THE STANDING SENATE COMMITTEE ON NATIONAL FINANCE
EVIDENCE
OTTAWA, Wednesday, December 7, 2022
The Standing Senate Committee on National Finance met with videoconference this day at 4:04 p.m. [ET] to study the subject matter of Bill C-32, An Act to implement certain provisions of the fall economic statement tabled in Parliament on November 3, 2022 and certain provisions of the budget tabled in Parliament on April 7, 2022.
Senator Percy Mockler (Chair) in the chair.
[English]
The Chair: I wish to welcome all of the senators and viewers across the country who are watching us on sencanada.ca.
[Translation]
My name is Percy Mockler, senator from New Brunswick and chair of the Standing Senate Committee on National Finance.
Now, I would like to do a round table and ask my colleagues to introduce themselves, starting on my left.
Senator Gignac: Senator Clément Gignac from Quebec.
[English]
Senator Duncan: Pat Duncan, senator for the Yukon.
[Translation]
Senator Loffreda: Senator Tony Loffreda from Quebec.
[English]
Senator Bovey: Patricia Bovey, a senator from Manitoba.
Senator Boehm: Senator Peter Boehm, Ontario.
Senator Smith: Larry Smith, Quebec.
Senator Marshall: Elizabeth Marshall, Newfoundland and Labrador.
The Chair: We have the pleasure of welcoming today the following departments and agencies: Canada Revenue Agency, Finance Canada, Crown-Indigenous Relations and Northern Affairs Canada, Indigenous Services Canada, Department of Justice Canada, Canadian Space Agency and also Employment and Social Development Canada. To all of the witnesses, thank you for being with us today and for accepting our invitation to be witnesses at the National Finance Committee of the Senate.
Senators, the officials are with us for approximately 75 minutes. For the sake of time, we will proceed directly to questions. You will have a maximum of five minutes each for the first round, and if time permits, a maximum of three minutes each for the second round. Therefore, please ask your questions directly to the witnesses. Please, witnesses, respond concisely. The clerk will inform me when the time is up.
I would like to ask the senators to please identify the part of the bill that they are referring to when asking questions. There are specific officials who have been identified by the agency or the departments for specific parts of the questions. These officials can only speak to the contents and measures of their parts of Bill C-32. We have a long list here that will help guide us to identify these officials, and thank you again for your cooperation, officials.
Senator Marshall: My first question is very brief, and I think it’s directed to Ms. Gwyer. She made a commitment when she testified the last time. I was looking for a breakdown of tax costs and savings, revenues and expenses of the items that are outlined in Part 1. She did provide a net figure of just over $4 billion. I would like for that commitment to be honoured, if you could provide us with the information. I think if she can just briefly say whether I’m going to get the information or not, that would be helpful.
Lindsay Gwyer, Director General, Legislation, Tax Legislation Division, Department of Finance Canada: Yes, I’ll follow up on that. I’m not sure why that information hasn’t been provided yet, but we’ll follow up on that.
Senator Marshall: Thank you very much.
My questions are all on Part 4, Division 1, on the Canada Growth Fund. It indicates that the minister is going to provide to the minister $2 billion to buy shares in a wholly owned subsidiary of the Canada Development and Investment Corporation. I’m wondering what the name of the corporation is. I have been trying to find it, and I haven’t been able to do so. Where would I go to get that information, or does the corporation actually exist yet?
Anne David, Director, Asset Management, Crown Investment and Asset Management, Department of Finance Canada: Thank you, senator, for your question.
The name of the corporation will be the Canada Growth Fund, Inc. The corporation has not yet been incorporated.
Senator Marshall: It doesn’t exist. Okay. So we’re going to provide $2 billion to buy shares in a corporation that doesn’t exist.
Where is the mandate? I was interested in looking at the mandate of the corporation, the composition of the board and the objectives of the corporation. I’m especially interested in what controls are going to be exercised over the $2 billion once the minister purchases those shares. There is a provision in the legislation that there is no cap on the additional monies that are going to be provided to the Canada Growth Fund, Inc. Where would I look for the financial controls that are going to be exercised by the corporation, as well as the composition of the board and things of that nature?
Ms. David: Thank you for those questions.
The mandate can be found at section 3.1 of the technical backgrounder on the Canada Growth Fund that the Department of Finance released on November 4.
In terms of —
Senator Marshall: Is it the intention of the government to create the corporation by an act of Parliament, or will it be created under the Canada Business Corporations Act? What’s the intent with regard to the creation of the corporation?
Ms. David: Absolutely. As outlined in the Fall Economic Statement, the government intends to stand up the CGF in two phases. The first phase will be stood up as a Canada Business Corporations Act corporation that will be incorporated as a subsidiary of CDEV. That is expected to be done very soon so that CGF can start making investments only once money flows from the measure that’s in Bill C-32. In terms of the permanent structure, the government intends to take the steps necessary, including an act of Parliament to be introduced in 2023, in order to establish the permanent structure for CGF.
Senator Marshall: Okay. Does that mean there will be an act of Parliament that will outline the mandate of the corporation and the composition of the board, as well as reporting to Parliament?
Ms. David: Yes, that’s correct. The government intends to introduce that legislation in 2023.
Senator Marshall: Okay. So we don’t have any of that yet.
