THE STANDING SENATE COMMITTEE ON NATIONAL FINANCE
EVIDENCE
OTTAWA, Tuesday, May 31, 2022
The Standing Senate Committee on National Finance met with videoconference this day at 9:30 a.m. [ET] to study the subject matter of all of Bill C-19, An Act to implement certain provisions of the budget tabled in Parliament on April 7, 2022 and other measures.
Senator Percy Mockler (Chair) in the chair.
[English]
The Chair: Before we begin, I’d like to remind senators and witnesses to please keep your microphones muted at all times unless recognized by name by the chair.
Should any technical challenges arise, particularly in relation to interpretation, please signal this to the chair or the clerk and we will work to resolve the issue. If you experience other technical challenges, please contact the Information Services Directorate service desk at the technical assistance number provided to you.
[Translation]
Honourable senators, the use of online platforms does not guarantee speech privacy or that eavesdropping won’t be conducted. As such, while conducting committee meetings, all participants should be aware of such limitations and restrict the possible disclosure of sensitive, private and privileged Senate information.
[English]
Participants should know to do so in a private area and to be mindful of their surroundings.
We will now begin with the official portion of our meeting.
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 Percy Mockler, senator from New Brunswick and Chair of the Standing Senate Committee on National Finance.
[Translation]
Allow me to introduce the members of the Standing Senate Committee on National Finance who are attending this meeting: Senator Boehm, Senator Dagenais, Senator Duncan, Senator Forest, Senator Moncion, Senator Gerba, Senator Gignac, Senator Loffreda, Senator Marshall, Senator Pate and Senator Richards.
[English]
Thank you for participating.
This morning, we are starting our study on the subject matter of Bill C-19, An Act to implement certain provisions of the budget tabled in Parliament on April 7, 2022, and other measures, which was referred to this committee on May 4, 2022, by the Senate of Canada.
Today, we have the pleasure of welcoming, virtually, officials from the Department of Finance Canada who will be discussing Parts 1, 2, 3, and 4 of Bill C-19. We will be discussing Part 5 during our meeting on Thursday, June 2.
Welcome to all of you and thank you for accepting our invitation to appear in front of the Senate’s National Finance Committee.
I have been informed that a few people will deliver short descriptions of the parts of the bill before proceeding to our question period.
On that note, I would like to introduce to you those who will offer these short remarks.
On Part 1, we will hear from Lindsay Gwyer, Director General, Legislation, Tax Legislation Division; Part 2 will be presented by Amanda Riddell, Director, Real Property and Financial Institutions; and Carlos Achadinha, Senior Director, Public Sector Bodies; presenting Part 3 are Darren D’Sa, Advisor, Tax Policy; and Jack Glick, Senior Advisor, Sales Tax Division; and finally, on Part 4, we will hear from David Turner, Senior Advisor, Sales Tax Division.
Thank you again for being with us today.
Lindsay Gwyer, Director General, Legislation, Tax Legislation Division, Department of Finance Canada: Thank you, and good morning, senators. I will provide the overview of Part 1, which contains the income tax measures in the bill. There are 15 measures in Part 1, so my overview of each one will be quite brief, and we will, of course, be happy to describe any of the measures in more detail during the question-and-answer portion. I will go in the order that the measures are listed in the summary at the beginning of the bill.
Measure (a) in Part 1 is a new deduction allowing individuals employed in the construction industry to deduct up to $4,000 of expenses related to travel to temporary work sites.
The second measure, (b), relates to immediate expensing. It would allow businesses carried on by Canadian-controlled private corporations and individuals to deduct up to $1.5 million of capital expenditures on a current basis.
Measure (c) includes amendments to the Income Tax Act and the Children’s Special Allowances Act to allow for the payment of the children’s special allowance to children who are in the care of an Indigenous governing body, and to provide the same tax treatment where payments are received in respect of children who are under the care of an Indigenous governing body, compared to under the care of a province or territory.
Measure (d) is the doubling of the Home Accessibility Tax Credit. It would be available for up to $20,000 of renovation expenses incurred to make the home of a senior person or a person with a disability safer or more accessible.
Measure (e) is an update to the criteria to qualify for the Disability Tax Credit. Particularly, it would be amended as it relates to the criteria used to assess mental impairment and the test related to life-saving therapy.
Measure (f) is a technical fix. It would just change a formula related to calculating the GST top-up payment that was made in 2020.
Measure (g) is a change to the way that the Climate Action Incentive is delivered. The Climate Action Incentive is a tax credit currently paid to individuals on an annual basis. The bill would amend it to cause it to be paid on a quarterly basis.
Measure (h) is a 50% reduction for manufacturers of zero-emission technology with respect to the portion of their income that relates to zero-emission manufacturing activities.
Measure (i) relates to film or video production tax credits. It provides a temporary one-year extension of certain deadlines to file or to qualify for film and video production tax credits. It relates to productions that had expenses in 2020 and 2021, and it is intended to accommodate delays caused by COVID-19.
Measure (j) would allow the CRA discretion to accept late-filed applications made with respect to different COVID subsidy programs, specifically the Canada Emergency Wage Subsidy, the Canada Emergency Rent Subsidy and the Canada Recovery Hiring Program.
Measure (k) is an amendment to the definition of earned income that would cause postdoctoral fellowship income to be included in earned income, which would then allow it to increase an individual’s RRSP room.
Measure (l) relates to charities. It would allow charities more ability to enter into partnerships with non-qualifying donees. It would allow charities to make gifts to non-qualifying donees where the gift is in furtherance of a charitable purpose of the charity and used by the donee for charitable purposes.
Measure (m) is another technical change. It addresses situations where a charity’s status is revoked because it becomes listed as a terrorist entity under the Criminal Code.
Measure (n) would amend the Income Tax Act, the Excise Tax Act and the Excise Act, 2001, to allow the CRA to share information within the CRA for the purpose of collecting Canada Emergency Business Account loans.
Finally, the last measure in Part 1 is measure (o). It relates to Capital Cost Allowance incentives for clean energy. Amendments would be made to cause some clean energy technologies to fit within Capital Cost Allowance classes that qualify for particular favourable tax treatment. As well, some of the amendments would cause certain fossil-fuel or low-efficiency properties to no longer fit within those classes.
Mr. Chair, that’s everything for Part 1.
The Chair: Thank you.
Amanda Riddell, Director, Real Property and Financial Institutions, Department of Finance Canada: Good morning, senators. I will deal with the first measure in Part 2, which contains two measures.
The first of these measures relates to assignment sales. For context, an assignment sale is a sales transaction in which an original purchaser, under an agreement of purchase and sale with the builder for a new home, allows another person to take over their rights and obligations under the original agreement. Under the current GST rules, assignment sales made by non-individuals, such as corporations, are always taxable. However, an assignment sale made by an individual may be taxable or exempt depending on the reasons for which the individual had entered into the original agreement of purchase and sale with the builder.
What clause 52 does is amend the Excise Tax Act to deem all assignment sales to be taxable for GST purposes. This amendment eliminates ambiguity under the law and ensures more even application of the GST to the final prices paid for new homes. The amendment applies to assignment sales made on or after May 7, 2022.
That’s it for that.
Carlos Achadinha, Senior Director, Public Sector Bodies, Department of Finance Canada: Good morning and thank you, Chair. I am here to speak to a measure with respect to the GST expanded rebate for health care services. This measure expands the current conditions for the eligibility to cover health care institutions and services in the non-profit sector to recognize the increased role of nurse practitioners in delivering health care services, including in non-remote areas. Thank you.
The Chair: Thank you.
Jack Glick, Senior Advisor, Sales Tax Division, Department of Finance Canada: Good morning, and thank you for the opportunity to appear before the committee. As mentioned, I will be providing a brief overview of the proposed excise duty framework for vaping products.
Division 1 of Part 3 amends the Excise Act, 2001, and related legislation and regulations to implement an excise duty framework for vaping products.
