Proceedings of the Standing Senate Committee on
Banking, Trade and Commerce
Issue 9 - Evidence - May 1, 2014
OTTAWA, Thursday, May 1, 2014
The Standing Senate Committee on Banking, Trade and Commerce, met this
day at10:30 a.m. to examine the subject-matter of those elements contained
in Parts 2, 3 and 4 and Divisions 2, 3, 4, 8, 13, 14, 19, 22, 24 and 25 of
Part 6 of Bill C-31, An Act to implement certain provisions of the budget
tabled in Parliament on February 11, 2014 and other measures.
Senator Irving Gerstein (Chair) in the chair.
The Chair: Today we will begin a series of five meetings as part
of the pre-study of Bill C-31, Economic Action Plan 2014, No. 1, otherwise
known as an Act to implement certain provisions of the budget tabled in
Parliament on February 11, 2014 and other measures on February 11, 2014, and
This morning we are pleased to welcome the Minister of Finance, the
Honourable Joe Oliver, who will be with the committee for approximately 30
He will be followed by a number of government officials, and that's an
understatement as I look out in front of me, who will review the various
provisions that have been assigned to our committee.
First, Minister Oliver, I would like to congratulate you on your
appointment as Minister of Finance. It is indeed a pleasure to have you here
this morning in your first appearance ever before the Senate Banking
Committee. I understand you have two officials from the Department of
Finance joining you; namely, Mr. Brian Ernewein, General Director of Tax
Policy Branch; and Mr. Toni Gravelle, General Director of Financial Sector
Minister, the floor is yours.
Hon. Joe Oliver, P.C., M.P., Minister of Finance: Thank you very
much, Senator Gerstein, for your welcome, and honourable senators. I
appreciate the opportunity today to address Bill C-31, which implements
certain provisions of Economic Action Plan 2014, tabled in Parliament on
February 11, 2014.
I would like to provide an overview of the finance items of the bill and
in particular Parts 2, 3, and 4 and several divisions of Part 6.
First, let me outline the bill's overall objectives. Our government's
priorities have been clear — creating jobs and promoting economic growth and
long-term prosperity for Canadians, while standing up for families and their
communities across Canada.
Underpinning these objectives is a commitment to return to balanced
budgets in 2015.
By balancing the budget and reducing the debt, we can invest more tax
revenue in improving Canada's economic potential, rather than servicing the
debt. That kind of fiscal prudence is what allows us to deal with unforeseen
circumstances, like the recent global recession. That long-term advantage is
why our government has brought down the deficit by nearly two thirds since
Our goal of balanced budgets is now within sight to realize a surplus of
$6.4 billion in 2015-16, including a $3 billion annual adjustment for risk.
We're on track and leading the global economic recovery. We have a
rock-solid triple-A credit rating, the strongest income growth and lowest
net debt to GDP in the G7 by far, and one of the strongest growth records in
the G7 with over 1 million net new jobs created.
Allow me now to turn to the specific measures in today's legislation.
Part 2 of the legislation provides a number of exemptions from the GST/HST
for persons with disabilities and Canadians accessing the health care
system. This includes hospital patients and visitors, who will no longer
have to pay GST/HST to park at a hospital, as well as persons seeking
professional services of an acupuncturist or naturopath doctor.
Measures in this bill to support persons with disabilities and their
families continue our government's proud record of being a champion for
people with disabilities.
This is an area in which my predecessor, the late Honourable Jim
Flaherty, was a very strong advocate. I'm pleased to carry on his wonderful
More specifically, Bill C-31 expands the GST/HST exemption for training
that is specially designed to assist individuals with a disorder or
disability. The bill also seeks to add eyewear specially designed to treat
or correct a defect of vision by electronic means to the list of GST/HST
zero-rated medical and assistive devices.
I would like to turn briefly to Part 3, which deals with improving the
health of Canadians. Our government believes that reducing tobacco
consumption is an important public health objective, but the general
domestic rate of excise duty on cigarettes has not effectively changed since
2002, meaning that the real rate of the excise duty has deteriorated by
almost 24 per cent.
Prior to Budget 2014, cigarettes were subject to an excise duty of $17
per carton of 200 cigarettes. To restore the effectiveness of the excise
duty in reducing tobacco consumption, today's legislation proposes to adjust
the rate of excise duty on cigarettes by roughly $4 per carton effective
February 12, 2014, to account for inflation since 2002.
In addition, we are going to eliminate the preferential excise duty
treatment of tobacco products available through duty free markets. The
government takes the health of Canadians very seriously and views this
measure as a big step towards keeping Canadians healthy.
I would like to mention the elimination of tariffs on mobile offshore
drilling units. This is another way we're helping businesses lower costs and
increase the potential for valuable resource discoveries in Canada's
Atlantic and Arctic offshore areas.
Honourable senators, I would like to now turn to the final part of the
Part 6 makes amendments to bring Canada's labelling requirements for
hazardous workplace chemicals in line with international standards. The
measure will facilitate the sale and import of hazardous products used in
Part 6 also sets out measures to protect consumers purchasing financial
products and services under the Canadian financial system. Canada's banking
system remains one of the soundest in the world, according to the World
Economic Forum, and the measures in Bill C-31 will ensure it stays that way.
These include giving the government regulation-making powers over a
bank's activities in relation to derivatives and benchmarks, and
strengthening laws governing insured mortgages and the proceeds of crime and
Last, I will draw your attention to the amendments to the Trade-marks
Act, which will streamline national trademark registration systems, reduce
costs, and save valuable time for Canadian businesses. Our government has
repeatedly stood up for small business and cutting red tape. These
amendments will reduce red tape by simplifying the overall registration
system in Canada.
In conclusion, honourable senators, today I have only scratched the
surface in describing how Bill C-31 and the Economic Action Plan 2014 will
benefit Canadians. In today's uncertain world, Canada's Economic Action Plan
is working. It is creating jobs, keeping our economy growing and will return
us to balanced budgets in 2015, which bodes well not only for the current
generation of Canadians but also for future generations.
A recent analysis by the New York Times in the Luxembourg income
study shows that Canada's middle class today is the richest out of 20 peer
countries, including the United States. It also shows that Canada's middle
class has seen increases of about 20 per cent in their take-home incomes
between 2000 and 2010.
We have seen Canada ranked as one of the best places in the world to do
business. The IMF and OECD are projecting that Canada will have among the
strongest economic growth in the G7 in years ahead. This confirms that our
government's low tax plan for jobs and growth is working and increasing long
prosperity for all Canadians.
The federal tax burden is now at the lowest level it has been in 50
years, and more than 1 million low-income Canadians have been removed from
the tax rolls. The share of Canadians living in low-income families is now
at its lowest level in over the past three decades.
Today's legislation keeps us on the road to prosperity. I encourage all
members of this committee to give this bill the support it deserves.
The Chair: Thank you, minister, for your opening comments. We have
approximately 20 minutes left with the minister, so I will ask senators to
keep their questions short and snappy.
Senator Black: Minister, welcome, and thank you for that
tremendous report. We are all extraordinarily proud of the results that you
have reported to us this morning.
My question doesn't specifically relate to Bill C-31, minister. If you
will indulge me, I would be appreciative. Would you please comment on the
effect on the federal treasury of the ongoing delays of Canada obtaining
full market access for our oil and gas exports?
Mr. Oliver: This is an issue that was a real concern to me in my
previous portfolio. It remains a concern as Minister of Finance because of
the importance of the natural resource sector, which represents 18 per cent
of the economy and over half our exports. It employs directly and indirectly
1.8 million Canadians, and it represents an important future source of jobs,
growth and long-term prosperity. It contributes some $30 billion to
governments to support critical social programs like health care, housing
and education. In fact, across Canada, hundreds of projects are in the
works. Over the next 10 years, they will total $650 billion in required
That is why our government is continuing to support our strong effort for
responsible resource development. We have done that by introducing a number
of critical measures. We are supporting mineral exploration by extending the
15 per cent mineral exploration tax credit for flow-through share investors.
We are ensuring comprehensive and timely reviews of pipelines, such as the
TransCanada Energy East project, by investing $28 million in the National
Energy Board for such reviews. We are promoting Canadian-made products by
developing a ``made in Canada'' campaign to promote high-quality products
here and around the world. We are also working on reducing internal barriers
to trade and eliminating these barriers that have been prohibiting
individuals from moving spirits and beer from one province to another while
it is in their personal use.
It is interesting how we, as a government, have done more than any other
government in Canadian history to advance free trade around the world, and
yet we have barriers at home. In fact, we have signed over 40 agreements
with countries around the world, including, of course, the European Union,
which is the biggest trade agreement in Canadian history, and most recently
with South Korea, the first with an Asian country.
As I have traveled, Canada has been praised and envied for its remarkable
economic record. We're determined to pursue that for the benefit of
Canadians from coast to coast to coast.
Senator Massicotte: Thank you to you and your colleagues for being
here today, minister. We greatly appreciate it. This is an ideal opportunity
to learn more about the state of our economy and finances.
A number of the bill's amendments pertain to the Financial Transactions
and Reports Analysis Centre of Canada to address money laundering activities
and fraudulent transactions. Our committee conducted a fairly extensive
study on the centre's performance results. Speaking for myself, I was a bit
disappointed to learn that there had been little in the way of serious
consequences so far, despite the tremendous amount of money laundering that
is still going on in Canada. Do you really think the proposed amendments
will do more in terms of concrete results, especially in comparison with the
United States and the United Kingdom, which are both seeing real results as
far as transaction oversight is concerned? Do you think these measures are
adequate? Will they allow us to combat money laundering activities and
fraudulent transactions within financial institutions more effectively?
Mr. Oliver: What I can tell you is that, overall, the amendments
to the Proceeds of Crime and Terrorist Financing Act update the legislation
and support efforts to tackle money laundering and terrorist-financing
activities. That includes the way that Canada adheres to international
standards set out by the Financial Action Task Force, which is the
international regulating authority. The amendments contained in Part 1
include documents addressing identity checks, fraudulent transaction
reporting and registration. They clearly state that the legislation applies
to securities dealers and broadens its scope to apply to individuals and
entities that deal in virtual currencies and foreign money services
Another part of the bill involving FINTRAC applies to the reporting of
currency or monetary instruments: Part 3 makes specific amendments to the
procedures for the exchange of information between FINTRAC and the
Department of Finance. Furthermore, Part 4 contains provisions that amend
the regulation-making authority over offences and such. Broadly speaking,
this is a very serious issue, and the government wants to ensure continued
follow- up because new activities need periodic monitoring. This is an area
where the technology is ever-changing, so terrorists and criminals keep
coming up with new ways to get around the law.
Senator Massicotte: We are indeed in a race against criminals, who
use technology and other means to get around our efforts to enforce the law.
And I get the feeling we are losing the race. Our most recent examination
showed that our forces had recovered just $15 million despite the fact we
are spending millions to gather information; for the Americans, it is over
The measures may not be the same, but the overall finding of the study
was that several million dollars a week were being spent on anti-drug
trafficking efforts. We got the sense that we were not seeing the results we
would expect for the money being spent. Of the five or six recommendations
contained in the bill, the only useful measure is the one requiring FINTRAC
to report annually to the minister on expected results. But I encourage you
to go further. Corruption erodes the integrity of the entire financial
system and a lot more still needs to be done to ensure it runs smoothly.
Senator Gerstein: Any further response, minister, or have you
taken the comments as notice?
Mr. Oliver: Yes.
Senator Tkachuk: I have a question on dangerous goods. Was this an
attempt to harmonize regulations and labelling with the Americans? Were
these new regulations and labelling the result of problems in the workplace
that were identified?
