THE STANDING SENATE COMMITTEE ON NATIONAL FINANCE
EVIDENCE
OTTAWA, Wednesday, May 10, 2023
The Standing Senate Committee on National Finance met with videoconference this day at 6:46 p.m. [ET] to examine the subject matter of all of Bill C-47, An Act to implement certain provisions of the budget tabled in Parliament on March 28, 2023.
Senator Percy Mockler (Chair) in the chair.
[English]
The Chair: Honourable senators, I want to welcome all of the senators as well as the 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 ask my colleagues to introduce themselves, starting from my left.
Senator Forest: Senator Éric Forest from the Gulf region of Quebec.
Senator Gignac: Senator Clément Gignac from Quebec.
Senator Loffreda: Senator Tony Loffreda from Quebec.
Senator Galvez: Senator Rosa Galvez from Quebec.
Senator Moncion: Senator Lucie Moncion from Ontario.
[English]
Senator Duncan: Pat Duncan, Yukon.
Senator Smith: Larry Smith, Quebec.
Senator Marshall: Elizabeth Marshall, Newfoundland and Labrador.
[Translation]
Senator Dagenais: Senator Jean-Guy Dagenais from Quebec.
[English]
The Chair: Today, we continue our study on the subject matter of Bill C-47, An Act to implement certain provisions of the budget tabled in Parliament on March 28, 2023.
Honourable senators, we have with us today senior officials from the Department of Finance Canada to discuss Parts 1, 2 and 3 of Bill C-47.
[Translation]
Welcome to all of you and thank you for accepting our invitation to appear before the Standing Senate Committee on National Finance and to answer senators’ questions.
[English]
Senators, I would like to remind you that while this committee has received the entire subject matter of Bill C-47, these officials are here to discuss primarily Parts 1, 2 and 3. Part 4 will be studied by this committee starting next week and many sections of Part 4 will also be studied by other committees of the Senate. The clerk will share with us the reports of these committees for our consideration when they are tabled in the Senate of Canada.
[Translation]
I understand that four witnesses will be making opening remarks and answering questions.
Lindsay Gwyer, Director General, Legislation, Tax Legislation Division, will speak to Part 1. Pierre Mercille, Director General, Sales Tax Legislation, and Amanda Riddell, Director, Real Property and Financial Institutions, will both speak to Part 2, and Gervais Coulombe, Senior Director, Excise Taxation and Legislation, will speak to Part 3.
[English]
I would like to ask the officials whom I have not mentioned, to introduce themselves when and if asked to answer a particular question. Ms. Gwyer, you have the floor.
Lindsay Gwyer, Director General, Legislation, Tax Legislation Division, Department of Finance Canada: I’m going to speak about the measures in Part 1 of the bill. Part 1 of the bill is the income tax measures. There are a number of amendments to other statutes as well that are related to those amendments.
I’m here with a few of my colleagues who can also speak to Part 1 of the bill. Given that I only have a few minutes, I’m going to go through the measures at a very high level and we will be happy to provide more detail on any of the measures during the question portion.
I’ll follow the order of the measures as they appear in the summary at the beginning of the bill. Measure (a), relates to electronic filing and payments. It is an amendment to the Income Tax Act as well as a number of other statutes which are intended to improve the ability of the CRA and taxpayers to engage in electronic tax compliance. Measure (b) is a doubling of the deduction for tradespeople’s tools. That applies to individuals employed as tradespeople. Measure (c) is an extension of the residential property flipping rule introduced in Bill C-32. It would extend the residential property flipping rule to apply to assignment sales.
Measure (d) is a clarifying measure which relates to certain payments made to Canadian Armed Forces members and veterans. The measure clarifies those that those particular payments are tax-free. Measure (e) relates to the government’s recent settlement with respect to the Gottfriedson Band class litigation. It provides that the trust that was established to administer the proceeds of that settlement is not subject to income tax.
Measure (f) is the grocery rebate, the same measure in Bill C-46 which passed the Senate today.
Measure (g) are changes to the delivery of the Canada workers benefit which were announced in the Fall Economic Statement last fall. That measure would change the timing and create an automatic advance for a portion of the Canada workers benefit.
Measure (h) would make changes to the rules for registered education savings plans which were announced in this year’s budget. It would increase the amount that can be withdrawn from RESPs and would allow divorced and separated parents to open an RESP for their children.
Measure (i) relates to registered disability savings plans. It is another measure introduced in this year’s budget. It extends the rules that currently apply to allow qualified family members to open registered disability savings plans for their family members.
Measure (j) is a technical measure announced in Budget 2021. It makes a number of technical amendments to allow the administrators of defined contribution pension plans to more efficiently fix errors that are made in terms of over contributions and under contributions to those plans.
Measure (k) is another measure announced in Budget 2021. It would create mandatory disclosure rules for certain types of aggressive tax planning. It would require certain types of transactions to be proactively disclosed to the CRA.
Measure (l) relates to the Canadian Dental Care Plan. It would amend the Income Tax Act and certain other tax statutes to allow the CRA to share information with Health Canada and Employment and Social Development Canada for purposes of administering the Canadian Dental Care Plan.
Measure (m) is an integrity measure that was announced in last year’s budget. It would make changes to the taxation of dividends that are received by financial institutions in the context of certain types of hedging and short selling arrangements.
Measure (m) was announced in last year’s budget. It would implement the OECD’s rules for reporting for digital platform operators. That’s an exchange of information related to digital platforms.
Measure (o) would amend the rules related to RRSPs and registered retirement income funds to require that administrators of those plans report the fair market value of those plans that they administer on an annual basis.
Measure (p) is another change announced in last year’s budget. It relates to registered pension plans. It would create rules that would allow pension plans to borrow money subject to certain limits.
Measure (q) would implement a number of technical amendments that were released by the Department of Finance last year for consultation.
Those are all of the measures in Part 1.
[Translation]
Pierre Mercille, Director General, Sales Tax Legislation, Department of Finance Canada: Part 2 includes four relatively technical measures regarding the GST/HST. I will describe the first measure, and Ms. Riddell will describe the three others.
International freight transportation services are generally zero-rated for GST/HST, or in other words, they are not subject to the GST/HST. However, given that the definition of “freight” set out in the GST/HST legislation excludes money, the international shipping of money in its physical form, such as banknotes, is still subject to taxes.
As a result, the proposed changes to the GST/HST for international freight transportation services seek to broaden the scope of these regulations to include the international transportation of money.
Thank you.
[English]
Amanda Riddell, Director, Real Property and Financial Institutions, Department of Finance Canada: My name is Amanda Riddell. I’m the director of the real property and financial institution section in Finance’s sales tax division.
As my colleague was saying, there are three remaining technical measures in Part 2 dealing with the Goods and Services Tax, or GST. The first is a technical measure requested by industry. It was released for consultation on August 9, 2022. It was well received by industry. Essentially what it does is it allows a pension entity of a pension plan to claim the 33% rebate that it would normally be entitled to claim within a two-year period, after that two-year period. That occurs in situations very briefly when a pension entity learns it has a GST liability after the two-year period is up. In cases like that, the pension entity would be able to still claim that pension rebate after that two‑year period has expired.
The next measure deals with crypto-asset mining. For those of you who may not know what that is, it is the use of computing resources to process transactions of crypto assets. The measure clarifies the GST treatment of crypto-asset mining by providing that where a person performs mining activities, either solo or as part of a mining pool in which miners share rewards, that person would not be required to collect tax on the provision of their mining services, nor would they be entitled to recover the GST they pay on the inputs of those mining services. So effectively, it takes that type of mining outside of the scope of GST.
That measure, however, also provides for an important exception that applies where mining services are provided to an identifiable recipient that is not the operator of a sharing mining pool — so it’s not part of the same pool that the miner is in and they are not sharing the rewards together. In these situations, the new rules would not apply and the regular GST rules would apply. That means they would charge GST to the recipient, who is known, and they would be able to claim input tax credits to recover the GST they pay on the inputs to those services.