[Translation]
The new code would require manufacturers of vaping products to obtain an excise licence for vaping products from the Canada Revenue Agency and require all vaping products entering the Canadian market for retail sale to bear an excise stamp. The amendments also provide administrative and enforcement rules for the new framework, and ensure that the framework applies to imported vaping products.
[English]
The proposed federal excise duty rate would be based on the volume of vaping substance in each vaping product — for example, a pod, a bottle or a disposable vape pen — and there would be an equivalency of one millilitre of liquid with one gram of solids. For vaping liquids and containers with less than 10 millilitres of vaping liquid, the rate would be $1 per 2 millilitres or fraction thereof. For containers with more than 10 millilitres of vaping liquid, the applicable federal rate would be $5 for the first 10 millilitres and $1 for every additional 10 millilitres or fraction thereof. I would be happy to provide illustrative examples if needed.
[Translation]
Division 1 of Part 3 also amends the Federal-Provincial Fiscal Arrangements Act to allow the federal government to enter into agreements with provincial and territorial governments regarding a co-ordinated approach to the taxation of vaping products.
[English]
This would be similar to the existing coordinated cannabis taxation agreements already in place with most provinces and territories. Subject to parliamentary approval, vaping licensing could begin upon Royal Assent to the enabling legislation, and the new excise duty framework would come into effect as of October 1, 2022. Thank you.
Darren D’Sa, Advisor, Tax Policy, Department of Finance Canada: Good morning. I’ll be speaking to Division 2 of Part 3 and Division 3 of Part 3.
Division 2 of Part 3 proposes the repeal of the 100% Canadian wine exemption. For context, in 2018, Canada was challenged by Australia at the World Trade Organization, or WTO, on the basis that certain federal and provincial measures were WTO non-compliant. Of these, the 100% Canadian wine excise duty exemption provided a full exemption for Canadian wine, whereas imported wine was taxed at the regular excise duty rate. The dispute was settled in July 2020, and as part of that settlement agreement, Canada agreed to repeal the excise duty exemption on 100% Canadian wine. The agreement required that the repeal be in effect by June 30, 2022. Division 2 of Part 3 proposes that the exemption be repealed by June 30, 2022, along with amendments consequential to that repeal.
In addition, Division 3 of Part 3 relates to eliminating the excise duty on beer containing no more than 0.5% alcohol by volume, sometimes referred to as non-alcoholic or de-alcoholized beer. These amendments bring the treatment of non-alcoholic beer in line with non-alcoholic wine and spirits, which are also not taxed when they have an ABV of less than 0.5%. Thank you.
The Chair: Thank you.
[Translation]
David Turner, Senior Advisor, Sales Tax Division, Department of Finance Canada: Good morning. My name is David Turner. I’m the Senior Advisor in the Sales Tax Division at the Department of Finance Canada. Part 4 of the bill enacts the Select Luxury Items Act. This act creates a new tax regime for domestic sales and imports into Canada of certain new motor vehicles and aircraft priced over $100,000, and certain new vessels priced over $250,000.
[English]
I will explain the select luxury items tax act, or SLITA, that is proposed in Bill C-19 by briefly covering four key concepts: first, the scope of the items that are subject to the luxury tax; second, the price threshold and tax rate; third, who pays the tax and when; and fourth, notable cases of tax relief.
I will start with the scope of items subject to the luxury tax. The luxury tax applies to subject vehicles, subject aircraft and subject vessels. In the SLITA, these categories of goods are collectively referred to as “subject items.” For the purposes of the luxury tax, subject vehicles are motor vehicles designed to carry individuals on highways and streets, such as cars, SUVs and light-duty pickup trucks. Subject aircraft are airplanes, gliders and helicopters that are equipped with 39 seats or less. Subject vessels are boats, ships or crafts that are designed or adapted for leisure, recreation or sports activity.
I will now explain the second topic, the price threshold and rate of taxation. The luxury tax will only apply to subject vehicles and subject aircraft if the taxable amount exceeds $100,000. The taxable amount of an item is the price in the case of a sale; in the case of an importation, it is the value for duty, and in most other cases, it is the fair market value of the item. In the case of subject vessels, the luxury tax will only apply to them if the taxable amount exceeds $250,000.
The amount of luxury tax payable on a subject item is equal to the lesser of 10% of the taxable amount of the item — remember, that’s the price in most cases — and 20% of the difference between the taxable amount and the relevant price threshold. For example, a vehicle that is sold at a price of $150,000 would pay a luxury tax equal to 20% of $50,000. That’s the difference between the taxable amount, which is the price — $150,000 — and the threshold, which is $100,000. This results in a total tax of $10,000. A vessel that is sold at a price of $500,000 would have a luxury tax equal to 10% of the total value, which is equal to $50,000.
The third point relates to who pays the tax and when.
[Translation]
Generally, in the most typical cases, the luxury tax is paid by what are called registered vendors. Typically, registered vendors are individuals whose business activities involve the sale of subject items, such as wholesale or retail vendors, manufacturers or commercial importers.
[English]
The registered vendor is responsible for paying the luxury tax in respect to subject items sold to purchasers. However, if the purchaser is also a registered vendor, the luxury tax will not be payable.
The fourth topic is some notable cases for relief from the luxury tax; that is, cases where it is not payable. In the case of subject vehicles, the most notable exception is that the luxury tax is not payable with respect to used vehicles. Once the vehicle has been registered with the Government of Canada or the government of a province, subsequent sales of that vehicle will not result in the payment of the luxury tax. In the case of subject aircraft and subject vessels, the luxury tax is not payable if the subject aircraft or vessel is used 90% of the time for qualifying flights and activities, which include certain flights and activities undertaken in the course of the business of the owner, so for certain business uses. For all subject items, the luxury tax is not generally applicable to subject items exported from Canada.
A final comment is to point out that the SLITA will be administered by the Canada Revenue Agency. It includes registration requirements; administrative provisions, including the establishment of reporting periods, filing requirements and obligations to pay the tax to the receiver general; and collection and enforcement mechanisms consistent with other statutes. Thank you.
The Chair: Thank you for your statement, Mr. Turner.
We will now turn to questions. I would like to share with senators that you will have a maximum of six minutes each for the first round and three minutes each for the second round. Therefore, please ask your questions directly to the witnesses, and witnesses, please respond concisely. The clerk will inform me when your time is over by raising her hand. To the witnesses, I would also like to ask you that you introduce yourselves in responding to questions from the senators for the record.
Senator Marshall: Thank you to all the witnesses for being here. I will start with questions on Part 1 in its entirety. What is the net cost or the net revenue of all of those amendments? I think that would be for Ms. Gwyer.
Ms. Gwyer: Yes, thank you, senator. I don’t have it broken down in terms of the costs of all of the programs together. I can give you the costs of specific programs if you want, or it might make more sense for us to come back to you and provide the total.
Senator Marshall: It’s somewhere in the budget document. Can you refresh my memory as to where I can go to find it?
Ms. Gwyer: At the beginning of the tax supplement section in Budget 2022, it has all of the measures for 2022. There is a mix of measures in here from 2021 and 2022. I could go through the costs —
Senator Marshall: Could you send that to the clerk and provide me with the link so I can remember it for next time?
I have specific questions on various aspects of Part 1. The first is on measure (e) for the Disability Tax Credit. Why is the Disability Tax Credit so difficult to qualify for? I’ve heard a lot of people say that they’ve tried to qualify for it, and they have encountered quite a lot of difficulty. Is there an issue there?
Ms. Gwyer: The government, and specifically the Department of Finance, is always talking to stakeholders and looking at criteria for qualification and trying to find the way that is most fair to assess whether someone has a disability that is sufficient to allow it to qualify for these benefits. The changes in this bill are a reflection of discussions that the department has had with stakeholders. They are intended to try to make it more fair and easier for people in certain situations to qualify.
Senator Marshall: Do you have statistics which would indicate the percentage of applicants who are successful versus those who are not successful?
Ms. Gwyer: I don’t have that in front of me, but I can see what we have on that.
Senator Marshall: Could you send that to us? Thank you.