Mr. Oliver: We always start with what is in the Canadian interest.
Your second point about protecting Canadians is at the heart of our
approach. When we do that, it is often critically important that we
harmonize with the United States. They're facing the same issues and if you
don't have harmonization, there are two problems. The cost is obvious for
manufacturers, who are often producing goods for both countries — sometimes
from Canada, sometimes from the United States — but there's also a potential
diminution in the protection.
Yes, we do harmonize when we can, but we always take a look ourselves to
make sure we're meeting the appropriate standards of protection.
Senator Tkachuk: On the excise tax on tobacco products, do you or
the people with you know how much it is in dollar figures per carton
Brian Ernewein, General Director, Tax Policy Branch, Department of
Finance Canada: The answer is generally it is an increase from $17 to
$21.03, but for the duty-free shops it is actually a $2 additional increase
to standardize it all. I'm talking about the standard carton of cigarettes
from $15 to $21.03.
Senator Tkachuk: $4 per carton?
Mr. Ernewein: It is $4.03 a carton basically and at duty-free
shops $6.03 a carton.
Senator Tkachuk: Why do they still call them duty-free shops?
That's what I would like to know.
Mr. Ernewein: They don't charge duty.
Senator Hervieux-Payette: Welcome to the committee, minister. I
have been on the committee for nearly 20 years. A few years ago,
demutualization was implemented, and it ruffled some feathers because not
all policyholders were treated the same way. Your bill does not list any
company names as far as section 237 of the act is concerned. We found out,
however, that Economical Mutual Insurance Company was planning to proceed
with demutualization. That means that those policyholders will probably make
a request as soon as the act is passed and receives Royal Assent from the
From a structural standpoint, within the organization, there are a
million policyholders and 943 who have a different status in relation to the
mutual company, which has been around for 125 years. I want to be sure that
all of the company's policyholders will be able to share in the company's
profits. The legislation also contains a provision allowing the courts to
deal with the entire matter. I would like you to explain to us why the
courts should be able to intervene. Once the decision has been made, all
policyholders should presumably be treated the same way. So why should court
intervention be an option?
Mr. Oliver: As you know, the government has proposed amendments to
the Insurance Companies Act to authorize the Governor-in-Council to make
regulations governing demutualization. The government will develop a
framework and initiate stakeholder consultations. I do not have any more
details than that.
Toni Gravelle, General Director, Financial Sector Policy Branch,
Department of Finance Canada: We were advised to conduct extensive
consultations with numerous key stakeholders planning to take action in the
near future. In addition, policyholders without voting rights need to be
given more negotiating power. At the moment, some demutualization processes
do not give policyholders enough power to negotiate more shares at the end
of the process. That is one way to ensure greater fairness to certain types
of policyholders. Usually, when demutualization is implemented,
policyholders do not come out with their fair share.
Senator Hervieux-Payette: Why did you go with that option? Why
does the act not include the million or so policyholders of mutual insurance
companies? Why did you not set out a provision to ensure those policyholders
would be given a fair shake, with access to redistribution? No doubt your
measure allowing for court intervention has gone over well with the legal
community, and there will be challenges. And in order for those challenges
to be well- founded, the act has to say somewhere that all policyholders are
to be treated fairly. Perhaps I did not read it carefully enough, but in
your view, does it apply to all the policyholders of that mutual insurance
company? Just so we are clear, there are 134 members and the rest are
policyholders. As I see things, being a member means you belong to a mutual
insurance company. Are you going to leave that question up to the courts?
And if so, why?
Mr. Gravelle: The legislation provides for fairer representation
for non-member policyholders, in other words, those without voting rights.
It gives them a voice, if you will, so they can organize and allows them to
be heard loud and clear during the public consultation process. There will
be time later to give you more details on that. My colleagues will explain
the objectives of the legislation. The reality is it is intended to ensure
all policyholders receive equal treatment.
Senator Hervieux-Payette: If the act is ever amended, I expect the
Minister of Finance to say that all existing Canadian policyholders will
receive equal treatment.
Mr. Oliver: I understand your point, and we will discuss it at
greater length. Thank you for the advice.
Senator Bellemare: Thank you, Mr. Chair. We are glad to have you
here. My question pertains to productivity. On the one hand, it is a fact
that a good chunk of the tax measures in last year's budget were aimed at
revenue neutrality for businesses. It was argued that a number of the
sectors benefiting from tax credits no longer needed them. On the other
hand, Mr. Poloz, the Governor of the Bank of Canada — who we heard from
yesterday — told us that productivity was a real problem in some sectors of
Canada's economy. Are any of the budgetary measures aimed specifically at
raising productivity in certain sectors, in particular, or across Canada, in
Mr. Oliver: Our overall approach does not target any specific
sector. Generally speaking, we are trying to help businesses lower their
costs by lightening their tax burden. That will allow businesses to invest
more in labour.
One of the factors affecting productivity is obviously science and
technology, and our government has invested billions of dollars in science
to enhance industry productivity. I am familiar with the efforts made in the
gas, mining and forestry sectors, which have undergone fundamental
transformations as a result of those efforts as well as enhanced expertise.
In terms of taxation, we have not set out any specific measures, just an
Senator Bellemare: But you have included some measures pertaining
Mr. Oliver: Yes, as regards training. The fact that our
unemployment rate is lower than that of other industrialized countries is
somewhat at odds with the fact that the unemployment rate is too high among
groups such as youth, the disabled and seniors. The flip side is that
certain regions and sectors lack workers with the skills and technical
knowledge required. And that means training is paramount, so we are
injecting billions into our training program.
Senator Maltais: Welcome, minister, and thanks to both you and
your colleagues for being here. Bill C-31 introduces a measure to zero-rate
eyewear to treat or correct a defect by electronic means. The measure will
help millions of Canadians and come as a relief to many.
How many Canadians can buy such products? Since it involves health, which
is provincial turf, were prior agreements put in place, or do you, as the
Minister of Finance, already have the authority to zero-rate products of
Mr. Ernewein: I don't have a figure for the number of Canadians
who can benefit from it. I can provide a description of what it involves. My
understanding is that people — and this may be an example, not the entire
field — who suffer, for example, from macular degeneration of the eye,
regular eyeglasses cannot help them, because this is functionally a blurred
vision. These electronic devices are such that, I don't know if it's quite a
computer device but electronically they are able to sort out this blurring
and resolve it into a better image that functionally allows people to gain
back some level of vision.
Whoever suffers from that condition and is interested in acquiring this
fairly novel apparatus would be entitled to benefit from the relief that's
provided, which is zero rating; that is non-application of GST or HST to the
Senator Maltais: Will the measure apply to all the provinces,
without any need for negotiations? Is it simply a tax initiative that is
entirely within the federal government's domain?
Mr. Oliver: That is my understanding, yes.
The Chair: To you, minister, and your associates, thank you very
much for appearing before us today. We look forward to many future visits.
As I mentioned in my opening remarks, we have five meetings set aside for
the pre-study of BIA. As you know, we've been assigned three whole parts,
and 10 divisions of Part 6. I might say it's the largest assignment that
came from National Finance to another committee.
Again, I want to emphasize that this is a pre-study. We have not been
referred the bill itself. My suggestion is that rather than deal with each
section or clause, we will be dealing with the bill by subject matter or
At the conclusion of the hearings, we will be considering a draft report,
which will be a summary of the testimony we have heard.
Today we have officials to start us moving through the subject matter of
the bill. As for the divisions that we will be dealing with, the Proceeds of
Crime (Money Laundering) and Terrorist Financing Act and the Trade-marks
Act, both areas that we focused on here in our committee, we have set aside
a separate day for dealing with each of those topics so it won't be rushed
through in any way. We have permission to go until 1:30 today if need be,
and I do want to encourage all members to ask as many questions as they feel
is necessary to fully understand the subject at hand. If we need to bring
back officials to continue at a later date, then so be it and we will move
in that direction.
Is that satisfactory to the committee?
Hon. Senators: Agreed.
The Chair: Thank you. With that, we will move immediately to Part
2, Goods and Services Tax, Harmonized Sales Tax measures, which is tab B in
your briefing binder, page 30 of the bill. It deals with amendments to the
Excise Act and implements certain GST and HST measures, and for that I
welcome Mr. Pierre Mercille, Senior Legislative Chief, GST Legislation,
Department of Finance Canada.
Mr. Mercille, the floor is yours.
Pierre Mercille, Senior Legislative Chief, GST Legislation, Department
of Finance Canada: Honourable senators, Part 2 implements measures in
the GST area and they can be found between clause 40 and 61 of the bill.
First, there are three measures that are included to improve the
application of the GST/HST to the health care sector. The first health care
related measure expands the current GST/HST exemption for training specially
designed to assist individuals in coping with the effect of a disorder or
disability, such as, for example, autism, and to also exempt the service of
designing such training. Previously, the GST exemption did not cover the
service related to designing a training plan for the actual training.
The second health care measure adds acupuncturists and naturopathic
doctors to the list of health care practitioners whose professional services
rendered to individuals are exempt from the GST/HST.
The third health care measure adds eyewear specially designed to
electronically enhance the vision of individuals with vision impairment that
is supplied on the order of a physician or other specified health care
professional to the list of zero-rated GST/HST medical device. Zero-rated in
the GST world means tax at the rate of zero, essentially tax free. This type
of eyewear is not considered to be eyeglasses or contact lenses, so it was
not previously falling under the GST/HST zero-rating provision and was
The next measure is much more technical, but it's a simplification
measure for businesses, and it extends the existing election that allows
members of a closely related group of corporations engaged exclusively in
commercial activity to not account for GST/HST on certain transactions
between them. For the purpose of the GST/HST a closely related group is
generally a group of corporations or partnerships with a degree of common
ownership of at least 90 per cent. You can think of a holding corporation
with its subsidiaries.
Currently this group relief may not be available to a new member of a
closely rated group at the time of the initial transfer of assets from
another member of the group. This is due to some requirement in the
legislation such as the requirement to have some property before making the
election. The measure extends the election to newly created members of a
closely related group. For example, in the case of reorganization they want
to create two corporations to do the work of one.
This measure also introduces joint and several liability to the parties
to such an election for any GST/HST liability on supplies between the
parties. Since the election allows transactions to be done tax free, if the
transaction was not supposed to be relieved by that transaction while the
CRA can get the tax from both parties to the election. In addition, this
measure adds a requirement to file such an election with the CRA to
facilitate CRA's audit activities.
The next measure gives the Minister of National Revenue the discretionary
authority to register a person for GST/ HST purposes where the person fails
to comply with the requirement to apply for registration, even after having
been notified by CRA of the obligation to do so.
Under the GST/HST, vendors making $30,000 in taxable supplies annually
are generally required to register, collect and remit tax on their taxable
CRA found that during the course of their enforcement program they
identified vendors who should be registered but are not, so CRA makes
efforts to ensure that the vendor meets their tax obligation. However,
legally, where a business fails to register as required, CRA currently
cannot compel the business to register and this is what this measure is
intended to address.
The next measure, and there are a few in Part 2, is actually
consequential to income tax measures being made in Part 1 of the bill, and
it's made in Part 2, and actually in Part 3 also you'll hear a little bit
later, to ensure consistency across the Income Tax Act in terms of
This amendment allows the CRA to share information with FINTRAC, which is
the Financial Transactions and Reports Analysis Centre of Canada, but solely
for the purpose of enabling FINTRAC to evaluate the usefulness of
information provided by FINTRAC to the CRA under the Proceeds of Crime
(Money Laundering) and Terrorist Financing Act.
