Proceedings of the Standing Senate Committee on
Issue 10 - Evidence - April 29, 2014
OTTAWA, Tuesday, April 29, 2014
The Standing Senate Committee on National Finance met this day at 2:30 p.m.
to examine the subject matter of Bill C-31, An Act to implement certain
provisions of the budget tabled in Parliament on February 11, 2014 and other
measures (topics: Part 1, clauses 2 to 39; and Part 5, clauses 99 to 101).
Senator Joseph A. Day (Chair) in the chair.
The Chair: I call this meeting of the Senate Standing Committee on
National Finance to order. There will be senators coming and going because the
Senate is also sitting, but we have an order of the Senate authorizing us to sit
on this committee while the chamber is sitting to begin the pre-study of Bill
Honourable senators, this afternoon, we will begin our study on the
subject-matter of Bill C-31, An Act to implement certain provisions of the
budget tabled in Parliament on February 11, 2014 and other measures.
This bill, in its entirety, contains 486 clauses. Five other Senate
committees have separately been authorized to examine the subject matter of
particular elements of Bill C-31, but our committee has the ultimate
responsibility for studying all of the bill.
We have a considerable amount of work ahead of us, but what we will do in the
first phase is go through the bill for those portions that are exclusively for
our committee, and then we will have a report done on that particular aspect.
Then we will wait for the other committees to report, and we will ask them to
come to our committee and tell us about their particular sections. Hopefully,
from that, we will have an understanding of the entire bill, which will allow us
then to deal with the bill on a clause-by-clause basis when it arrives in its
final form from the House of Commons.
This afternoon, we are pleased to welcome officials who will guide us through
the front part of the bill in detail. We will begin at Part 1, clause 1. I was
going to say page 1, but I had better check the pages. It's probably not page 1,
but it is at the front of the bill, in any event.
We welcome back Ted Cook, Senior Legislative Chief, Tax Legislation,
Department of Finance Canada; and Miodrag Jovanovic, Director, Personal Income
Tax, Tax Policy Branch, Department of Finance Canada.
Who would like to start with the front end of this bill? You know our desire
is to understand the policy that's trying to be initiated by the particular
section. If there's more than one section that relates to that same concept,
then just refer us to the grouping of sections. After the witnesses have made a
presentation on a particular concept or idea, I will ask if there are any
questions from any honourable senators, and if not, we will move to the next
Mr. Cook, you can start us off. The floor is yours.
Ted Cook, Senior Legislative Chief, Tax Legislation, Department of Finance
Canada: Thank you very much. As indicated by the chair, I will try to group
clauses together and provide sort of a policy overview and a technical
explanation of what happens in those particular clauses. Then we would be happy
to deal with whatever questions the committee may have.
To begin with, we will start with clauses 2 and 3. There are other amendments
relating to this same measure in clauses 22 and 23, but I will just flag them
when we get there.
Clauses 2 and 3 relate to the Offshore Tax Informant Program. This program
was originally announced in Economic Action Plan 2013, and what it will do is
allow the CRA to enter into contracts with individuals where they will provide
information relating to international tax non-compliance. The person who has
entered into the contract with the CRA will be eligible for a payment of between
5 per cent and 15 per cent of the federal taxes collected, excluding interest
and penalties. The program is available where the taxes to be collected are in
excess of $100,000. The amount will be paid to the person providing the
information once all taxes have been collected and all appeal rights have been
exhausted by the taxpayer involved.
As well, I would note that the amendments that we will be looking at relate
primarily to the income tax treatment of the amounts paid under the contract.
Clauses 2 and 3 relate to the inclusion and income of amounts paid under the
contract to an individual. If an informant receives a payment under the
contract, then the amendment in clause 2 ensures that that amount is included in
the taxpayer's income. Clause 3 is just if the amount subsequently has to be
repaid to the CRA for some reason, then they get a deduction for an equivalent
amount. Later amendments will provide that if an amount is paid to a
non-resident of Canada, the appropriate Part 13 tax will be applicable.
I note that the program is being set up and the amendments are being made so
that the amounts will not be deemed assessed for certain purposes until the tax
is actually collected. That is, revenues will only be shared with the provinces
once an amount has actually been collected rather than just on an assessed
Finally, the measure allows for limited information sharing with the person
who has entered into the contract with the CRA. Basically, even the payment of
an amount under a contract to an informant could potentially constitute taxpayer
information, so we had to make an amendment to allow that and to just allow the
CRA to tell the person whether their file is open or closed. That's a brief
overview of this measure.
The Chair: That is an interesting initiative. Mr. Cook, is this the
first time that you have had this type of bounty-hunter provision in the Income
Mr. Cook: In terms of similar provisions, obviously law enforcement
authorities will have things like Crime Stoppers. For income tax purposes, those
are generally considered windfall so wouldn't be included in income.
The Canada Border Services Agency has a program that I believe is called
Border Watch, under which amounts can be paid for information provided to the
Canada Border Services Agency. As well, the U.S. has an established program
going back for at least 10 years, and there are any number of countries that
will pay for information provided to tax authorities.
The Chair: The amount that is payable under the contract for the
information that is given, is that payable only after Revenue Canada collects
the funds, or is it payable before that?
Mr. Cook: Exactly right. It is only after the amount has been
collected, and it is only after all appeal rights have been exhausted.
Essentially, they have sort of perfected their collection of the amount before
anything is paid to the informant under the program.
The Chair: Thank you.
The Chair: Senator Bellemare from Quebec.
Senator Bellemare: Where are we right now, Mr. Chair?
The Chair: On pages 2 and 3.
Senator Bellemare: So on pages 1 and 2. These little clauses involve
The Chair: Exactly.
Senator Bellemare: Thank you very much. That is not very clear.
The Chair: No, it is not clear, but that is because the text is
incomplete. That is why we asked Mr. Cook to come explain the policy behind
Senator Callbeck: Thank you very much for coming today and for your
This was announced in Budget 2013. It was launched in January of this year.
Do you know if the CRA has received any tips already?
Mr. Cook: Certainly they have received inquiries from individuals who
are interested in providing information. There is a contract that has to be
entered into with the individual and whatnot, but certainly as soon as the
program was launched, they did receive indications of interest from people who
want to provide information.
Based on the U.S. experience, these seem to be sort of lengthy processes
because there's the setting up of the contract, there's the provision of the
information, the amounts have to be assessed and then ultimately collected.
Senator Callbeck: So it was launched. Was there a big promotion, and
is there a campaign on right now to let the public know? How will the public
become aware it is available?
Mr. Cook: In terms of how widely this is being marketed, if you will,
I'm not entirely sure, but certainly there were an announcement and news
releases and whatnot at the time of the release, as I think you had indicated,
in January. As well, on the CRA website, fairly comprehensive information is
available to individuals who are interested as to what kind of information is
being sought and what the requirements are and what kind of information they
need to provide and what the criteria are for the various levels of payment.
If I might, I think I may have mentioned it, but I wanted to make sure I had.
This relates to international tax non-compliance. There has to be an
international component to it. It could be Canadian income that has been
subsequently moved offshore, or it could be foreign-earned income, but at least
in its present state, the program does require an international component for an
individual to be eligible to participate.
The Chair: It could be undeclared funds held in an offshore account?
Mr. Cook: Exactly right.
Senator Callbeck: What about other countries? Are they using a similar
program, and how successful is it?
Mr. Cook: Probably the closest comparator is the United States. They
have had a couple of programs, and at least going back to 2006. It is kind of
hard to get a strong sense, because it will be sort of hit and miss. I think the
U.S., under one of their programs, has got on average between $93 million and
$258 million in evaded penalties and taxes since 2006 and has paid out between
$7 million and $25 million annually to informants.
Under their other program, they generate approximately 330 leads per year.
Those are some of the metrics in the U.S.
In terms of the other countries, the advanced countries, the U.K. has a
program. Japan has one, and the Netherlands, Portugal, Germany, Denmark.
Senator Callbeck: You mentioned that rewards can be between 5 and 15
per cent. Who determines what the percentage is?
Mr. Cook: The percentage levels will either be 5 per cent, 7.5 per
cent, 10 per cent, 12.5 per cent, or 15 per cent. CRA has established a grid
where they will look at the detail of the information provided, the level of
cooperation provided by the informant and how useful it is to the CRA. There's a
metric, and then where you are on the grid will determine the level of payment.
Senator Callbeck: Thank you.
Senator Chaput: Is this program considered to be a source of revenue?
Mr. Cook: Probably the best way to think of it is as a program to
enhance the overall integrity of the tax system.
I don't think there's a way to predict how much revenue will be generated in
any particular year, and certainly we don't have any estimates. It is just
recognizing there's a tool that has been used with some success in other
jurisdictions. Obviously, there's been a greater sensitivity to international
tax evasion and avoidance, and this is another tool available to the CRA.