Under measure (g), regarding the Climate Action Incentive payments that will be paid quarterly now, why is that change being made?
Ms. Gwyer: That change is being made to make the payment more consistent with the way many other benefits are administered through the Income Tax Act. Other payments, like the GST credit, are paid on a quarterly basis. This amendment would align the Climate Action Incentive payment with other payments that are paid out on a quarterly basis.
Senator Marshall: That item has been costed out. Does that also take into consideration the fact that the government has to borrow this money to pay it out earlier?
Ms. Gwyer: I don’t think that there is a cost to changing the credit to being paid on a quarterly basis. We can double-check for you on that.
Senator Marshall: Yes, please get back to me on that.
The last question I have on Part 1 is on measure (j) about the Canada Revenue Agency and late applications. Why is it at the discretion of the Canada Revenue Agency? When someone says it will be at the discretion of somebody, it waves a red flag. How do they exercise that discretion? Is there a criterion that you have to meet, or is it whether you like somebody?
Ms. Gwyer: Right now, the CRA, within the Income Tax Act, has discretion in other circumstances to accept late-filed applications or to accept other things on a late basis. The CRA publishes on their website a tax fairness guide where they set out all the circumstances in which they generally exercise their discretion. They have always had a fairly short window during which people have to apply after the end of the qualifying period in order to get the subsidy. In most cases, the applications come within that period, and if they’re late, the CRA doesn’t accept them, but there are some exceptional situations where —
Senator Marshall: You will provide me with an estimated cost for that, correct?
Ms. Gwyer: There is no estimated cost for this measure. The CRA has a small number of applications filed late in circumstances where it would be unfair to not accept them, and the CRA has accepted them. The CRA is confirming the current policy.
Senator Marshall: That’s odd.
My next question is on Part 4, the luxury tax, and that’s been talked about a lot in the media. I want to talk about the consultations. I understand there was a consultation, and I would like to know if the responses to the consultation are publicly available. I would like to see what the respondents said about the proposed luxury tax.
The Chair: Mr. Turner, we are out of time for Senator Marshall’s questions, so can you please send this as a written response? Again, to the officials, I want to remind each of you that written responses must be sent to the clerk by the end of the day on Monday, June 6, 2022. Mr. Turner, do we agree that you will send the answer in writing, please?
Mr. Turner: Yes, we can arrange for that.
[Translation]
Senator Forest: I will continue with Part 4 and follow up on what my colleague Senator Marshall said. Following the consultations, the Aerospace Industries Association of Canada indicated that it estimated that the tax could result in the loss of approximately 1,000 jobs in Canada and lost sales of between $500 million and $1 billion.
In your consultations, did you estimate the impact of this tax on Canadian jobs in the aerospace industry? I have nothing against taxing the wealthiest; it’s a matter of social equity. However, has the impact on workers been assessed? Would it not be possible to lessen the impact on workers by using a method other than taxing foreign products, which would violate free trade agreements? My question is for Mr. Turner.
[English]
Phil King, Director General, Sales Tax Division, Department of Finance Canada: Perhaps I could take that question. To respond directly to the senator’s question, no, the department has not done an economic impact estimate on the auto, boating or aviation sectors. There are a couple of reasons.
First of all, there are few other examples of such taxes to which we can appeal to look at the impacts, and the economic literature on this type of tax is fairly thin. In particular, that’s true of the aircraft sector.
So we don’t have an estimate of specifically what the impacts could be, but we have, at the very least, consulted fairly extensively with industry and heard some of the impacts that the senator had mentioned.
[Translation]
Senator Forest: Do you intend to monitor the impact on workers? I’m thinking in particular of the aerospace industry, which is very strong in Quebec, but also in the Maritimes and the West. Do you intend to monitor the impact this tax could have?
[English]
Mr. King: Yes, definitely, once we have an idea of the number of registrants, the number of filers and the revenue coming in. We always have ongoing contact with industry and we will definitely continue to do that after the tax has been implemented, if it is implemented.
[Translation]
Senator Forest: Thank you.
My next question is about Part 1 and is for Ms. Gwyer. It has to do with reducing the rate for manufacturers of zero-emission technologies. The briefing note has a list of the activities that would be eligible for this preferential rate. We’re talking about zero-emission technologies. Does that mean that only hydrogen produced using hydroelectricity would be eligible? Would industries working to improve carbon sequestration technologies not be eligible?
[English]
Ms. Gwyer: Thank you for the question. One of my colleagues, Oliver Rogerson, would be able to answer that question.
Oliver Rogerson, Director, Resources, Environment and Special Projects, Department of Finance Canada: Good morning. At this time, companies that are improving CCUS technologies are not included in the zero-emission technology manufacturers list.
[Translation]
Senator Forest: Is it because you feel that, with these improvements, if the emission rate is reduced, it isn’t a valid gain?
[English]
Mr. Rogerson: The measure is aimed at income from manufacturing activities, and so research and development activities are not covered in this measure. It would be the actual manufacturers of the technologies themselves or the components of the technologies themselves that are covered by this measure. At the manufacturing stage, at this point it’s not clear that there are CCUS technologies that could be identified at the manufacturing stage.
Senator Richards: Thank you very much. I’m going to pick up on Senator Forest’s and Senator Marshall’s questions, if I can.
The cost of the luxury tax would in some ways impede sales and, therefore, jobs. In New Brunswick, for instance, an upper-middle-class family — and I’m not talking about a rich family — already pays up to 60% in their taxes.
How much will this impede Canadian growth in the long run? If anyone could answer that, I have a follow-up question for someone else.
Mr. King: Thank you. I can try to address that question. I won’t have a specific answer for you, again, because the department hasn’t done a specific economic impact study.
If you look at the revenues this tax is estimated to raise, which is about $145 million annually, and put that in the context of the economy as a whole, it wouldn’t really impede growth globally in Canada. Obviously, when you drill down to the specific sectors involved — automotive, boating and planes — it would have a bigger impact on those sectors. But globally it wouldn’t, because it’s not expected to raise an awful lot of revenue. I mean, $145 million is not insignificant, but in the context of the full economy, it’s not significant.
Senator Richards: My second question goes to the issue of the same amount of money being allotted to different bills, and money that was requested from Bill C-19 was already requested from Bill C-17. I’m wondering who with responsibility for the public purse takes responsibility for that kind of double-dipping, if it is actually double-dipping?
In the provincial health care backlog, they’re asking for $2 billion in Bill C-19 and also in Bill C-17. It seems to be the same amount of money allotted twice in different bills. I’m wondering if anyone could address that, please.
Ms. Gwyer: Senator, I think what you’re referring to relates to something that is in Part 5 of Bill C-19, so there wouldn’t be anyone online in this meeting who would be able to answer that. At the next session, there are people who I think would be able to answer that question on Part 5.
Senator Richards: I’ll save it for then. Thank you.
Senator Loffreda: Thank you to our panellists for being here this morning.
My question is on the Disability Tax Credit. I appreciate and support the eligibility changes being proposed to the Disability Tax Credit. It seems appropriate to me to expand the list of mental functions assessed to determine eligibility. However, could you share with us who the government consulted to come up with this new list of criteria?
Secondly, does the government have any idea how many Canadians might now be eligible for the tax credit, should these changes be approved by Parliament?
That’s a question on Part 1, the Disability Tax Credit. Thank you.
Ms. Gwyer: As I mentioned before, the government is regularly working with stakeholders. The government works with practitioners as well to try to improve the application process and in developing the criteria. Government also consults with the CRA. The CRA has a Disability Advisory Committee that provides advice. The government has looked at the recommendations of that committee as well in developing these changes.
Senator Loffreda: Do we have any idea how many Canadians might be eligible at this point?
Ms. Gwyer: We don’t have that number right now. We can get that to you.
Senator Loffreda: My second question is on the Canada Emergency Business Account, or CEBA. I recognize the amendment in Part 1 of Bill C-19 that relates to the Canada Emergency Business Account is intended to allow taxpayers’ information to be shared between officials of the Canada Revenue Agency for the sole purpose of the collections of the Canada Emergency Business Account loans. That’s fine.