The third measure deals with payment card clearing services. This measure is an integrity measure introduced to address a court decision that was contrary to a long-standing GST/HST policy. Payment card clearing services are payment processing and messaging services in respect of credit, debit and charge cards that are provided by payment card networks operators such as Visa and Interac to system participants such as banks.
To provide context on this one, under the GST, supplies of financial services are generally exempt. This means that providers of financial services such as banks are not required to charge GST on the services they supply, but they cannot also claim income tax credits to recover the GST that they pay, so they bear unrecoverable tax. This is an intentional policy design of the GST because generally services cannot be subject to GST at the final stage for the consumer, so the financial institutions bear that tax burden. It has always been understood since 1991 that payment card clearance services such as those offered by Visa and MasterCard et cetera would be subject to GST, it would be incurred by banks and it would not be recoverable.
However, this Federal Court decision in 2021 found that these services are not subject to tax. That decision allowed taxpayers who had paid tax on these services in the past to go and claim rebates to recover that tax.
This measure would restore the long-standing policy that these services are subject to tax. That is it for Part 2. I will pass it to my colleagues.
[Translation]
Gervais Coulombe, Senior Director, Excise Taxation and Legislation, Department of Finance Canada: Thank you, senator. Good evening, everyone. Part 3 amends the Excise Act, the 2001 Excise Tax Act and the Air Travellers Security Charge Act to implement two measures that were announced in Budget 2023.
Excise duty rates are fixed dollar amounts per volume of liquor, wine and beer. Since 2018, these rates have been adjusted on April 1 of every year to take into account inflation, as measured by the consumer price index. Budget 2023 proposes to temporarily cap the inflation adjustment for excise duties on alcohol at 2% for one year only, as of April 1, 2023. Without that cap, the inflationary adjustment would have been 6.3% for 2023-24.
The second measure has to do with the air travellers security charge. When you go to the airport, you have to go through security. The Canadian Air Transport Security Authority, or CATSA, is responsible for that security screening, and an air travellers security charge is imposed to fund those operations and other activities related to air transportation safety. Budget 2023 includes $1.8 billion over five years, starting this year, to support CATSA’s activities. The measure will increase the charge added to every plane ticket by 32.85% as of May 1, 2024. That means, for example, that the charge for a return trip within Canada will increase by about $5, from $14.96 to $19.87. That completes our overview of Parts 1, 2 and 3.
The Chair: Thank you very much to the four of you for your statements.
[English]
Honourable senators, I would like to inform you that you will have a maximum of six minutes each for the first round, and a maximum of three minutes each for the second round.
[Translation]
I would also ask you to please ask your questions directly. To the witnesses, please respond concisely. The clerk will inform me when the time is up.
[English]
Senator Marshall: I’m going to start at the back and work forward. Part 3, Division 2 on the amendments to the Air Travellers Security Charge Act. What does that fee pay for? Is it just supposed to be security, or does it pay for security plus some savings to pay for something else? What is being paid for?
Mr. Coulombe: Thank you for the question, senator. The ATSC is intended to fund the air traveller security system. It includes the Canadian Air Transport Security Authority, also known as CATSA, the agency responsible for screening. There are also some operations undertaken by the RCMP on certain flights that I would prefer not to mention in detail here at length. There are also some oversight and regulatory functions conducted by Transport Canada that are intended to be offset by the air travellers security charge, the ATSC.
Senator Marshall: Does that mean that when we pay these increased fees that some of the money goes to something other than air travel security?
Mr. Coulombe: It is all going to the air travel security system. This is comprised of the three components that I described. The large majority of the expenses are attributable to CATSA.
Senator Marshall: Does that mean they will now break even or will they still be operating at a deficit? What is the impact?
Mr. Coulombe: Before the pandemic, both accounts were almost balancing with each other. With the pandemic, security costs continued to be relatively high but the overall passenger traffic was reduced a lot, so the overall system still operates in a deficit position as we speak. With that additional funding, which will only kick in as of May 1 next year, the ATSC will contribute more to offset those additional expenses for travel security.
Senator Marshall: Will they still be in a deficit position?
Mr. Coulombe: In the near future — in the budget, if you allow me just a moment. I could come back to that.
Senator Marshall: I only have five minutes. I have a lot of questions, so perhaps I can get that answer after.
Part 2, the GST/HST treatment. You mentioned 1991. What’s the relevance of 1991? Does that mean there is a retroactive charge?
Ms. Riddell: No. The reason I raised 1991 is because that was when the GST was introduced. The issue of whether payment card clearing services would be subject to tax was actually raised at that time. The Department of Finance clarified that those types of services would be subject to tax and, in fact, did a news release announcing as much and followed up with regulations to clarify that fact.
Senator Marshall: Does that mean some organizations will have a tax imposed on them?
Ms. Riddell: No. All it does is to reinstate what has always been the case, which is that these types of services offered by Visa, for example, to banks, such as CIBC, who were the parties involved in the case at bar. The services offered by Visa to CIBC would be taxable, as they have always been. Visa, because it is providing taxable services, would then be able to claim input tax credits. The bank, which is paying the tax on the services, is not able to recover the GST they pay on those services because they are providing exempt financial services.
Senator Marshall: I understood there was going to be a retroactive tax on the banks as a result of that amendment?
Ms. Riddell: It is not a retroactive tax. It is just an amendment that restores the situation that had always been the case prior to the court decision. It was just an adverse court decision.
Senator Marshall: What’s the dollar value of that amendment? Does that mean extra revenues to the government?
Ms. Riddell: It does. It will be $195 million in 2023-24. That amount is intended to recover rebates. What happened is, after the court decision came out, banks submitted rebate claims to recover tax they had paid in the past on transactions done in the past, and we want to recover those rebate amounts that were claimed.
Senator Marshall: So that $195 million will be paid by the banks?
Ms. Riddell: Yes. It will be paid by them in the sense they will be reassessed for the rebates they had claimed and are now no longer entitled to.
Senator Marshall: Part 1(o) about the fair market values of all RRSPs and RRIFs, the CRA doesn’t receive that information now. Is that a privacy issue? I’m thinking about the government dipping into our savings to have a look.
Ms. Gwyer: Senator, no, the government does not currently receive that information with respect to RRSPs and RRIFs. The government does receive that information with respect to TFSAs. Those rules are more recent and this is a modernization of the RRSP and RRIF rules. That information has been helpful to the CRA in identifying TFSAs.
Senator Marshall: We are talking about RRIFs and RRSPs. What is the CRA going to use that information for?
Ms. Gwyer: They would try to use that information to identify high-risk situations, so if a particular account has a very high value relative to other accounts and relative to what you might expect based on the amount that could have been contributed, it may be an indication that the account is being used to hold investments that are not permitted to be held or that something else is happening with the account that is not permissible.
Senator Marshall: Who will the CRA share that information with?
Ms. Gwyer: It is just information that would allow the CRA, within their internal audit process, to use that information to identify them.
Senator Marshall: Anybody else?
Ms. Gwyer: The normal sharing rules of the Income Tax Act that allowed them to share information —
Senator Marshall: What’s the normal sharing? I’m just concerned. This is people’s individual financial information. They should know if the CRA is collecting this information about their RRSPs and their RIFFs. Is it staying within the CRA or who is it being shared with — and is there a privacy issue there?
Ms. Gwyer: As far as I know, there is no specific intention to share that information, so there are details rules in the tax statues that —
Senator Marshall: Can you confirm that for us — who is this being shared with, just to confirm that it’s just for the sole use of the CRA and it’s not being used for some other purpose?
Ms. Gwyer: Yes, we can confirm that.
The Chair: Can you send the last portion in writing, please, specifically for that question?
Ms. Gwyer: Yes.