Senator Chaput: Once revenue has been generated, will it be covered in
the budget at some point, in the estimates? Where will the money go?
Mr. Cook: To be honest, a complete answer to that is beyond my
expertise other than it will flow into the tax revenues that are collected by
CRA. However reassessments and tax collections get dealt with, then it will flow
Once the CRA has received the leads, then it just flows into the CRA's
general audit programs and will be treated like any other tax revenue. It's at
the front end where it receives particular treatment.
Senator Enverga: Assuming that you have found somebody who is putting
some money in other countries, have we gone through the motion of privacy laws
and the effects? Do we have any action about that, any privacy issues that we're
going to be dealing with on this one?
Mr. Cook: There are a couple of ways to deal with that. One of the
privacy issues I alluded to is when an informant is providing information on
someone else, then they're providing taxpayer information relating to that
person, and there's sensitivity around the information that can be provided back
to the informant about the assessment or amount of tax collected.
We made an amendment to section 241 of the act to actually provide the amount
to be paid to the informant and to allow the status of the case to be divulged
to the informant.
More largely, what I was talking about with respect to audit work generally
flows in more broadly to answer your question in the sense that when we talk
about privacy, once a lead has been given, then the CRA is in its usual audit
mode, tax compliance mode, with respect to taxation avoidance or evasion, and
whatever protections are available to taxpayers generally are available.
In terms of the CRA's ability to obtain information under our tax information
exchange agreements and under our treaties, the CRA has the ability to go to
other jurisdictions and ask them to provide information on particular cases to
assist with their tax compliance activities.
The Chair: Seeing no other senators, thank you, Mr. Cook. We will go
to the next clause.
Mr. Cook: The next clause, clause 4. I would note on page 2 of your
print, clause 4 and clause 7 — and there will be a couple of other clauses that
relate to it as well — all relate to the Search and Rescue Volunteers Tax Credit
that was announced in Economic Action Plan 2014.
Under this measure, volunteers who participate in search and rescue volunteer
activities for at least 200 hours per year will be eligible for a credit very
similar to the one that is available in respect of volunteer firefighting. I
believe that was discussed before this committee in 2012.
I would note that when an individual has hours that would count for both the
Volunteer Firefighters Tax Credit and the Search and Rescue Volunteers Tax
Credit, the individual will be able to choose to claim one or the other but not
both of those credits. An individual will be eligible for one credit maximum.
Even if they had 400 or 600 hours doing both volunteer firefighting and
volunteer search and rescue, they would still get only one credit.
As well, section 81(4) of the act provides an exemption from inclusion of
income for up to $1,000 in honoraria paid in respect of volunteer activities of
ambulance technician, volunteer firefighter, search or rescue and other
emergency responders. If a person claims either the Search and Rescue Volunteers
Tax Credit or the Volunteer Firefighters Tax Credit, they will not be eligible
for the exemption on the $1,000. The credit is non-refundable and is based on an
amount of $3,000. The effective tax relief, where it is full use to the
taxpayer, is worth about $450 per year.
The Chair: So if you were making a choice between not including $1,000
or taking a tax credit for $450, the choice is pretty straightforward.
Mr. Cook: Maybe my colleague can speak a little bit on that. It does
depend on your personal circumstances. For some taxpayers, they may be better
off claiming the $1,000 exemption, and other taxpayers may be better off
claiming their credit.
The Chair: We're always trying to avoid complication in the Income Tax
Act and the amendments that we make to it. The simpler it can be so that
individuals can fill out their own income tax forms and file them, the better,
from our point of view.
You are convinced this is a straightforward, non-complicated choice that
we're presenting to the taxpayer?
Mr. Cook: Certainly, the design of the new credit is modelled almost
exactly on the existing credit for volunteer firefighting services, other than
the nature of the services involved. If you just do volunteer firefighting, you
have your existing credit. If you happen to do both, you have a choice between
the two. To the extent there is any complexity, it does benefit more taxpayers
in the sense that if a person did not have enough hours performing one or the
other types of activities, they can apply the hours to either one.
The Chair: That's 200 hours per year?
Mr. Cook: That's correct, in total.
The Chair: In total, yes.
Senator Boisvenu: Thank you, Mr. Chair. It is a pleasure for me to
participate for the first time in a meeting of the Standing Senate Committee on
National Finance. I hope to be able to do this again in the future.
I want to thank the witnesses for joining us today. I am especially
interested in this clause, and I have a few small questions, if that is okay
with you. Does this tax deduction apply only to volunteer firefighters or does
it also apply to anyone involved in search and rescue activities?
Miodrag Jovanovic, Director, Personal Income Tax, Tax Policy Branch,
Department of Finance Canada: It applies to all those who belong to
qualifying organizations — so any organizations that provide search and rescue
services. Those organizations can be members of national associations, or be
recognized by a provincial or municipal authority.
Senator Boisvenu: Do the people who apply for this deduction have to
be full members of a recognized organization?
Mr. Jovanovic: The individual must be active, and their hours must be
recorded by the organization.
Senator Boisvenu: In Quebec, we have an organization that specializes
in searching for missing individuals: Recherche et sauvetage Québec. You
probably know that I have a special interest in this. Are individuals who
conduct those types of searches eligible for that deduction? When someone goes
missing in a forest or a criminal abduction takes place, people sometimes spend
Mr. Jovanovic: I cannot comment on that. The organization would have
to determine whether they meet the eligibility criteria.
Senator Boisvenu: Does that deduction also apply to search and rescue
activities conducted outside the country? For instance, a Quebecker goes missing
in Jamaica, and criminal involvement is suspected. Could a Quebec organization
participating in the related search efforts benefit from that tax deduction, or
does the activity absolutely have to occur in Canada?
Mr. Jovanovic: I am not sure if the legislation specifies where the
activities must take place.
Mr. Cook: On the legislation itself, there is no limit that the search
and rescue activities take place within the geographic boundaries of Canada.
Assuming all the criteria are met, it refers to search and rescue writ large as
opposed to within the bounds of Canada or a particular province.
Senator Boisvenu: As long as the formal organization does that kind of
Mr. Cook: That's right. There are a few listings. There are search and
rescue organizations that are members of the Search and Rescue Volunteer
Association of Canada, the Civil Air Search and Rescue Association or the
Canadian Coast Guard Auxiliary or an organization whose status is a search and
rescue organization and is recognized by provincial, municipal or public
authority. It is a general reference.
Senator Callbeck: Thank you. It has to be 200 hours of service, so
that it must be 200 as a firefighter or 200 as a search and rescue. You can't
have 100 as a firefighter and 100 as search and rescue.
Mr. Cook: Actually, you can.
Senator Callbeck: You can?
Mr. Cook: As long as they add up in total to 200, you can mix and
match the hours and choose from either credit.
Senator Callbeck: The total of both of these tax savings you say is up
to $450. They're basically the same?
Mr. Cook: They're exactly the same.
Senator Callbeck: Were refundable tax credits considered? It seems to
me that you would have a lot of people that can't take part in this. This credit
isn't any good if people don't pay income tax; therefore, they can't take
advantage of the credit that you are announcing.
Mr. Jovanovic: Refundable tax credits are used in very limited
circumstances in the income tax system, generally when there's a clear rationale
to do so — for instance, with the Working Income Tax Benefit, which is there to
create an incentive for low-income individuals to enter or stay in the labour
force. It makes clear policy sense to have that one refundable.
Generally speaking, credits are there with the intention to recognize
expenses or to recognize a taxpayer's particular circumstance or situation.
These credits are generally non-refundable.
Senator Callbeck: Well, with all due respect, it certainly makes sense
to me to have refundable tax credits. Year after year, we come in here with tax
credits that aren't refundable. Therefore, the people that really need to take
advantage of them the most are not even able to apply. I can't see the logic of
that at all.
Mr. Jovanovic: I would highlight that your comment, I would say,
refers, generally speaking, to the system. Moving from non-refundable tax
credits to a system where these credits are refundable would be extremely costly
for the government.
Senator Callbeck: That's basically the reason that people in the
low-income bracket are denied these tax credits or can't take advantage of them,
simply because it's going to cost the government.
Mr. Jovanovic: It goes beyond just cost. As I said initially, there's
a policy rationale to it as well. If there's no clear rationale to make it
refundable — for instance, if it's to recognize a reduced ability to pay tax,
clearly there is no rationale to make it refundable.
Senator Callbeck: Why is it rational for somebody in the middle-income
bracket to be able to take advantage of this credit and somebody at the low end
not be able to take advantage?
Mr. Jovanovic: As I said, the rationale in a way is that this credit
is not targeted or designed to provide income support. It is recognition through
the tax system of a particular situation and thereby reduces a liability.
Senator Callbeck: It's recognition, so do not the people at the low
end of the income bracket deserve the same recognition?