FINTRAC provides information to the CRA, and CRA, to be able to give
feedback that may involve taxpayer information, they need to have the power
to do so and this is what this amendment is doing.
The ones I just talked about were all included in Budget 2014. The other
amendments I'm going to talk about are included in Part 2, but they may have
been referenced in the budget or there's a few that are Budget 2013 measures
that were not implemented yet, or they have been announced through news
The next measure relates to the GST/HST on paid parking. The measure
provides a GST/HST exemption for supply of hospital parking by public sector
bodies for patients and visitors as announced on January 24, 2014. This
exemption will apply in respect of parking lots that are reserved for or
primarily for the use of individuals accessing a public hospital.
The amendment in Part 2 also includes the charity parking related
integrity measures that were announced in Economic Action Plan 2013, such as
to clarify that the special GST/HST exemption for charity parking does not
apply to parking provided by a charity that is set up or used by certain
PSB, such as a university. For example, a university, since the inception of
the GST, cannot directly provide exempt paid parking for students and staff
and will not be able to set up a charity to run the parking in order to have
the same parking treated on an exempt basis. This is a tax planning scheme
that was sold to some entities to basically avoid the payment of tax for
some of those public sector bodies.
The next measure was announced in Economic Action Plan 2013 also. Budget
2013 announced that certain financial intermediaries will be required under
the Income Tax Act to report to the CRA international electronic funds
transfer of $10,000 or more. All those rules are not in Part 2. These rules
are all in Part 1 of the bill. The only amendment in Part 2 that is included
only clarifies that those reports provided to the CRA on the income tax side
can also be used for the purpose of the administration of the GST by the
CRA. This may be useful information for GST audit purposes.
The next measure, again, is another measure that is consequential to
income tax amendments that were made in Part 1 and relates to the offshore
tax informant program announced in Economic Action Plan 2013. Again, it's
made to ensure consistency across tax administration rules in various tax
acts. Under the Offshore Tax Informant Program, the Canada Revenue Agency
will pay rewards to individuals who provide information relating to major
international tax non-compliance where that information leads to the
collection of tax.
The measure under Part 2 of this bill permits the sharing of certain very
limited GST/HST information for the purpose of the administration by the CRA
of the program and the first payment to HST province where assessed tax
under this program until those taxes have been collected by the CRA.
However, the information that can be shared is limited to information to be
provided to a person that has a contract with the CRA under the program, and
only to the extent necessary to inform the person of any amount they may be
entitled to under the contract and of the status of their claim under the
contract. The information that can be given is very limited.
The next measure relates to serious offences and is consequential again
to income tax amendments made under Part 1 of the bill. This measure amends
the GST/HST confidential information provision to permit the disclosure of
confidential information to an appropriate police organization where there
are reasonable grounds to suspect that the information would be relevant to
the investigation of serious offences, including money laundering.
The last measure in Part 2 was announced on January 17, 2014, and is
designed to close a loophole. Under the Excise Tax Act, a business can
generally claim input tax credit to recover any GST that they paid to
acquire property or service for use in their commercial activities. However,
in a recent court decision, a business was allowed to claim input tax credit
in respect of an amount of GST that the business had already recovered from
suppliers through credit notes, so there was double-dipping going on there.
This measure clarifies that a person cannot claim input tax credit in
respect of an amount of GST/HST that has already been recovered by the
person from a supplier.
That concludes my description of the amendments in Part 2.
Senator Maltais: I would like you to clearly explain the measure
on zero-rated eyewear to correct a defect of vision electronically. Does it
allow people with a prescription from a medical professional to use service
providers accredited by the federal government? Will the consumer have to
pay the GST and HST, or will they have to apply for a reimbursement? Or will
the tax not be applied at the point of sale, meaning the consumer will not
have to pay the tax?
Mr. Mercille: The federal government is not responsible for the
licensing of physicians, the provinces are. The GST talks about
practitioners. If the individual has a prescription from a health care
professional for this type of eyewear, they will be able to purchase it
without paying the tax. They will not have to ask to be reimbursed. The
measure is removing the tax, not reimbursing consumers for it.
Senator Maltais: The consumer will not have to pay the tax.
Mr. Mercille: This type of eyewear is fairly new and quite
expensive, costing around $10,000.
Senator Hervieux-Payette: I am actually surprised that the
services of acupuncturists and naturopaths were not exempted, similar to
those of physicians. What about osteopaths and physiotherapists?
Mr. Mercille: I will explain the principle governing whether
professionals can register for the list of practitioners who are exempt from
charging GST or not.
A series of administrative requirements is applied. The first is whether
the cost of the service is reimbursed under a provincial health plan; if so,
the service is exempt. The second states that if the cost of the same
service is reimbursed under the health plans of two provinces, the service
will be exempt country-wide. The third criterion used to determine whether
practitioners can register for the list or not is the one that applies in
the case of acupuncturists and naturopaths: the health care profession must
be regulated by at least five provinces. That is a criterion that the
department has publicized in the past, and when associations find that they
satisfy the requirements to become a regulated health care body, they
contact us to say that practitioners association X also wants to be
exempted. Their applications are reviewed, and if the requirements are met,
a recommendation is made to the minister.
Senator Hervieux-Payette: It has to be through one approach or the
other; either the service is reimbursed under the provincial health plan or
some other plan, like the one we, as senators, have. Would you draw the same
Mr. Mercille: No. The principle is to recognize the provinces'
jurisdiction over health, and they are the authorities that determine
whether the service constitutes a health service or not.
Senator Hervieux-Payette: That does not answer my question about
osteopaths and the others.
Mr. Mercille: The answer in the case of osteopaths is no. There is
a long list for physiotherapists, so I will have to check.
Senator Hervieux-Payette: They are going to start lobbying the
government for recognition, because they are no different than other health
Mr. Mercille: Yes, but they do have different specialties, and
sometimes the provinces recognize them as health services and other times,
not. On our end, then, the requirement that has to be met is recognition by
five provinces; the service has to be recognized by more than just one
province. There are audiologists, chiropractors, dieticians, midwives,
occupational therapists, optometrists, osteopaths, pharmacists,
physiotherapists and so forth.
The Chair: Would you like Mr. Mercille to provide us with some
information if there is anything further you need, senator?
Senator Hervieux-Payette: He's just about finished. We're not far
Mr. Mercille: Physical therapists, podiatrists, psychological
associates, psychologists, registered nutritionists, social worker and
speech language pathologists.
Senator Hervieux-Payette: Hospital parking will not be subject to
Mr. Mercille: Parking for patients and visitors. Some rules apply;
an effort was made to limit the measure somewhat so as not to include
Senator Hervieux-Payette: I presume that universities, teachers
and students will now have to pay the GST.
Mr. Mercille: Most of them already did. Some foundations were
Senator Hervieux-Payette: Have parking services used by public
servants always been subject to GST?
Mr. Mercille: Paid parking has always been GST taxable. The only
difference is that, in 1997, a minor change was made, mainly affecting
charitable organizations. In order to simplify things, paid parking operated
by charities was exempted. As a result of that change, some tried using the
measure to get around the rule and provide exempt parking when it should
have been taxable.
Senator Hervieux-Payette: This question does not pertain to a
charity, but in the case of the National Arts Centre, or NAC, is the parking
— which, by the way is very generously funded and I believe the revenue
helps the NAC — subject to GST?
Mr. Mercille: I am not familiar with specific cases, but I do know
about that one. The NAC is a recognized charity, and its parking services
Senator Hervieux-Payette: Thank you.
Senator Bellemare: My question has to do with the GST/HST
registration requirements. Is $30,000 the level of revenue required?
Mr. Mercille: For taxable sales.
Senator Bellemare: A self-employed worker earning $30,000 or more
in revenue has to register. As far as I can remember, the amount has always
been $30,000. Has it ever been adjusted for inflation?
Mr. Mercille: No.
Senator Bellemare: Might it be adjusted at some point, or is it a
Mr. Mercille: Adjusting the amount would be a political decision,
but it has never been indexed, upward or downward. Some people argue that
the rate should be reduced to counter underground work. And others call for
an increase because it has never been indexed. So there are arguments for
and against indexing.
Senator Bellemare: Thank you.
Senator Tkachuk: I notice you have a number of provisions for
criminals and for other matters regarding the CRA or GST and HST. I thought
the philosophy of paying tax is that everybody pays tax. It doesn't matter
if you may not have gotten it from ill-gotten gains; prostitutes pay tax. In
other words, there was a feeling that when you paid tax, that was between
you and the government and nobody else.
It seems that we're using the tax system. It may be just me because I
don't like paying tax — and maybe I'm always suspicious of it — but I think
that we are using the tax system to prosecute people. In other words, when
you say ``criminal activity'' here, in one of these paragraphs, it is not
only proceeds of crime but also other criminal activity. How is that
In other words, are we opening the tax files for police to rummage
through them to see who is being bad? That's what I'm getting at here, in as
frank a way as I can.
Mr. Mercille: You are talking about the measure rated ``serious
offence'' that was made consequential to an income tax amendment. I can give
you an example that was given to us by CRA.
The auditors go to a business and have access to the computer to do their
audit to find the numbers, and whatever. Sometimes they find stuff other
than just the spreadsheet. For example, they could find child pornography.
In the past a question has arisen that what this person has done is
probably wrong. Could I do something with that as a CRA officer? The answer
was no because there is a confidential information provision in the tax
statute to prevent the CRA from sharing that information.
I understand that this trickles down from a commitment between Canada and
the OECD that the CRA would report to the police about the bribery of
foreign officials. From that, the file is looked at to see whether we
provide the capacity to share information for the bribery of a foreign
official or look at serious offences in general where CRA could provide the
information for the police for investigative purposes. It was decided to
choose what we define as ``serious offence.''
Finance doesn't have expertise in criminal law matters, so the offence
that we're choosing, the level of seriousness, is the one that follows the
amendment to the Criminal Code that removed the mandatory jail sentence, or
the offences that led to a mandatory jail sentence or to the removal of
A policy decision was made regarding ``offence of a serious nature'' so
that if CRA had information in that respect, they could share that
information with the police organization so they could do their own
investigation based on that information.
Senator Tkachuk: Just so I am clear, do the auditors make the
decision or do police make requests on certain people for them to ferret out
Mr. Mercille: No, I think it is the first part. It is a random
discovery of information.
Senator Tkachuk: Including proceeds of crime?
Mr. Mercille: There's a long list. In general, it is infractions
where you can be convicted by indictment for at least five years in prison.
Specific offences are listed. There's bribery, money laundering, terrorist
activities, organized crime and those kinds of things.
Senator Tkachuk: Once that's public, why would people file taxes
anyway? This is a great incentive not to file tax; is it not? If a person is
committing criminal activity or not setting up a GST corporation to file GST
and now it is public — that is, while you are filing your regular income
tax, they find out that you should have filed for GST — why would that
person file his tax?
Mr. Mercille: I don't worry about CRA; I don't know their process.
To answer your question, this is what it is intended to address. Nobody will
write in their income tax or GST return ``organized crime.''
Senator Tkachuk: I know.
Mr. Mercille: CRA does audits. They go on a premise sometimes.
They can find all sorts of information on computers. They can see a bunch of
movement of money that is not reported for tax, or whatever, which may lead
them to believe there's money laundering going on, or, as in the simple
example I gave you, if they find child pornography.
This is practice. It is not information that someone sends in a return to
the CRA. Probably many of them don't file their return regularly and they're
caught on an audit on a premise.