[Translation]
Senator Forest: Thank you for your presentations. Budget 2023 announced a 15% refundable tax credit for investments in clean energy. Taxable and non-taxable entities, such as Crown corporations and publicly owned utilities, corporations owned by Indigenous communities, and pension funds, would be eligible for the tax credit. I understand that this measure is not included in Bill C-47 because consultations will be held, but I would like to share with you a rather significant concern that has been voiced by all of the municipal elected officials in the Lower St. Lawrence region, who are involved in a lot of joint wind projects.
I have two questions. First, will the municipalities that are investing in wind projects be eligible for the refundable tax credit? Second, we know that the Canada Infrastructure Bank will offer a preferential rate for these projects. Will the municipalities that are making joint investments have access to that preferential rate?
[English]
Ms. Gwyer: We don’t have anyone here who is an expert on that credit, because it’s not in the bill. So in terms of your first question, in the budget, it was announced that the clean electricity credit would be available to tax exempts, so that would include municipalities, but in terms of the specifics, I don’t really have more information that I can give at this point.
[Translation]
Senator Forest: So municipalities will be eligible for the tax credit?
[English]
Ms. Gwyer: The credit would be available to taxables as well as tax exempts, which would include municipalities; obviously, they would need to meet the other conditions for the credit. The detailed requirement to qualify for the credit hasn’t been announced yet, so the government is in the process now of consulting with stakeholders, and more details will be announced in the future.
[Translation]
Senator Forest: Is it possible to get an answer in writing to my second question about whether the municipalities will have access to the preferential rate offered by the Canada Infrastructure Bank? I am not asking for an answer this evening, but is it possible for you to find out and send us the answer in writing?
[English]
Ms. Gwyer: Yes, we can see that. I’m not sure who would need to provide that answer, but we can look into it.
[Translation]
Senator Forest: Thank you.
Mr. Coulombe, I want to come back to the question that my colleague asked about the 32.85% increase in the air travellers security charge. We know that regional air transportation is in serious difficulty. The costs are exorbitant. The cost of a return flight from Mont-Joli to Montreal is almost $800, despite the fact that there is a new program with Quebec. Do you not find that a 32.85% increase in the security charge is a bit much when inflation is at 6.3%?
Mr. Coulombe: Thank you for the question. That is a political decision. As to whether it is a bit much or not, what I can tell you is that $5 on a return ticket represents about 1.6% on a $300 ticket, about 0.8% on a $600 ticket and about 0.5% on a $1,000 ticket. With regard to the revenue that this measure will generate — and I will also try to respond to Senator Marshall’s question while I have the floor — we are talking about $1.2 billion for the five-year budget reporting period, while the additional funding granted to CATSA is $1.8 billion for those five years.
I think that the government recognizes that the increase will help cover rising air transportation security costs; however, the increase has actually been harmonized with inflation since 2010. The last time the rates were increased in 2010, they went up by 52.45%. It is therefore not unusual for there to be a significant increase. These are small amounts. When an adjustment has to be made —
Senator Forest: That is still 32.85%, but they are small amounts, all things being equal.
There was a backlash against the fact that the excise tax on microbreweries and microdistilleries was adjusted to inflation. This year, it will be capped at 2%. Has there been any assessment of how much revenue this excise tax brings in? We are looking at the entire for microbrewery and microdistillery market. They are part of what attracts tourists to many regions of Quebec. What was the gain or profit compared to the hardship that this industry is currently experiencing? How much did the excise tax on microbreweries and microdistilleries bring in over the past year?
Mr. Coulombe: I have with me the overall figures for the public accounts of Canada, but unfortunately, I don’t have the specifics for microbreweries and microdistilleries. I am not sure whether those figures have been made public. Approximately $2 billion was collected in 2021-22 for all excise duties on alcoholic beverages in Canada: $669 billion for beer, $1 billion for liquor and approximately $315 million for wine.
Senator Forest: That is just for the excise tax?
Mr. Coulombe: That is just for the federal excise tax on alcoholic beverages. As for the rates applicable to microbreweries, there is a reduced rate system for the first 75,000 hectolitres produced. Those rates are also reduced and will continue to be under the current system.
Senator Gignac: I would like to begin by thanking the witnesses for being here with us this evening. I worked in the finance industry myself when I was younger, so I know you must have been working evenings and weekends before the budget came out, and now that the budget has been presented, you are spending another evening here with us. We really appreciate it.
As a grandfather who is contributing to registered education savings plans for his grandchildren, I am very interested in them. It is my understanding that the withdrawal limit will increase from $5,000 to $8,000. This is the first time that the withdrawal limit has increased since the program was launched 25 years ago, and the reason is that the cost of attending a post-secondary school has risen. I welcome this measure.
Why did you not make any changes to the contribution limit? I understand raising the withdrawal limit, but why did the government not increase the contribution limit? If the government is using the argument that the cost of post-secondary education has gone up, then why not increase the contribution limit as well? Is there any intention of doing so down the road?
[English]
Mark Maxson, Director, Employment and Education, Department of Finance Canada: Thank you for the question.
There’s no limit on annual contributions to the registered education savings plan, there’s a lifetime limit for each beneficiary of $50,000 — you’re correct — we’re not changing here. Ultimately, of course, that’s a policy decision for the government. However, the principal benefit of investing in registered education savings plans is the Canada education savings grant and Canada learning bond. The grants are matching grants on contributions. Essentially, you receive the maximum Canada education savings grant after $36,000 in contributions. After you’ve reached that $36,000, you’re no longer receiving matching grants. There would be relatively limited benefit to increasing that $50,000 cap. There are also other savings vehicles, including the Tax-Free Savings Account, which can be used to save for a variety of purposes, including children’s education.
[Translation]
Senator Gignac: Okay. Thank you.
For my second question, I would like to come back to the discussion that you had with Senator Marshall about the market value of retirement savings plans. Personally, I am trying to understand this. It is going to require help from a lot of experts. Some people invest in high-risk securities, while others invest in much more conservative securities. There can be a lot of fluctuation. I therefore have some reservations about the request that is being made.
Why did you not include the tax-free savings account or TFSA? Why are only RRSPs being targeted? Does that mean that the same thing will eventually be requested for the TFSA?
[English]
Ms. Gwyer: There’s already a requirement with a TFSA for financial institutions to report the fair market value. This would bring in place the same rule for RRSPs and RRIFs.
It’s important to just keep in mind that it’s information for the CRA. It’s intended to help them, in the big picture, to identify issues that may exist with these plans as well as to potentially identify specific plans where there may be something going on that is not permitted under the rules. Obviously, the fact that there’s a high-value plan doesn’t mean that something non‑permissive is going on. It’s really just intended to be another tool. I believe the CRA has found, in the context of TFSAs, that being able to identify high value TFSAs has been an effective tool for them. The purpose of the information is really to give them another piece of data that may be relevant in some situations, but not in other situations, to indicate activity going on in the plan. It’s also intended to provide better data to the CRA that they can use to inform policy going forward, including working with the Department of Finance to inform tax policy going forward. It’s really just to give them more information to do that.
[Translation]
Senator Gignac: My last question has to do with a more technical aspect, namely, Part 1(a), which pertains to the electronic filing of tax returns. In the information we were provided, it indicates that the government wants to allow those who issue T4 and T5 slips to issue them to recipients electronically, with no obligation to also issue a paper copy.
I just had an experience where I did not receive my slip from my previous employer. When you are talking about “recipients,” who are you talking about? Are you talking about individuals or the businesses that issue T4 slips? Will individuals like me, who want to continue to receive a paper copy, still be able to do so? Are individuals concerned about this change? Some seniors are more comfortable receiving a paper copy than going on the internet to get the information.
[English]
Ms. Gwyer: The changes would allow employers or institutions that are issuing T4s or T5s to issue them electronically. It would still be possible for someone who wants to receive them on paper to request to receive them on paper, but the rules confirm that it’s permissible for these institutions to issue them electronically if that’s what the recipients prefer.