Can you share with us how many loans you expect will not be reimbursed out of the nearly 900,000 loans that were provided to small businesses?
In your briefing note, you write that the majority of the loans are expected to be fully repaid by December 31, 2023, given the forgiveness incentive. How confident are you that the vast majority of loans will be reimbursed? Do you have any projections on this?
Ling Wang, Senior Director, Financial Programs and Strategy, Department of Finance Canada: Thank you, senator, for the question. We don’t currently have projections because it’s very difficult to project these numbers. The CEBA loan program was designed with very specific features for the incentive for repayment. The repayment date is still a year and a half away. Many things could change. These are small businesses. It’s very difficult to have a reasonable estimate.
However, given that by repaying the loans by December 31, 2023, businesses will qualify for up to $20,000 of forgiveness, we expect most of the CEBA loan holders will make efforts to repay; therefore, the general expectation is that the majority of the CEBA loans will be repaid. We don’t currently have an estimate for how many loans will be in default and will require collections.
Businesses that do not repay their loans by December 31, 2023, will not necessarily require collections. The loans are not fully due until December 31, 2025, so businesses that do not repay by the end of 2023 still have two years, but they won’t receive forgiveness and they will be charged 5% interest as a term loan.
We won’t know about a lot of the businesses’ ability to pay or whether they will be in default until after 2025.
Senator Loffreda: Thank you.
My next question will still be on Part 1 and Climate Action Incentive payments. I understand the amendments to the Income Tax Act that deal with the Climate Action Incentive payments only affect Ontario, Manitoba, Saskatchewan and Alberta, the four provinces that don’t have their own carbon pricing system.
The government has always said putting a price on pollution was not a revenue-generating policy and that it is revenue neutral. Can you confirm this is still the case? Is all the money collected returned to provinces and Canadians?
What is the cost of administering the carbon pricing system? Will handing out quarterly payments instead of an annual refundable tax credit be more economical?
Mr. King: In terms of the GGPPA, which is the underlying legislation that enables the carbon pricing regime, it is written in that legislation that all fuel charge revenues collected, and all revenues from the large emitter system, have to go back to the provinces from where those revenues were raised. That has to happen.
There is a document that the government tables in Parliament every year — it’s been tabled twice now — which shows how much revenue has been raised and where that revenue has been redistributed, just to demonstrate that it all has been recycled.
The Chair: Thank you.
[Translation]
Senator Gerba: My question is for Mark Maxson, Director, Employment and Education. As I understand it, Bill C-19 also seeks to introduce a labour mobility deduction to provide tax relief for eligible travel and temporary relocation expenses, which will really help reduce the labour shortage.
My question is also for all the witnesses. Can you tell us why this measure applies only to people employed in the construction sector?
[English]
Mark Maxson, Director, Employment and Education, Department of Finance Canada: Thank you for the question. Essentially, the government provides a number of different tax supports that are intended to support labour mobility. That includes a moving expense deduction for permanent relocation as well as non-taxable supports where employers provide support for one of their employees who needs to move away from their usual workplace.
This proposal is in recognition of a gap that was identified in existing supports that predominantly affects tradespeople who quite often relocate for temporary lodging at a workplace with a different employer that is far from where they normally work. It’s really responding to a gap that was identified in the suite of existing tax supports for labour mobility, but we’re always reviewing the tax system to ensure it’s fair and efficient and will continue to do that going forward.
[Translation]
Senator Gerba: As I was saying, I noticed that it was only in the construction sector. Is it specifically in this area where there are gaps, or can we consider extending the measure to other layers of employees for reasons of social justice and equity?
[English]
Mr. Maxson: It’s clearly not only in this sector that there are shortages, but it is the structure of this industry where it was identified that the existing tax supports for relocations were very often not applying; so people in many other lines of work might be able to benefit from existing tax supports for labour mobility.
[Translation]
Senator Gerba: Okay, thank you. My second question is for Shane Baddeley.
Our country’s economic development depends not only on domestic production from Canadian labour, but also on foreign investment. Bill C-19 aims to clean up these investments by imposing a two-year ban on foreign investment in Canadian housing and confiscating the assets of the families of corrupt foreign officials.
I would like to know if the department has conducted a long-term economic impact study. In other words, could this move drive foreign capital out of Canada?
[English]
Shane Baddeley, Director, Economic Development, Department of Finance Canada: That is unfortunately not my area of expertise. Is that Part 5, Ms. Gwyer?
Ms. Gwyer: Yes.
Mr. Baddeley: I don’t think officials are present to respond to that specific question, unfortunately, but they will be in a follow-up meeting.
[Translation]
The Chair: Part 5 will be with us on Thursday, Senator Gerba.
Senator Gerba: Thank you.
Senator Dagenais: My question is about excise taxes. I would like some clarification on excise taxes for vaping products. Can you tell us what the tax difference is on vaping products compared to tobacco products and alcohol? I would also like to know what the trend has been in recent years with respect to excise tax revenues on tobacco products and alcohol, and what you expect to get in terms of revenue from vaping products.
[English]
Mr. Glick: Thank you for the question. In this case, we don’t do a direct comparison between vaping taxes and tobacco taxes. There’s not necessarily a relationship between the two products in terms of the excise duty rates that have been decided. But in terms of the revenues that we foresee, the vaping ones were projected in the budget, and I can find those if you would like. In terms of the tobacco ones, I don’t have those on hand, and I would have to follow up with those as well as the historical ones, as I believe you asked.
[Translation]
Senator Dagenais: I would now like some information on the use of personal information. Part 1 of the act refers to the possible use of personal and confidential taxpayer information to help recover emergency business loans. I’d like to know how that information will be used, how it will be useful, and what cross-referencing you expect to do with this new system.
[English]
Ms. Wang: Thank you, senator, for the questions. For the CEBA collections, the CRA will be managing collections of any loan which may be in default, and the use of taxpayer information is similar to how the CRA currently administers other collection programs. It allows them to look at the business’s overall ability to pay.
The information is strictly limited to personnel or officials at the CRA and will be used for the sole purpose of managing the collection for the CEBA program.
[Translation]
Senator Dagenais: Can you tell us how much delinquency is committed by companies that have access to this program?
[English]
Ms. Wang: We don’t have this number, because the loans are not due until the end of 2023 at the earliest, so we don’t currently have the number of loans that are in default.
[Translation]
Senator Dagenais: My next question is for Mr. Langdon. I would like some clarification on the controls on donors to charities in Bill C-19.
What are the audit methods to determine whether an organization is receiving money from terrorist organizations and how often has this type of situation happened in recent years?
[English]
Blaine Langdon, Director, Charities, Personal Income Tax Division, Tax Policy Branch, Department of Finance Canada: Thank you for the question. To answer the second question first, I’m not certain that I could specifically answer the number of organizations identified as supporting terrorism in the last five years. That’s more of a question for the Canada Revenue Agency, but certainly we can ask to see if that information is available.
I can say that the Canada Revenue Agency is responsible for the registration of charities and compliance actions with respect to charities, which includes the detection of charities being used for illicit purposes like money laundering and terrorist financing. There is a dedicated unit within the Canada Revenue Agency that exists for that purpose. They conduct a number of audits of charities, both at the preregistration stage and the registration stage to try to track down that activity. I know there have been revocations in the past. This includes organizations that have subsequently been listed as terrorist entities by the Government of Canada, at least in one instance, but as I said, I don’t have specific numbers on their audit activities, but I’m sure I could find that and provide it to the committee.
[Translation]
Senator Dagenais: I’ll keep my next question for the second round.
[English]
The Chair: Mr. Langdon, again, I want to remind officials that written responses must be sent before the end of the day on Monday, June 6, 2022. Thank you.
Senator Pate: Thank you to the witnesses for appearing.
I’d like to focus specifically on the payment of the children’s special allowance in respect of a child who is maintained by an Indigenous governing body. I’m curious as to why the proposed amendments are retroactive to January 1, 2020. As well, what is the current tax treatment of payments that are temporary for the care and education of a child made under such programs established under the laws of an Indigenous governance body?