Is there a limit on the amount that is going to be provided to this corporation? It’s $2 billion under the authority of Bill C-32, but then it goes on to say that there will be other amounts that will be included in appropriation acts. Is there a limit on those?
Ms. David: There is no limit, but those amounts aren’t appropriated. It gives Parliament the authority to provide additional funds, but at this time, should Bill C-32 pass, the maximum amount that the minister would be authorized to provide to CGF is $2 billion. For any amount above that, there would need to be another bill, such as an appropriation act.
Senator Marshall: There is no limit specified under Part 4.
Ms. David: The limit would have to be set in an appropriation act by Parliament.
Senator Marshall: So there is no limit. Okay.
Are there any plans with regard to the reporting structure? It is a substantial amount of money. What kinds of information are going to go to Parliament?
Ms. David: Absolutely.
To go back to the previous point, there is a limit. The current legislative limit is $2 billion.
In terms of reporting back to Canadians and to Parliament on the activities of the CGF, the CGF will be incorporated as a wholly owned subsidiary of CDEV, which reports to Parliament and Canadians through the Minister of Finance. It tables its annual reports in Parliament, as well as its corporate plan summaries. Its quarterly financial reports are posted on its website. That reporting to Canadians and to Parliament will continue when the CGF is incorporated, as is done for other subsidiaries of CDEV.
Senator Marshall: So, in summary, the corporation doesn’t exist, and there is no legislation governing the activities of this corporation that doesn’t exist yet. Okay. Thank you.
The Chair: I would like for your cooperation, officials. When you answer a question, please introduce yourself for the record.
[Translation]
Senator Gignac: My first two questions are for Ms. David, and I’ll continue the conversation you just had with my colleague Senator Marshall.
I’m trying to understand this as well. We’re talking about a $2‑billion advance; the Minister of Finance is asking for $2 billion from the consolidated revenue fund to acquire non-voting shares. Could the total assets not exceed $2 billion? There would be $2 billion in share capital, but the government could borrow much more before making a new request to Parliament. Given that there can be debt, and not just equity, what is the usual leverage? I’m trying to understand, so I’d like you to answer my question, Ms. David.
Ms. David: My name is Anne David, and I’m the Director of the Crown Investment and Asset Management Branch within the Department of Finance Canada. I’m going to talk to you about the Canada Growth Fund.
Thank you very much for your question, Senator Gignac. Your question is about the capital of the Canada Growth Fund. My answer will be in two parts. The total capital that would be provided through Bill C-32 is indeed $2 billion; it could also be a larger amount that could, for example, be established by Parliament through an appropriation act.
However, for the entire fund, the capital the government is planning to invest would be $15 billion. For these additional amounts, a difference of $13 billion — from $2 billion to $15 billion — it will be necessary to pass appropriation legislation, in order to be able to increase the capital of the growth fund from $2 billion to a total of $15 billion, or anywhere from $2 billion to $15 billion.
Senator Gignac: Thank you for your answer.
As I understand it, the total capital of the Canada Growth Fund could be as high as $15 billion. We start with $2 billion, but the Minister of Finance will, in subsequent months or years, ask for an increase in capital to a potential amount of $15 billion.
The total assets could therefore significantly exceed $15 billion. If the $2 billion is granted and there is no new demand for share capital, then the assets could be $4 billion or $5 billion for a $2 billion share capital; is that right? I’m trying to understand, and I imagine the minister will have to come back to us if the corporation issues debts or does anything else.
Ms. David: Thank you very much for your question.
The government’s plan is to capitalize the corporation through share capital. Right now the corporation doesn’t exist, so it can’t do anything. However, once the corporation is incorporated, it could, for example, incur debt.
The government’s plan to capitalize the Canada Growth Fund is indeed through a share purchase. In 2023, the government plans to establish the permanent structure of the Canada Growth Fund. In addition, the full details of the share capital and borrowing authority will be set out in a bill that the government is expected to introduce in 2023.
Senator Gignac: Thank you.
I think I asked you this question the first time we met, but I’ll ask it again. At this point, has the government — or the Minister of Finance — decided whether this will be a separate piece of legislation from the budget or whether it will be part of a budget, since it’s still a fairly complex bill?
Ms. David: Thank you very much for the question, Senator Gignac. This decision hasn’t been made. It’s a decision for the government, specifically the Minister of Finance and the Prime Minister.
Senator Gignac: Thank you, Ms. David.
I’m going to switch gears. I don’t know who my next question is for. I would like to talk about mutual fund trusts and the allocation to unit holders who redeem exchange-traded funds. There are changes being made here, as I understand it. How will the proposed changes affect Canadians who invest in exchange-traded mutual fund trusts?
[English]
Ms. Gwyer: This change is an extension of a change that was made in 2021 related to mutual fund trusts. This is an extension of that rule to exchange traded funds, ETFs.
Historically, mutual fund trusts, including ETFs, have been able to allocate capital gains to unit holders who are redeeming their units. A certain level of capital gains can be allocated to those unit holders to ensure that there is no double tax. Historically, however, mutual fund trusts have allocated amounts in excess of that, which has the result of deferring tax. It defers the tax for other investors in the mutual fund trust. The purpose of the changes made in 2021 was to prevent that inappropriate deferral of tax. The rules are intended not only to ensure that an appropriate amount of tax can be allocated to redeeming unit holders to make sure there is no double tax but also to prevent there being an inappropriate deferral.