Senator Smith: I would like you to get into electronic taxing. With respect to mandating the remittence of taxes over $10,000 electronically, can you talk a bit about the rationale behind the $10,000 threshold? Why did the government not opt to make the threshold $5,000, or $1,000, or $1,500? How did you pick the number?
Ms. Gwyer: I think $10,000 was identified as being a number that was high enough that it would be reasonable to expect that most people would likely be making that payment electronically anyway. That number is a judgment call. Whether it’s $10,000 or $5,000, the rules require that someone making a payment over $10,000 would make it electronically unless they’re not able to do so. If there are circumstances where, for some reason, it’s not possible for that payment to be made electronically, then that could be a situation where —
Senator Smith: The objective is to try to get more people dealing with electronics. When we talk about the grocery subsidy that is going to come out, 12 to 14% of people are in the very low income bracket. How do you handle the fact that a significant part of the population are either aging or living in various remote parts of Canada, like within the North? How do you rationalize this whole introduction of more electronics and more remittances electronically?
Ms. Gwyer: As I said for the $10,000 payment requirement, there’s an exception if it’s not possible for the payment to be made electronically. One of the reasons for that is taking into account that in the North, or in certain remote areas, it may not be possible to do it remotely.
In terms of individuals filing their returns, they would still be able to file their returns on paper, and they would still be able to receive their information from the CRA on paper. The intention is not to force people to do things electronically if it’s not possible, or if they’ve been historically filing on paper.
Senator Smith: You’ve sort of estimated that you will be able to save by making the system more efficient. Have you done some cost analysis of that?
Ms. Gwyer: Yes. I don’t have the numbers in front of me. I know the CRA has that in terms of their numbers and in terms of their annual operating expenses. They have factored in some of this stuff. They have been doing some already, and some of it will increase electronic compliance. They have factored that into their operating numbers.
Senator Smith: Do you have any stats on the number of Canadians who are still using non-digital methods to file their income taxes and communicate with the CRA? Do we have any information that will show us a positive direction forward?
Pierre Leblanc, Director General, Personal Income Tax Division, Department of Finance Canada: Thank you for the question. The number of individuals using paper to file their tax return is going down year after year. Right now, less than 10% are filing their return using paper. As Lindsay said, people can continue to use paper to file their return if they choose. They can continue to receive communications with the CRA by mail if they choose, and they can continue to receive cheques instead of direct deposits if they choose. That gives you a sense of who is using paper and who is using these methods.
Senator Smith: Is that by age groups, demographic and geographic information that would show you where these folks are located?
Mr. Leblanc: I think the CRA would have some stats on their website by filing method so we’ll see if we can share it with the committee and provide a link to those stats.
Senator Smith: Regarding anti-flipping, Part 1(c), the government extended the Residential Property Flipping Rule to capture assignment sales. These are generally the sales of preconstruction homes. Why would a 12-month waiting period reset once the person who had the right to purchase secures the home and moves in, for example?
Mr. Leblanc: Thank you for the question. Basically, what you have here is an extension. When you consider Bill C-32, as Ms. Gwyer was saying, Parliament passed the main anti-flipping rule, so that applied to the sale of properties, and this is extending it to assignment sales.
The main rationale behind that particular rule is just a sort of resetting. It becomes less of a short-term sale in that sense. The ownership of the property has been over a longer period. This is intended to focus on sales under a year, with the exception of certain life circumstances. It is kind of in that spirit.
Senator Smith: Thank you.
[Translation]
Senator Galvez: Thank you to our witnesses for their answers.
[English]
My question is regarding the model with respect to the digital platforms and the e-commerce.
We know COVID has turbocharged the number of e‑commerce transactions. What happened with the taxes? Every time we buy something, how is the distribution and the collection of the taxes done?
My first question is, does the government have data on the transactions of e-commerce? Which are the main platforms, and where are they? Are they in Canada or in foreign countries?
We know that there is an association, driven by the OECD, to list all these platforms. But how are we managing the taxes with respect to e-commerce?
Kevin Shoom, Senior Director, International Taxation and Special Projects, Department of Finance Canada: The question is on the availability of data on these transactions. That’s one of the reasons for this initiative. While the primary purpose is to improve compliance, provide better information to the revenue authorities and to determine whether there are risks to the tax base, it also provides better information to the people who are providing services or selling goods online to help them with their tax compliance.
A secondary benefit, though, will be the greater availability of information to tax administrations about the transactions which are going on online. There would be some data available probably from Statistics Canada, et cetera, but this will provide data which will be more closely targeted to the needs of improving tax compliance.
Senator Galvez: Do you think we are losing tax money through this system?
Mr. Shoom: We do not have data to quantify it, but the expectation is that there is probably under-reporting. It is likely a mix of deliberate under-reporting as well as people just not being familiar with their obligations to report income earned through these channels. We do expect this measure will lead to increased revenues.
Senator Galvez: Do you have any idea of the extent, the order of magnitude?
Mr. Shoom: Again, we just don’t have enough data to provide an estimate.
Senator Galvez: Thank you.
Senator Loffreda: Thank you to all our panellists for being here. As sponsor of the bill, I would like to thank you for the briefing I have already had, which was exceptional. Thank you for being here late in the evening to field our questions and address additional issues that were not previously questioned by me.
I would like to turn our attention to the GST/HST treatment of payment card clearing services in Part 2 of the bill. I understand the purpose of this policy is to restore and affirm the long‑standing policy that payment card clearing services are nonfinancial inputs that are intended to be subject to GST and HST, which is why the government is proposing to specifically exclude such services from the financial service definition.
I’m sure you are aware of some of the concerns from industry players about the retroactivity of this measure. The Electronic Transactions Association, the ETA, for example, is asking us to ensure that the exclusion is not applied retroactively to minimize the administrative burden on payment card providers and that the changes include a one-year transition period.
In its submission, the ETA explains that if the proposed amendments are to take effect without any transition period, its members would not be able to meet their existing obligations under the code of conduct for the credit and debit card industry.
My question is, are the concerns of the ETA legitimate? Is this something the government is aware of? How does it intend to address these concerns?
Ms. Riddell: Thank you very much for the question. We did meet with the association you are referring to. They did raise their concerns with us. They have mentioned this timing aspect.
We have had additional conversations with the parts of our department responsible for the code of conduct that would impose these obligations. We understand from that discussion that the timing periods that were suggested by the association may be a little longer than other people might interpret them to be. So it probably is the case that they would want to, for example, if they felt that this was a business cost that they would now be incurring — just for clarification, these are people who are buying payment card clearing services from companies like Visa and incurring the GST on these services. Because they themselves are providing exempt financial services, they are not able to recover that cost, so it becomes a business cost for them.
It’s always been a business cost for them in the past. We are simply restoring the situation that used to exist. I do understand that there are some companies that, when the court decision came along, were not passing along any tax savings that they would have enjoyed, in which case those companies would have had a bit of a windfall, and this is just reversing that.
For companies that did pass along those savings, I understand that they are in a bit more of a difficult situation in the sense they would have passed along the savings after the court decision. Any savings that they would have enjoyed — they wouldn’t have enjoyed them, rather; they would have passed them along.
If we were to recover those tax amounts from those particular companies, that would be a business cost to them. They can recover that business cost how they wish. They can pass along the cost. They can eat the cost. Whether they choose to pass that cost along to customers would be a choice for them.
If they did want to, I understand they would typically give 90 days’ notice to their customers if they were going to have a price increase.
To provide a little bit of context, this is a very small fee in terms of magnitude. For example, on a $100 transaction, the interchange for the swipe fee that gets charged on that transaction is about $2, let’s say. The network fee that we’re talking about is about 4 cents, and the GST on that is about half a cent.
In terms of the amounts, yes, it is an amount. Certainly, when it is cumulative, it can seem like a bigger amount, but it’s the kind of amount that could not be absorbed by the companies that we’re talking about.
Senator Loffreda: You don’t feel it would put in peril any companies that are absorbing this amount?