As you’re no doubt aware, from 2006 to 2019, the Manitoba government required child and family service agencies to give the money from the benefit to the government, arguing it belonged to the government since it was paying the cost of looking after Indigenous children. The lawyers representing the plaintiffs in a case that was brought against the province have claimed that the province illegally took over $334 million, including $251 million from Indigenous child and family service agencies, that was actually meant for children in care. Recently, the Manitoba government was successfully sued for the misuse — which, arguably, should have been identified clearly as the theft — of the federal child benefits, using the benefit as part of their budget instead of for the betterment of children in care and trying to return the child to their families of origin.
What will be done to ensure similar types of questionable and, again, arguably fraudulent behaviour has not occurred in other provinces and territories?
As a follow-up, I’d also like to know why the families have had to wait up to 16 years to receive benefits that they should have rightfully received so many years ago, and how they will be compensated moving forward, particularly when we know the deep poverty that so many of these families live in. What will the remedy be for the impact of this on the families?
Ms. Gwyer: Thank you, senator. I can speak to your first couple of questions. The reason why this is retroactive is that’s when An Act respecting First Nations, Inuit and Métis children, youth and families came into force. As a result of that act, it’s now the case that it’s more likely that the care of Indigenous children will gradually move towards being under the purview of Indigenous governing bodies.
The changes are retroactive to January 1, 2020, but we’re not actually expecting that there are situations that are necessarily in a place right now that would be captured by the changes. The reason it’s retroactive is that the intention is to be sure that anything would be captured.
On the second part of your question related to the province of Manitoba, I’m not sure if one of my colleagues on the line would be able to provide any more information or answer that question. If not, I could see if there’s something more we can provide to you. I’m not sure that it’s necessarily within the purview of the Department of Finance, but we can go back and see if there’s anything that we can provide.
Senator Pate: Thank you. Certainly, on the current tax treatment of payments that are temporary and for the care and education of children made under the program, I’m presuming you would have that information, as well as the amounts paid out to provinces and territories. More detail in writing on that would be appreciated, as well as any recommendations you are making in terms of a regulatory framework to prevent the kind of malfeasance that occurred in Manitoba.
Ms. Gwyer: Yes. On the tax treatment, the changes in this bill are intended to align the treatment with the treatment that arises where those payments are paid out under the programs of provinces and territories. All of these changes are intended to create parity between payments paid through an Indigenous governing body compared to a province or territory.
Senator Pate: Will you be able to provide in writing the rest of the information regarding regulations?
Ms. Gwyer: Yes, we will see what we can provide.
Senator Pate: Thank you.
My other question relates to the disability benefit. One of the claims made in the bill is that eligibility for the Disability Tax Credit will be expanded, as you have identified. I am curious how that has aligned with the availability. Particularly during this period of the pandemic and the follow-up, there have been many reports and concerns about the current lack of accessibility to health supports and, in particular, mental health supports.
What measures are being made to ensure there is availability of those services when we see wait periods that are being identified as months and, indeed, years across the country right now — particularly, again, for those who are most economically disadvantaged in this country?
Lesley Taylor, Senior Director, Social Tax Policy, Tax Policy Branch, Department of Finance Canada: Good morning. If I understand your question, senator, it is more towards the broader investments the government is making in mental health supports, of which there are many. We are here from the Tax Policy Branch, with expertise in the amendments at hand. The broader context of spending on mental health services would be for a different part of the Department of Finance. I’m not sure if there is anyone from that part of our department on the line. If not, perhaps we can connect with them and get back to you after the meeting.
The Chair: Ms. Taylor, will you please bring to the attention of the officials responsible in the Department of Finance the question posed by Senator Pate? Again, I remind the officials that written responses should be sent to the clerk by end of the day on Monday, June 6. Do we agree with that, Ms. Taylor?
Ms. Taylor: Yes, I will certainly bring that to their attention. Thank you.
[Translation]
Senator Moncion: My question is about Part 2(a). The witness talked about the assignment sale and the GST/HST that applies to those sales. I would like her to give us an example of an assignment sale and the impact of the GST/HST on this type of sale.
[English]
Ms. Riddell: For clarification, are you looking for a numerical example to try to understand the amount of GST that would apply?
Senator Moncion: Yes.
Ms. Riddell: Here is a simple example of taking out deposits and that sort of thing that would normally apply in a real transaction. Let’s say that a person purchased a pre-construction condo for $600,000. On that, there would be $78,000 GST and the total amount payable would be $678,000.
Let’s say that a couple of years later, that same person decided not to buy the condo, so they enter into an assignment agreement. And let’s say that, two years later, the price of the condo is up by $100,000 and the assignment sale would be for $100,000.
If, pre-amendment, there was no tax, the person making that assignment sale would take the $100,000 as profit and just walk away. After the amendment, GST/HST would apply to that $100,000 profit made by the person making the assignment sale.
In that case, typically what would happen is that because many real estate properties are already subject to GST in the market, a person who is trying to sell the rights under the original agreement for $100,000 can’t ask for more, because they are in a competitive marketplace. Typically what would happen is that of that $100,000 sale price, they would remit GST on that of around $11,500, and then they would keep the $88,500 for themselves as profit.
It is our expectation that the person making the assignment sale would end up remitting GST out of the amount they are making the assignment sale for. To be clear, the final result is that GST/HST applies to the full price of the condo. So the $600,000 plus the $100,000 is $700,000, and the GST applies to $700,000. I hope that’s clear.
Senator Moncion: It is clearer. Are you saying, then, that this is for new construction, not for existing sales where other taxes are being collected, and not necessarily GST/HST?
Ms. Riddell: The GST/HST only applies to new housing or substantially renovated housing, which is effectively like new housing. Resale housing in the secondary market is not subject to GST/HST, so this would not apply there.
Senator Moncion: Thank you. It was a clarification that I think was necessary.
Senator Duncan: Thank you to the witnesses who are appearing before us today.
My questions concern Part 1 and the labour mobility deduction for tradespeople. Canada’s Building Trades Unions recently appeared before the Finance Committee in the House of Commons. One of the recommendations they followed up with is to simplify the language to enable workers to accurately use this welcomed deduction. I would like clarity on this.
Electricity Canada advised in a recent meeting that for Canada to meet net-zero goals will require a significant build-out of our electricity infrastructure. Construction and repair of transmission lines is a highly specialized skill. We’ve seen that recently with the storm in Ontario and in repairs to the lines, as well as support from workers from other provinces to repair and reconstruct. We’ve seen relocation.
It says the payment of relocation expenses is applied to the construction industry. Would the witness please provide clarification on “construction industry?” Does it apply to major infrastructure rebuilds and building?
Mr. Maxson: Thank you for the question, senator.
Your first question was around Canada’s Building Trades Unions’ comments on the distance threshold. The existing legislation requires that the distance be reduced by 150 kilometres vis-à-vis the individual’s residence versus their temporary lodging. The language used in the bill is based on existing language in the act for the moving expense deduction, but the Canada Revenue Agency is responsible for communicating these rules to taxpayers.
I would note that, in the context of the similar language in the act for the moving expense deduction, the Canada Revenue Agency does provide simplified language for taxpayers. It essentially says the individual must be 150 kilometres closer to the workplace. The language in the bill is not necessarily going to be the language that Canada Revenue Agency uses to communicate with taxpayers, although the two, of course, would be equivalent.
On the second question, the Canada Revenue Agency is responsible for the interpretation of the act, so I can’t weigh in conclusively on specific cases, but I can say that the definition of “construction activities” is based on Income Tax Regulation 238, which says that construction activities include, among other things, the repair of a structure. It is a fairly broad definition, and it would include the repair of structures, but whether that includes a specific case would have to be a question asked of the Canada Revenue Agency.