The changes in Bill C-32 extend those changes to exchange traded funds because exchange traded funds are listed on stock exchanges. They don’t get redeemed the same way that normal mutual fund units get redeemed, so different formula had to be used. It’s a bit more complicated. The delay gave the Department of Finance time to consult with the ETF industry to ensure that an appropriate rule could be created for ETFs to make it so people who are invested in ETFs don’t have double tax because they are still able to allocate capital gains to redeemers, but there is also no opportunity to inappropriately defer the tax for investors and for the funds.
Senator Gignac: That’s very clear. Thank you for that.
Senator Smith: I believe this question is for Part 1, Canada Revenue Agency, but I guess people in Finance could handle it.
I read in the Financial Post back in late November about an issue on flipping real estate. I would like to talk a bit about the anti-flipping rule. Maybe I should ask who is going to deal with the question, please.
Ms. Gwyer: A few of us on here could answer the question, depending on what it is.
Senator Smith: Super. I just wanted to find out who I was talking with.
I would like to talk about the anti-flipping rule that’s contained in Bill C-32. There have been reports that suggest the CRA has already begun challenging taxpayers on their principal residence claim. For clarity, could you confirm whether the agency is currently challenging residential property sales it perceives as flips? If this is the case, I would like to know under what authority the CRA is undertaking this initiative as this measure would only apply in respect to residential properties sold as of January 1, 2023. If you could help me, that would be appreciated.
Ms. Gwyer: Maybe someone from CRA could go ahead.
Robert Greene, Director General, Individual Returns Directorate, Canada Revenue Agency: The CRA has been undertaking compliance activity with respect to the real estate sector. However, in that respect, we have not applied the proposed rules that are being introduced in Bill C-32. We are applying our general authorities related to compliance to identify high-risk cases involving the flipping of property to determine if the individual is eligible for the principal residence exemption.
Senator Smith: What types of information is the agency collecting that would help it assess whether the sale of a property would be considered flipped? I guess you would be setting up all these questions before you actually implement the legislation so that, when it is implemented, you can move forward with your inquiry’s investigations. If you could help me on that, that would be appreciated.
Mr. Greene: When the agency administers a particular measure, we take a range of compliance-related activities, including education and outreach first. From a compliance perspective, when an intervention is required, then we use a risk-based approach to identify cases that warrant further attention. That is the same practice that we’re using now in respect of the examinations that are under way related to perceived flipping events that are occurring. Again, we take a risk-based approach. If you can think of some of the markets and individuals who are repeat flippers, they are obviously going to get more attention and more scrutiny than an individual who has one occurrence of a claim for the principal residence exemption.
Senator Smith: Is part of the plan to focus on specific areas, that is, the Vancouver, B.C., market or the Toronto market — your two biggest markets — that saw the most expansion with sales and pricing during the pandemic? Could you give us some background on that?
Mr. Greene: Again, CRA’s compliance processes are based on a risk-based approach; therefore, when we see the activity in those markets that you mentioned, they will naturally result in specific attention under our compliance efforts. However, that is not to say that we do not examine those cases in other areas.
Senator Smith: If I understand correctly, there will probably be a global approach for implementation of this policy or rule across the country, and you’ll have people dedicated to each of the geographic areas to administer it. Is that how it would work?
Mr. Greene: That is correct. Again, we apply it using a risk-based approach, so there will definitely be areas that will receive more attention, depending on the flipping behaviour of individuals in those areas.
Senator Smith: The anti-flipping rule contains exemptions for extraordinary circumstances that include death, the birth of a child, divorce and so on. How are the guidelines for determining exemptions to this rule set, or going to be set, so the CRA can act as objectively as possible in determining exemptions? Is there a full list of exemptions? Will this list be drafted based on CRA’s interpretation? Will it evolve over time from implementation on to a certain period?
Mr. Greene: Within the bill, there is a list of specific exemptions. In some cases, these exemptions are clear and the situation is black and white, and it will be easily determined that an individual is eligible for the exemption from the anti-flipping rule. In other cases, there will be a requirement to obtain additional information from the individual for a determination as to whether or not the exemption applies.
As I mentioned before, there is a continuum of compliance activity. Outreach and education on those exemptions will be part of our strategy. Taking a reasonable approach related to the application of those exemptions will be applied. Again, even with respect to those exemptions and the determination of the application of the anti-flipping rule, we will continue to take a risk-based approach. Therefore, an individual involved in repeat flipping will obviously receive more scrutiny than a one-off case of an individual claiming the principal residence exemption.
Senator Smith: Did you have any observations from other countries as you were developing this particular program? Was there any search with other countries to see what other countries were doing with flipping?
Mr. Greene: I would have to turn to my colleagues in the Department of Finance in respect of a potential environmental scan when this measure was developed. In respect of our ongoing activities related to the real estate market, unfortunately, I do not have the expertise or the background to respond to that question.
Senator Smith: That is fair.
The Chair: Can anyone from Finance answer that last question from Senator Smith, please?
Yves Poirier, Director, Economic Development, Department of Finance Canada: We did some research. It is a rule that is relatively unique. There are countries with rules tying a specific tax treatment to, for example, a certain holding period, but in the context of residential property and having that list of exemptions, it is relatively unique.