Mr. Jovanovic: The situation is that their tax liability is already
reduced to zero.
Senator Callbeck: Pardon?
Mr. Jovanovic: Their tax liability is already reduced to zero, so
that's the rationale.
Senator Callbeck: I've made my point, so thank you.
The Chair: Thank you. Those are all of the honourable senators who
wish to have clarification on that particular section, so we will go on to the
Mr. Cook: It is clause 5. I will speak about clauses 5 and 9 at the
same time. They both relate to donations to ecologically sensitive land.
Currently under the Income Tax Act, when a donation of ecologically sensitive
land is made, the amount of that donation can be carried forward and used in
computing tax for up to five years. Economic Action Plan 2014 announced a change
to increase that to 10 years, double the period for which donation amounts can
be carried forward. Part of the rationale for that is that when we're talking
about donations of land, they are very often sort of lumpy in nature, and it may
be difficult for a taxpayer to take full advantage of the credit or the
deduction, if it's a corporation.
Depending on personal circumstances — perhaps it's someone at the end of a
farming career who is making a donation and may have lower income at that time —
giving them that extra period over which to avail themselves of the tax
assistance may serve to help induce a donation to be made. That's clause 5.
Senator Chaput: May I ask why the decision was made to extend that
period from five to ten years? Did individuals or companies call for that
Mr. Jovanovic: That was one of the recommendations in the Finance
Committee's report on tax incentives for charitable giving.
The Chair: This applies to individuals as well as corporations?
Mr. Cook: That's exactly right.
The Chair: And it doesn't have to be a transfer in fee simple? It can
be a transfer of an easement as well?
Mr. Cook: That's a very good point. It can be an easement or other
right associated with property. For example, a farmer may continue to own the
property but will put an easement on a wetland area on their farm so it will
continue to be available for fowl and other wildlife to use.
Senator Bellemare: I was looking at the cost of this measure. It is
listed as zero in the budget. Does that mean the cost is in the thousands? That
is provided in the schedule.
Mr. Jovanovic: Yes, unless I am mistaken, that generally happens when
the cost is low — under $500,000 a year.
Senator Bellemare: So in that case, the amount is not indicated.
Mr. Jovanovic: No.
The Chair: Thank you. We will go on to the next clause.
Mr. Cook: Clause 6 relates to the Adoption Expense Tax Credit.
Economic Action Plan 2014 announced an increase in the maximum amount of
expenses eligible for the Adoption Expense Tax Credit. In the absence of the
amendment, the total maximum expenses available would have been approximately
$11,800. Instead, the maximum has increased to $15,000 and will be indexed to
inflation after 2014, which was the case with the credit before.
The Chair: We're talking about adoption?
Mr. Cook: Expenses related to adoption, such as court fees, reasonable
The Chair: It might be airfare to China and back?
Mr. Cook: Mandatory provincial expenses, in-home assessments, those
kinds of expenses.
Senator Callbeck: I think it's a great idea. Roughly how many
Canadians use this tax credit?
Mr. Cook: The total number of claimants in 2011 was approximately
Senator Callbeck: In 2011?
Mr. Cook: That's correct. It fluctuates around there. It has been
Senator Callbeck: Thank you.
The Chair: Thank you. Please go on to the next clause.
Mr. Cook: We've actually already talked about clauses 7 and 8. They're
about the Search and Rescue Volunteers Tax Credit that we've referred to. Clause
9, as I just discussed, is part of the donations of ecologically sensitive land.
Moving on to clause 10, it relates to the Medical Expense Tax Credit. It
should be on page 5 of your printout of the bill.
There are two changes. One relates to what they call diabetes dogs. These are
dogs that can sense changes in blood sugar levels in people, and the cost of
these animals and their maintenance and upkeep will be eligible expenses for the
Medical Expense Tax Credit. We expect there to be probably about 10 of these
dogs in Canada in 2014.
The second change to the Medical Expense Tax Credit is to allow the tax
credit to apply in respect to individualized therapy plans. Currently, there are
situations where the therapy undertaken under one of these plans — perhaps a
therapy dealing with applied behavioural assistance for autism — the therapy
itself would be eligible for the Medical Expense Tax Credit but the preparation
of the plan, which might be required by a provincial authority in some cases,
might not be eligible for the tax credit. So we're expanding the Medical Expense
Tax Credit to allow the cost of individualized therapy plans to be eligible as
The Chair: The expansion of the dog portion of this relates to severe
Mr. Cook: That's correct.
The Chair: That's the change?
Mr. Cook: That is the change.
The Chair: Do you know from a policy point of view whether there is
any discussion with respect to people with post-traumatic stress disorder?
Mr. Jovanovic: Well, we understand that service dogs for psychiatric
conditions are a relatively new type of assistance animal. We understand that
work is currently under way by the Minister of Veterans Affairs to assess the
effectiveness of psychiatric service animals, so we are monitoring progress, and
the list of Medical Expense Tax Credit eligible expenses is looked at every
The Chair: I'm encouraged by that. I know we meet a lot of veterans
who tell us how important these companions are to them and how helpful they are.
So if you could take that back and put that into the mix, we'll look forward to
having you here next year with that amendment.
Senator Chaput: How will you define severe diabetes? Do you have any
Mr. Jovanovic: I just want to clarify that eligible expenditures for
the therapy are already part of the system. The measure recognizes as eligible
spending the portion of fees related to the preliminary steps in therapy
development. If those preliminary steps are necessary to access provincial
funding or if a treatment is prescribed by a doctor, there are also other
conditions to be met. For instance, the individual must be eligible for the
Disability Tax Credit. If that condition is satisfied, the related expenses are
The Chair: Senator Chaput raises a good question. There are adjectives
here, and if I'm looking at 10(1)(l), it's "profoundly deaf," "severe
diabetes" and "prolonged impairment," those words. Are you leaving it up to a
doctor to meet those criteria?
Mr. Cook: When we're talking about severe diabetes, usually the kind
of situation we're talking about and where these dogs are applied, I think it's
called type 1 diabetes where people have hypoglycemia unawareness. They can't
monitor their own levels or be aware of the changes of their own blood sugar
levels. But in terms of how these are applied, medical people make the
determinations, and CRA accepts or not.
For example, with respect to prolonged impairment and what qualifies for the
Disability Tax Credit, that does end up sometimes going to court or an
arbitrator as to what qualifies for that or not.
The Chair: But someone has to make that determination other than
someone at Canada Revenue Agency.
Mr. Cook: That's right. This does kind of rely on the medical
profession to determine appropriate treatment for their patients.
I would note with respect to this and how it's likely to play out with
respect to the particular amendment we're talking about, these animals, at least
at the present time, are extraordinarily expensive. There is a small group of
them. They're approximately $25,000 per dog. I think the first three have only
arrived in Canada. We're talking about another seven coming in.
I believe it's the Lions that have been involved with establishing this
program to bring these dogs into Canada. As well, there may be training by the
patient for dealing with their service animal.
If you're worried about the ambit of "severe diabetes," I think our view is
just the nature of the animal that will be used will, in fact, police the
provision. It's unlikely that someone will get a $25,000 dog in circumstances
where it's not reasonable that they require it.
The Chair: I hope you're right.
Senator Chaput: Is it true that those dogs are bought from the United
States, are trained in the U.S., and whoever needs this kind of dog has to
travel to the U.S. to be able to get training with the dog so that the two can
Mr. Jovanovic: It is possible, yes. These expenses, to the extent that
they are reasonable, would be eligible. Travel, training, care, maintenance
expenses would be eligible.
As Ted mentioned, there are a handful of dogs, let's say, that are being
trained. It's the Lions Foundation of Canada in Oakville, so there could be an
increased number going forward trained in Canada, but it's true that most of
them are probably from the United States.
The Chair: We're ready to go on to the next clause, then.
Mr. Cook: I would just note for clauses 11 through 16, those are all
what we would consider consequential amendments relating to the introduction of
this Search and Rescue Volunteers Tax Credit. There are a number of rules in the
act that relate to the ordering of the application of credits, and the
amendments made through clauses 11 through 16 generally relate to those. One is
about the availability of the credit to non-residents, but I would consider all
the assets in clauses 11 through 16, up to page 9, as just being consequential
to the credit we've already discussed.
The Chair: I'm looking at the heading in my briefing book. Clause 11 —
credit for mental or physical impairment.
Mr. Cook: To give you an example of what I mean by "consequential
amendments," clause 11 relates to the entitlement of a supporting person to
claim a disabled person's unused Disability Tax Credit. In order to tell how
much of the unused Disability Tax Credit can be passed on to someone else, you
have to do a calculation looking at the application of other credits before it.