Senator Duncan: Thank you for that response, Mr. Maxson. I was not seeking clarity on the distance, although you do raise a good point that was raised by the construction industry in terms of the distance and the point that they requested. My request is for simplicity, which was also a request of Canada’s Building Trades Unions. I would ask that this be recorded, Mr. Chair: that there be simplicity in this tax deduction so that individuals can make use of it.
Following up on the distance issue, quite often in northern and rural Canada, there will be the payment of relocation expenses by an employer to assist in attracting workers to rural and northern Canada. Has there been any consultation or discussion with federal, provincial and territorial ministers of finance and various trade unions on this particular mobility deduction? What consultation has taken place? I’m thinking in particular of provincial-territorial legislation, such as payroll taxes and how this labour mobility deduction intersects with those sorts of initiatives at the federal, provincial and territorial level.
Mr. Maxson: Thank you, senator. With respect to the employer payment of relocation expenses, there is an existing provision under the Income Tax Act for remote work sites that allows employers to pay for the transportation and lodging of workers at those work sites as an entirely nontaxable benefit, and, of course, it is also deductible to the employer.
That’s one of the existing provisions provided to support labour mobility under the Income Tax Act. There has been consultation under this measure with Canada’s Building Trades Unions, and we have discussions with our provincial tax counterparts through a standing tax committee, but we have not had a specific discussion on provincial payroll taxes and how they might relate to this measure.
Senator Boehm: I would like to ask about measure (h) in Part 1, the extension of the period for incurring eligible expenditures and other deadlines under the film or video production tax credits. Ms. Gwyer, I don’t know if this is for you.
My understanding is that corporations would have to file a waiver in every case within the usual applicable time limits with the CRA and with the Canadian Audio-Visual Certification Office in order to extend the assessment limitation period and be able to claim film or video production tax credits. Would this requirement prevent some corporations from claiming these credits? In light of this, how many corporations are expected to be eligible to claim the credit? Would this change meet the needs of companies in the industry that you may have consulted? Why is there a requirement that the labour expenditures on production be greater than zero to claim these credits?
Ms. Gwyer: Thank you for that question. My colleague Shane Baddeley would probably be in the best position to answer it.
Mr. Baddeley: Thank you for the question, senator. With respect to the waiver, that’s a formality that would keep the return open, so they can refile their return in order to claim the credits as required given the extension. That wouldn’t impede in any way their ability to claim that. It’s something they would do already, and we’re providing here an extra 12 months on certain deadlines to claim the credit, whether it be the Canadian Film or Video Production Tax Credit, or CPTC, or the Film or Video Production Services Tax Credit, or PSTC, whether it is a Canadian production or a foreign production.
We don’t have a specific estimate on who would actually benefit from this, but it is generally thought that we’re erring on the side of generosity here. We’re providing a pretty long extension. What we’ve heard from the industry, at the time of putting this in, is that not too many productions were significantly impacted. There were some impacts, but providing an additional 12 months would be quite enough time for these businesses and productions to be able to get back on track with claiming these credits.
In a normal year, about 1,500 corporations would claim the Canadian tax credit for film, and about 550 corporations would claim the foreign-related credit for film. I believe you had one other question.
Senator Boehm: I wondered about the labour expenditure on production and why it has to be greater than zero to claim the credit.
Mr. Baddeley: The credit is based purely on labour expenditures, so there has to be a labour expense to claim it.
Senator Boehm: That clarifies that. I have another question. This is regarding measure (k) in Part 1, the inclusion of post-doctoral fellowship income in the definition of earned income for RRSP planning purposes. Why is the post-doctoral fellowship income not considered earned income for calculations of an RRSP deduction limit? Since the CRA has already received information on post-doctoral fellowship income after 2010 and before 2021, given that it is taxable, why would eligible taxpayers also need to file an election with the Minister of National Revenue to include that income in their RRSP deduction limit, and why isn’t it simply being done automatically?
Ms. Gwyer: Thank you for the question, senator. Historically, it is an anomaly in the Income Tax Act that this type of income has not been included in the definition of earned income for RRSP purposes. That’s something that we’ve heard from stakeholders quite a bit, and obviously, it is not fair that, if it is being taxed as taxable income, it doesn’t also create RRSP room. That’s the reason for the amendment.
The amendment would apply automatically to income that’s received in 2021 and subsequent years. Then, as you noted, for income received after 2010 and before 2021, the taxpayer would have to file an election with the CRA. The reason for that is administrative, to allow the CRA to make adjustments in terms of the RRSP room calculated for an individual. It is not intended to add a significant burden. It is required from an administrative perspective.
Senator Boehm: Thank you very much.
Senator Marshall: I am back to the luxury tax, and I think this question will be for Mr. King. Before I go on to my question, Mr. King, were you also the official that briefed us on the unused housing tax?
Mr. King: Yes, I believe that would have been me.
Senator Marshall: That would have been you, okay. I am going to link those two up there now.
I know when you talked about the unused housing tax, and we had asked about whether you had assessed other impacts such as the possibility of reciprocal taxation by the American government, I don’t think that that was done. Then this morning, when you were talking about the luxury tax, Senator Forest was talking about the damage to some businesses because of that proposed new tax.
The impression is that the impact assessments being done by the Department of Finance on these new taxes don’t seem to be robust enough. It seems that the emphasis is on how much money these taxes can generate for the government; that’s the objective, to generate taxes.
And the implications, the impact of the taxes, seem to be taking — I don’t know if it is second place, but it is not considered enough. Could you speak to that?
How thorough are those impact assessments that you do? Because the impression that is being left is that they are secondary to the assessment of the tax revenues that it is going to raise.
Mr. King: I can only speak to the ones that I have worked on myself, and that my division has worked on.
Specifically with respect to the luxury tax, I think I have made these points earlier that there just are not that many similar examples out there for us to appeal to for an estimate or a look at what the estimates were in those cases. There is very little in terms of economic literature out there.
There is one study that we have relied on to do some estimates; it was the same study that the PBO has relied on, and that I think Dr. Jack Mintz used in a study he did for the National Marine Manufacturers Association Canada. That one study is 30 years old, so there is just not that much information out there for us.
Of course, the tax is not in effect, so we don’t know who the registrants will be with any great degree of certainty, or the revenues or exemptions that will be claimed. The bottom line is there is not much to work with; I mean, we have done what we could with the information that we had.
Senator Marshall: But do you think that because there is not much literature on that, and because other jurisdictions have not imposed these kinds of taxes, that there might be a good reason why they haven’t and, therefore, we are sailing into dangerous uncharted territory?
Mr. King: Well, I can’t speak to the danger or not.
All I could say is that this was a commitment that the government put in a couple of election platforms and it has chosen to follow through on it.
Senator Marshall: Thank you very much.
[Translation]
Senator Forest: I have a question about Part 1(l), the amendments that relate to charities. Will the proposed amendments, including the regulatory requirement that the charity provide ongoing oversight of the donor organization, eliminate the use of the control and direction criteria currently used by the Canada Revenue Agency as recommended by the advisory council on the charitable sector?
[English]
Mr. Langdon: Thank you for that question. I think the short answer to it is yes.
Currently, under the existing rules, registered charities can make a transfer to a non-qualified donee but, in doing so, they have to demonstrate that the activity is their own. Generally, that requires that an organization exercise a degree of direction and control over the donee sufficient so that it is legally considered their own activity. The proposals in Budget 2022 and Bill C-19 would remove that requirement.
They would allow a registered charity to make a transfer to a non-qualified donee provided that it is in furtherance of their charitable purposes; it is, in fact, applied to charitable activities by the grantee; and then, currently, there is a set of proscribed requirements that effectively would require the charity to have an agreement with the organization, receive regular reporting at least annually, and final reporting from the organization. So it does eliminate the requirement for direction and control.
[Translation]
Senator Forest: Thank you.
[English]
Senator Richards: I have a quick question that I know won’t be answered because I have asked it every time I have sat here.
I’m thinking of the rate of inflation and the possibility of a recession, and because of the pandemic and other things, such as the war in Ukraine, we are getting closer. I was wondering if there was any provision in this bill that might help those who are going to be affected by inflation.