The Chair: Thank you.
Senator Bovey: I wish to thank our witnesses for returning and carrying on these discussions.
My questions are regarding Part 4, Division 5. I do not know if it is for Ms. Hetherington or Mr. Wallace. First of all, can we have a confirmation that the forgiving of interest on student loans covers university students, college students and the skills training programs that are out there?
Jonathan Wallace, Director General — Canada Student Financial Assistance Program, Employment and Social Development Canada: Hi, senator. With this measure, the government will stop charging interest on student loans, and that is for any student loan holder. It could be a student at a university, a college, a public college or a private career college. Anyone who is eligible for loans under the Canada Student Financial Assistance Program or for loans under the Canada Apprentice Loans would be eligible for this.
Senator Bovey: Thank you for that. A question was raised the other day, and I wanted to clarify it.
In conversations over the last few days regarding this, I have to say that most individuals who have appeared before us have been very supportive of this. However, we did hear from one or two individuals who felt that there were other ways that might be of greater assistance to students than this particular measure. Did you consider other means of assisting students financially as you came up with this? Some individuals were talking about giving more grants to universities and not through students themselves. Can you tell us if you looked at any other possibilities for assisting students?
Mr. Wallace: Yes, for sure, senator. There are a number of different ways in which we can support students in order to offset the costs of post-secondary education and to increase access and affordability.
In particular, one thing that we have done is to propose the elimination of interest. We have also, as a result of the pandemic, taken other steps to increase upfront available support. For example, the government has temporarily doubled Canada student grants for two years. That is currently until July 31, 2023.
In addition, this past November 1, 2022, the Repayment Assistance Plan was enhanced so that students in repayment who earn less than $40,000 do not have to repay their loans or make any payments on their loans. That threshold amount is higher based on family size.
In addition, on August 1 of this year, eligibility for disability-related supports was expanded to include students not only with permanent disabilities but those with persistent or prolonged disabilities. One of those benefits is an upfront grant which is currently at $4,000 for students with disabilities.
There are a number of different ways in which the government is supporting students’ access to post-secondary education, and the elimination of interest is within that suite.
One of the benefits of the elimination of interest is that it provides some predictability to students once they are in repayment so that they know how much they are going to owe and it will not be a function of the economic conditions at the time. We do feel that could have an impact on accessing post-secondary education and the decision to take out a loan, in particular for those students who might be debt-averse.
Senator Bovey: I am aware that Canada student loans are not available to students in Quebec, the Northwest Territories or Nunavut. If Division 5 of Bill C-32 was to become law, would the Government of Canada take any actions aimed at securing similar support for borrowers in those three jurisdictions?
Mr. Wallace: Those three jurisdictions do not participate in the Canada Student Financial Assistance Program. However, under the Canada Student Financial Assistance Act, the Government of Canada does provide what is known as an alternative payment so that those jurisdictions can provide programs that have substantially the same effect as the federal program.
What happens is there is an annual process where we engage with those three jurisdictions. We ask them specific questions about the supports that they provide. We receive that information. We do an analysis, and then we determine what the alternative payment will be based upon the extent to which their programs have substantially the same effect. That is an administrative process that happens after the academic year is completed.
With respect to this measure, implementation is proposed for April 1, 2023. The academic year ends on July 31, so around this time next fall, we’ll be engaging with those jurisdictions to do an assessment of their regimes. If we do determine that they do have substantially the same effect, then they would be eligible to receive an increased alternative payment because of this measure.
Senator Bovey: I’m particularly concerned about students in the Northwest Territories and Nunavut and access to programs. I really look forward to seeing the kinds of agreements that you come up with going forward. I want to ensure that they have access. The need is huge. I am sure that with these opportunities, these students could contribute even more. Thank you.
Senator Boehm: My first question is for Crown-Indigenous Relations and Northern Affairs Canada. This is about the new Framework Agreement on the First Nations Land Management Act that is proposed in the bill. It has been referred to by the First Nations Land Advisory Board as more streamlined and less ambiguous than the act that it would replace. What are the major differences between the proposed Framework Agreement on the First Nations Land Management Act and the First Nations Land Management Act? In other words, why is it necessary to replace the First Nations Land Management Act? What real benefits would accrue to the impacted Indigenous peoples and communities, and have there been any concerns raised by groups?
Roxanne Gravelle, Manager, Engagement Policy Directorate, Crown-Indigenous Relations and Northern Affairs Canada: Thank you for the question.
The main difference between the bill that you have in front of you today in Part 4, Division 3, and the existing First Nations Land Management Act is that this bill will be shorter, simpler and will point to the Framework Agreement on First Nations Land Management as the central authority under which First Nations transition away from the Indian Act for 44 land-related provisions. That is essentially the major change. It really gives the force of the law to the framework agreement so that, in the future, there will no longer be a need for complex legislative amendments to expand or advance the framework.
When we talk about real benefits, that is exactly what this bill is doing. It is really shortening the process and reducing bureaucracy involved in making changes to this framework as First Nations communicate them and advocate for them through the Lands Advisory Board. At the end of the day, it reduces the requirement to come to Parliament regarding changes. It’s a real advancement.
Senator Boehm: Thank you. So are you telling me, then, that the previous act did not have the full force of law?