What this amendment does is say, "Well, pretend you've computed tax payable and
that you have deducted from that tax payable certain other tax credits, one of
them being the Search and Rescue Volunteers Tax Credit, and then use the
remaining tax payable to determine what the unused credit is that can be passed
on to someone else."
The Chair: That's interesting. Then the unused tuition in clause 12 —
textbook. That's the same kind of thing?
Mr. Cook: If you look at the wording in those clauses, you'll see
they're almost identical. There is a parenthetical:
(other than an amount deductible under this section and any of . . .)
And we've added a reference to 118.07, which is the section where the Search
and Rescue Volunteers Tax Credit can be found.
The Chair: Thank you. That's clauses 11 to 16 we've just dealt with.
Mr. Cook: That's correct. So clause 17 should be on page 9.
The Chair: I have it.
Mr. Cook: This amendment relates to the GST/HST credit. As I'm sure
all the senators know, on the front of your income tax return there is a little
box you tick to see if you want to apply for the GST credit, and as a
streamlining administrative efficiency measure, it's proposed to amend the act
so that people don't have to apply for the GST credit. The CRA will just
calculate everyone's eligibility for the GST credit and apply it to the
Surprisingly, the administrative saving here is because approximately 2
million people each year apply for the GST credit who are not eligible for it,
and as a result, the CRA has to send them notices of determination saying,
"You're not eligible for the credit."
All this will do is allow the CRA to not send notices to those 2 million
people. In cases where a person disagrees with the fact that they're not
eligible, they can ask for a notice of determination and that will protect all
their appeal rights.
The Chair: Good. So there won't be the little box inviting them to
apply for it on the front of the form in future years.
Mr. Cook: Not after this year.
Clause 18 relates to the extension of the Mineral Exploration Tax Credit for
flow-through share investors. This credit was extended last year and the year
before and is extended again for this year.
Briefly, what the credit does is allow a 15 per cent credit to individuals
who have entered into a flow-through share agreement with a resource company.
Expenses are flowed up to the individual, and then they're allowed a 15 per cent
tax credit on top of that, and that helps junior mining companies access funds
The Chair: The extension is basically same percentage as in previous
Mr. Cook: It's exactly the same.
Again, clauses 19 and 20 are both consequential amendments relating to the
Search and Rescue Volunteers Tax Credit.
Clause 21 is a measure relating to state supporters of terrorism, and this
measure was announced in Economic Action Plan 2014. It will allow the Minister
of National Revenue to revoke the registration of a registered charity or a
registered Canadian amateur athletic association if it has accepted a gift from
a state listed in the list provided under section 6.2 of the State Immunity Act.
These states are the Islamic Republic of Iran and the Syrian Arab Republic. As
well, the Minister of National Revenue will have the authority to refuse to
register charities or Canadian amateur athletic associations that have accepted
gifts from these states, and this measure will apply to gifts accepted after
February 10, 2014, budget day, I believe.
The Chair: Revenue Canada had the opportunity to remove the charitable
designation or status previously. Is this just adding another basis upon which
the status can be removed?
Mr. Jovanovic: Yes. There is already a robust anti-terrorism framework
and robust legislation governing charities. Given the complexity of terrorism
and the fact that it's a multi-faceted issue, this framework currently includes
several pieces of legislation with different objectives, and they are
interconnected. This adds to that basket in a way, so it creates another tool
for the Minister of National Revenue in that context.
The Chair: That basket is what we see here, gifts from foreign nations
Mr. Jovanovic: When I refer to the basket of legislation, it includes
the Criminal Code, the Special Economic Measures Act and others, in addition to
the Income Tax Act, so that is another body of legislation added to these tools.
Mr. Cook: Clause 22 has two amendments, one relating to the GST credit
we spoke about. This allows the individual to request a notice of determination
from the Minister of National Revenue. Regarding subclause (2), I had indicated
that under the Offshore Tax Informant Program, amounts wouldn't be considered to
be assessed for purposes of sharing with the provinces until the amounts had
actually been collected, and that's what the amendment in subclause (2) of
clause 22 would do.
The Chair: Could you explain that one more time?
Mr. Cook: I'll back up. Generally, under the Income Tax Act,
obviously, the CRA and the federal government collect income tax for a number of
provinces, and normally, amounts are shared with the provinces on an assessed
basis, so once an assessment is made, that tax is then shared appropriately with
the provinces, irrespective of whether it actually gets collected at the end of
the day or not because the collection risk is fairly stable.
But with respect to this Offshore Tax Informant Program, obviously, there is
a much greater risk that amounts might be assessed but never collected because,
by definition, we're talking about amounts that have a connection offshore and
are likely located offshore, so collection will be very difficult. So in this
particular case, it makes more sense to only share the revenues once they have
actually been collected as opposed to just on an assessment basis.
The Chair: I understand. Thank you.
Mr. Cook: Clause 23 again relates to the Offshore Tax Informant
Program and allows the establishment of regulations so that amounts can be
withheld on account of tax. When an amount is paid to an informant, there will
be a withholding of that in security of the tax liability of that informant.
The Chair: That's withholding from the contract of the informant.
Mr. Cook: That's correct.
Clauses 24 and 25 relate to labour-sponsored venture capital corporations. As
I'm sure the committee knows, changes were announced in Economic Action Plan
2013 with respect to the phase-out of the credit, and that was contained in last
As well, there was consultation on transitional rules for the phase-out of
the credit and to provide rules for corporations that wished to exit the
program. The amendments to effect these transitional rules are found largely in
clauses 24 and 25, and they take existing rules in the Income Tax Act which were
available on the ending of a provincial program and just allow federally
registered labour-sponsored venture capital corporations to have the same rules
apply, and clause 25 provides a technical rule to determine the status of
corporations upon an amalgamation or a merger.
The Chair: Why wouldn't these amendments have accompanied the
legislation in the amendments last year?
Mr. Cook: We did the legislation on the basic phase-out, and there was
some concern at the Department of Finance that perhaps there might be more to be
done in terms of transitional rules, so there was kind of a consultation on the
transitional rules. In response to that, there weren't a lot of substantive
submissions on the transitional elements. So we released draft legislation for
comment in the fall on these transitional rules, and now they're contained in
The Chair: But the program has already been done away with.
Mr. Cook: Well, the amendments in last year's legislation related to
the phase-out of the credit, the actual amount of the credit, and this deals
with the more technical aspect regarding the corporations that were involved and
what the rules are for them exiting the program.
Senator Bellemare: I have a question about last year, when all this
was studied in the fall of 2013. The Department of Finance held some
consultations over the Internet. To that effect, the briefs submitted when we
carried out the study were not made available for consultation. I even remember
asking about this. I was told that, yes, the briefs were submitted, but they had
not yet been analyzed.
I obtained and read some of the briefs that were submitted. I found them
thanks to the Internet and some Quebec organizations, including the FTQ and the
CSN, which were asking the government to review some of the rules as part of the
transition, or to at least review the changes that would have a less negative
impact on them. Can we now obtain all the briefs or the analyses of the briefs
carried out by the Department of Finance? Do these changes take into account the
analyses of those briefs?
Mr. Jovanovic: We received some 50 briefs. They were all obviously
analyzed, so that we could issue the final recommendations and draft the
proposed legislation. So yes, everything was taken into consideration. As for
your question about whether you can have access to them, those briefs were given
to the Department of Finance in confidentiality, but they would be accessible
under an access to information request. If an access to information request was
made, the Department of Finance would consult the organization in question to
see whether or not it would consent to share the report. That is how some
documents can be consulted.
Senator Bellemare: So those amendments to clauses 23 and 24 do not
ultimately change anything when it comes to adopting last year's provisions on
termination and tax credit?
Mr. Jovanovic: No, the goal of those consultations was really to
obtain information from the sector and other stakeholders to properly establish
transitional rules and facilitate the withdrawal of participating funds that
wish to opt out of the program.
Senator Bellemare: There are not many funds in Canada outside Quebec,
as far as I understand. There are some in other provinces, but they are small
compared with the two major funds — the CSN and the FTQ. I think they will keep
going, as they are still soliciting. Thank you very much.
Senator Callbeck: Talking about rules, were two sets published for
public comment or just one? I know rules were published in November.
Mr. Cook: These are the rules that were published in November.
Senator Callbeck: This is it?
Mr. Cook: Yes.
Senator Callbeck: You didn't get too many comments?
Mr. Cook: No, we did not get very many comments on that.
Senator Callbeck: They were generally positive, the ones you did get?
Mr. Cook: They were very minor. To be honest, the purely federally
registered LSVC is a small population.
Senator Chaput: How long will the phase-out take?
Mr. Jovanovic: The tax credit will be phased out by 2017.
Senator Chaput: Did the web comments on that change concern the
Mr. Jovanovic: I cannot really comment on that. The consultations had
a specific objective. Of course, we may have received some comments that did not
relate to transitional rules and that consequently became irrelevant to the
consultation and its objective.
