’s not meant to be permanently at that level. It’s meant to facilitate that transition to a different business model as we see the declining ad revenue.
[Translation]
The Chair: Thank you.
Senator Gignac: I would like to discuss the open banking system again. I was surprised by your answer to my colleague Senator Loffreda regarding the handling of complaints and Quebec consumers if Desjardins joins the new system. Why? Because at the other committee we just heard from the interim commissioner of the Financial Consumer Agency of Canada. I had questions for him on the exact same topic. This is what he told me. It seems that consumers in Quebec will still be able to interact with the province’s regulator, the Autorité des marchés financiers. Even if Desjardins joins the open banking system, they would clearly be able to do so.
To prevent a federal-provincial incident, would it be possible to get a written answer to the question asked or at least some clarification as to what will happen in Quebec if Desjardins joins the open banking system? Who will have the authority or jurisdiction to review complaints? A few years ago, the federal government had to backtrack on this — I think Senator Carignan would be in a better position to speak to this — because Quebec had contested a provision in 2016 when the federal government wanted to encroach on their jurisdiction. Would it be possible to get written clarification on that? If not, we will have to rely on the transcript of your answer. It might cause confusion, however, because it contradicts what was said on the other side.
That concerns me because that agency, unlike the OSFI, is not part of the Heads of Regulatory Agencies Committee, which is headed up by the Bank of Canada and of which you are also a member, along with the OSFI, Quebec’s Autorité des marchés financiers and three other provincial regulatory bodies. It is a federal-provincial table. That agency, which is responsible for the open banking system, is not even at the table; perhaps it’s an observer, but not a permanent member.
I have a question and would like to receive the answer in writing: What will happen in Quebec? To whom will consumers in Quebec turn if they have a complaint about certain dealings? Right now, the Autorité des marchés financiers receives those complaints. For now, insurers are not involved, but we cannot rule out the possibility that, some day, if health data is added, insurance companies will also be involved, such as Industrial Alliance, which is under provincial jurisdiction. That is my former employer, but I no longer have any ties or dealings with them, unlike some people in the federal government. That is a request. I’m sorry, it is a long question, but please answer in writing.
Ms. Hamel: We can provide a written answer.
[English]
Senator Smith: Maybe Ms. Bennett could come back up. I wanted to ask a question about FINTRAC. Is she around still? Hiding in the back — this is just like being on “The Price Is Right,” Ms. Bennett.
I wanted to follow up on a question from Senator MacAdam regarding Division 34 of Part 4, respecting the amendments to the legislation. Could you provide details on the level of consultations that were had with relevant stakeholders? What were the concerns from stakeholders? Were they with respect to the privacy of customer data? How will this change or improve reporting to FINTRAC compared to the status quo?
If there are any of these questions that you would like to write back on, we would be thrilled to have something short and concise.
Ms. Bennett: Thank you very much for the question. I’ll defer to my colleagues from the Department of Finance with regard to stakeholder consultation, and then, perhaps, we can come back to the value of information to FINTRAC.
Ms. Hunt: Excellent. It would be my pleasure to start the conversation about the consultations that we did.
Last year, the Government of Canada launched a public consultation in June that took a very deep look at a broad range of issues within Canada’s anti-money laundering and anti-terrorist financing regime. It is a 100-page document, so you can see how thorough we were in terms of looking at the different types of issues across federal-provincial issues, Criminal Code issues and a variety of different issues related to information sharing, because it’s really a foundation of the regime. This is with respect to both the types of entities that would become disclosure recipients and the types of information sharing that we might be able to do within the private-to-public sphere as well as with respect to private-to-private information sharing.
We received strong support from the participants in the regime, and we received, I think, 127 substantive responses to the regime. All participants saw that this was an area where we could deeply improve the information that is provided to FINTRAC and the outcomes that are produced by the regime by enabling regime entities to share information and really identify how criminals are able to use the fact that they currently can’t speak to one another to be able to identify how they’re making connections in the networks. That could then be disclosed to FINTRAC through the information-sharing provisions that are put forward in the bill today.