Ms. Gravelle: The previous act did have the full force of law. It simply repeated almost every provision of the Framework Agreement on First Nation Land Management in a slightly different way, which caused confusion for the First Nation users. Because of that confusion, the Lands Advisory Board and the signatory First Nations to the framework agreement came forward requesting that we repeal and replace the existing legislation with a shorter bill that would really point back to the framework agreement as the central authority under which First Nations govern their lands.
Senator Boehm: And there were no real dissenting voices in terms of this being put forward?
Ms. Gravelle: As far as we know. We have not heard any negative advocacy over this, and the Lands Advisory Board did do a significant exercise of engaging First Nations signatories regarding this. As far as we know, there is no opposition to this bill.
Senator Boehm: Thank you.
I will move to the Department of Justice. On November 23, this committee heard from the Canadian Bar Association about its concerns regarding the impacts the CBA believes proposals in the Fall Economic Statement will have on solicitor-client privilege. In their submission to this committee and in testimony that we heard, they noted that lawyers and notaries are already heavily regulated when it comes to holding clients’ fund and trust accounts. Can anyone expand on the existing requirements and regulations? Assuming that they do, how can they contribute to the government’s overall goal with Bill C-32 for continuing to counter tax avoidance and evasion, money laundering and other financial crimes?
Benjamin Myers, Legal Counsel, Department of Justice Canada: I do not think I am in a position to respond to the senator’s question. I am here in support of my Crown-Indigenous Relations clients. I will have to defer to someone at CRA or Finance, if they are in a position to speak to this.
Ms. Gwyer: I can speak to that, senator. My colleagues may have more to add.
In amending the trust rules, we spent a significant amount of time consulting with stakeholders, including the CBA and other organizations represented by lawyers. These rules have gone through multiple iterations.
The rules do have an exception for general trust accounts, as well as other exceptions that may apply to the lawyer trust accounts, such as the exception for trusts that are only in existence for three months. There is also a statement in the rules that specifies that no solicitor-client privilege information has to be provided. That is something we added to the rules in response to concerns raised by the CBA and other lawyers.
Between that and the other exceptions that are in the rules, our view is that the rules are appropriate in light of the objectives of the rules, which are to provide better information to the CRA to address issues like tax avoidance. The rules are also in line with our international obligations regarding money laundering, tax evasion and transparency in terms of beneficial ownership. The exceptions that we do have in the regulations are intended to find that appropriate balance between completely exempting any trust account that any lawyer could ever set up and providing targeted exceptions and clarifying that solicitor-client information does not need to be provided.
Senator Boehm: Thank you, Ms. Gwyer.
This might be an unfair follow-up, but the CBA was quite assertive in claiming that the Supreme Court would strike down proposed provisions, given decisions made in similar cases. Do you or someone else have a comment on that?
Ms. Gwyer: Yes. We do not agree with the CBA’s position. I believe you have a Charter statement provided by the Department of Justice confirming the government’s view that these rules are constitutional.
I think the case they were referring to involved the definition of solicitor-client privilege. There are other provisions in the Income Tax Act that create a statutory definition of solicitor-client privilege that the Supreme Court determined was narrower than the common law definition of solicitor-client privilege, and the Supreme Court found that those rules were not appropriate or could not be enforced because they provided a narrower definition of solicitor-client privilege.
These trust reporting rules do not provide a narrower definition of solicitor-client privilege. They are explicit that information that is subject to solicitor-client privilege — which is not defined, which means it is to be interpreted based upon all of the case law, so the broadest possible definition — does not need to be provided.
Senator Boehm: Okay. Thank you.
Senator Duncan: Thank you to all of the witnesses appearing before us today.
I wanted to clarify one point in following up on Senator Boehm’s questions regarding the Framework Agreement on First Nations Land Management Act. My understanding from the information that has been provided is that the management act applies only to reserve lands, which would mean that it only applies to lands largely in southern Canada. Is that correct?
Ms. Gravelle: Thank you for the question, senator.
That is correct. The First Nations Land Management Act and the proposed legislation apply only to lands as defined under section 91.24 of the Constitution Act and would therefore be what we call daily reserve lands.
Senator Duncan: My next question is for the Department of Finance Canada. I hope you can answer some questions regarding the critical mineral exploration tax credit. Is there someone available to do that?
Oliver Rogerson, Director, Business Income Tax Division, Department of Finance Canada: Yes, senator. I can do that.
Senator Duncan: Thank you.
I asked the Parliamentary Budget Officer if there was an examination geographically of the impact of this particular tax credit. He indicated that, if asked, he would get back to us on that. Hopefully, he will be asked.
First, I am very supportive of the critical mineral exploration tax credit as it exists and of this initiative in Bill C-32. The Mineral Exploration Tax Credit has proven benefits to Northern Canada, specifically, and it is very important to the industry and to Canada. I note, however, that the Mineral Exploration Tax Credit is, I believe, at 15%, and the critical mineral exploration tax credit is at 30%. Is my understanding correct?
Mr. Rogerson: Yes. That is correct, senator.
Senator Duncan: Has the department done an assessment of an unintended consequence of the difference that this might make? Might we see the exploration move from areas where there may not be strategic minerals? There would then be a consequence to that area of a lack of exploration with the differences between the two. I can see an exploration company reasoning that if they get 30% for the strategic minerals, they will go to X, Y or Z area. Has there been an assessment of an unintended consequence that this double credit might have?