Senator Chaput: If I understand correctly, the consultations did not
include the phase-out. You did not hold consultations on that, since the
decision had already been made.
Mr. Jovanovic: Yes.
Senator Chaput: Thank you.
The Chair: Those are all the senators who have questions on this
particular matter, so we will go to the next one. Are we at clause 26 now?
Mr. Cook: Yes, we are. Clause 26 is an amendment relating to the
Offshore Tax Informant Program, and it just allows Part 13 withholding tax or
non-resident withholding tax to be applied to payments made to informants who
are outside Canada. The CRA could receive information from a person who is not a
resident of Canada, and this will ensure that appropriate withholding tax
applies on payments to that person.
Clause 27 has amendments to section 238 of the Income Tax Act. The two
amendments relate to electronic funds transfer and also the legislation
implementing the intergovernmental agreement for FATCA. This amendment allows an
existing provision in the act that relates to a summary conviction offence for
failure to provide a return or failure to maintain appropriate records to apply
in these two contexts.
With respect to implementing FATCA and the related intergovernmental
agreement, that's probably a discussion that should be deferred to Part 5 with
the appropriate officials.
With respect to electronic funds transfer, just past section 241, we have a
number of pages on electronic funds transfer, so perhaps I can discuss that
measure there, if that would be convenient to the committee.
The Chair: That would be quite convenient.
Mr. Cook: Clause 28 amends section 241 of the Income Tax Act. Section
241 of the Income Tax Act generally governs the use of taxpayer information and
the extent to which it can be used by officials or provided to other persons or
entities for specific purposes. There are a few amendments in this, so I will
just kind of work through them for the committee.
The first one in subclause (1) relates to the Canada Revenue Agency providing
feedback to the Financial Transactions and Reports Analysis Centre of Canada, or
FINTRAC. Under appropriate legislation, FINTRAC can make disclosures to CRA in
order to aid CRA in tracking down tax evasion, in particular.
Currently, though, there's no real ability for the CRA to provide feedback on
the information they have received from FINTRAC for two things: to allow FINTRAC
to develop its own management metrics to better understand how their information
is to be used, and also to improve the quality of the information provided to
In Part 6, I think it is Division 19, a number of amendments are also being
made to FINTRAC's legislation.
In the second subclause, paragraph (r) would make an amendment in
respect of the Offshore Tax Informant Program. As I've indicated a couple of
times, in order to even pay amounts to an informant, that's arguably a
disclosure of taxpayer information because if the informant got $10,000, they
would know the tax collected on another taxpayer was $100,000. So that's
As well, it will allow the CRA to just let the person know whether the file
is still open or not.
The second amendment in subclause (2) is in paragraph (s), and it
would allow the CRA to provide general information relating to its electronic
funds transfer compliance regime to FINTRAC in order to help it ensure
compliance with its act. I would note, though, that this specifically excludes
information that would directly or indirectly reveal the identity of a client.
It is not meant to be at a client level to develop leads but the administration
and the reporting by the financial entities that have to report to the CRA.
Subclause (3) is another amendment that would allow an official to provide to
a law enforcement officer from an appropriate organization taxpayer information
if the official has reasonable grounds to believe that the information affords
evidence of an act or omission in or out of Canada that is one of a specified
list of offences. These are the more serious crimes, such as bribery; fraud on
government; bribery of a foreign official; bribery of a municipal official;
secret commissions; criminal harassment; or the making, distribution, possession
and accessing of child pornography.
The purpose of this amendment is to allow the CRA, when they come across
evidence of serious crimes in the ordinary course of their audit activities, to
be able to provide that information to the appropriate law enforcement
authorities. Currently, if the CRA comes across evidence of a crime, child
pornography is the one that occurs most often. CRA is impeded from providing
that information to law enforcement authorities.
Those are all the amendments that are being made to section 241.
The Chair: Pretty complicated series of amendments there.
Mr. Cook: Clause 29 implements a new part to the Income Tax Act, Part
Economic Action Plan 2013 announced a new reporting requirement to the CRA
for international electronic funds transfers of more than $10,000. Financial
institutions already report these transactions to FINTRAC, and under certain
circumstances, FINTRAC can provide that information to the CRA.
This amendment would require financial intermediaries to report the same
things that they report to FINTRAC to the CRA. The idea is to make it seamless
for taxpayers so when they report to FINTRAC they can also report to Canada
Revenue Agency at the same time. This would give Canada Revenue Agency the full
database with respect to electronic funds transfers and electronic funds
transfers that are international and over $10,000 and would allow the CRA to
manipulate and conduct their own analysis of the data for their civil compliance
The Chair: That information couldn't pass from FINTRAC to CRA
directly, rather than putting an extra load on the client?
Mr. Cook: In terms of how we designed this legislation, the effort is
being made to make this seamless for the taxpayer. We drafted this with FINTRAC
people and the appropriate people at Finance to make this line up exactly with
FINTRAC reporting requirements so that when the report is provided, it is
provided to both. There shouldn't be any extra compliance burden on taxpayers
The Chair: Is FINTRAC authorized to pass that information on to CRA
Mr. Cook: Currently they're only allowed to pass information on in
particular circumstances. They can only do voluntary disclosures. There are
certain offences they have to relate to before the information can be provided
to CRA. This would allow CRA access to the full spectrum of information.
Senator Bellemare: I have a question about transfers. The Standing
Senate Committee on Banking, Trade and Commerce — whose chair is here with us —
is currently studying bitcoins. Will the legislation apply to money transfers in
Mr. Cook: This may be a question more for the FINTRAC folks than for
me. My understanding is there are amendments in Part 6 of the bill to address
virtual currencies and online casinos. There are amendments in provision 19 to
deal with that.
If I can point the committee to page 21 at subclause (3), and then the
following page, subclause (4), there are certain amendments that are held in
abeyance, amendments to the definition of "casino" and the definition of "money
services business." These are currently proposed amendments in effect under Part
6 dealing with virtual currencies and online casinos that will, if passed, come
into effect at some day that is chosen I believe by order-in-council.
Senator Gerstein: Mr. Cook, if it's a $10,000 transaction, it is going
to be reported by the client to FINTRAC and to CRA; is that correct?
Mr. Cook: That's correct.
Senator Gerstein: As I recall, if the transaction is for $9,999, it is
not required to go to FINTRAC; but if the client felt it was a suspicious
transaction, they could forward that information on, regardless of what amount
it is. Under this, will they also forward a suspicious transaction to CRA?
Mr. Cook: As I'm certain the senator knows, there are a few different
heads of reporting. One of them is the large cash transactions, the electronic
funds transfers and the suspicious transactions. This group of amendments deals
only with the electronic funds transfer transactions. There is no reporting of
suspicious transactions under these amendments.
Senator Gerstein: That information would go only to FINTRAC, and
FINTRAC would have to decide whether to forward it on?
Mr. Cook: That's correct. Right now this relates to the electronic
funds transfer. If it is under $10,000 and it is not part of a series of
transactions that add up to more than $10,000, if there's none of that and it's
under $10,000, then it would not be reported to the CRA.
Senator Callbeck: Just on the electronic funds transfer of at least
$10,000, why was the figure $10,000?
Mr. Cook: We have picked up what the reporting requirement is for
FINTRAC currently. We did not reassess whether or not that was an appropriate
threshold. As the committee has talked about, the idea is to make it the same
for taxpayers between the two types of reporting; so we just picked the $10,000.
The Chair: Are we at number 30?
Mr. Cook: Yes, clause 30. Subclause (1) relates to the definition of
"credit union." It is just a consequential amendment to the introduction of the
electronic funds transfer measure.
The Income Tax Act uses a functional definition of "credit union." To make
our new part line up with the FINTRAC legislation, we have put in an exception;
so that's just consequential in subclause (1).
Subclause (2) is a new measure, and it relates to charitable donations of
certified cultural property. As members of the committee may know, under the
Income Tax Act, when a charitable donation is made, in certain circumstances the
fair market value of the donation for charitable donation credit purposes is
limited to the cost as an upper bound, the cost of the property, if the property
is given as part of a tax shelter or a donation is made within a short period,
like within three years after the person acquired the property. This is to get
at buy-low, donate-high schemes that I'm sure some of the committee members have
heard about, for example where groups of paintings were purchased at one price
and then donated shortly thereafter at a much higher value, and then a
charitable donation credit was claimed based on that higher value.
There are rules in the act that deal with that now. However, there's an
exception from those rules for certified cultural property. Certified cultural
property is property that's been certified by the Canadian Cultural Property
Export Review Board as being of cultural significance. At the same time it is
certified by the board, a fair market value will be assigned in the certificate.
The concern is that because this property is not subject to the rules to get
at buy-low, donate-high schemes, tax promoters may be starting to target these
kinds of property and using them in tax-shelter arrangements to gain
inappropriate tax benefits.