Senator Tkachuk: We were told that information that the banks are
sending in on transactions over $10,000 would also be expunged after a
certain number of years. Then we find out in testimony that it never was
expunged. You can see why I have a certain distrust of them now accessing
income tax files. All the information provided hasn't led to a lot of
prosecutions. They're going to be looking for more and more information so
they can justify their existence. This makes me suspicious.
Mr. Mercille: Who will get information? If you are talking about
FINTRAC, they are not going to get information about taxpayers. The
amendment in this part is that there already are, or there will be, reports
provided by FINTRAC to the CRA. Right now, CRA cannot even give feedback. If
they're asked if it is a useful report, CRA could not say anything. They
would have to say, ``No, it is not useful because you didn't include that
taxpayer,'' and things like that.
Senator Tkachuk: They shouldn't have to reveal anything unless
there's evidence. Why would CRA have to reveal information because FINTRAC
sends over information? Unless they have evidence of a crime committed, why
would CRA release that information? Why would they do that to me or to any
other citizen in the country?
Mr. Mercille: The amendment in the tax statutes are consequential
to the overall scheme of the money laundering legislation. I'm not an expert
in money laundering.
Senator Hervieux-Payette: Hopefully.
Mr. Mercille: I work in GST.
Senator Massicotte: We are very concerned about all the
information because, traditionally, when you file your personal income tax
return, the information is shared solely with CRA, end of story. You could
feel confident that the information would not have an impact as far as other
government programs were concerned.
I do realize that, in some instances, it may be necessary to prompt them
to share information with the RCMP or other such organization. You said the
criterion that had to be met to justify sharing information with the police
was the discovery of an offence of a serious or criminal nature?
Mr. Mercille: The legislation contains a list; it is quite
essential because it refers to sections in the Criminal Code. But the agency
does have to show that the information found could give rise to an
investigation, for that type of offence.
Senator Massicotte: Do you know whether the legislation relies
solely on the opinion of a CRA auditor who thinks the information should be
shared? Is there an obligation to create a permanent file in order to
conduct a review two or three years later and determine that the information
is serious, or is it simply referred to the person's supervisor, who sends
the information elsewhere?
Mr. Mercille: I cannot speak to CRA's internal procedures
specifically, but I do have an idea of how it operates because I work with
the agency a lot. Most likely, supervisors conduct a certain level of
review. All sorts of steps have to be followed before the information can be
passed on. CRA officers are penalized for sharing information without
authorization. If I were in their shoes, I would do some serious checks and
reviews before sharing the information.
Senator Massicotte: Back to parking, if I understand the
legislation correctly, hospital parking for clients is not payable. There is
no impact. If it is paid parking, the GST does not apply in that case. Is
Mr. Mercille: If the parking is free, the GST applies to the value
of what you pay to park; whatever rate you apply, zero times zero is still
zero. If it is paid parking, it has to be parking for hospital patients. The
parking facility has to be operated by a charitable organization or a public
service body such as the hospital itself. The first condition to consider is
whether the parking is for employees. And if so, it is taxable. The next
thing to consider is whether the hospital employee pays a lower rate than
patients. If so, it is taxable. In the case of monthly parking passes,
hospital administration has to inquire as to the reason the person is using
the parking and apply the exemption accordingly.
Senator Massicotte: It is okay for visitors. For employees, it
constitutes an advantage of employment and is not okay. How do you manage
that? How do you know whether the parking is being used by an employee or
Mr. Mercille: Every effort was made to establish clear parameters.
For example, if the employee parking lot is full and the employee has to use
the patient parking lot, they will have to pay at the parking booth, so the
exemption applies. It is important to take as practical an approach as
Senator Massicotte: Why have separate parking lots for employees
and the public? If everyone used the same parking lot and you learned that
employees represented 5 per cent of parking clientele, would that
predetermine taxation for all the parking spots?
Mr. Mercille: The parking has to be used mainly by visitors, but
in some cases, parking lots are reserved for employees.
Senator Massicotte: Basically, it has to be 51 per cent?
Mr. Mercille: Yes. The test is based on each accessible parking
lot. It is applied per parking lot, not each spot.
Senator Massicotte: Hospital administrators must be pulling their
hair out. They must see this as a complicated way to collect very little
Mr. Mercille: Nevertheless, it means that parking is exempt
instead of taxable.
The Chair: We will now move to Part 3, the Excise Measures Act,
found in tab C of your briefing binder. Page 48 of the bill makes amendments
to the Excise Act, 2001, the Excise Act other than GST and HST measures and
the Air Travellers Security Charge Act. It also adjusts the domestic rate of
excise duty on tobacco products and eliminates the preferential treatment of
tobacco products available through duty-free markets. We are pleased to
welcome Gervais Coulombe, chief, excise policy, sales tax division, from the
Department of Finance.
Gervais Coulombe, Chief, Excise Policy, Sales Tax Division, Department
of Finance Canada: Honourable senators, I will review with you today the
proposed amendments to Part 3 of Bill C-31, which covers clauses 62 to 90.
Part 3 of the bill introduces legislative amendments with respect to the
federal excise framework. By way of background, Canada's excise framework
comprises several statutes that impose excise duties and taxes on different
products, such as alcohol, tobacco and motor fuels, as well as the Air
Travellers Security Charge, the ATSC, a charge imposed on air travellers to
offset security screening costs.
The main measure introduced in Part 3 relates to tobacco taxation and is
covered by clauses 62 to 73 and 76 to 82. Please let me first outline the
main components of that tobacco measure.
Before the budget, cigarettes were subject to an excise duty of $17 per
carton of 200 cigarettes, or about $2.30 per pack of 25 cigarettes. However,
the domestic rate of excise duty on cigarettes had not effectively changed
since 2002, meaning that the real rate of the excise duty had deteriorated
by about 23.7 per cent.
The first element of the tobacco legislative amendments is to increase
the rate of duty on cigarettes from $17 to $21.03, or about 50 cents per
pack of 25 cigarettes to account for inflation since 2002. Corresponding
increases in the rate of excise duty on other tobacco products, such as
fine-cut tobacco for use in roll-your-own cigarettes, are also proposed. All
these rate adjustments apply as of February 12, 2014. In other words, the
new rates are already in place.
Second, before the budget tobacco products delivered to duty-free shops
were subject to a federal excise duty rate, a duty that was lower than the
duty that applied to tobacco products available domestically, for instance
$15 per carton of 200 cigarettes versus $17. This meant that a carton
enjoyed a $2 preferential treatment federally, because there are other
provincial taxes and sales taxes that apply to tobacco products and are not
charged in duty-free shops.
BI No.1 eliminates this preferential excise duty treatment effective
February 12, 2014. As a result, the excise duty- free rate for cigarettes
increases from $15 to $21.03 per carton, thereby matching the new general
rate for cigarettes.
The third amendment, going forward, in order to ensure tobacco tax rates
retain their real value in the future, the rate will be indexed according to
the Consumer Price Index and automatically adjusted accordingly every five
years, beginning on December 1, 2019.
This bill contains the legislative amendments required to implement that
aspect of the tobacco measure.
Lastly, we are proposing legislative amendments to impose an inventory
tax on cigarettes held by manufacturers and distributors as of February 12,
2014, at a rate equivalent to the proposed increase, so $4.03 per carton of
200 cigarettes. It should be noted that this inventory tax does not apply to
small retailers, meaning those with inventories of less than 30,000
cigarettes — or 150 cartons — as of April 12, 2014. The inventory is always
taken at midnight on the day the budget is tabled.
Budget 2014 also announced that the government will add a new
administrative monetary penalty and amend the existing criminal offence for
the making of false statements or omissions in an excise tax return under
the non-GST/ HST portion of the Excise Tax Act. That portion of the act
imposes excise taxes on, among other things, motor fuels such as gasoline
The proposed legislative amendments that you will find at clauses 83 to
86, 88 and 89 mirror parallel provisions under the GST legislation. They
will provide the Canada Revenue Agency with a new tool to discourage
taxpayers from reporting false information and allow for a broader range of
sanctions that could be more appropriate for a broader spectrum of
circumstances. Further, this proposal will harmonize parallel sanctions for
similar taxpayer non- compliance under the Excise Tax Act, thereby
simplifying the CRA's administration of these provisions. That means the
proposed sanction would be the same as those currently in place under the
For instance, the new excise tax administrative penalty will be the
greater of $250 and 25 per cent of the tax avoided. An administrative
monetary penalty can be applied directly by the CRA. The court does not have
to be involved.
Finally, clauses 74, 75, 87, and 90 implement other measures previously
presented by my colleague Pierre Mercille with respect to Part 2, the rules
of which are mainly found under Part 1 of the legislation. These amendments
are consequential to amendments that are made to the Income Tax Act and the
Excise Tax Act. They're mainly for completeness.
Specifically, subclause 75(1) will allow the CRA to share confidential
information collected under the Excise Act, 2001 to be provided to an
official of FINTRAC, the Financial Transactions and Reports Analysis Centre
of Canada, as Pierre mentioned previously solely for the purpose of giving
feedback to the CRA.
These amendments under subclause 75(2) will also permit the sharing of
information under the Excise Act, 2001, for the purpose of the
administration by the CRA of the so-called OTIP program, the Offshore Tax
The proposed amendment under subclause 75(3) will permit the CRA official
to provide confidential information to a law enforcement officer in limited
circumstances; for example, when the official has reasonable grounds to
believe that the information will have heard evidence of the commission of a
Lastly, clauses 74, 87 and 90 clarify that certain reports that financial
intermediaries will now be required to file with the CRA in relation to
international electronic fund transfers of $100,000 or more could be used
for the purpose of the administration of excise statutes.
In other words, the part of the Excise Tax Act, 2001, that does not deal
with the GST/HST under the excise tax, and the Air Travellers Security
I'm not the expert on these matters because they are mainly driven by
Income Tax Act amendments, which I understand are being studied by another
committee, but we will be happy to answer any questions you have.
Senator Hervieux-Payette: I have two questions about cigarettes.
Could you give me a general idea of what is going to happen, because every
measure to raise the tax on cigarettes is always said to result in a greater
influx of illegal cigarettes through various channels across the country,
Mohawk vendors, in particular. Are steps being taken to ensure that what is
not sold on one end does not wind up being sold at a substantial discount by
the criminal underworld?
Mr. Coulombe: Thank you very much for that question. I would refer
you to the budget; I am not sure whether you have it with you or not.
Senator Hervieux-Payette: It is back at my office.
Mr. Coulombe: In Budget 2014, amounts totalling $91 million or $92
million over the next five years were earmarked for the RCMP, precisely so
that it could beef up its efforts to tackle contraband tobacco sales. The
proposed increase basically reflects an adjustment for inflation, which
brings the real rate back to 2002 levels, were it based on a percentage. So
we are talking about a reasonable increase. Since the government is giving
the RCMP more resources to fight contraband activities, an influx in illicit
sales, like the one observed in the 1990s, is not anticipated.
Senator Hervieux-Payette: With respect to the retroactively dated
inventory you mentioned and the $4.03 per carton, how are you able to ensure
that companies are telling the truth about the inventory they held at that
point in time?
Mr. Coulombe: When it comes to cigarette manufacturers, CRA
already has a monitoring system and extensive controls in place. The agency
is also taking other steps. New forms are being used, as well as field check
programs. This is not the first time an inventory tax has been implemented.
The country's big cigarette makers normally have no problem figuring out
exactly how much inventory they had at a given point in the day, and CRA has
access to all their records.