Mr. Rogerson: I would say first, senator, that the minerals supported by the critical mineral exploration tax credit are and have already been supported by the Mineral Exploration Tax Credit. To the extent that the minerals are expected to exist and therefore would be explored for in any given region in Canada, the intention is that now there would be additional support for looking for these specific critical minerals. The intention of the act is actually to do just that — to ensure that those specific critical minerals are sought out more often, perhaps, than those minerals that are only supported through the existing Mineral Exploration Tax Credit.
We do not have specific detailed knowledge of where these minerals exist or where they cannot be found. That is part of the risk that is trying to be mitigated through providing both of these credits, as it is difficult to find these. It takes boots-on-the-ground type of exploration. People have to go out to the field to see if there is any possibility of finding them wherever they think they might be found.
Senator Duncan: I appreciate that, and the tax credit is most welcome and appreciated by those boots on the ground. I do want to emphasize the point, though, that this information should be available. I am concerned that there is an unintended consequence in a particular province or territory with the doubling in one area for specific minerals.
The other question I had regarding the tax credit is about the requirement for a qualified professional engineer or professional geoscientist to certify expenditures. My concern is that these individuals may not necessarily be immediately available in the field. Is there an ability to interpret or to have a time lag on when things might be signed off? Is there some discretion in who might sign off on these expenditures and when they might sign off on them?
Mr. Rogerson: Thank you for the question, senator.
The purpose of having a qualified person as proposed in the legislation and the way it is defined was to provide some certainty to the investors that there was a reasonable expectation that the activity being undertaken would actually attract the critical mineral exploration tax credit. That is why the timing of the certification is to be leading up to entering into the related flow-through share agreement, so that the qualified person would be relying on the most recent information available and would then use that information in providing certification that the exploration activities are expected to qualify for this particular credit. The reason for the timing, as I say, it to provide certainty to investors who otherwise might not have the ability on their own to make a good assessment of how likely it is that the activities would be eligible for this credit.
Senator Duncan: Thank you.
Senator Loffreda: Thank you to all our witnesses for being here.
I would like to further discuss and expand on the First Nation Land Management: Part 4, Division 3. Manitoba Keewatinowi Okimakanak, or MKO, sent me and a few members a written brief in English only on December 5, 2022. The clerk informs me that this letter is being translated. Once available in both languages, the document will be shared with the members of the Standing Senate Committee on National Finance, and it will then become official evidence. It will be part of this committee’s public records and get posted on our web page.
My question relates to this brief, and my question is for the officials from Indigenous Services Canada and Crown-Indigenous Relations and Northern Affairs Canada. As you know, the Senate Indigenous Peoples Committee was mandated to review Part 4, Division 3 of Bill C-32. As such, our committee may not be entirely familiar with this section of the bill. Could our officials further elaborate and provide us with a summary of what this division seeks to achieve? I do know Senator Boehm and Senator Duncan did raise the issue, but I would like you to further elaborate and clarify any of the issues that were not addressed.
Also, I understand the MKO made a submission to our Standing Senate Committee on Indigenous Peoples voicing some concerns with this section of the bill and calling for consequential amendments to the Royal Canadian Mounted Police Act and the Director of Public Prosecutions Act. I have heard that you are familiar with the MKO’s concerns, and I would welcome any further comments or opinion on their claims.
Ms. Gravelle: Thank you, Senator Loffreda, for the question.
We have been made aware of the MKO concerns. I want to state that when we started working on the drafting of the bills, our objectives were really to simplify the legislation and to reinstate the framework agreement as the central authority under which First Nations govern their lands. We did not have policy authority to go beyond the scope of the existing legislation. Really, we had to ensure continuity of what we had in mind. We don’t want to diminish the concerns over enforcement. We recognize that there are some. Unfortunately, it was not within the scope of the exercise we had in front of us. Our understanding is that the Lands Advisory Board continues to engage on these questions and is engaging the signatory First Nations on enforcement specifically.
However, what this bill actually does for us is this: Because the framework agreement will have the force of law, we will not have to come forward with complex legislative changes in the future, and that will allow the Lands Advisory Board to actually implement the solutions a lot more easily.
At this point, I think this is as much as I can offer because the scope of our work was not intended to elaborate on the powers or the operation of the framework agreement.
Senator Loffreda: Thank you.
My second question is on Part 1, measure (g) and solicitor-client privilege. It is an important concern, and I would welcome any further relevant commentary on this. I would like to focus my question on the part of the bill that addresses the new reporting requirements for trusts. Surely you are aware of the concerns raised by the Canadian Bar Association and the Federation of Law Societies of Canada with respect to what they argue is the unconstitutionality of this measure. They both feel that the reporting requirements would violate Section 8 of the Charter and refer to a Supreme Court case of 2016.
Can you comment further and assure our committee that this new reporting requirement is constitutional, and can you walk us through why the government is confident that it has struck the right balance with the blanket exclusion in the proposed subsection 150(1.4) and no amendments are needed to address the concerns raised by the CBA and the Federation of Law Societies? Any further commentary would be welcome at this point.