The amendment at subclause (2) would provide that where the certified
cultural property is acquired and gifted as part of a gifting arrangement that
is a tax shelter, the exemption from the rule relating to buy-low, donate-high
schemes will still apply.
The next amendment can be found at clause 31. It is not an amendment to the
Income Tax Act; it's an amendment to the Financial Administration Act. It would
require the Minister of Finance to table in Parliament annually a list of
outstanding measures. These are legislative proposals that the government has
announced and not withdrawn more than roughly 19 months prior. Where there are
such legislative proposals, there's a list that would have to be tabled in
Parliament. These are amendments to legislative proposals relating to the Income
Tax Act or the Excise Tax Act or the Excise Act, 2001. The idea is to provide
greater transparency to ensure that taxpayers have greater certainty with
respect to the income tax or other tax changes that the government has announced
and is moving forward with. It's greater certainty and also greater
accountability to Parliament in terms of the progress of tax legislation.
It didn't go through this committee, but, as some of the committee members at
least are aware, a 1,000-page Technical Tax Amendments Act was passed last year,
and it caught up on several years' worth of amendments, and the idea is to
provide greater transparency and accountability with respect to tax amendments.
The Chair: I remember that legislation. When it says "legislative
proposals," in this instance you are not talking about something that has passed
but has not been proclaimed but rather something that has been announced?
Mr. Cook: It's certainly more targeted at announced as opposed to
passed but not proclaimed.
Senator Callbeck referred to the release we had back in November of 2013 with
respect to labour-sponsored venture capital corporations. That would be an
example of a specific legislative proposal that was announced. If it was
outstanding without being enacted for more than approximately 19 months, then
there would be an obligation to report that.
The Chair: We already have legislation that deals with something
that's been passed by Parliament but not proclaimed. If it stays around too long
then it comes back and we can deal with that.
Income tax, as I understand it, once the announcement is made the legislation
follows in due course; it's retroactive to the time the announcement was made.
This would be to try to deal with that kind of situation where it's been
announced, people are expecting it to come, and they know that it would apply
back to the time it was announced, if and when it was passed into law.
Mr. Cook: That very often is the case in the sense that when a new tax
measure is announced, very often its effective date will be the date of
announcement on the expectation that most taxpayers and the CRA will administer
the act and act on the basis that it will ultimately be enacted with an
effective date as of the announcement.
The Chair: We're into non-income tax amendments now. We've just done
the Financial Administration Act and now you're into the Income Tax Regulations.
Mr. Cook: That's right. Again, we'd been talking about the Offshore
Tax Informant Program and how amounts will have to be withheld. Clause 32
actually just specifies the amounts to be withheld from payments to residents of
Canada: in the case of a payment to a resident of Quebec, 30 per cent of the
payment; in the case of a resident of another province, 50 per cent of the
When the individual files the appropriate tax return there will be the tax
calculation, and if there's any residual amount they would be entitled to get
The Chair: Are you able to explain the difference between Quebec at 30
per cent and the rest of Canada at 50 per cent?
Mr. Cook: Quebec is not an agreeing province with respect to
individuals. So 50 per cent is a proxy for the highest federal-provincial income
tax rate, and then 30 per cent is the highest federal rate.
The Chair: Are all other provinces in the agreement with the federal
government to collect?
Mr. Cook: On personal income tax, yes.
Clause 33 deals with the frequency for remittance of employer-sourced
deductions. Employers have to make source deductions in respect of income tax,
Canada Pension Plan premiums and Employment Insurance premiums.
Based on the employer's average payroll, and it's actually based on the last
two years' average payroll, the average going back two calendar years, there's a
frequency for how often they have to remit. Currently, if an employer has a
payroll of between $15,000 and $50,000 they remit up to twice per month, and if
their monthly payroll is over $50,000 they have to remit up to four times per
Those remittance thresholds were introduced back in 1988 and 1990 and haven't
changed since then. This measure would provide now that if an employer has a
payroll of up to $25,000, they just remit once per month; if they have a payroll
of between $25,000 and $100,000, they would remit up to twice per month; and if
they have a payroll of more than $100,000, then they'll remit four times per
This will reduce the frequency of remittances for approximately 50,000
employers in Canada. It's obviously sort of relieving in nature with respect to
The Chair: Are those figures of $25,000 and $100,000 per month salary
Mr. Cook: That's right, wages and salary. That's clause 33.
Clause 34 again relates to the Offshore Tax Informant Program. It just
requires an information return to be filed when you make a payment to a
non-resident who is subject to withholding, which we have talked about.
Then in clause 35, this relates to labour-sponsored venture capital
corporations. Basically, because we've broadened the application of the
transitional rules to federally registered labour-sponsored venture capital
corporations, as a consequential matter we could take out a reference to one
section in this provision.
Clause 36 is a measure we haven't discussed that was announced in Budget 2014
and it relates to pension transfer limits. When a person leaves a defined
benefit pension plan, the Income Tax Act has rules on how much can be
transferred to an RRSP by that person on a tax-free basis. Generally, when the
amount paid to the person is reduced because the plan is underfunded, the amount
that can be transferred on a tax-free basis is also reduced because the
transferable amount — that is, the amount that can be transferred tax-free — is
based on what the estimated pension entitlement is. That means as well as
getting a reduction in your benefit, you get a reduction in the amount you can
transfer into an RRSP.
In 2011, a rule was introduced to disregard that reduction in benefits in
calculating the transferable amount if a number of conditions are met. The most
important is that the employer is insolvent and the pension plan is being wound
up. Subsequently, it has come to our attention in a few particular situations
where the same type of thing is happening. We've got a reduction in pension
benefits because of underfunding, because perhaps the employer is not insolvent
or because they're trying to turn around the plan so the pension plan is not
being wound up. The budget proposes not to apply the rules that reduce the
transferable amount in cases where the assets of the plan are insufficient to
pay benefits and the reduction in the lifetime benefits is approved under
applicable pension benefits legislation, be it federal or provincial or, in the
case of individual pension plans, the plan is being wound up. It's taking a
relieving rule that we introduced in 2011 in a particular situation and
expanding it a bit to allow taxpayers to have great ability to transfer amounts
out of a pension plan on a tax-free basis.
The Chair: If an individual is moving to a different kind of pension
plan, and if the pension plan that existed didn't have enough money in there —
and that's the kind of thing we're targeting — then, as you said, if it's not
there then it can't be transferred into an individual plan. Does the individual
get a credit, though? Later on, as he or she makes more money, can more money be
put in there than they normally would to reach the credit?
Mr. Cook: Sometimes — and I think this is where it's targeted — when
there is a transfer to an RRSP, the way the calculations are made the amount
that's transferred might not always be fully protected in the sense that the
amount that you're allowed to transfer on a tax-free basis will be less than the
amount that you're actually transferring out of the plan into your RRSP. Even
though there is a reduction in your benefits, it's not necessarily the case that
your transferable amount covers all the cash that's being transferred out of the
Clause 37 is the last new measure to discuss in Part 1. Under the Income Tax
Act, there are particular rules that are called mark-to-market rules that are
applied to financial institutions. The mark-to-market rules require taxpayers to
pay tax on accruals in value. If you own a share and the share goes up in value,
you don't wait until the share has been sold; you just pay tax on an accrual
basis. It applies generally to financial institutions and assets and investments
that they hold as inventory. Under those mark-to-market rules, there's an
ability to describe taxpayers so that they're not financial institutions and
subject to the mark-to-market rules.
In the context of the government's Venture Capital Action Plan, they'll be
setting up private-sector-led funds, and the Business Development Bank of Canada
and BDC Capital Inc. are going to be involved in the establishment of the
initial partnerships and in fact may be majority investors in those partnerships
for some initial period.
The Business Development Bank of Canada, even though it is tax exempt, could
potentially satisfy the definition of being a financial institution, making the
partnership it's involved with subject to the mark-to-market rules. It was felt
that was inappropriate and would act as a disincentive to investors
participating in these partnerships because they might be forced to recognize
income on a mark-to-market basis. This amendment provides that for the purposes
of the mark-to-market rules, the Business Development Bank of Canada and BDC
Capital Inc. will not be financial institutions.
Clauses 38 and 39 are just amendments to the Canada Pension Plan regulations
and the insurable earnings and collection of premiums regulations which relate
to Employment Insurance premiums. These amendments just relate to the remittance
thresholds we discussed earlier. Remittance thresholds are calculated on the
Senator Bellemare: When it comes to these regulations on the Canada
Pension Plan, the Quebec Pension Plan is normally adjusted accordingly. Will
that apply to Quebec? Were any discussions held about that, or can changes be
made to the CPP without an obligation to do the same with the QPP? Normally,
administrative arrangements are made to ensure the two plans are nearly
Mr. Cook: To be honest, I'm not aware of any negative response we've
had from Quebec since this was released. I'm not aware of specific discussions.