Senator Hervieux-Payette: They will send us a cheque and then pass
the increase on to retailers; it is almost automatic.
Mr. Coulombe: The point of an inventory tax is to make sure the
government receives its cut. Otherwise, the retail price would still go up
regardless of the product being taxed at a lower rate. Keep in mind that the
excise tax is imposed at the production stage, not at the point of final
sale, hence the reason it is called an inventory tax. All cigarette
inventories held up until midnight on the day the budget was tabled were
taxed at the rate of $17 per carton. From midnight on, any cigarettes that
are manufactured or imported are taxed at a rate of $21.04. The federal
government would lose money without an inventory tax. It is one of the
mechanisms in place to ensure that the government receives everything it is
owed and reaches the $3.3-billion target over 6 years.
Senator Hervieux-Payette: Are you the right person to ask about
the informant program? How does one go about being an informant? I would
like to understand how the process works.
If I happen to find out that someone is hiding a huge amount of money
overseas, I will report it to you right away. But first I would like to know
what happens as far as protecting the informant goes. For instance, if the
informant is a neighbour, that will make for a very shaky relationship. How
does it work? Is there a telephone number? Does the informant have to fill
out a form? What is the process?
Mr. Mercille: I will start by repeating what I said initially: the
changes to the program, whether in part 2 or 3, were introduced to create a
comprehensive program by way of tax legislation. It is mainly an income
In the case of an individual with offshore investments and unreported
income, there is no GST impact. No GST transaction applies. The same goes in
the case of excise tax; there is no impact.
But in the case of an individual who has unreported income in Canada and
who transfers money overseas, there could be a link at that point. When
taxable sales are not reported and are transferred overseas, a link is
All that to say that it is more uncommon; this is more of a taxation
But it is also an administrative program for the agency, so its people
would be the best ones to ask. On January 15, 2014, CRA put out a
publication explaining all about how the measure works. A telephone line is
indeed in place. The other important thing to remember is that the situation
has to involve a substantial amount of money, at least $100,000 in taxes to
Some cases in countries such as the United States and Germany have led to
significant amounts being recovered.
Generally speaking, it works as follows: the person contacts CRA and
passes on the information; CRA performs its audits and checks and enters
into an agreement, if necessary. It will draw up a contract and determine
how much the informant will receive in compensation. My understanding is
that it can range from 5 per cent to 15 per cent of the amount recovered.
That can take a lot of time, however, because all the court proceedings have
to be completed first.
It is not yet in force. I believe it will be in 2015. You will find a lot
of information in the publication CRA put out on January 15, 2014.
Senator Hervieux-Payette: I do not remember receiving that
publication at my office. Could we get a copy?
The Chair: Yes.
Senator Bellemare: My question is for Mr. Mercille. We talked
about the threshold for GST registration. In some cases, the amount makes
the government money. In other cases, those who are following the
committee's proceedings might think the government would lose money if the
amount were indexed. Are there any standards? Why are some amounts indexed,
but not others?
Are amounts indexed only in cases where it benefits the government?
Mr. Mercille: I am not sure my answer will help you much. I think
it is determined on a case-by-case basis, and at the end of the day, it
reflects a political decision one way or the other. The minister is the one
who decides to index certain thresholds and not others.
Senator Bellemare: For a self-employed worker, the red tape
surrounding GST registration can be complicated and discouraging. Thirty
thousand dollars today is not what it was 20 years ago.
Mr. Mercille: It is important to understand that, when the GST was
introduced, a threshold of $30,000 may have been considered generous, so as
to keep the cost of transitioning more manageable. So the $30,000-threshold
for small suppliers benefits those at the $29,000 mark, in contrast with
those at the $31,000 mark.
Senator Bellemare: Please explain it to us.
Mr. Mercille: The difference is that the person with $31,000 in
annual taxable sales has to charge tax on their supplies. In Ontario, the
difference is 13 per cent.
Senator Bellemare: It has to be indexed, then?
Mr. Mercille: You would still have to be careful. If the threshold
were at $50,000, there would always be someone at $49,000 and someone else
Senator Massicotte: As I understand it, a small to medium-sized
business with less than $30,000 in revenues does not have to include tax in
their price and is therefore not eligible to receive a GST rebate on the
supplies they purchase.
Mr. Mercille: No. That is a choice, since an individual can still
decide to register to take advantage of the input tax credit. If your
clients are companies and you charge them taxes, nothing changes. They will
claim that in input tax credits. It is beneficial for people to register,
even if they are under the $30,000 threshold, since the input tax will be
Senator Massicotte: The benefit is not very significant. A company
whose profit is from 5 per cent to 10 per cent is doing fairly well. GST is
charged only on the 5 per cent to 10 per cent difference. The company will
not charge $30,000. It will charge $30,000 plus the tax it will pay and not
obtain a refund for. The benefit is very small.
Mr. Mercille: To register?
Senator Massicotte: Yes. You are saying registering provides a
significant advantage. On the contrary.
Mr. Mercille: You also have to consider the supplier threshold
that applies. I understand that some consultants may make less than $30,000,
but some people only work on the weekend. They spend that time buying and
selling items. If they make a purchase and pay the tax, and they resell the
item in Ontario, an additional 13 per cent on the purchase price makes a
difference. It always depends on who the client is. The client will incur
the cost, but they will not want to pay it. If the client is a company, they
will not mind.
Senator Black: Thank you very much to you both. I have a
straightforward question, but it does disclose a bias. There is an undoubted
connection between health care costs and cigarette consumption. My question
to you is: Why is the increase in the price of cigarettes only limited to
inflation? Why is there not a greater punitive assessment applied?
Mr. Coulombe: I would say that, as for any tax increase,
ultimately, it's a political decision.
Senator Black: I expected that answer, but I wanted the record to
The Chair: Thank you very much, Mr. Coulombe. And, again, Mr.
Mercille, thank you very much for helping us through this part.
We are now moving to Part 4, the Custom Tariffs Act, tab D in your
briefing binder, page 71 of the bill, which amends the custom tariffs,
reduces rates of duty on items related to mobile offshore drilling units
used in oil and gas exploration and development.
For a presentation, we have Dean Beyea, Director, International Trade
Policy from the Department of Finance Canada, and Patrick Halley, Senior
Chief, International Trade Policy. The floor is yours, sir.
Dean Beyea, Director, International Trade Policy, Department of
Finance Canada: Thank you, Mr. Chair. There are really three components
to these amendments. I will talk to each briefly and then take any
The first is a clarification of the tariff classification of certain
imported food products covered under Canada's supply managed agriculture
system. This clarification addresses a gap whereby certain imported goods
were packaged in a deliberate manner solely to circumvent Canada's tariff
structure, specifically the high supply managed goods tariff.
The second change permanently eliminates the 20 per cent most favoured
nation duty rate on mobile offshore drilling units, or MODUs, used in
offshore oil and gas exploration and development. The duty free status of
these units, which was scheduled to expire in 2014, lowers business costs,
improves the global competitiveness of Canadian energy products and
increases the potential for valuable resource discoveries in Canada's
Atlantic and Arctic offshore areas.
The final component eliminates a special tariff exemption for the
Governor General. However, to ensure the continued tariff-free treatment of
representational gifts given to the Governor General, the Governor General
will now receive the same tariff treatment as other public office-holders,
including members of Parliament, senators, provincial premiers and municipal
That's a brief overview of the three. I'm happy to take your questions.
Senator Tkachuk: I have a question on supply management. Just
explain that a little more to me. I didn't quite get what you meant by that.
Mr. Beyea: The supply management tariffs are quite high, as they
restrict imports. There is a kind of an ongoing dynamic where there are
products that are put together in a means to get a tariff classification
that falls outside of supply management where you wouldn't be subject to — I
think it's a 245 per cent tariff in this case. All this does is clarify. In
this case, it was a good for pizza toppings where there was a big bag of
cheese coming in with wax paper and a big bag of pepperoni, and it was being
classified as a food product rather than cheese and pepperoni, so this
clarifies that that won't happen again in that instance.
Senator Tkachuk: You closed that and put that product in, or are
there other products? I had heard something about somebody doing something
similar with yogourt.
Mr. Beyea: This specifically addresses that issue. Products
containing cheese will be classified as cheese and whatever other component.
Senator Tkachuk: Thank you.
Senator Bellemare: I would like to come back to this clarification
of the tariff classification of certain imported food products. If my
understanding is right, you are not changing the rate, but only the
classification. I just wanted to confirm that.
Mr. Beyea: Yes.
The Chair: Is that sufficient, Senator Bellemare? I think we're
happy. It was very succinct, very direct and very clear. Thank you very
We now have quite a group joining us. We're on Part 6, Division 2, Bank
of Canada Act and Canada Deposit Insurance Corporation Act. We're on tab F2
in your briefing binders, page 88 of the bill. This authorizes the Bank of
Canada to provide banking and custodial services to the Canada Deposit
To discuss this with us, we have Mr. Kevin Wright, Chief, Financial
Markets Division; Mr. Rob Turnbull, Special Counsel, Financial System, Bank
of Canada; and Mr. Mark Maltais, Director, Treasury and Investment
Management, Canada Deposit Insurance Corporation.
Please go ahead, Mr. Wright.
Kevin Wright, Chief, Financial Markets Division, Department of Finance
Canada: Thank you, Mr. Chair and honourable senators. Hopefully this
will be a fairly straightforward explanation for you.
This is a measure that was announced in Economic Action Plan 2014, found
at page 133. The proposed amendment will basically allow the Bank of Canada
to provide banking and custodial services to the Canada Deposit Insurance
By way of background, CDIC maintains a fund to cover potential deposit
insurance losses. That fund is currently at around $2.7 billion. Current
custodial services and banking arrangements related to it are provided
through private- sector financial institutions. This poses some challenges.
In particular, should CDIC be required — for example, in the case of a
troubled financial institution to access the funds — there is a risk that
activity will signal to markets and institutions that there's a problem out
This division proposes to allow for the custodial and banking
arrangements with respect to that fund to be managed by the Bank of Canada.
The Bank of Canada already has authority to provide those types of services
to other central banks and central international financial organizations.
In order to make this change, there are two legislative changes that are
required, and they're in Bill C-31. The first is a change to the Bank of
Canada Act to give the Bank of Canada the authority to act as a custodian in
the case of Canada Deposit Insurance Corporation. The other one is with
respect to the Canada Deposit Insurance Corporation Act. There is already
provision contemplating the Bank of Canada providing banking services to
CDIC or Canada Deposit Insurance Corporation. This provision would allow for
the payment of interest on monies deposited to the Bank of Canada.
I will stop there, Mr. Chair, and we are more than happy to answer any
Senator Massicotte: Mr. Turnbull, you can help me. Obviously, this
is normally beyond the scope of Bank of Canada. In this case, you will be
managing somebody else's funds, which expects them — within a certain risk
parameter it seems to maximize the return for obviously its own interests.
But often the Bank of Canada is managing a lot of funds, but profit
optimization is not its principal objective; it is more security of capital,
and having access to capital when you need it for whatever monetary policy
the bank wants to do.
How would you manage that? You are not investment counsellors; you are
not investment fund managers. How do you do that?
Rob Turnbull, Special Counsel, Financial System, Bank of Canada:
That's a very good question. When we say at the Bank of Canada with this new
power in the amendment we will act as custodian of these assets and also
take on deposit the funds part of the assets, we will not play the role of
any kind of investment adviser with respect to those assets. As custodian,
the bank will simply act on the instructions of CDIC, and it is up to them.