Ms. Gwyer: Sure, senator. As I said earlier, we did consult significantly on these measures, recognizing the importance of solicitor-client privilege and the lawyer-client relationship. We explicitly included an exception for solicitor-client privilege. As I mentioned earlier, that is a broad exception that is intended to take into account the Supreme Court decision that was referenced by the CRA and other decisions that have interpreted solicitor-client privilege broadly. That was a direct response to that and an attempt to ensure that these rules will allow lawyers to not report any information that is under a broad interpretation determined to be solicitor-client privilege.
In trying to find a balance between the objectives of the rules we discussed earlier, there are multiple objectives when we are trying to ensure that the CRA has better information which will be relevant to addressing tax avoidance, tax evasion, money laundering and other similar issues. We’re also attempting to ensure that Canada is in compliance with international standards on tax evasion and, in particular, on money laundering. Under those standards, it is appropriate to not require solicitor-client privileged information to be provided, but it’s not appropriate to provide broader exceptions than are required. In looking at the entire situation, our assessment was that the best approach was to provide an exception for general trust accounts and then to provide certain other specific exceptions that would likely apply in the case of many other trust accounts that lawyers have. As I mentioned earlier, there is an exception if the trust is in place for less than three months, and there’s also an expectation if the trust has assets under $50,000 and if the assets are just cash or certain other securities.
In looking at all of that, we feel we have struck an appropriate balance that will ensure that Canada is in compliance with international guidelines and best practices and will provide CRA with the information required to deal with these financial crimes and tax avoidance and tax evasion while, at the same time, appropriately respecting solicitor-client privilege and creating legislation that is in compliance with the Charter and respects what the Supreme Court has said on solicitor-client privilege.
Senator Loffreda: Thank you.
The Chair: As chair, I will confirm that once the MKO’s document is available in both languages, it will be shared and circulated to all members of the Finance Committee, and it will become officially a document of evidence for Bill C-32. Thank you for raising this matter to the committee and your intervention on the matter itself.
We will now move to round two.
Senator Marshall: Do we have somebody here from the Canada Revenue Agency? We do. That’s great.
My question is related to Part 1, (q) and (t), about audits of the Canada Revenue Agency. We had some discussions in committee yesterday with some of the witnesses on the tax gap. It’s now at about $44 billion. We keep talking about it, but we don’t see any action on it. Is (t) going to help you start collecting some of that money that’s caught up in the tax gap? The impression that’s being left is that law-abiding citizens are paying taxes and they are the ones being audited, but those that are caught up in the tax gap are going unchallenged by the Canada Revenue Agency. I would be interested in hearing what’s going to happen with (t). What is going to be the outcome?
The Chair: This would be directed, Senator Marshall, to whom?
Senator Marshall: To the Canada Revenue Agency and the tax gap.
The Chair: Canada Revenue Agency, please.
Mr. Greene: Unfortunately, that question is out of the scope of the expertise of the CRA witnesses that are present.
Senator Marshall: What does (t) do?
Mr. Greene: Regarding (t), from a policy standpoint, I would turn to my colleagues at the Department of Finance to answer the question. In respect of the application of that provision by the CRA, as I mentioned, unfortunately, it’s outside the scope of the expertise of the witnesses that are currently here. If it’s acceptable to the committee, we can take that question back and provide a written response to the clerk.
Senator Marshall: That would be great. Thank you very much.
The Chair: Yes, please, and I’ll advise on the procedure for a written answer later.
[Translation]
Senator Gignac: My question relates to Part 2 of the bill, specifically the tax on vaping products. The bill introduces new requirements for the labelling of vaping products. Under sections 109 and 110, certain specific information will have to appear on these products. I note that this will take effect retroactively on October 1. I’d like to know whether it’s been brought to your attention that this may be an issue for businesses in the sector. Can a representative from the Department of Finance tell us whether the implementation of the volume labelling measure retroactive to October 1 will be a significant issue?
[English]
Jack Glick, Senior Advisor, Sales Tax Division, Department of Finance Canada: What’s being referred to in this case is the stamping and marking of tobacco, cannabis and vaping products regulations. Those provide rules relating to the stamping, marking and labelling of tobacco, cannabis and vaping products. The proposed amendments will ensure that vaping products will be stamped and marked properly for the purposes of administering the products and bringing them into Canada. So that’s all correct.
We have heard from industry that, given the timelines for importing products from overseas jurisdictions such as China, the retroactivity could potentially pose a problem. However, it should be noted that we did actually release these draft proposals and amendments on August 9. I believe there was a period of public consultation that lasted until September for industry and other stakeholders to provide their concerns so that we could actually make changes, if necessary, for the bill that has been tabled, Bill C-32. In this case, we did not receive any submissions regarding the proposed changes. Although it was tabled more recently — and it has to be retroactive in that case — it was released publicly for consultation well before its applicability period.
In these types of cases, there could potentially be manual application of some of the markings that will be required retroactively so that, once the products come into Canada, there is an opportunity to potentially enter a sufferance warehouse and for the sufferance warehouse operator to manually implement the marking so that it wouldn’t necessarily be turned away at the border. However, we would defer to the Canada Border Services Agency for the final say on that type of administrative flexibility.
Senator Gignac: This was brought to my attention by Imperial Tobacco, which is the leading tobacco company and the world’s largest vaping business by market share. That is an issue because it seems that identifying the volume in the liquid, as you mentioned, is done in China. Usually there is a three-month delay, and no way they will go container by container, product by product, to do that. Is it a big issue to go with an amendment rather than being retroactive, just to be effective starting in March or April, for example? Will you have a waiver? What will be the implication if you have no amendment to the bill? Will people not have access to that product for some time? Can you explain that to me?