When we make changes either to the Income Tax Act or related, Quebec will often
do similar changes. I'm not aware in this particular instance of whether there
has been a discussion.
Senator Bellemare: Does that have any financial impact?
Mr. Cook: In terms of financial impact, there is no impact on the
amount of withholdings that are made or ultimately are remitted. I do believe
that over the five- or six-year planning horizon there will be an increase in
public debt charges by virtue of employers being able to hold on to their money
and remit less often; then interest charges of the government will be somewhat
Senator Bellemare: Many provisions we have seen previously are very
specific and difficult for us to understand as a whole. I assume that those
provisions have no financial impact individually. But do they have a financial
impact collectively? If so, do you have an idea of how significant that
financial impact is?
Mr. Cook: In terms of all the amendments in Part 1?
Senator Bellemare: Yes.
Mr. Cook: I'll sort of go through the things that were announced in
the budget. For example, the Adoption Expense Tax Credit is in the order of $10
million; the Search and Rescue Volunteers Tax Credit over the planning horizon,
$21 million; pension transfer limits, $28 million; donations to ecologically
sensitive land, no, the impact is less than $1 million per year. We would expect
to gain revenue of approximately $20 million on donations of certified cultural
On the remittance thresholds, we had talked about that. It would have an
impact on public debt charges.
Those are really the measures for which there is a particular impact. The
electronic funds transfer is just an information reporting requirement, so it
doesn't have a direct impact on revenues. I think those are the main ones.
Senator Hervieux-Payette: In the case of amendments that have amounts
of money attached to them, are those sums the only changes being made? Is the
rest of the bill's wording the same as before?
For instance, amounts of $100,000 and $25,000 are set out in paragraph 4. In
paragraph 2, $100,000 is mentioned. Were those amounts previously, for instance,
$10,000 or $50,000, or is this a complete change in terms of application?
I am talking about section 39.
Mr. Cook: I will find my numbers. You're quite right. All there were
changes to thresholds. So what we're talking about is the frequency with which
employers have to remit to the CRA, and it's based on their monthly payroll.
Currently, the rules provide that if they have a monthly payroll of less than
$15,000, they remit once per month; if they have a payroll of between $15,000
and $50,000, they remit up to twice per month; and if they have a payroll of
more than 50,000, then they remit up to four times per month.
The amendment will raise those thresholds to allow certain employers to remit
on a less frequent basis. The new numbers are if there is a payroll of less than
$25,000 per month, you would remit once per month; on a payroll of between
$25,000 and $100,000 per month, the employer would remit up to two times per
month; and on a payroll of more than $100,000, the employer would remit up to
four times per month.
Senator Hervieux-Payette: If I understand correctly, our
administration is lightening its workload a bit by receiving checks less
frequently, so fewer financial operations would be involved in those
remittances. That may make the system more efficient.
Mr. Cook: It has certainly been welcomed by businesses that would
remit on a less frequent basis.
Senator Hervieux-Payette: That is also true for the department. If the
frequency was reduced over the course of the year and, instead of receiving
checks every week or every two weeks, you received them once a month, you would
have less paperwork and fewer financial operations. Do you agree?
Mr. Cook: That's correct.
Senator Hervieux-Payette: Paragraph 40(1)(c) talks about
property having a nominal value other than financial instruments and property
having a nominal value. What does property with a nominal value consist of? What
kind of property is that?
Mr. Cook: I'm sorry. That's in Part 2 on GST. That's not my area.
Senator Hervieux-Payette: Okay. I thought we were also looking at
The Chair: Seeing no other senators, it's for me to thank you, Mr.
Cook and Mr. Jovanovic. Thank you very much, and I understand that you'll be
staying on, Mr. Cook, and it will take two people to replace Mr. Jovanovic. We
appreciate your help.
Colleagues, we only have 15 minutes, but the second panel has been waiting
here throughout the afternoon. We owe it to them to get started. We will adjourn
promptly at 4:30 and continue tomorrow at 1:45, same room, on the same subject.
This is Part 5 we're going to now. Part 5 is the Canada-United States
enhanced tax information exchange agreement implementation act, clauses 99 to
101, and we have from the Department of Finance, Brian Ernewein, General
Director, Tax Policy Branch; Kevin Shoom, Senior Chief, International Taxation
and Special Projects; and returning by popular demand, Ted Cook, Senior
Legislative Chief, Tax Legislation.
Thank you very much for your understanding. You see the manner in which we
wish to proceed. We're at Part 5. If you could give us an overview and get
started on the clauses in Part 5, it would be appreciated.
Brian Ernewein, General Director, Tax Policy Branch, Department of Finance
Canada: Thank you. I was going to ask for your guidance. Part 5 is
implementing legislation for an agreement that we signed with the United States.
We could speak directly to that point, but it seemed to me that might leave
begging what that agreement does, and perhaps a bit of the background leading to
the agreement as well. With your indulgence, I thought I might offer background
to how we got to that agreement and what has led to the implementing
The Chair: Obviously, Mr. Ernewein, we won't get finished Part 5
today, so I think what you propose to do would be very helpful in our further
deliberations, if you can give us an overview of what this is all about and why
we need this enabling legislation.
Mr. Ernewein: Part 5 of the legislation of this implementation bill is
to implement the Canada-U.S. agreement related to FATCA, the Foreign Account Tax
Compliance Act. FATCA is a U.S. law that was enacted by Congress in 2010 and is
now scheduled to take effect in July, the middle of 2014.
It would, if it applied, require non-U.S. financial institutions, for
example, Canadian banks, to sign agreements with the Internal Revenue Service,
the IRS, under which those non-U.S. financial institutions would have to
undertake due diligence, so-called, to identify their U.S. account holders and
report on those account holders to the IRS in the United States.
In some circumstances the foreign financial institutions — I will start
talking about the Canadian financial institutions, so I'm not interrupting
myself — Canadian FIs, if FATCA would apply, would be required to withhold 30
per cent of the payments to their account holders that had this U.S. indicia, or
to close those accounts. An FI that didn't sign the agreement with the IRS to do
this would itself be subject to a 30 per cent withholding tax on payments made
to itself or to its account holders that have a U.S. source.
It's probably not surprising, having said that, to go on to say that FATCA
raised a number of concerns in Canada, including potential inconsistency with
Canadian privacy laws, the potential application of this 30 per cent withholding
tax that I've spoken of, the possible requirement to close bank accounts, which
I've referenced, and, just generally, a very burdensome regime for financial
institutions and their customers.
Without an agreement of some sort, FATCA would have been unilaterally imposed
in Canada as of the middle of this year, and the Canadian government, along
with, to be fair, several other governments, urged the U.S. to find an
alternative to FATCA itself, suggesting that our and other countries' tax treaty
— more precisely, the exchange of information provisions in our current tax
treaty — would be a better model for collecting information and exchanging it
with the United States.
After long negotiations — this took place over a couple of years, if not
longer — we did sign an agreement, a so-called intergovernmental agreement, or
IGA. If I fall into the parlance of IGA, I'm talking about the agreement itself.
We signed an agreement with the U.S. on February 5 of this year based on a
model that relies on the exchange of information provisions in our Canada-U.S.
treaty. In broad strokes, the agreement requires us to collect information
through our own revenue authority, the Canada Revenue Agency, on some of the
aspects that the FATCA rules would require. I'll come back to that in a second.
With that information being transmitted to the Canada Revenue Agency, the CRA
itself could use the existing authority of the Canada-U.S. treaty to transfer
that information to the IRS, our U.S. treaty partner.
We think that this intergovernmental agreement, or IGA, has a number of
benefits relative to the FATCA approach that would have otherwise applied. There
is no direct reporting by Canadian financial institutions to the IRS. The
exchanged information that goes from the Canada Revenue Agency to the IRS will
be subject to the safeguards of the treaty. I can speak at greater length about
that, but there are protections in the treaty and limits on the use of tax
information exchanged under the Canada-U.S. tax treaty, and this model would
rely on those or invoke those.
It turns off the 30 per cent withholding tax and makes it explicitly about
the exchange of information; it turns off the requirement that FACTA itself
would have for FIs to potentially close the accounts of their customers; and it
includes a number of exemptions, both for certain small financial institutions
and also for a lot of different registered accounts, for which reporting will
not be required, which doesn't eliminate but substantially moderates the
compliance burden on financial institutions and their clientele.
The agreement also offers Canada reciprocal benefits in terms of additional
information the U.S. will provide to Canada on Canadian residents with accounts
at U.S. financial institutions. It's not full reciprocity at the outset — I can
talk about that at greater length — but there is additional information coming
in Canada's direction as well.