I asked the Parliamentary Budget Officer last year about the recession looming and he said he did not think there would be one. However, now he might have changed his mind. Could anyone assure me that a recession is not in the works here?
Mr. King: Perhaps I could take that question.
Unfortunately, senator, we are probably not going to answer your question again, as you noted, simply because the officials on the line are from the Tax Policy Branch and were responsible for Parts 1 to 4.
However, I do understand that you may have a meeting later this afternoon with the minister; I believe she is appearing at the committee along with some other senior officials, including the deputy. It might be more appropriate to raise that question there, if I could suggest that.
Senator Richards: Thank you.
[Translation]
Senator Gerba: Thank you again to our witnesses.
I will first ask the question, if I may, of my colleague Senator Gignac. He is referring to Canadian aircraft manufacturers who export most of their aircraft. The proposed luxury tax, which will not apply to exports, will require sellers to pay the luxury tax at the time of sale and recover the funds after the product is exported.
Given that this situation will create significant cash flow problems for aircraft manufacturers, what options are being considered by the Department of Finance to avoid unduly penalizing aircraft manufacturers?
[English]
Mr. King: Thank you. I can say that we’ve been made aware of the issue of a cash flow timing problem for certain aeronautical firms where they may sell an aircraft; it would be subsequently exported, but they would have to remit the tax before it is exported, so they would have to bear the cash management costs of that.
We have been instructed by the minister to look at that issue and see if there is a workable solution and the department is, right now, working on that and looking at it. So I couldn’t say more than that, but it is something that we are aware of and we have been instructed to try to resolve.
[Translation]
Senator Gerba: Thank you. I have a second question for Amanda Riddell, Director of Real Property and Financial Institutions.
Division 12 of Part 5 of Bill C-19 prohibits the purchase of residential real property in Canada by non-residents unless they are exempted by the act or its regulations or the purchase is made in certain situations specified in the regulations.
Can you give us more details or explanations on this section?
[English]
Ms. Riddell: Thank you for the question. That is actually dealing with Part 5. The officials for Part 5 will be at a later meeting.
[Translation]
The Chair: That will be for Part 5, Senator Gerba. The question can be asked on Thursday afternoon.
Senator Gerba: Right. Sorry. Thank you.
The Chair: Before I give you the floor, I would ask for your indulgence, Senator Dagenais.
[English]
I would like to ask a question to Mr. King. If we can verify what you said earlier when you were giving an answer to Senator Forest, did we hear correctly when you said the luxury tax, if it is implemented, does that mean that there are discussions on now, and as a parliamentarian, a question that it could not be implemented?
Mr. King: Thank you. I thought of that when I said that. The only reason why I said “if it’s implemented” is because it’s working its way through Parliament, and it’s up to Parliament itself to pass it, not us as officials. Just to clarify, I have nothing to suggest it won’t be passed, but it’s up to Parliament.
The Chair: Thank you very much. It shows your professionalism and I wanted to bring that up, sir.
[Translation]
Senator Dagenais: I would like to come back to the luxury goods tax. It will certainly have a negative impact on the aviation and marine industry in Canada, because many people will decide to buy used boats and aircraft that are four or more years old, that is, from before 2018. It’s quite common. A private jet has a life of more than 25 years and can be updated very easily.
What is the justification for excluding race cars that can be seen on the track and snowmobiles, which are luxury goods?
[English]
Mr. Glick: Thank you for the question. I can handle the race car portion, at least, as I was involved with that portion of the policy.
In that sense, it was decided that race cars should not be included in the base because they are not actually street legal in Canada, so they are not necessarily cars for our purposes. They look like a car, they function like a car, but they’re not street legal. So in terms of race cars, they’re a different type of four-wheeled automobile that cannot be driven on Canadian streets. It was for that reason that a policy decision was recommended to the minister to exclude them, and as such, it was decided to keep them out of the base.
In terms of the other products like snowmobiles, it’s our understanding that they don’t necessarily meet the price threshold. If and when certain products would meet the price thresholds that were set out for these goods, we could re-examine it, but at this time, they were left out of the base. And as you can see, this was already quite a large bill, so to include other items that were not necessarily at or above the price threshold would have increased the complexity of the bill as well as the compliance requirements for the industry. Snowmobile dealers would have had to register, in some cases, in case they foresaw selling a snowmobile over that price threshold. Those are the two considerations for race cars and snowmobiles in particular.
[Translation]
Senator Dagenais: With your permission, Mr. Chair, I would like to come back to the excise tax. In terms of the answers to the questions on vaping products, I think there’s a clear link between vaping and tobacco. I don’t know why we can’t compare taxes and revenues. I would invite our witnesses to look for some numbers on that, but on another note, I’d like to know where we are in the fight against contraband tobacco. Canada is missing out on a lot of money, so what would be the shortfall in terms of contraband cigarettes, because I guess that’s been assessed?
[English]
Mr. Glick: Quickly, on the vaping, I can point out that one typical vaping pod is roughly equal to 20 cigarettes, which are subject to federal excise duties of about $3. That pod — so 20 cigarettes equals one pod — would be taxed under the proposed excise duty framework for vaping products at $1, and just $2 as part of a coordinated taxation regime with participating provinces.
In that case, there are relatively lower risks with vaping products as compared to tobacco products, so the excise duties do reflect that in that the federal rates are lower for vaping products.
In terms of tobacco contraband, it is something that our section looks at quite closely. We do work with colleagues at both Public Safety as well as Health Canada to continually monitor the market for both tobacco products in the legal sphere as well as potential contraband.
We are aware of the problem; we’re not necessarily able to quantify it, and this is across contraband goods. It’s obviously quite difficult to survey criminals, for example. I don’t mean to be flippant, but to get an accurate view of the contraband market, it does go somewhat beyond the scope of the government’s capabilities, and, indeed, in some case law enforcement, to be able to get an accurate holistic view of the entire tobacco market, which would include contraband tobacco. But we’re endeavouring to find out as much as we can in terms of the proportions, and we are quite aware of it and are working with our colleagues across the government to address the issue.
[Translation]
Senator Dagenais: Thank you.
[English]
Senator Pate: Thank you very much. This morning, the Auditor General released a report regarding access to benefits of hard-to-reach populations — that is their term — and it found that, in fact, there’s a lack of comprehensive planning to connect with people who most need benefits in this country. There is also a finding that the Canada Revenue Agency and Employment and Social Development Canada overstated the rates of eligible people having access to benefits because they didn’t always account for those who had not filed income tax returns.
I recognize these are two other agencies, but it strikes me that Finance Canada would have a direct influence and potential desire to ensure that this kind of deficit and problematic situation is remedied. I’m curious as to what the plan is in the Department of Finance to address these issues and work with those departments to remedy and rectify the inequities that the current practices seem not only to be entrenching but perpetuating.
Ms. Taylor: Senator, I’ll attempt to address your question. I think you’ve correctly identified that the OAG’s report was probably directed to the activities of the Canada Revenue Agency and Employment and Social Development Canada, who are really the on-the-ground interface in terms of outreach to populations in northern, rural and remote regions in an effort to assess difficulties individuals may have in filing taxes and applying for benefits, and trying to promote outreach and connections with those communities to ensure that people can get the benefits that they are entitled to, which is obviously the objective of the government.
The Department of Finance obviously would review any requests for funding in terms of those outreach efforts. Again, that’s not the Tax Policy Branch, but within Finance Canada we would have that responsibility in terms of advising the Minister of Finance and continuing to look for results and ways to ensure that those operations can be enhanced, and we would always welcome input from the OAG in terms of areas of concern and areas for improvement to look for.
Where the Tax Policy Branch’s take on that is concerned, I think that’s about all we can contribute.
Senator Pate: Thank you.
Senator Gignac: My question is about the proposed luxury tax and the impact on the aircraft industry. Over the last few weeks, we’ve met representatives of different companies like Airbus and Bombardier, and it seems they have many issues. My colleague Senator Gerba already asked a question regarding the impact on the cash flow on the company. Even if you don’t tax the product to be exported, as a matter of fact, it could have an impact on cash flow.