Maybe I’ll turn to FINTRAC to provide a little bit more detail on that and perhaps Justin, if he has any additional comments on that front.
Ms. Bennett: Thank you very much.
FINTRAC is heavily connected with our federal family, our federal government department counterparts, when it comes to consultations about the regime and how the effectiveness can be improved over time.
We’re also very connected with the regulated entities that report to FINTRAC through section 5 of the Proceeds of Crime (Money Laundering) and Terrorist Financing Act, or PCMLTFA, and through those conversations, we are aware of how entities and law enforcement agencies support various measures.
What I will say is that, for FINTRAC, our view is always that our information can be supportive of investigations across a number of key areas and with a number of law enforcement and national security agencies, so in our view, we’re supportive of any measure that provides us with continuous improvement to be able to share information and support investigations and outcomes for the regime.
Senator Smith: Thank you. I think that’s good. I appreciate it.
Senator Ross: I’m interested in asking some questions about the global minimum tax act.
I understand that the U.S. is supportive of Pillar Two but is not currently participating. What do you think the impact of that will be on Canadian businesses or on this implementation here in Canada?
Peter Repetto, Senior Director, International Tax, Department of Finance Canada: Thank you for your question.
The Biden administration has been strongly supportive of the Pillar Two global minimum tax. The U.S. is one of 139 countries that have joined the plan for a two-pillar international tax reform in 2021, and the U.S. has participated very actively in the development of Pillar Two through negotiations at the Organisation for Economic Co-operation and Development, or OECD.
The Biden administration has also included proposals to align U.S. tax laws with the Pillar Two global minimum tax among its packages of budget proposals in each of the last two or three years, but those proposals have not been passed by the U.S. Congress.
I think it’s fair to say that at present there’s a general expectation that the U.S. will not be implementing the global minimum tax imminently, and there is a mechanism included in the multilaterally agreed Pillar Two framework that is intended to address situations where multinational enterprises are headquartered in jurisdictions that are not implementing Pillar Two, such as the U.S., currently.
Under this mechanism, which is known as the undertaxed profits rule, or UTPR, in those circumstances, the other jurisdictions in which the multinational operates — for example, in which it has foreign subsidiaries — would step in to impose the top-up tax, as it’s called, on any low-tax profits of that multinational, regardless of where in the world those profits are earned.
In short, the expectation is that U.S. multinationals, as well as multinationals headquartered in any other non-implementing jurisdictions, will be subject to the same rules as multinationals headquartered in countries such as Canada that have proposed to implement the global minimum tax.
Senator Ross: Do I have any more time?
The Chair: No. Sorry about that.
Senator Ross: I had so many more questions for you.
The Chair: Sometimes it’s a short question with a long answer, and sometimes it’s a long question with a short answer.
Senator Pate: My question goes back to money laundering. In terms of the anticipated reductions in the amount of money laundered annually, has the government also looked at anticipated additional revenues, and if so, what would that breakdown be?
I’m going to ask all my questions at once, and then you can answer.
As well, one of the concerns for many of us is that the Criminal Code measures often result in those profiting most from financial crimes, rather than those who are easiest to catch, being ignored, so we tend to see the most marginalized picked up and not those operating at the highest levels. What measures are being taken to ensure that those who are most exploited and are more likely to be criminalized as a result of money laundering operations are not the targets, and what do you see as the primary barriers to holding accountable those who are profiting most from these activities?
Ms. Hunt: Excellent. Thank you very much for the questions. I’ll maybe start with the last questions because those questions, I think, we should take back and direct to the Department of Justice Canada. They are responsible for the Criminal Code amendments, and rather than opine on areas of their responsibility, we will take those questions back and allow them to respond in writing.
On the first question, it’s a very interesting one, and I think Canada is considered a high-risk jurisdiction for money laundering, and there’s a significant amount of money that is laundered through Canada’s economy every year. A recent report in about 2020 estimated that it’s close to $115 billion — upwards of that — the amount of money that is laundered through our economy every year.