One of the last points I'll make is that the intergovernmental agreement is
also consistent with recent multilateral commitments the G20 has made — and that
of course includes Canada — to a new standard for automatic information
exchange. This is developing into what's come to be known as the common
reporting standard for automatic exchange of information. It's not in place yet,
but it's under development, and as I say, it has already been endorsed by G20
leaders and finance ministers.
I will note that the U.S. has signed 28 intergovernmental agreements so far,
and we also understand from them that they have a further 27 agreements in
principle with other countries on these IGAs.
I'll stop there, and perhaps I'll ask Mr. Cook to talk a little bit about the
implementing legislation itself.
Mr. Cook: The implementing legislation is spread over three clauses in
Part 5. The first clause, clause 99, actually implements the intergovernmental
agreement. It creates the Canada-United States enhanced tax information exchange
agreement implementation act, and the IGA forms a schedule to that act and is a
schedule to this bill.
It largely provides our standard treaty-type implementing language. It
provides that the agreement will have the force of law in Canada. To the extent
of inconsistency with other laws in Canada, it will prevail, except for Part 18
of the Income Tax Act, which is the actual information reporting requirements
contained in the Income Tax Act. Finally, if there is a conflict between the
agreement and the Income Tax Conventions Interpretation Act, that act will
It gives the Minister of National Revenue authority to make regulations and
also requires the Minister of Finance to cause the agreement or any amendments
to it or the termination of it all to be published in the Canada Gazette.
So that's just a small act at the start of Part 5, which would bring the IGA
into force of law in Canada, and I'll mention them briefly. Clause 100 provides
one amendment to the Income Tax Act, subsection 162(6), which provides a penalty
in the case where a request is made for a person to provide a U.S. tax
information number and they decline to do so.
Finally, clause 101 would implement a new part to the Income Tax Act,
Enhanced International Information Reporting, and these are the requirements
within the Income Tax Act essentially for financial institutions in Canada to
perform the appropriate due diligence exercise and report to the CRA on an
Senator Bellemare: Did financial institutions have a positive reaction
Senator Hervieux-Payette: No.
Senator Bellemare: Were they consulted?
Mr. Ernewein: Yes. I guess the answer is yes, but the reason for my
hesitation is that I don't think they love it. I think they like it better than
the alternative, that FATCA itself, as I described, would have put them in a
difficult if not impossible situation with being required by U.S. law to provide
information directly to the IRS that might have been in direct conflict with
Canadian privacy laws, if not other laws.
If they were being direct, I think they would probably say they would rather
not do this at all, but as between this and the FATCA itself, I think they
consider it a much better setup in the sense that it carves out all the
registered plans, it excludes the application of the rules to smaller financial
institutions, and by virtue of the collection of information by our own Canadian
revenue authorities and transmission to the U.S., it overcomes, in our view,
some of the legal conflict concerns that would have otherwise existed.
Senator Callbeck: I have a question on privacy concerns. I understand
that some serious concerns are being expressed over privacy. I'm wondering, has
the Privacy Commissioner been consulted?
Mr. Ernewein: The Office of the Privacy Commissioner has been kept
abreast of all developments. When FATCA was first enacted, perhaps even before
it was enacted and still before Congress, concerns were expressed about its
scope and application, and the Privacy Commissioner was alerted to those issues
at that time.
In our discussions with the U.S., we've kept the Office of the Privacy
Commissioner informed about what we were doing. We've also made sure to alert
them that the agreement was being signed, to share the agreement with them and
to share the draft legislation at that time.
It's my understanding that the Privacy Commissioner does not bless, if you
will, government actions or legislation, so I don't wish to speak for the office
or the commissioner, but certainly they have been kept informed of all
Senator Callbeck: I received — and I'm sure members of the committee
did as well — emails where people are worried about this legislation. A number
have commented that if it passes, there will be a Charter challenge.
Has the government — I'm sure it has — looked at whether the bill is
Mr. Ernewein: Yes, we have. The Department of Justice is charged with
the responsibility to make an assessment of all pending legislation and to
identify to Parliament, I believe, if there's a concern that the legislation is
not Charter-compliant. To our understanding, the Department of Justice has
fulfilled its responsibilities in this case.
Senator Callbeck: All right.
Senator Chaput: My question was asked by Senator Callbeck. If I
understood correctly, this has to do with the Privacy Commissioner's advice. You
kept her abreast, but you did not consult her. Is that correct?
Kevin Shoom, Senior Chief, International Taxation and Special Projects,
Department of Finance Canada: I am sorry. We had problems with the
translation, but I will attempt to respond.
Yes, we did meet with representatives from the Office of the Privacy
Commissioner on several occasions. We informed them of the developments and the
negotiations to keep them aware of what was going on, and we signalled to them
an openness to hear any concerns they might have. Also, if the commissioner
wanted to meet with us, we would certainly have been willing to do so. We did
extend that offer to them.
Senator Chaput: Was the offer extended before or after the fact?
Mr. Shoom: It was extended during the negotiations, before the
Senator Chaput: Had she had recommendations that were not in line with
what you were doing, would you have taken them into account?
Mr. Ernewein: If I may answer, we would like to expect that we would
have heard, and so we infer from the fact we did not hear that there were not
issues. But as I say, we're reluctant to speak on the commissioner's behalf. We
did what we could to keep the office informed of developments.
I will add that one of the advantages on this particular file is that for the
intergovernmental agreement that we were negotiating, there's actually a model
of such agreement. Other agreements were signed before ours came along which
gave the commission, as well as ourselves, the ability to talk more openly about
what was under negotiation. There's more awareness, if you will, of the matters
Senator Gerstein: Mr. Cook, how far back can you go? It is retroactive
for how many years?
Mr. Cook: Well, the legislation actually starts imposing the due
diligence requirements. It is not retroactive.
Senator Gerstein: It is not retroactive?
Mr. Cook: It is not retroactive. Mr. Shoom would be better to respond,
but the review of the accounts will start at the end of June this year.
Senator Gerstein: It has not commenced yet.
Mr. Cook: That's correct.
Senator Gerstein: Once the review takes place, is it retroactive in
terms of application?
Mr. Shoom: Under the agreement, the Canadian financial institutions
would be expected to begin their due diligence procedures in July of this year.
At this time, there's no obligation on Canadian financial institutions to be
doing anything to comply with the agreement.
Obviously, they need to prepare, and they're working on their systems, et
cetera, so they are getting ready. At this point, they are not screening their
Once the agreement is in operation, they will be obliged to conduct due
diligence on new account holders. They will also have a window during which they
will be expected to conduct due diligence on their existing account base. Those
would be accounts that were in existence at the end of June of this year. If
those are identified as U.S. reportable accounts, they would be expected to
begin reporting on them beginning in the year in which they are identified as a
For example, if an account is identified in January 2015 as a reportable
account, the first report that would be due would be for 2015 and that would be
a report that's made in 2016.
Senator Gerstein: Do they have the ability to go back on the account
to what took place in 2010?
Mr. Shoom: Under the agreement, there's no obligation to do any
reporting going back in that manner.
Senator Gerstein: There is not. What kind of quantum are you talking
about? I assume we're talking $2 billion to $3 billion a year. Are those the
kind of numbers we're dealing with?
Mr. Shoom: Are you talking about the number of accounts or the number
Senator Gerstein: No, the amount that will be payable.
Mr. Ernewein: We don't have that number. I'm not sure we're measuring
it that way.
I think the question is how many accounts of the financial institutions in
Canada will be subject to some sort of review. That is a difficult question to
It will be those accounts which reflect a U.S. connection or an indicia, as
the FATCA rules speak of it, and that's a question of how many American
residents have accounts with Canada and, potentially, of American citizens who
have accounts with Canadian financial institutions.
It is purely about information exchange and providing that information to the
U.S. It is not about any collection action or dollars and cents, except in the
indirect way that it could have the ability to help the U.S. in identifying
taxpayers who are not fully compliant.
The Chair: Colleagues, we're just about at the end of our time. There
are a couple of names on my list who wanted to pose questions.
This clause 99 implements the agreement that is Schedule 3, which is at pages
315 to 356. It may be worthwhile if we took the night to get a feeling for just
what is in this agreement that is attached as a schedule to clause 99. The
agreement has already been entered into, but we're bringing it into law in
Canada, so we should understand what it is.
What I would propose, having an eye to the clock, is that we continue this
discussion tomorrow at 1:45. Would that be okay with each of you?
Mr. Ernewein: Yes. We are in your hands.
The Chair: Thank you very much. Maybe Mr. Cook could spend a little
time going through this schedule, the agreement, just to give us a flavour for
what we're adopting here, 40 pages or so of an agreement between Canada and the
Mr. Cook: Certainly, Mr. Chair.
The Chair: Senator Mockler, you are on the list as the first person
tomorrow at 1:45.