My second question is about the red tape and the administrative burden. In fact, it asks the vendors of aircraft to pay the luxury tax and then maintain quarterly usage records of their clients in order for them to benefit from the business exemption, which is set at a minimum of 90% usage over the lifetime of the aircraft. So as we are examining Bill S-6 to reduce the burden and regulation, we have a clear example here of creating additional red tape, and this is very complicated.
Mr. King, could you explain how it will work exactly, and is it true that it will be an additional administrative burden for the companies to administer this tax?
Mr. King: Thank you for the question. I’m going to pass this over to my colleague Mr. Glick; we’ve lost Mr. Turner as well. We ourselves are double-booked with the House Finance Committee as well.
Mr. Glick: Thank you for the question, senator. Certainly, we understand there may be a compliance burden for a number of industries. We have heard quite acutely from the aircraft industry in particular, and we understand, of course, the mechanisms. We have an appreciation of the fact that they may indeed have to remit the taxes for these aircraft before they are actually exported out of the country.
As my supervisor Mr. King has indicated previously, we have received direction from the Minister of Finance to examine this issue and try to find out whether we’re able to rectify in some way the cash flow issues that have been identified for the aircraft industry so that we can help them along and potentially reduce the compliance burden.
I also understand that there are ongoing discussions and potential amendments at the House Finance Committee requiring the business aircraft use rule to potentially lower it from 90% to 75% or something similar.
Along another track, I believe there are discussions ongoing regarding an additional compliance burden that may be imposed by the government’s decision to impose such a luxury tax on the industry.
Senator Gignac: Thank you.
Senator Duncan: I have a follow-up question to which I’d like a response in writing from Mr. Maxson. Mr. Maxson, you deferred the response to my question to interpretation by the CRA. Could I ask you to respond in writing whether the intent is that the labour mobility deduction for tradespeople only applies to building trades and not those involved in heavier construction activities, such as the IBEW?
Could I also have a response in writing about the consultations with the federal, provincial and territorial ministers of finance and local associations regarding this tax deduction, particularly in light of payroll taxes? For example, in the Northwest Territories, a payroll tax does not apply to employers; it applies to employees. How might this deduction apply to those people?
Could I also have a response on the disability tax credit? I would just like to put on the record that the Multiple Sclerosis Society of Canada called on the government to:
Implement the Canada Disability Benefit to make direct payments to individuals who live with a disability, specifically including episodic disability as defined in the Accessible Canada Act.
Bill C-19 extends eligibility criteria in two ways, but how do the amendments apply to those with episodic disabilities? If I could have that response in writing as well, Mr. Chair, in the interests of time, I would thank you.
The Chair: To Mr. Maxson, just as a reminder, written responses should be sent to the clerk by the end of the day on Monday, June 6, 2022. Is that agreed?
Mr. Maxson: That’s agreed. Thank you, Mr. Chair.
Senator Boehm: This is a quick follow-up to a question my colleague Senator Dagenais asked earlier, and this is with respect to Division 1 of Part 3, the excise duty exemption for Canadian wine. I think it’s generally recognized that the wine industry has suffered a bit in Canada lately from a combination of climate change measures and, of course, pandemic implications.
Is there any data on how many wineries would be affected by the removal of the excise duty exemption? I don’t imagine anyone can respond about support for the wine industry, but I’m curious to know whether you have any data or whether in your consultations you took due note of the concerns of the industry with respect to this measure.
Mr. Glick: Thank you, senator, for the questions. In terms of the number of wineries that would be affected, we don’t have that on hand. We could speak to CRA colleagues who are responsible for licensing and administering the wineries that would be remitting excise duties in these cases. It may also be the case that because they weren’t previously required to remit excise duties, we may not fully capture the extent of all wineries that would now be subject to it following the amendments. We will certainly follow up in that respect.
In terms of the support provided to the industry, you are correct. I don’t believe there’s anybody on this call right now, but I am aware of an offer to potentially support the industry in a similar amount for how much they may be affected, while, of course, keeping in line with our WTO obligations, but we will follow up on those points.
Senator Boehm: Thank you very much.
Senator Loffreda: I’ll continue on the wine taxation. We understand this division amends the excise tax to repeal the 100% Canadian wine exemption, which was challenged by Australia at the World Trade Organization, after which, in 2020, Canada reached an agreement with Australia. To go a little deeper into this wine taxation, can you provide our committee with additional information on Australia’s challenge and Canada’s position and arguments in favour of keeping the 100% Canadian wine exemption?
Mr. Glick: Thank you for the question. Unfortunately, my colleague who worked most intensely on this provision is currently at the House Finance Committee responding to that committee’s questions. We would have to follow up, so unfortunately right now we’re not able to provide those details. I apologize.
Senator Loffreda: If we can have a follow-up in writing, that’s fine, thank you.
I’ll continue with beer taxation, given that we are in the alcohol sector at this point. In your department’s briefing binder to parliamentarians, it mentions that removing the excise tax on low-alcohol beer has the effect of encouraging the production of low-alcohol beer and its sale in the Canadian market. If low-alcohol wine and spirits are not subject to an excise tax, I also believe that beer should have the same treatment. Could you tell us what share of the market this type of beer represents, and what will be the lost revenues to the government? Do you have any indication that brewers will increase their production of low-alcohol beer?
Mr. Glick: Thank you again for those questions. My apologies again, but it’s the same absent colleague who would have worked on both those alcohol measures. I’m more on the smoking side of vaping and cannabis, and he’s more on the alcohol side. Certainly, we will follow up with those details. I would say that, generally, it is a small portion of the market. We might expect it to grow a little bit, but in terms of specifics, we’ll follow up with the committee.
Senator Loffreda: Thank you. Maybe we can expand on labour mobility, which was an important issue. According to the CBTU website, a skilled trades workforce deduction could lead to major savings for the Canadian government. Let’s touch on the major savings.
I know we did talk about labour mobility, but maybe we do have time. The CBTU suggests that increased workforce mobility would take workers off programs like EI and instead contribute to the Canadian economy through tax revenues from their employment. The union also estimates that a skilled trades workforce mobility tax deduction would save the federal government an estimated $347 million. However, according to Budget 2022, the government has earmarked $595 million until 2026-27 for this program.
Does Finance Canada share the same view that this new tax deduction could save the government nearly $350 million? What is your assessment of the cost-saving measure of this policy and how will all this money be saved if the program will cost us almost $600 million for the next five years? And how many Canadians might be eligible for this deduction?
Mr. Maxson: Thank you for the questions. The $595 million mentioned in the budget documents is the tax cost of the deduction, so the foregone tax. It doesn’t include the behavioural response that might be associated with people who choose to relocate for a number of weeks rather than drawing from the Employment Insurance program. We don’t have an estimate of that behavioural impact. Unfortunately, there aren’t any similar measures in place that we can draw on to accurately assess that kind of behavioural impact.
In terms of the total population that might be eligible, according to the 2016 census — so this is a little bit dated — there were about a million trades persons and apprentices in the construction industry. We don’t know what proportion of those might use the deduction in a particular year, but that’s a rough idea of the population that might be eligible in a year.
Senator Loffreda: Thank you.
The Chair: Honourable senators, this will end our session. We have completed the agenda items. We will conclude this meeting, but I would like to thank the witnesses for their professionalism and also for being very informative. We’re awaiting your responses in writing. Before we adjourn, a reminder that the deadline for the written responses to the clerk is the end of day on Monday, June 6, 2022, so we can be in a position to table our report to the Senate.
I would also like to inform honourable senators that our next meeting will be this afternoon at 4 p.m. to welcome the Honourable Chrystia Freeland, Deputy Prime Minister of Canada and Minister of Finance. Minister Freeland will be with us for 90 minutes to discuss Bills C-8 and C-19.
We also have another meeting on Thursday, June 2, 2022, to continue our study on the subject matter of Bill C-19. Honourable senators, to the witnesses and also to our clerk and her team, thank you.
(The committee adjourned.)