One of the areas that the Financial Action Task Force is looking at in particular is making sure that we are able to take the money out of the economy, so asset forfeiture is something that has been a real focus internationally in trying to take the funds away from the criminals. This budget bill proposes to enable civil asset forfeiture offices in the provinces and territories to receive direct disclosure information from FINTRAC, and this is one of the ways that the government is looking to try to improve the information within the regime to be able to ensure that we are supporting efforts to look at criminal asset forfeiture, as well as civil asset forfeiture, to take the funds away from the criminals and redirect them to other purposes.
Senator Pate: What are the measures you’re taking to ensure you’re actually getting the big actors, though, not the small fry?
Ms. Hunt: That’s a really complicated question and one on which the government has focused in trying to provide more and more tools in the tool box to improve enforcement outcomes. Investigations, prosecutions and asset forfeiture are areas where Canada can continue to improve. This budget provides additional tools to strengthen the ability, through the Criminal Code changes, to provide more tools to tackle the entities behind some of these schemes. For example, some proposed changes will target professional money launderers, who are not necessarily the smaller actors but larger actors within the schemes.
Senator Galvez: I don’t know if anyone can answer questions on Part 4, Division 28. If not, I will ask my question anyway. Division 28 amends the Impact Assessment Act in response to an opinion of the Supreme Court of Canada on the constitutionality of the act.
My question is very simple: Why was this approach taken? Does the government consider that this will solve this issue so that projects can go ahead?
The Chair: Tomorrow, we’ll have good witnesses for this question.
[Translation]
Senator Galvez: Okay, I will ask again tomorrow.
Senator Dalphond: I don’t know if someone can answer my question. It pertains to Part 4, regarding student loans, student loan forgiveness and expanding eligibility for forgiveness.
The Chair: That is Social Development. Perhaps tomorrow for that as well.
Senator Dalphond: Okay, very well.
I have a question about Division 34 that I was talking about earlier — when I was having better luck — regarding the sharing of information between the agency and the authorities. I also noted the disclosure of information by the agency to immigration officials.
If information about individuals is disclosed to Immigration, Refugees and Citizenship Canada, will those individuals be notified of that disclosure, and will they have the opportunity to correct the perception?
Ms. Hunt: Let me begin. Thank you for the question.
As my colleague from FINTRAC said earlier, it is intelligence that the agency provides in our regime, not just information. The information is about the decision only.
The reason for including Immigration, Refugees and Citizenship Canada is to ensure that information relating to national security and targeted organized crime groups is properly included in the decision-making process. It is just one source of the intelligence information, and not all of the information that can be used in a decision by our colleagues at Immigration, Refugees and Citizenship Canada.
Senator Dalphond: I understand that the information is provided without the individual’s knowledge. That is nearly automatic in dealings with the commission. Are there any provisions whereby an individual might be told that their application was refused because of certain information that was provided? Or are you leaving it up to Immigration, Refugees and Citizenship Canada to decide what specific information they will or will not provide to the individual?
Ms. Hunt: I think that is a question for officials from Immigration, Refugees and Citizenship Canada. It is of course information that they use exclusively in making their decision so I could not say definitively how they make a decision in a particular case. That information could not be disclosed for all immigration applications; we want to protect our immigration system and the information provided by FINTRAC is intended to protect Canadians.
[English]
Senator MacAdam: My question is on Part 4, Division 34. Can you speak as to why factoring companies, cheque-cashing businesses and financing and leasing companies are to be regulated now? Why were they not identified for regulation before?
Ms. Hunt: Thank you very much. It’s an excellent question and, in fact, one identified in previous reviews of Canada’s regime. It is a gap that we had identified. Other companies that already provide similar services to factoring companies and financing/leasing companies, such as banks and other financial institutions, are already part of the regime. This is to close a gap identified in Canada’s previous review by the Financial Action Task Force and to ensure there’s a level playing field across all of those entities that provide similar services.