They may receive external investment advice as to how to actually manage the
fund, but the Bank of Canada, for this purpose, will play a fairly passive
Senator Massicotte: Simply custodial — like a trust, effectively?
Mr. Turnbull: That's correct; like an agent or custodian.
Senator Massicotte: Let me go back to the objective of the
amendments. What is gained here? You said earlier that nobody can track your
debits and credits — what money is taken out — but I presume you will
probably employ a third-party fund manager to advise you how to invest the
Mark Maltais, Director, Treasury and Investment Management, Canada
Deposit Insurance Corporation: We make investment decisions ourselves;
we have a group that looks after that. In the event we need to prepare for
an intervention or a crisis, we will — if the funds are within the banking
sector, which are our member institutions, and we take any action with those
funds, it becomes readily apparent to them that we're preparing for some
sort of intervention.
Moving the custodial relationships to the bank permits us to accumulate
funds outside of the banking sector so that this signaling impact doesn't
occur. Also, if we need to get liquidity from our fund, it provides a
short-term mechanism in which to do that.
Senator Massicotte: You are not trying to save money here.
Mr. Maltais: No.
Senator Massicotte: Because the custodial fees are nominal.
Mr. Maltais: They are at commercially reasonable rates.
Senator Massicotte: Which is what, approximately?
Mr. Maltais: I can't recall off the top of my head. It is based on
total holdings, and it is 50 basis points per 100 million.
Senator Massicotte: All you are trying to avoid is giving a signal
to your potential clients, if you wish — you could have deposits with
clients — you are avoiding giving a signal to the marketplace or those
parties that maybe something is brewing or some difficulty is impending?
Mr. Maltais: One of CDIC's legislated objectives is to contribute
to financial stability. Making these arrangements really does that. It
provides the ability to prepare for a crisis without causing collateral
concerns in the marketplace.
Senator Massicotte: And your banking clients who would normally
hold these funds don't have an obligation to confidentiality? You don't
Mr. Maltais: They do have an obligation for confidentiality.
Trading floors are open areas, and when trades take place, it is common —
individual traders are not in enclosed areas, so things can be overheard on
those trading floors.
Senator Bellemare: My question is somewhat outside the scope of
the proposed amendments. I would just like to understand something. Could
the Canada Deposit Insurance Corporation have intervened in the 2007
domestic crisis regarding non-bank asset-backed commercial paper? Did you
have any sort of involvement in that whole asset securitization crisis?
Mr. Maltais: Non-bank asset-backed commercial paper? That product
is not an insured product from Canada Deposit Insurance Corporation's
Senator Tkachuk: Just on the Deposit Insurance Fund, does this
give you the right to put it in or the right for the money to be deposited
to the Bank of Canada rather than with private insurance? That doesn't mean
they will, or does it mean that they will?
Mr. Maltais: The fund itself is invested in Government of Canada
and provincial debt securities. Custodial arrangement is really an
arrangement, like a trust arrangement, whereby CDIC would maintain ownership
of the individual securities. The bank would simply hold them for us.
Senator Tkachuk: Is that what happens now with the private bank?
Mr. Maltais: Yes.
Senator Tkachuk: Just in case one of the private banks is in
trouble where they're holding it, right?
Mr. Maltais: That's right. As I mentioned, it avoids the signaling
component of taking any sort of preliminary or advance action.
Senator Bellemare: I have another question that goes somewhat
beyond the scope of the proposed amendments, but it is related to a study we
are doing on bitcoins. The following paragraph drew my attention: ``The Bank
of Canada currently provides some banking and custodial services to foreign
central banks...''. So we are talking about foreign currency here. In our
study, some bitcoin stakeholders asked that the regulations be applied to
foreign currencies. What would the bitcoin gain if the regulations were
Would that mean bitcoin producers could obtain a guarantee under the
Canadian Deposit Insurance Corporation?
The Chair: I'm not sure this is within the scope of the discussion
we are having today. If you do wish to comment, fine, but it is a little
outside of what the purpose of today's meeting is.
Mr. Wright: The type of services that might be offered for foreign
financial wouldn't really affect individual companies or private firms that
engage in purchasing or trading with bitcoin. But I will let Rob respond.
Mr. Turnbull: Currently, the Bank of Canada, as we said, provides
custodial and some banking services for other central banks and also for
certain international financial institutions like the International Monetary
Fund. It's limited to Canadian dollars, so we will take deposits of Canadian
dollars from those institutions and Canadian dollar denominated securities.
We do not hold foreign currencies for financial institutions or other
The Chair: Gentlemen, that concludes our questions. We greatly
appreciate your appearance today. Thank you.
We are now on Part 6, Division 3, the Hazardous Products Act. It's at Tab
F3 in your briefing binder, page 88 of the bill. It will amend the Hazardous
Products Act to better regulate the sale and importation of hazardous
To discuss this with us, from Health Canada, we have Suzy McDonald,
Director General, Workplace Hazardous Materials Directorate; Jason Wood,
Director, Policy and Program Development, Workplace Hazardous Materials
Directorate; and John Morales, Legal Counsel, Legal Services Unit.
Ms. McDonald, I understand you have some opening remarks.
Senator Massicotte: This is part of the budget bill?
The Chair: This is part of the budget bill, absolutely. It is all
Ms. McDonald, please proceed.
Suzy McDonald, Director General, Workplace Hazardous Materials
Directorate, Health Canada: Thank you for having us here this morning.
I'm here to provide an overview on Division 3, Part 6 of Bill C-31. These
provisions would amend the Hazardous Products Act, the Canada Labour Code
and the Hazardous Materials Information Review Act in order to implement the
Canada-U.S. Regulatory Cooperation Council commitment on workplace
chemicals, clauses 110 to 161.
In Canada, worker protection is enhanced by making available critical
safety information. This system, referred to as the Workplace Hazardous
Materials Information System, better known as WHMIS, has been in place since
The WHMIS has three components: product labels, detailed hazard
information in the form of safety data sheets, and worker training. The
proposed legislative changes cover only the first two elements of the WHMIS
program, that being product labels and safety data sheets.
WHMIS requires anyone who sells or imports a hazardous chemical for use
in the workplace to label the product and to provide a safety data sheet.
This information informs workers about the hazards associated with the
product and provides information on how to handle these products safely. For
example, for a product that's flammable, workers would be warned to keep the
product away from heat, sparks and open flame.
The proposed changes allow Canada to adopt the internationally
agreed-upon system for workplace chemicals known as the Globally Harmonized
System of Classification and Labelling of Chemicals, or GHS for short. The
U.S. has already adopted the GHS.
The majority of changes within this proposal are related to the Hazardous
Products Act, proposed amendments to the Canada Labour Code and to the
Hazardous Materials Information Review Act and are consequential in nature.
Within the Hazardous Products Act, we're making the following changes to
three key areas. With respect to definitions and terminology, these changes
are to use the international standard or the GHS standard, as well as to
bring clarity to terms to facilitate the interpretation of the act.
With respect to changes to the regulatory authorities, these changes
allow, for example, the creation of the hazard classes we need to adopt the
Changes to compliance and enforcement are also being proposed to bring
the Hazardous Products Act into line with more modern legislation. These are
changes such as updating inspection authorities; for example, the removal of
samples free of charge. Maintaining documents related to workplace chemicals
and the ability to order companies to conduct tests. This will help us to
verify compliance; for example, whether or not the product has been
classified in the appropriate category. Ability to order companies to take
corrective measures; for example, make changes to the label to more
accurately reflect the hazards; and updating penalties, which have not been
updated since WHMIS came into force in 1988.
There are two other proposed changes that I would like to explain. The
first is around what we call excluded sectors. There are currently certain
sectors or products that are excluded from the application of the Hazardous
Products Act. However, they're covered in many other jurisdictions,
including the United States.
We are proposing that eight of these excluded sectors — including
consumer products, pesticides, drugs, medical devices, cosmetics, food,
explosives, wood and wood products — be moved from the body of the
legislation to a schedule to the act.
There is no immediate change for these sectors. However, in the future,
these sectors could be brought under the Hazardous Products Act through a
full regulatory process, including full consultation and pre-publication in
the Canada Gazette.
Finally, the bill provides provisions to allow suppliers time to
transition to WHMIS after GHS. Simply put, there will be a period of time
where labels and safety data sheets that comply with the current system will
continue to be accepted, and both the new and old system will exist at the
same time. This is to allow sufficient time to transition to the system.
I would be happy to answer any questions you have about the WHMIS system
or about the proposed changes to implement the GHS and the international
Senator Tkachuk: Under the appendix, what food is placed under the
Hazardous Products Act?
Ms. McDonald: Currently, those sectors are excluded. What is
listed is anything under the definition of the Food and Drugs Act. If you
are included under the scope or application of the Food and Drugs Act, you
are currently excluded from the application of the Hazardous Products Act.
That would include a series of foods from flour and sugar, the basics, but
those are currently excluded from the system.
Senator Tkachuk: So let me get this right. The stuff that is in
the Food and Drugs Act is not presently under the Hazardous Products Act,
but someone wants to be able to take food from the Food and Drugs Act and
place it under the Hazardous Products Act?
Ms. McDonald: Correct.
Senator Tkachuk: What would that be?
Ms. McDonald: One example would be flour.
Senator Tkachuk: Really?
Ms. McDonald: If you use flour, from a consumer perspective,
there's no problem. However, flour can be a combustible dust, so it could
explode in the workplace. We wouldn't necessarily label the flour to say
``this is a workplace chemical.'' What we would do is provide a safety data
sheet, for example, to inform workers that flour could explode.
Another example would be nuts or nut products that could create skin
sensitization in people who work with it all the time. If you are handling
those products on a regular basis, you might be exposed or become more
sensitized to them. Those are the kinds of things.
Senator Tkachuk: But aren't those things covered under the Food
and Drugs Act, as far as nuts and stuff like that? What I'm concerned about
is food police, right? Or this being used to prevent imports from coming in
or other nefarious things that governments and bureaucrats often think about
when, really, it seems to me putting food under the Hazardous Products Act
is a stretch, especially under an appendix where nobody sees it. Someone
will just do it, right? How does it happen? Is there a regulation? Is there
deputy minister approval? How does that happen?
Ms. McDonald: Right. This is part of the reason why we have chosen
not to bring them under the Hazardous Products Act immediately but to move
them to a schedule. As I said, they're currently regulated in other
jurisdictions, such as the United States.
By moving them to the schedule, it essentially allows us the opportunity
to have a full consultation with, for example, the food sector to determine
whether or not it should be brought under the Hazardous Products Act, under
what kind of conditions, and then in order to do that we would have to do it
through an order-in-council. The Governor-in-Council has the authority to do
that. Again, that's through a full regulatory process.
Senator Tkachuk: I don't like it but I'm good.
Jason Wood, Director, Policy and Program Development, Workplace
Hazardous Materials Directorate, Health Canada: It might be worth
adding, about the WHMIS system itself, it's not a pre-market regime where
products would be restricted from the market. It's really about
communicating accurate information about the products themselves.
If any of the excluded sectors were to be brought under the WHMIS system,
the important information about the hazards associated with the products
would be required. There wouldn't be any issue of restricting access to any
of those products.
Senator Tkachuk: Can't you do that now under the Food and Drugs
Ms. McDonald: The Food and Drugs Act would continue to apply.
We're not recommending that food safety be regulated under the Hazardous
Products Act. It would continue to be under the Food and Drugs Act.
Senator Bellemare: I have two short questions that are related.
The globally harmonized system of classification and labelling has been
mentioned. It is said that this is an international system and the idea is
to harmonize with the United States, but other countries are also involved.