Ms. Riddell: No. We understand it’s a cost, but not a peril, no.
Senator Loffreda: The concern is not fully legitimate?
Ms. Riddell: Well, if I were in their position, I certainly would not be happy, so I absolutely understand the concern. It’s not that I don’t sympathize with them in the situation. They did pass along that price decrease, and now they’re not able to enjoy that; they are going to have to eat it themselves, rather. But it becomes a business decision like anything else.
When you’re buying anything, if the price goes up, you have to make a decision as to how you’re going to absorb that cost. You can pass it along to your consumers. You can choose not to pass it along to consumers and try to save elsewhere. We’re certainly not feeling glib about it. We understand the concern, absolutely, but —
Senator Loffreda: It’s a business decision and they can pass it along to consumers. They were consulted, so you are aware, the government is aware and the proper stakeholders were consulted on this?
Ms. Riddell: The consultation period didn’t occur until the legislation was released in the notice of ways and means.
Senator Loffreda: Thank you for that.
[Translation]
Senator Dagenais: My question is for Ms. Riddell.
Ms. Riddell, you spoke about the taxation of crypto mining. I must admit that many people still find all of these operations to be a bit of a mystery. Can you provide us with a summary of the taxes that would apply and tell us who has to pay them when applicable?
Also, this is a fairly new financial sector. Does it generate significant tax revenue for the government?
[English]
Ms. Riddell: Thank you very much for the question. If you will permit me, I’m going to give a broad overview of the crypto industry and how we see the tax applying in the industry.
Normally for GST purposes, the basic structure of the act is built on there being a supplier, a person providing a supply, service or product, and there being a recipient of that product or service and there being consideration for that supply.
When the crypto-asset mining came along, it didn’t fit neatly into that situation because crypto miners are providing a transaction-validating and record-keeping service by mining. That kind of service would be typically subject to GST.
But the problem with crypto mining is the miners don’t know who they are providing that service to, in many cases, so they are not able to charge GST/HST because they don’t know where the recipient is. For example, if the recipient were outside Canada, they would charge 0%; if the recipient were in Canada, they would charge 5% in a province like Alberta, or 15% in the Atlantic provinces. But in a crypto mining situation, they don’t know who the recipient is, so they can’t charge GST.
Typically, in situations where the supplier is unable to charge GST, and this arises in other situations under the act as well, we generally address that situation by input taxing the supplier, meaning they can’t claim input tax credits to recover the GST they pay on their inputs.
In the case of crypto mining, because they can’t charge GST on the supplies, there is no identifiable recipient. Therefore, we don’t allow them to claim input tax credits on their inputs.
The other thing I would like to explain is crypto miners are not all the same. They are on a spectrum, if you will. On the one hand, you have the traditional crypto miner you could possibly imagine as some person in their basement with a computer, and they are working to try to solve crypto mining puzzles, if you will. If they manage to guess the right answer to the puzzle, they get a block reward; they get some bitcoins, for example. But it is not guaranteed they are going to get paid for that service they are providing. That’s the kind of crypto mining that these amendments would apply to.
These amendments would also apply to a situation where crypto miners are acting in concert because the puzzles they are trying to solve now are so complex that it is very difficult for one person acting alone to get the right answer. So crypto miners will act together as a group in what they call pools or mining pools. If one person in the pool solves the problem and gets the block reward, they share it among themselves. The amendments would apply in that situation as well.
On the other end of the spectrum, you have people who are just providing computing power, and they are providing computer resources to an identifiable recipient. They know who is getting the service and who they can charge GST/HST to. In those cases, where they are providing their mining services to an identifiable recipient and they are not in a pool where they are sharing the rewards, the normal GST/HST rules would apply. They know the recipient, and they would charge GST at 0% if that recipient were outside Canada and would claim input tax credits to recover the GST/HST they pay on their inputs. If they were supplying the service to somebody in Canada, they would charge the appropriate rate, and again, they would be able to claim input tax credits.
[Translation]
Senator Dagenais: I understand that, right now, you cannot estimate how much revenue this might generate. Given what you just explained to me, I would have trouble knowing how much that might be too. There are a lot of people and many different situations involved.
Do you have an estimate of how much revenue that tax brings in for the government?
[English]
Ms. Riddell: No, I’m sorry. We do not.
[Translation]
Senator Dagenais: I have a question for Mr. Mercille.
Mr. Mercille, I would like to talk about the transportation of money that you mentioned earlier. Can you tell us about the tax rules governing the physical transportation of money?
Do these measure change depending on the amount of money being transported or other factors? I am thinking, for example, of Garda, which transports a lot of money. I would imagine that taxes must be charged.
Mr. Mercille: As you probably know, GST/HST relief is usually granted to exports.
Similarly, the international transportation of freight is also not subject to the GST/HST. Right now, if you are exporting cars, trucks or all kinds of things like that to the United States, the transportation is not taxable. That is the case if the freight is leaving from somewhere in Canada and going abroad or vice versa.
However, there is technical issue. For example, there is a company with armoured vehicles — I can’t remember which one — that got a fairly substantial contribution from the Canada Revenue Agency. It was a fairly recent case because the rules have been the same since 1991, and I think there was a lot of importing and exporting of money in the past. The rule here states that no exceptions will be made for money and banknotes, which means that the transportation of money and banknotes will be treated the same way as a service for the international transportation of other kinds of freight.
Senator Moncion: Just to finish up with what you were saying, is it correct that it won’t just be the transportation service that is subject to the GST but the money or product that is being transported as well?
Mr. Mercille: No, we are just talking about the transportation service.
Senator Moncion: Okay. I understand.
I want to come back to cryptocurrency. How do you track those operations and how do you identify those who are receiving cryptocurrency and those who are mining it?
[English]
Ms. Riddell: We’re not doing anything for tracking. The amendments we are introducing right now strictly deal with the tax treatment of these supplies. In cases where a crypto miner is providing services to a non-identifiable recipient, they are outside the GST system altogether. They are not charging GST. They are not claiming input tax credits.
When the miner is providing services to an identifiable recipient with whom they are not in a sharing mining pool, in that case, the normal GST/HST rules would apply. But we are not tracking people who are trading, for example, in crypto money.
Senator Moncion: Is that going to come at some point?
Ms. Riddell: I don’t know.
Senator Moncion: It is part of a system that is extremely complicated, and for ordinary mortals, we don’t necessarily understand what is involved here.
Ms. Riddell: I understand from the people who are involved in the industry it is technically possible to identify people. And, who knows, maybe at some point in the future it will be easier to do. At the moment, it is a difficult process.
Mr. Shoom: Senator, I wanted to add to what Ms. Riddell was saying. At the OECD, there has been the development of a new set of model rules for exchanges of information related to transactions in crypto assets. Those model rules were approved at the OECD. An implementation package is under way at the OECD, and once that is completed, the next step would be to see if countries would agree to implement those rules in a coordinated fashion.
[Translation]
Senator Moncion: Again with regard to cryptocurrency, what impact will the proposed amendment have on the growth of the crypto asset mining industry?
[English]
It’s an industry that you don’t necessarily follow that much now. What will be the incidence of the growth of that industry?
Ms. Riddell: It is impossible to say exactly. There are so many factors that impact the crypto industry at the moment. There are regulatory changes, each province has different policies in place with respect to the use of electricity. There are many different factors that could potentially impact this industry. It is my estimation that the GST impact is probably not their largest concern. It is one of many factors.
The other thing I would mention is that from our conversations with the industry — and we have had many — most of the players in this industry would fall into the exception where they are providing to an identifiable recipient and they would be able to claim input tax credits, or ITCs, based on how they have described their contracts to us. Of course, it is not for the Department of Finance to make a determination. It is ultimately for the CRA to take a look at the contracts. Based on how they have described their contracts and their situation, it is our impression that many of them would fall into the exception. I don’t think the impact is going to be significant from a GST/HST perspective.