Senator Kingston: My question is regarding Part 4, Division 26. I believe there is someone here from the Criminal Law Policy Section of the Department of Justice. It’s about the Red Dress Alert. No? Is there nobody here?
Mr. Demeter: Thank you for the question, but we’d have to take the question back.
Senator Kingston: They are on the list for today as witnesses, but I understand that particular witness will be here tomorrow. Thank you.
Senator Loffreda: My question is on the global minimum tax act.
Thank you, Mr. Repetto, for being here once again. As you know, this act is a large part of the bill, and we should spend a little more time on it.
How will Pillar Two of the framework be implemented and respected by all jurisdictions that implement it? When can we expect the backstop, the undertaxed payments rule, to be legislated? How will it work?
I do understand from a previous question that you have few concerns regarding the U.S. Maybe you can elaborate on that.
Mr. Repetto: Thank you for those questions. To address them in order, the first question was with regard to Pillar Two implementation globally. More specifically, if I understand correctly, how do we know there will be consistent implementation? Will other jurisdictions respect the multilaterally agreed framework?
The short answer is that there’s a peer-review process contemplated. It has now begun. Under that process, the 145 jurisdictions that are members of the Inclusive Framework on Base Erosion and Profit Shifting, through the OECD, will review and evaluate a given implementing country’s legislation to determine whether it is consistent with the very detailed model rules, commentary and guidance that the Inclusive Framework countries have published, setting out the Pillar Two global minimum tax framework.
At the end of that process, the Inclusive Framework countries will determine whether a given implementing country’s jurisdiction is qualified, to use the OECD language, but you can think of that as whether the legislation is compliant. If it is not, there will be adverse consequences for that jurisdiction.
I would be happy to send the other answers in writing.
The Chair: Senator Marshall, I’ll give you my last question.
Senator Marshall: Oh, thank you. Maybe if Mr. Repetto can return, I have a follow-up question on the topic that Senator Loffreda was asking about. I had a lot of questions.
What would be the impact on Canadian multinational companies that have their headquarters here in Canada? Would the enactment of that part of the bill encourage those companies to move, say, to the U.S. or another jurisdiction? Can you respond to that?
Mr. Repetto: Sure. As I mentioned in my response to a previous question, there is a mechanism built into the Pillar Two global minimum tax framework called the undertaxed profits rule, or UTPR. That is specifically intended to prevent multinational enterprises from gaining an advantage by so-called inverting or moving their headquarters to a non-implementing jurisdiction.
As I previously described, under that mechanism, if a multinational does move its headquarters to a non-implementing jurisdiction, then the other jurisdictions in which it operates would step in to impose the Pillar Two top-up tax, as it’s called, with respect to any low-tax profits of that multinational, regardless of where in the world those profits are earned.
Senator Marshall: We’re all concerned about investment in Canada and the lack thereof. In terms of the implementation of that tax, is that taken into consideration, the issue of low investment in Canada? Could it impact that?
Mr. Repetto: The intention is that through broad global implementation of the Pillar Two minimum tax, there will be a level playing field for investment globally such that —
Senator Marshall: A level playing field in the future?
Mr. Repetto: Well, there are a large number of our peer jurisdictions that have already implemented the Pillar Two global minimum tax, so it’s anticipated that the level playing field would occur starting as early as 2024.
[Translation]
The Chair: Thank you, Mr. Repetto.
Thank you all for making yourselves available; we really appreciate it. Thank you for your answers. I would like to remind you that you have to forward your written answers to the clerk before June 11, 2024. We apologize for the tight deadline, but we are under the same time constraints. The capital gains exemption bill has still not been tabled, and that will be a tight deadline for us as well. Thank you for submitting the information before June 11.
I would like to remind the members that our next meeting will be at 2:30 this afternoon to continue our consideration of Bill C-69. Thank you all.
(The committee adjourned.)