Can you tell me a bit more about this global system and its origin? In other
words, I would like to know how it was developed and with which countries.
Ms. McDonald: Thank you for the question. I will answer in English
if that is okay with you.
Ms. McDonald: The system is essentially a UN system. It was
developed under the auspices of the United Nations. Canada was one of the
key players in the development of this international system called the GHS
and it was developed in collaboration with a number of other countries. As
we noted in the overview, it is already in place in a series of other
countries, including the United States, European Union, China, Korea and
Australia. It is the standard to which most countries are currently
Senator Bellemare: So it is not only the United States.
Ms. McDonald: Not at all.
Senator Bellemare: We know that occupational health and safety
come under provincial jurisdiction, and employers must provide their
employees with training on hazardous materials. Will the provinces have a
say in this? What is their role?
Ms. McDonald: Absolutely. This is a series of federal, territorial
and provincial laws and regulations. We created a management committee once
the system was implemented. That committee includes provinces and
territories, as well as industry, employers and workers. Since the beginning
of this project, we have implemented a work plan with the provinces and
territories, and that plan has been reviewed and approved by the deputy
ministers of each province and territory. The management group has also done
a lot of work in terms of legislation and regulations, and that work is also
been reviewed and approved.
Senator Bellemare: So the system will work with WHMIS.
Ms. McDonald: This is simply a new way to work on WHMIS.
Senator Campbell: I would like to go back to the flour, nuts and
things like that. I have some knowledge with regard to explosions and I have
to tell you if you grind anything fine enough, toss in a spark, it will
explode. I have no idea what this is doing in this bill. If it is an issue,
which I don't think it is, why wouldn't it be under labour, workplace safety
or something like that? It makes no sense to me.
Coming from the United Nations, of course, that just adds to the dismay
that I have on this. It seems to me like we're going into areas that have no
real import to Canada. The only explosion I know of in Canada that involved
anything to do with flour was a grain terminal in Vancouver. Who will this
Ms. McDonald: Let me start by saying that the WHMIS system is a
national system that is put in place between both the federal government and
the provinces and territories. Under that system, the Hazardous Products Act
lays out the requirements for suppliers to classify their products and to
label them and provide the safety data sheet. Provinces and territories then
have the requirement to provide training on those hazardous products in
their own workplaces.
With respect to the excluded sectors, as my colleague Jason noted, we've
moved them to a schedule because there are worker health and safety concerns
that have been raised by our provincial and territorial counterparts, as
well as by workers, where providing the important safety information with
regard to some of these products would bring additional benefit to workers.
With regard to the overall GHS system and the benefit for workers, we
already have a very strong system in place in Canada. The GHS covers a
broader range of products for Canadian workers, and what it does essentially
is standardize the way this information is portrayed so that workers have
easier access to information on the dangers of handling these chemicals.
Senator Campbell: Hold on a minute here; flour is not a chemical.
Ms. McDonald: Just to be clear, flour is currently not under the
scope of the Hazardous Products Act. Those are the items that have been
moved to a schedule to allow us to do additional research to determine
whether or not they should be brought under the scope of the Hazardous
Senator Campbell: How about if we just do a study to find out if
any of this is germane, if any of this makes any sense? How many people in
Canada work in the flour industry?
Ms. McDonald: Workers in Canada that will have received training
under the WHMIS program is about 13.2 million. Those Canadians are impacted.
Senator Campbell: On flour?
Ms. McDonald: Not on flour. I'm speaking about the Hazardous
Products Act writ large.
Senator Campbell: We're talking about flour and hazardous
products. You brought it here. I didn't bring it here. I'm saying to you
that if there are people out there that think that flour is a hazardous
substance, they have a problem.
Here we are discussing this and spending valuable time in a bill that's
supposed to be doing something about the economy and the budget. We're into
minutia that from my point of view should not be in this bill and makes
absolutely no sense to the workers.
Ms. McDonald: Bringing the GHS into effect in Canada will provide
benefits to Canadian industry of over $400 million over a 20-year period. It
will also, over a 20-year period, provide savings in the amount of $200
million in terms of worker health and safety — lost days at work, worker
deaths and worker injuries.
Senator Campbell: Would you please send this committee a breakdown
of these $400 million and $200 million in some detail so that I can
I want to make it clear: I'm frustrated but I'm not frustrated at you. I
think you guys are doing a great job and trying to sell this is more than I
would have been able to do. I apologize if it seems like I'm angry at you;
I'm not. I am angry at the fact that we're wasting our time on an issue that
I don't see as having any great import. If you would send that to us before
the bill comes back to us for final approval I would really appreciate that.
Ms. McDonald: We have developed a full cost benefit analysis
because one is required for the regulatory proposal, and we can provide
additional detail on how that cost benefit analysis was arrived at and what
the overall benefits to industry are, as well as to Canadian workers, as
well as to reducing the trade barriers between Canada and the United States
with regard to those chemicals.
Senator Campbell: That would be wonderful. Thank you so much.
The Chair: Thank you, senator, for your insightful question.
Ms. McDonald, if you would be good enough to forward that to the clerk
she will see that it is provided to all members of the committee.
With that our questions are concluded. Thank you very much.
Page 131 of the bill — this is to give a little more incentive to the
activity of our members — amends the Importation of Intoxicating Liquors Act
to authorize individuals to transport beer and spirits from one province to
another for their personal consumption. We have before us Mr. Brian
McCauley, Assistant Commissioner, Legislative Policy and Regulatory Affairs
Branch, from the Canada Revenue Agency.
Brian McCauley, Assistant Commissioner, Legislative Policy and
Regulatory Affairs Branch, Canada Revenue Agency: Thank you, Mr. Chair.
I did not bring samples.
To be succinct, the statute, the Importation of Intoxicating Liquors Act,
is a 1928 post-prohibition statute that was put in place to help to
establish the legal framework within which both the federal government and
the provincial governments managed the movement of alcohol products both
into the country and between provinces. After a review by the House
Agriculture and Agri-Food Committee that reported in May of 2013, I believe,
and then a commitment in the Speech from the Throne, the bill suggests that
the act would be changed, which would mirror a change that this committee
looked at a couple of years ago that was done for wine. You may recall that.
It's simply the very same change that would allow individuals, for personal
consumption, to bring either beer or spirits from one province to another.
The way the IILA is currently written, there is a legal federal
impediment to do that. The bill removes that legal federal impediment, but
it does not affect the structure that the provinces have in place. So the
provinces would have to subsequently make an adjustment within their
regimes, as B.C., for example, has done in the case of wine, to put in
whatever conditions or limits they might want to put in place, whether it
has to be on your person or whether you can order them over the Internet or
whatever. So that's basically what the clause does. I'll stop there, Mr.
Senator Massicotte: I appreciate the legislation. I support it
fully. As you know, many provinces still have major impediments. They
haven't amended their legislation. To make it really useful, has there been
any progress in getting the provinces to change their legislation?
Mr. McCauley: Probably the best incentive is for Canadians to
express their interest to the provinces in terms of their wanting to have a
choice in the marketplace. The legislative changes around wine and certainly
now around beer and spirits will certainly make the federal government's
position very clear, and I think that's probably as far as we, as the
regulator, can go. If this is passed, we will provide information and
bulletins to provincial authorities and to the liquor licence boards and
others to make sure that they fully understand that there are no more
federal restrictions in place, and that's where we would stop.
Senator Massicotte: Thank you.
The Chair: Mr. McCauley, you're done. It was very clear. Everybody
understood it. Thank you, Mr. McCauley.
We are now in Part 6, Division 8, Customs Act, which is tab F-8 in your
briefing binder. Page 134 of the bill amends the Customs Act to extend to 90
days the time for making a request for a review of a seizure, forfeiture or
penalty assessment and to provide that a request for a review and third
party claims can be made directly to the Minister of Public Safety and
Emergency Preparedness. To discuss this with us is Ms. Tammy Branch, General
Director, Canada Border Services Agency.
Tammy Branch, General Director, Canada Border Services Agency:
Thank you very much, Mr. Chair and committee members. My name is Tammy
Branch. I'm Director General of the Recourse Program for the Canada Border
Services Agency, and I'm pleased to be here with you to brief you on
Division 8 of Part 6 of the Budget Implementation Act. As the chair
mentioned, these are legislative amendments to the Customs Act, and they
will have a positive impact on the operations of the Recourse Program of the
agency but also on our clients.
Just to give a very short context, the Recourse Program provides the
business community and individuals with an accessible mechanism to seek a
review of enforcement actions or program decisions that are taken by the
CBSA. The program ensures decisions are fair, transparent and accurately
reflect the agency's policies and acts administered by the CBSA.
There are two changes included in Division 8. As mentioned, the first is
to extend the period of time that a correction of an enforcement action can
be made from 30 days to 90 days. A cancellation or correction can be made at
the port of entry if it is discovered that the CBSA made an error on an
enforcement action. It is a less burdensome process, to both the agency and
the client, than an appeal, which is a prescribed and involved process. This
amendment will save time and be more efficient in correcting errors that all
parties agree should be corrected.
The second amendment is to ease the application procedure for an appeal.
A traveller or business may submit an appeal directly to the Recourse
Program, rather than having to file it with the port of entry where the
infraction took place, which is the specificity that is now in the Customs
Act. This will allow us to receive appeals directly. It will also allow us
to receive appeals electronically, which will make our service more
accessible to clients and allow us to serve our clients in a more timely
The same amendment is included for third party claims, those to whom the
goods belong but who are not the recipient of the enforcement action. A good
example of that is a rental car company whose vehicle may have been seized
as part of an enforcement action against that driver. Thank you for your
time. That sums it up. It is fairly straightforward, I believe, but I'm
happy to answer any of your questions.
The Chair: Thank you, Ms. Branch. Are there any questions?
Senator Bellemare: Are the amendments to the Customs Act related
to the amendments to the Proceeds of Crime (Money Laundering) and Terrorist
Ms. Branch: The CBSA administers a number of different acts. The
Customs Act, of course, is one of those, but we are also responsible for the
seizure of currency, for example, under the Proceeds of Crime (Money
Laundering) and Terrorist Financing Act, at the border. A number of these
changes to the Customs Act are similar to changes that we are proposing to
make to the Proceeds of Crime (Money Laundering) and Terrorist Financing
Senator Massicotte: I was going to ask if the import of flour is
The Chair: Thank you, Ms. Branch.
Ms. Branch: Thank you very much.
The Chair: Part 6, Division 13, the Bank Act, tab F-13 in your
briefing binder. Page 144 of the bill amends the Bank Act to add regulation
making powers respecting a bank's activities in relation to derivatives and
benchmarks. From the Department of Finance, we welcome Mr. David Smith,
Senior Chief, Capital Markets Policy.
David Smith, Senior Chief, Capital Markets Policy, Department of
Finance Canada: Thank you, Mr. Chair and senators. As to the two
proposed amendments, under clause 211 of the Budget Implementation Act, in
the first case, for over-the-counter derivatives, the government has been
doing work, over the last several years, to implement our G20 commitments
around OTC derivatives and other financial reform. This would permit the
Governor-in-Council to bring forward regulations, if necessary, for any
other changes. Banks are the largest players in this field for Canada, and
the primary players.
On benchmarks, more recently, with the allegations around potential
manipulation of LIBOR in the United Kingdom, international regulators have
endorsed principles to strengthen the oversight of benchmarks.
This is a matter that is in its infancy, and all the international
standards are being finalized. As such, the other proposal would be to add a
regulation-making authority to govern banks, how they submit data and what
they submit in the creation of benchmarks, to make sure we can stay abreast
of any international commitments that would come forward.