Senator Moncion: Not yet, but it might in time, depending on how —
Ms. Riddell: I expect it would go the other way, actually, because the rules have been introduced and now there is an exception. Most people, when there is a way to get around a tax, will arrange their affairs to take advantage of that.
Senator Moncion: All right.
I have a question about the CRA. One of you were talking about electronic filing. This tax season, the CRA site was absolutely impossible, just to speak to someone. There is an alphanumeric code that you need to do electronic filing. You have to find a better way to make that work. I know it is nothing about taxation and nothing about this bill, but it is a nightmare. Trying to get into the CRA system is very difficult. It is definitely not user-friendly. There is work that needs to be done there if you want to get the last 10% of people who are still sending paper. This year I had to send one by mail, just because of the problems that are associated. There was also the strike, but getting to speak to anyone is — that’s a complaint, not a question. I’ll pass it on.
Senator Duncan: Thank you to all the witnesses who are here before us today. I think my colleague Senator Smith would call the questions, “short snappers.” With regard to the Air Travellers Security Charge Act, it is my understanding it will be the airlines levying these charges when they are ticketing individuals. I want to be reassured that it all airlines flying into Canada, or is it only the Canadian airlines that are going to have to charge this?
Mr. Coulombe: It is all airlines operating in the airport where the Canadian Air Transportation Security Authority operates the screening, irrespective of being a foreign airline or a domestic airline. For example, for a flight between Montréal and Heathrow operated by British Airways, British Airways is collecting the air travellers security charge and remitting it to the federal government.
Senator Duncan: You said having an office or an agency in Canada.
Mr. Coulombe: Sorry, let me correct that. Having flights flying to or departing from a Canadian airport where CATSA has security screening services.
Senator Duncan: And it applies equally to whether it is a charter airline or whatever airline; they don’t care.
Mr. Coulombe: Broadly speaking, that’s correct.
Senator Duncan: This is major. I’m quite positive that the airline industry is not very happy about this. I wonder, was there any consultation with either the airline industry or the tourism industry?
Ms. Coulombe: There was no consultation.
Senator Duncan: Thank you. Moving on, having made that point, there was discussion about paper filing and income tax filing. I note that we have seen a corresponding decrease in the number people using paper filing. Has there been a decrease in the estimated number of Canadians who are not filing, or is that number continuing to increase? Do we know?
Mr. Maxson: I don’t have any estimate of that with me.
Senator Duncan: I have heard in other discussions that there are X per cent of Canadians who are not filing their income tax. That was my question. If we do have an estimate of how many people are not paper filing, are the two of them corresponding?
Mr. Maxson: I’m not sure if there is a direct connection between the two trends.
Senator Duncan: Recently, there was an article published in a Yukon newspaper where we were provided with information that there were an estimated number of X amount of Yukoners who were facing CERB clawbacks and that information was, I believe, verified with CRA. Do you have that kind of geographic information? I believe my colleagues asked for other geographic information earlier tonight. It must be available from the CRA.
Ms. Gwyer: We can see what information we can provide.
Senator Duncan: Thank you. There are a number of occasions where we see in this Budget Implementation Act, and we hear from officials such as yourselves, that this is a technical amendment. For example, this minor amendment that divorced or separated parents could contribute equally. That’s pretty common sense. It seems to me that might have been caught when it was initially drafted. These minor amendments, are they a legislative drafting issue? That’s my first question.
The second part of that question: Is there anyone that is looking at an overhaul of the Income Tax Act for all of these changes?
Ms. Gwyer: To speak generally, not about that change necessarily but in general, there are a number of technical amendments in here. Some of them do reflect situations where the wording of the legislation doesn’t reflect the policy intention as the result of some anticipated issue or an error.
On a regular basis, we receive comments from CRA or from stakeholders, and we are continuously looking at ways that we can address those kinds of situations. There are also situations where, as a result of the passage of time, there are some things that need to be updated. At the Department of Finance, we released a package of technical amendments last summer. A number of those technical amendments are the ones I referred to as being part of measure (q). That is something we are doing on an ongoing basis.
In terms of broader tax reform, there is not anything specific that I can say about that. We look at issues as they arise and that would probably be a question for the government.
Senator Duncan: No one has been charged with the mandate in your department.
Ms. Gwyer: Correct.
Senator Duncan: Thank you. Related to that, you say that these are issues that come up. There isn’t anyone who necessarily says it is time to repeal all of these portions of the Income Tax Act.
Ms. Gwyer: Issues are identified in different ways. For example, in this there is a repealing of a rule that relates to small business bonds, I believe it was called. This is something that hasn’t existed for 15 or 20 years. There were a number of amendments in here to repeal and sections that refer to these concepts that are no longer relevant. There are things like that where we try internally to identify those kinds of situations and amendments that could be made to improve the act and the system.
Senator Duncan: Thank you very much.
The Chair: We’ll now move to the second round.
Senator Marshall: How much time do we have?
The Chair: Three minutes.
Senator Marshall: This is for everybody.
Can you send to the clerk how much extra revenue the government is going to collect as a result of Part 1, and then how much by Part 2, and then how much by Part 3 — and then also what the extra costs are that are going to be imposed by the government as a result of part 1, and then the number for Part 2 and the dollar amount for Part 3?
I just want to say to Ms. Riddle that when you were talking about the payment card-clearing services and you were saying like half a penny and four pennies, but I think you told me it was $195 million that the government was going to collect in total as a result of that amendment. So the pennies really add up to a lot of dollars. I just wanted to confirm that; I don’t want to waste time.
Ms. Riddell: Yes. I want to speak on that one, because I realized I misspoke after. It was $195 million for 2023-24, so I was correct on the total amount, but the breakdown — only $115 million of that is to recover previously paid out rebates, and the other $80 million is in uncollected revenue. That is just to break down the dollars.
Senator Marshall: Also, Ms. Gwyer, you mentioned — that when I talked about the information sharing on the RRSPs and the RRIFs for Canada Revenue Agency, you did say, when you responded to another senator, that the Department of Finance can use that information for policy purposes. I noticed for the technical changes for the dental program that the information that was provided to the Canada Revenue Agency is now going to be provided to Health Canada and Employment and Social Development Canada.
I do have concerns about information that is collected by government and then sharing it outside the department or the agency that initially collected the information, because it makes it sound like somebody gets the information and then they start sending it around to whomever — probably for a valid purpose — but it’s still confidential information.
I hope I’ve still got time, but I wanted to know this: Could someone send something in that would indicate on the Part 1 (a) — Ms. Gwyer, when we’re talking about the legislative requirement for handwritten signatures, which forms are you talking about?
If I still have time, could you just explain the last two bullets where you are talking about the threshold to file electronically and register as a tax preparer would be lowered from 10 to 5 individuals?
Do I have time? No.
The Chair: We will be lenient, senator.
Senator Marshall: I can have them respond in writing to just explain what that means in layman’s language, so I can understand it — the last two bullets.
The Chair: The question was asked to Ms. Gwyer.
Ms. Gwyer: We can provide that.
The Chair: In writing, please.
Senator Marshall: The last two bullets for 1 (a). I just need that. Thank you.
Senator Gignac: Going back to the discussion you had with Senator Loffreda regarding the 2021 Federal Court decision that you want to reverse, it looks like peanuts when you think about that, but how much money are we talking about? Because I know that — because credit cards — it’s a small percentage, but it’s huge volume — is it a billion dollars? Is it a million dollars? Have you made an estimate regarding the impact?
Ms. Riddell: Yes. The fiscal impact that is recorded in the fiscal framework is $195 million for 2023-24, and that represents rebate claims that were made by banks. They’re “tax paid in error” rebate claims that banks had claimed. I say banks, but I mean people who had received these services and paid taxes on them in the past and then, after the court decision came out, they submitted a rebate claim to recover the tax that they had paid. That represents about $115 million.
Senator Gignac: Given the fact that, last year, the big banks had profits above $60 billion — so I think they can afford to do that. That’s not the issue.