Mr. Glick: It’s a good point. We have heard the concerns raised by Imperial Tobacco Canada, or ITC. In that case, we aren’t proposing and we’re not anticipating any amendments to the coming into force date. Some of the proposals that we understand have been brought forward by ITC are not necessarily workable in the context of coming into force dates for legislation. However, as mentioned, we do believe there could be administrative flexibility on the part of the CBSA when these products come to the border. They could enter a sufferance warehouse where they could be manually marked. In terms of the extent to which the manual marking may be difficult for the industry, I’m unaware of that particular aspect. But it is an option that may be available to ITC. In terms of ascertaining the volumes, they do correspond in general with the vaping duty that ITC would be paying when those products are imported. Without being able to speak to the exact extent of their inability to do so, it’s my understanding that it would be tied to the excise duties that they would actually pay on those imported products.
Senator Gignac: Okay. Thank you.
Senator Smith: Mr. Greene, you helped out on the flipping question. I had one more little question I wanted to add to that. In the briefing document on Bill C-32, the government estimates a new anti-flipping rule would affect about 3,300 taxpayers — I’m not sure if that’s on a yearly basis or a regular basis — and would generate revenues of about $15 million annually. Two questions: Could you explain how the government came up with these figures, and secondly, on the projected cost of enforcing this measure, how much would that be? I would assume there must be some defence mechanism if taxpayers want to challenge CRA’s determinations in the courts. If you could answer those questions, that would be appreciated.
Mr. Greene: For the calculation of the revenue estimates associated with the measure, I would have to turn to my colleagues at the Department of Finance.
Mr. Poirier: There is some uncertainty with respect to these cost estimates. It’s a projection, so there is some uncertainty.
In terms of what we did, we used tax data. There is already some information being collected through the tax system when someone sells their home, for example, claiming the principal residence exemption. We have some limited information in terms of when this particular home was bought and disposed of. What we looked at is the number of individuals in the past that had bought a home and sold it within a year, and then we had to make a few additional steps to carve out the number of people who would be eligible for an exemption. There is also a small behavioural impact, where, for example, an individual would have sold their home within 11 and a half months and perhaps they are keeping their home for 2 more weeks just to make sure they are not affected by the measure, for example. What you are seeing, those numbers and the cost estimate, is a result of that.
Senator Smith: Do you see any staff up requirements where you have to add staff, which would increase your cost of operation? Would this just be blended in with your existing support staff?
Mr. Greene: This would be another tool in CRA’s toolbox in managing the compliance efforts associated with the real estate market. It would not entail specific new hires. It would be incorporated into existing programs.
You did also have a question about recourse. The recourse mechanisms are already available to taxpayers in the income tax system and would be available in respect of the application of this new measure.
Senator Smith: Thank you very much.
[Translation]
Senator Moncion: My question is about medical fees for surrogacy or donor fees incurred in Canada and fees paid in Canada to fertility clinics and donor banks.
What would be the maximum eligible expense for medical expenses incurred by a surrogate or donor in Canada and fees paid in Canada to fertility clinics and donor banks?
Pierre Leblanc, Director General, Personal Income Tax Division, Department of Finance Canada: My name is Pierre Leblanc, the Director General of the Personal Income Tax Division of the Department of Finance Canada. There is no cap on these expenses. So if the expenses are eligible and reasonable, it’s the medical expense tax credit that works that way.
Senator Moncion: So it’s not mandated by the regulations that are in place? Or what you’re telling me is that it is mandated by the regulations that are in place?
Mr. Leblanc: This is consistent with the current credit. Generally speaking, there is no cap on expenses that are eligible for the medical expense tax credit.
Senator Moncion: In terms of the transportation costs incurred by surrogates, are they also eligible for the medical expense tax credit, even if they are incurred outside of Canada?
Mr. Leblanc: No. To be consistent with other government actions, such as the introduction of the Assisted Human Reproduction Act, we are only talking about surrogacy, and it’s only when these births take place in Canada that expenses are eligible for the tax credit.
Senator Moncion: Do you know if the government intends to include assisted human reproduction in a program that would be a little broader, for example, with respect to parents who have surrogates in other countries?
Mr. Leblanc: I’m not aware of any such initiative. I think the government is proposing to move forward with this for surrogacy or for couples and individuals who hire or work with surrogates when the birth occurs in Canada.
Senator Moncion: Okay. Thank you very much.
[English]
The Chair: We have reached the end of our time with the officials. To the officials, again thank you for your answers. It was very informative. Your testimony will also allow us, on behalf of all Canadians, to focus on our four principles of transparency, accountability, reliability, and predictability.
Before adjourning, I would like to remind you to please submit your written responses to the clerk by the end of the day on Monday, December 12, 2022. The deadline is very short, but I know that we can all meet that deadline. Do we have that agreement, officials, please? Well, I don’t hear any nos. This means that it’s a yes.
Honourable senators, we will now adjourn, and the Honourable Chrystia Freeland, Deputy Prime Minister of Canada and Minister of Finance, will be our witness starting at 6:45. I now declare the meeting adjourned.
(The committee adjourned.)