I'm happy to take any questions you might have.
Senator Massicotte: I assume this amendment proposed to the
existing legislation is in response to the 2007-08 experience. When
discussing all these contracts, we no longer knew who should be doing what,
nor did we know the consequences for the banking system or the objective of
having a central registry to ensure that everything would remain solvent.
What is this amendment's objective? Was this amendment proposed in response
to what I just mentioned?
Mr. Smith: That is the objective. In 2012, we brought forward
amendments to facilitate central planning of derivatives and LCH out of the
U.K. was recently designated by the Bank of Canada as a systemically
important clearing house for derivative transactions. Most recently, the
provinces have brought forward some requirements with regard to the
reporting of trades and bringing about clarity on, if you will, who the
counterpart of each other is to make the market more transparent.
Senator Massicotte: All those regulations will force the players
involved to trade through that central registry to ensure ongoing
Mr. Smith: The Office of the Superintendent of Financial
Institutions has guidelines around banks' derivative activities, and last
year they put forward their expectations that, where a central counterparty
accepts a derivative for clearing, the banks would clear it.
Internationally, generally, the major players are that way. With respect to
end users, it's a little bit different, for example, with foreign exchange
transactions. A lot them aren't accepted by central counterparties because
they are not consistent enough. Everyone is different. As a result, they are
exempted from central clearing requirements internationally. In part, a lot
of them are used by end users, small businesses, where the cost of having to
post collateral to a central counterparty would cost more than the actual
amount of insurance that they're getting from doing a financial transaction
Senator Massicotte: They will deal with the central registry. If I
understand correctly, contracts and interest rates have to be cleared with
the central registry.
Mr. Smith: For foreign currency transactions, they still have to
be reported, not necessarily cleared.
Senator Massicotte: Interest rates have to be registered.
Mr. Smith: Yes, an interest rate swap from a bank would be both
cleared and reported.
The Chair: Thank you, Mr. Smith. You've been very clear.
We're now on Part 6, Division 14 of the Insurance Companies Act. Since
it's the same panel, we will also deal with Division 24, which is the
Protection of Residential Mortgage or Hypothecary Insurance Act. You will
find these under tabs F14 and F24 in your briefing binder, pages 145 and 206
of the bill.
Division 14 amend the Insurance Companies Act to broaden the
Governor-in-Council's authority to make regulations respecting the
conversion of a mutual company into a company with common shares, and
Division 24 amends the Protection of Residential Mortgage or Hypothecary
Insurance Act and the National Housing Act to provide that certain criteria
established in a regulation may apply to an existing insured mortgage or
To discuss this with us, we welcome Mr. James Wu from the Department of
Finance, Financial Institutions Analysis, where he is the chief, and Michèle
Legault, Senior Project Leader, Financial Institutions Analysis. Mr. Wu, the
floor is yours, sir.
James Wu, Chief, Financial Institutions Analysis, Department of
Finance Canada: Thank you very much, Mr. Chair and honourable senators.
It's my pleasure to be here today to give you a presentation on these
proposed amendments in Bill C-31.
In respect of Division 14, the amendments to the Insurance Companies Act,
this reflects the government's intention as announced in Economic Action
Plan 2014 to move ahead with its commitment to make legislative and
regulatory changes that would create a federal mutual property and casualty
insurance company's demutualization framework.
In essence, mutual companies are companies that are run by policyholders,
very similar to credit unions that are run by their membership. This
framework would allow such mutual companies to convert into share-owned
companies. As set out in the Insurance Companies Act, there are a number of
policy objectives for such a framework. One is to ensure that the framework
provides a transparent and orderly demutualization process. The second is
that such a framework should provide for fair and equitable outcomes for
The proposed amendments in Bill C-31 expand the regulatory-making
authority so that the government can address unique circumstances that exist
in the federal property and casualty insurance companies sector. This is the
first part of a two-part process to create this framework. The second part
indeed is the creation of the regulations through the normal
regulations-making process and would set out the details of the
demutualization framework. This is still subject to further ministerial and
Governor-in-Council approval as well.
As announced in Budget 2014, the government will consult on the proposed
framework. Indeed, as early as 2011, there were very public consultations on
a proposed framework. The department has had ongoing targeted discussions
with stakeholders since then and, as part of the normal regulation-making
process, there will be further consultations as part of Part 1 in the
regulatory process, which involves publication of the proposed regulations
in the Canada Gazette.
I'm happy to take any questions you may have.
Senator Bellemare: Can you explain what the demutualization of a
property and casualty insurance company is? How does that occur?
Mr. Wu: Currently there are mutual companies in the property and
casualty sector. They are, in essence, governed by their policyholders where
the decisions around how the companies are run are made by the
policyholders, so basically the clients of the company. This is a different
type of structure than I think most people may be used to. Most people are
used to share-owned companies where the company is basically owned and in
essence governed by the shareholders of the company, which are often
different but not always different from the clients of the company.
In terms of the conversion process being discussed today, the
demutualization, currently there are these mutual companies in the sector
and, for whatever corporate reasons that may exist, they may wish to convert
to become share- owned companies. Legislation and the regulations have to
set out the framework under which this conversion could take place. There
are a number of fairly detailed steps involved, such as providing proper
notices to those stakeholders involved, going through the office of
superintendent in terms of administering the process and then ultimately
getting approval from the Minister of Finance for the conversion.
Senator Bellemare: That has nothing to do with insurance companies
that insure other insurance companies, such as in the case of floods or
natural disasters. An individual can be insured by an insurance company,
which in turn is insured by another company. Is that related to this kind of
insurance company system?
Mr. Wu: There is no direct relation. I think you are referring to
the activities of a re-insurer; that is, an insurance company that basically
insures another insurance company. In general, this process is about
demutualization, which is the change or convention of the corporate
structure of the given company.
Senator Tkachuk: We have a framework for life insurance companies
in Canada, right, but we never had one for property and casualty? Or are we
improving on one for property and casualty?
Mr. Wu: That's correct; we never had one for property and casualty
mutual companies. The way the department sees it, we're designing the
framework that appropriately meets the unique context of the property and
casualty mutual sector.
Senator Tkachuk: How would it be different from, say, a life
insurance demutualization, which has happened a number of times?
Mr. Wu: As the regulations have not yet been finalized, it's
subject to approval by the minister and Governor-in- Council and it's their
prerogative to decide what the details might be in such a framework. The
department's view is that we are following more or less the same approach in
the life insurance companies' demutualization process but there are unique
circumstances specific to the property and casualty mutual sector that we
have to account for. For example, this legislative amendment gives the
government that greater flexibility to address those circumstances.
Senator Tkachuk: Can you give me an example of one?
Mr. Wu: Sure. I think the Honourable Senator Hervieux-Payette
highlighted one for the committee a little earlier. There is a large, if you
will, discrepancy between the numbers of mutual policyholders versus
non-mutual policyholders in some of these mutual PNC companies. As a result,
and as was clear also in the public consultations from 2011, there is a
strong difference of opinion as to how the demutualization should unfold and
who would get the benefits. So this type of, if you will, disagreement did
not seem to exist in the life insurance companies' demutualization. As my
boss, the Director General, indicated, one of the concepts we are working on
with that has been highlighted in this legislative amendment is the
potential use of a court process to help facilitate the negotiation between
the mutual policy holders and the non-mutual policyholders.
The Chair: Thank you very much. Are there comments on the
Hypothecary Insurance Act?
Mr. Wu: Sure. This is in respect of Division 24. This one goes
back to Economic Action Plan 2013. The government reiterated in Economic
Action Plan 2014 that it would prohibit the use of taxpayer backed insured
mortgages as collateral for securitization vehicles that are not sponsored
by the Canada Mortgage and Housing Corporation. The intent is to help manage
the potential exposure to taxpayers as well as to try to increase and impose
market discipline in such markets.
The proposed amendments in Bill C-31 would also broaden the
regulation-making authority under two related acts. One is the protection of
residential mortgages or Hypothecary Insurance Act; the other one is the
National Housing Act. These would allow the government to introduce
regulations that would more effectively meet the objectives of managing
taxpayer exposures and improving and increasing market discipline.
Specifically, the amendments will allow the regulations that are to be made
and subject to further approval to apply to insured loans that already
exist. The current regulation-making authority, unfortunately, does not
allow this retroactive application of any criteria.
Senator Bellemare: So this provision of the bill aims to mitigate
the risks involved in asset-backed commercial papers, where all the assets
were debts, and the provision aims to protect ordinary Canadians and those
who borrow these commercial papers?
Did I understand correctly?
Mr. Wu: The asset-backed commercial paper that you're speaking of,
I believe, is in respect of the nonbank asset- backed commercial paper and,
because they no longer exist in terms of a market in Canada, would not be
impacted by this measure. One area that could be impacted by this measure
would be the bank sponsored asset-backed commercial paper because they do
also have mortgages as collateral. It's a bit related but not quite the
specific risk that you identify.
The Chair: Thank you very much, senator. Mr. Wu and Ms. Legault,
thank you very much for your presentation.
Colleagues, we are down to the final division of the day. I am saying it
is so. As I indicated earlier, Division 19 will be dealt with next Wednesday
and Division 25 will be dealt with next Thursday at our regular meeting.
To conclude our discussions today, we are on Part 6, Division 22, the
Softwood Lumber Products Export Charge Act. Tab F22 in your briefing binder,
page 204 of the bill, amends the Softwood Lumber Products Export Charge Act
to clarify how payments to provinces are to be determined. We have with us
to explain it Michèle Govier, Chief, Trade Remedies and General Trade
Relations, from the Department of Finance Canada; and Colin Bird, Director,
Softwood Lumber Divisions, from Foreign Affairs, Trade and Development
Michèle Govier, Chief, Trade Remedies and General Trade Relations,
Department of Finance Canada: I will give an overview and then Colin can
provide responses to questions that go beyond the scope of this particular
This part makes clarifications to the existing cost recovery structure
with provinces under the Canada-U.S. Softwood Lumber Agreement. The intent
is to ensure the legal basis for the existing structure is clear and more
cohesive. The administration of the system will remain the same.
Under the Softwood Lumber Products Export Charge Act the federal
government collects export charges and transfers these to the provinces,
holding back amounts to cover federal administration and legal costs. This
is done on a quarterly basis as set out in the payments to provinces
regulations. These amendments incorporate existing provisions in the
payments to provinces regulations into the Softwood Lumber Products Export
Charge Act with certain modifications.
I'll go through a few of those modifications which clarify it. First, the
federal government costs that have not been offset by export charge revenues
in a particular period will be carried forward so that they can be offset
and recovered in future periods; second, costs may be recovered pursuant to
section 40.1 of the Federal-Provincial Fiscal Arrangements Act or through
voluntary payments made by a province; and, third, the Minister of National
Revenue is not required to transfer revenue into a province if that province
has an accrued balance with the federal government. There are also some
modifications to the regulation making authority. It has been moved, but
that's about it. It's fairly minor. I would be happy to take questions.
The Chair: Mr. Bird, we have four minutes left but we must
conclude this meeting, because we cannot sit while the Senate is sitting and
it will start at 1:30.
Colin Bird, Director, Softwood Lumber Divisions, Foreign Affairs,
Trade and Development Canada: I believe Ms. Govier has covered it
The Chair: Questions? Ms. Govier, that shows that you did cover it
very well because there are no questions.
I thank you very much for being here and, to my colleagues, I express my
great appreciation for your perseverance through a lengthy program today.
This meeting is concluded.
(The committee adjourned.)