Ms. Riddell: Yes.
Senator Gignac: I worked for a bank, and even — and I’m not any conflict of interest; I’m not a shareholder of any Canadian bank. But the idea is about the retroactivity. I think that’s what bothers the Canadian Bankers Association.
I will try to choose my words, but why have you waited two years, basically? The Federal Court decision was in January 2021. We are in — and the budget was March 2023. If I correctly understand the point made by the Canadian Bankers Association: Why have you waited so long, and what is the criteria you used to decide one is retroactive and one is not retroactive, if I may?
Ms. Riddell: Yes, we acknowledge that it was a longer period than we would have preferred. When adverse court decisions come out — and they do from time to time — it is common, particularly in a GST context, to do a retroactive change. Typically, stakeholders would expect this sort of reaction from the Department of Finance. If we were fairly clear on what our position was, and a court decision goes contrary to that, there’s usually an expectation among industry players that we’re going to introduce retroactive legislation.
In this particular case, more time passed than normally would —
Senator Gignac: I’m sorry to interrupt, but have you issued something? You have not issued any warning — nothing whatsoever? I don’t know how it’s working exactly.
Ms. Riddell: Right. So, typically, if retroactive legislation were going to be introduced, most people would expect that to happen within a year or so. We were certainly taking all the steps we possibly could to make that happen. Unfortunately, during this period, it overlapped a little bit with some COVID activities that were happening, so you can understand there are a lot of other priorities happening, so it just didn’t happen as quickly as we will have liked.
However, we do have regular ongoing discussions with the industry, and to the extent that we could, being officials — we’re not the government, so we can’t speak for the government — but we were trying to signal that the court decision was inconsistent with our policy position. So it would have been the expectation of industry players that we were planning to do something at some point. We did send signals to the extent that we could, but we do understand that it came out a little later than would normally be the case under normal circumstances. Typically, there would be a faster reaction.
Senator Gignac: Thank you.
[Translation]
Senator Forest: Thank you again for your answers.
I want to come back to Bill C-208, which was passed almost two years ago in June 2021. The purpose of this bill was to remedy a fundamental inequity with regard to the transfer of businesses to family members. The changes are currently not included in Bill C-47, but it seems they will be included in the notice of ways and means motion. Despite the fact that Bill C-208 was passed in June 2021, the rules for transferring a business are still not fair. They differ depending on whether you transfer the business to a stranger or to a family member.
What is the reason for this extremely long delay, which is penalizing Canadians for whom the transfer of their business is a major issue? I am thinking in particular about farms in my region. Right now, we are protecting farmland. However, when it comes to agricultural activities, people are selling their quotas and auctioning off their equipment because of this situation. As a result, we are losing many small industries that are vital to the region. I do not understand what reason the government could have for this delay. We are being given a date, but we are being told that the rules will be set out in a ways and means motion later.
[English]
Ms. Gwyer: Thank you for the question.
With the budget, the government did release draft legislative proposals to address the changes in Bill C-208. So you’re correct: They’re not in this bill.
When we released draft legislative proposals, especially for more complicated measures, we ideally like to have the opportunity to consult with stakeholders and the public on those draft legislative proposals. By releasing those proposals with the budget, it gives us the chance to respond to stakeholder feedback. We have been receiving feedback on those proposals, and we have been engaged in talking with stakeholders. The goal of that process is to allow the rules to be improved before they end up in a bill.
[Translation]
Senator Forest: If I understand correctly, you are saying that consultations were held and that you are currently using the feedback to determine the terms and conditions of the program. Is that correct?
[English]
Ms. Gwyer: That’s correct, yes.
[Translation]
Senator Forest: How were the consultations conducted? Were they done with groups of witnesses? By email?
[English]
Ms. Gwyer: In last year’s budget, the government announced it would be consulting publicly. We meet with stakeholders who reach out to us and receive written submissions in many cases from stakeholders. At the department level, it’s really an open consultation. I believe the government consulted with stakeholders as well. Obviously, I can’t speak so much to that process, but that happened last summer. It involved a more general discussion on the rules, and then we released the draft legislative proposals with the budget. As a result of that, again through that similar public process where people reach out to us with their comments, we were able to have a more focused discussion on the specific changes.
[Translation]
Senator Forest: In your experience, can we expect the rules to be established in time for the next budget? Over the course of the year? I don’t want to be too optimistic, but when can we realistically expect this to be done?
[English]
Ms. Gwyer: It will be a decision for the government when to include them in a bill, so I can’t speak for sure. However, a majority of the measures in a typical year are announced in the umbrella. Regarding the release draft legislative proposals, the process is that we rerelease those legislative proposals in the summer for further consultation, taking into account changes that we’ve made. A large number of those proposals would be considered in the second budget implementation act in the fall. I can’t say whether or not these proposals will be in there. That will be a decision for the government. However, our typical timeline would permit them to be included in an act in the fall.
[Translation]
Senator Forest: I have one last question for Mr. Coulombe about a very technical aspect.
I don’t want to “be-lager” the point too much, but is the excise tax rate the same for microbreweries and microdistilleries as it is for the big breweries?
Mr. Coulombe: I would be happy to send you the information on the reduced rate for microbreweries. The reduced rates apply to the first 75,000 hectolitres produced.
The Chair: Thank you. You can follow up with the clerk.
[English]
Senator Smith: There’s an old saying in the football business, the corn bread’s burning. That means we’re getting closer to the end — at least I am.
Part 1 (k), mandatory reporting. This change broadens the scope of reporting obligations for transactions that are perceived to be aggressive or high risk as it relates to tax compliance. The first iteration of these requirements resulted in almost zero reporting. The newer, more broad requirements stem from consultations launched in 2021.
I have three questions. If you want to write us back, that would be helpful. First, could you please talk about how these reporting requirements have been broadened? Second, how confident are you that these new requirements will actually increase reporting of aggressive and high-risk tax planning strategies? Third, what sorts of penalties were in place for the existing mandatory disclosure rules, and are they subject to change?
Ms. Gwyer: I’ll start with the first question. I’ll talk about how they’re being broadened. Right now in the Income Tax Act, one set of rules apply to what is called reportable transactions. Those are transactions that meet certain generic hallmarks, for example, related to situations where you have confidential protection. For example, situations where a lawyer or a promoter has a tax scheme and they have a client that has to sign an agreement that they won’t disclose that information. That’s one of the hallmarks. Another hallmark is a situation where someone has some sort of insurance or other sort of protection to guarantee them the tax result. If they were to get reassessed, there’s some sort of arrangement in place so that they get that tax benefit. The third is the situation where you have fees that are tied to the amount of the tax benefit. For example, a promoter who is promoting a tax scheme and their fee is tied to the amount of the tax savings that the person who engages in this planning could receive. Those are the three generic hallmarks.
Under the current rules, there’s an obligation to report a transaction if two of those hallmarks are satisfied with respect to a transaction. That threshold is being lowered to one hallmark. That’s the biggest change with respect to the reportable transaction rules. There are some other changes to narrow the hallmarks in certain ways and to broaden them in certain other ways to make it more reflective that it’s one hallmark.
There are two other types of reporting that are being added to the rules. One is reporting with respect to what is called notifiable transactions. Those are specific types of tax planning that will be identified by the CRA in consultation with the Department of Finance and would be published. It’s specific transactions that people would engage in. If people engage in those transactions, they have an obligation to notify the CRA through this reporting.
The third type relates to larger companies that have assets over $50 million and they maintain their financials in accordance with International Financial Reporting Standards, or IFRS, or with other accounting standards that are applicable to public companies. In those cases, if they have uncertain tax treatments then, for accounting purposes, they must report that on their financial statement. It’s a situation where they’re taking a tax position that they have assessed —
Senator Smith: My seat is burning because the president pulled the switch on me. Thank you very much.
[Translation]
Senator Dagenais: I have a question for Ms. Riddell and another for Mr. Leblanc.
Ms. Riddell, you can respond to me in writing if you don’t have the answer.
I want to come back to the matter of tracking cryptocurrency. Is there a specific budget for that? How much does it cost a year? You don’t have to answer this evening. You can send me the information in writing.
Ms. Riddell: I’m sorry. Could you repeat the question, please? I think my colleague might be able to answer you.
Senator Dagenais: I would imagine that you must have a specific budget for tracking cryptocurrency operations. How much does that cost a year?
[English]
Mr. Shoom: Currently, there is a unit at the Canada Revenue Agency which occupies itself with compliance with respect to crypto assets. I don’t have information about their current budget. However, this is one of the areas that would benefit from the OECD initiative that I mentioned earlier and would likely need to expand its operations in order to deal with the —
[Translation]
Senator Dagenais: Perhaps you can contact them and ask them to send us the answer. It might take longer if I were to reach out to them.
Mr. Leblanc, since more and more Canadians are choosing to file their tax returns electronically, it seems only logical that the documents could also be processed electronically. If that is the case, it must significantly reduce the workload for public servants.
Can you tell us whether the electronic filing of tax returns could reduce the number of staff needed to process Canadians’ tax returns given that everything is being done electronically?
Mr. Leblanc: Thank you for the question. I think it would be up to the CRA to answer that. I think the CRA could provide you with that information.
Senator Dagenais: The CRA can send me the answer in writing.
Senator Moncion: My first question is for Mr. Coulombe.
When you gave your presentation earlier, you mentioned that excise tax increases brought in $2 billion in revenue for 2021-22. You said it was $1 billion for liquor, $670 million for beer and $370 million for wine. Is that correct?
Mr. Leblanc: Thank you for your question. I want to make sure that the committee has the right information. The figures you mentioned were the excise taxes collected in 2021-22 at the rate that was in effect at that time.
The measure proposed in the budget involves capping the increase at 2%. The fiscal cost associated with that cap is not $2 billion but $550 million over five years. That is the amount related to the measure to cap the tax at 2%.
Senator Moncion: Okay. What was the amount of the adjustment in 2021-22? We know that it was a pandemic year and that people took advantage of that situation.
Mr. Leblanc: The April 1, 2021, inflationary adjustment was 1%. On April 1, 2022, it was 2.4%.
If we look back at previous years, it was 1.9% on April 1, 2020, 2.2% on April 1, 2019, and 1.5% on April 1, 2018, the first year the automatic inflationary adjustment took effect.
Senator Moncion: I have one last question and I will keep it brief. When it comes to the sharing of information between departments on the dental care program, what departments will you be sharing information with and why do you need to do that?
Mr. Leblanc: Thank you for the question.
According to the recommendation set out in the bill, we will be sharing information with two departments, Health Canada and Employment and Social Development Canada. Given that eligibility for the dental care program is income based, we need to share information on net family income and the number of people in the family under the age of 18.
Senator Moncion: Will information be shared regarding employment insurance?
Mr. Leblanc: No, it would be with Service Canada. That is why I was talking about Employment and Social Development Canada earlier.
Senator Moncion: Sorry. I misunderstood.
My last question has to do with the definitions related to crypto assets. Are those definitions consistent with the Proceeds of Crime (Money Laundering) and Terrorist Financing Act and provincial securities legislation? Has the correlation been made with the other groups?
[English]
Ms. Riddell: These amendments with respect to crypto-asset mining are completely unrelated to other activities, analysis, regulations, et cetera, that are being imposed with respect to crypto mining. The amendments were tailored specifically to deal with the activities we wanted to describe in the act for GST/HST purposes; so there’s very little connection or overlap with other areas.
Senator Duncan: Just to back up on the airline fees, you did indicate, Mr. Coulombe, the amount of money that is anticipated to be collected. That money is to fund CATSA in provision of the security services at airports.
Would you also, in writing, tell us whether there are any accountability measures built into that money that we are providing to CATSA to ensure that Canadians will receive better services? I notice there have been some improvements in airports across the country, but what accountability measures are built into that funding that will be provided? Just to confirm, there has been no consultation with the airlines that are going to be collecting this tax on behalf of the Government of Canada on this measure?
Mr. Coulombe: The agency has been in place since 2001, and when a rate change occurs, there’s typically no consultation with the industry in that aspect. With respect to your first question, CATSA is a Crown corporation, so they have to release an annual report, and this is available online. I can follow up with colleagues at the department responsible for this agency. This is beyond the scope of that bill, but I’m happy to try to help as much as we can.
Senator Duncan: I appreciate that. We are transferring a significant amount of money. This committee focuses on accountability, reliability and transparency.
Could I ask one other question about part 1(e), the band class settlement trusts? They’re exempting from taxation the income earned by the settlement trust. If you could provide us with some more information. We’re talking about a trust fund; correct?
Ms. Gwyer: In this type of settlement, a trust is established to administer the settlement proceeds. Typically those trusts are exempt from tax; so that’s part of the government’s commitment to the settlement agreement was to take the best measures to try to exempt the income of that trust from income tax. This amendment would do that.
Senator Duncan: Is the trust held by the individual First Nation or band? Who holds the trust?
Ms. Gwyer: It’s for the benefit of the band members who are part of the class action. In terms of the trustees of the trust, I don’t have that information. I can look for more information for you.
Senator Duncan: If you can provide it. Because our information says that income that is earned would be subject to provincial and territorial taxation. Would income earned by a band class settlement be subject to provincial and territorial taxation? The reason I’m asking is there are tax-sharing arrangements with the territory and First Nations who have settled.
Ms. Gwyer: We can see what information we can provide.
Senator Loffreda: I would like to discuss the changes proposed to the borrowing limit of registered pension plans. Part 1(p) will give defined benefit plans the ability to borrow additional money equal to 20% of the plan’s net assets. In expanding the borrowing limit and allowing for this greater flexibility, has the Department of Finance assessed any risks or unintended consequences in giving registered pension plans this new authority? Secondly, was the industry asking for this change? If yes, what were its arguments? As you know, Senator Gignac and myself have been advocating for a greater percentage of their assets to be invested in Canada, but this is beside the point. I would be curious to know what happened in that discussion.
Ms. Gwyer: On the second part of the question, yes, this is something that pension funds have been advocating for, and it’s a rule that will allow them to increase their returns by leveraging more of their investments; so they have been asking for it.
On the first part of the question, we do detailed policy analysis on any of the changes, so we do look at what we feel would be appropriate. The limits are intended to reflect the fact that this is borrowing in a situation where the profits of the investments are not subject to tax, given that we are talking about pension plans. So an assessment was made that this would be the appropriate amount to allow the plans to borrow.
With regard to pension plans, I think it is also important to point out that, from a regulatory perspective, there are rules under pension benefit standards legislation under federal rules for federal pension plans and then provincial rules govern provincial plans and private plans. Those rules are not impacted by these changes. There are rules there to ensure that plans are administered in a way that is responsible and takes into account the best interests of their members.
Under those rules, administrators of plans would need to continue to make sure that the amounts of their borrowing is responsible having regard to their obligations to their members.
Senator Loffreda: So there are no unintended consequences. The request is recent?
Ms. Gwyer: I think it is something we have been hearing from stakeholders on kind of an ongoing basis.
Senator Loffreda: They want it to increase, and to have that flexibility would leverage their assets and increase their returns I guess.
Ms. Gwyer: Yes.
Senator Loffreda: Thank you.
The Chair: To the officials, thank you very much for accepting our invitation. The information you have shared and your comments have been the common denominator we have about transparency, accountability, predictability and reliability. We have that same common denominator as parliamentarians and you, as senior officials of the Government of Canada.
I would like to ask you in order to send written information to the clerk, if you could send it by the end of the day on Wednesday, May 24, 2023.
Honourable senators, our next meeting will be May 16 at 9 a.m. to continue our study on the subject matter of Bill C-47. Honourable senators, thank you very much.
(The committee adjourned.)