THE STANDING SENATE COMMITTEE ON NATIONAL FINANCE
EVIDENCE
OTTAWA, Tuesday, December 2, 2025
The Standing Senate Committee on National Finance met this day at 9:02 a.m. [ET] to examine the subject matter of all of Bill C-15, An Act to implement certain provisions of the budget tabled in Parliament on November 4, 2025.
Senator Claude Carignan (Chair) in the chair.
[Translation]
The Chair: I would like to welcome all senators as well as all the Canadians watching us on sencanada.ca.
My name is Claude Carignan. I am a senator from Quebec and the Chair of the Standing Senate Committee on National Finance. I’d now like to ask my colleagues to introduce themselves.
Senator Forest: Good morning. Éric Forest from the Gulf division of Quebec.
Senator Gignac: Good morning. Clément Gignac from the Kennebec division of Quebec.
[English]
Senator Pupatello: Good morning, I’m Sandra Pupatello. I come from Windsor, Ontario.
Senator Cardozo: Andrew Cardozo, I guess I have to say where I’m from now. I’m from Ottawa, Ontario.
[Translation]
Senator Dalphond: Good morning. Pierre Dalphond from the De Lorimier division of Quebec.
[English]
Senator Kingston: Joan Kingston, New Brunswick.
Senator MacAdam: Jane MacAdam, Prince Edward Island.
Senator Marshall: Elizabeth Marshall, Newfoundland and Labrador.
[Translation]
The Chair: Thank you very much, honourable senators.
We begin our study of Bill C-15, An Act to implement certain provisions of the budget tabled in Parliament on November 4, 2025.
For our first panel, we’re pleased to welcome, from the Office of the Parliamentary Budget Officer, Jason Jacques, Interim Parliamentary Budget Officer, Mark Mahabir, Director General, Costing and Budgetary Analysis, and General Counsel, and Govindadeva Bernier, Director, Budgetary Analysis.
Thank you for accepting our invitation to appear today. It appears as though you have just released the report on Build Canada Homes only a few minutes ago.
You have five minutes for your opening statements, but if you wish to have more time to speak about the report that was just released, do go ahead, because it’s a part of Bill C-15.
Jason Jacques, Interim Parliamentary Budget Officer, Office of the Parliamentary Budget Officer: Honourable senators, thank you for inviting us to appear before you today.
In accordance with the PBO’s legislative mandate to provide impartial, independent analysis to help parliamentarians fulfill their constitutional role of holding government accountable, my office has and will continue to prepare reports and analysis of Budget 2025 and selected measures proposed in Bill C-15.
[English]
This morning, our office published an independent cost estimate of the personal support workers tax credit, as well as an analysis of Build Canada Homes and the outlook for housing programs under Budget 2025.
We estimate that the temporary refundable personal support workers tax credit proposed in Budget 2025 will cost $1.4 billion over the next five fiscal years.
Our latest report on the outlook for housing programs finds that from 2025-26 to 2029-30, Build Canada Homes plans to spend $7.3 billion, with $6.7 billion in new funding. Including loans and asset development, total planned disbursements will reach $13 billion, of which about $11.6 billion is new money. We estimate approximately 26,000 units will be created over the next five years, a 2.1% increase in housing completions relative to our baseline projection.
In the coming weeks, we plan to publish additional analyses related to Bill C-15, including an updated cost estimate of the Canada Dental Benefit and the new Canadian Dental Care Plan; an analysis of the accelerated investment incentive, which provides an enhanced first-year writeoff for most capital assets; an analysis of the enhanced Scientific Research and Experimental Development tax incentive program; and our assessment of the government’s $1-trillion investment target.
[Translation]
We would be pleased to respond to any questions you may have regarding our analysis of Budget 2025 and Bill C-15.
Thank you.
The Chair: Thank you very much, Mr. Jacques. Just to let you know, we intend to call you back as a witness after the holidays, once the updates have been released.
[English]
Senator Marshall: Thank you to the Parliamentary Budget Officer and his staff for being here this morning.
My questions are on Bill C-15. I’m hoping you will be able to help me with a few of the divisions I have questions on. The first one is Division 38 under the Borrowing Authority Act. The government has indicated it’s proposing an amendment to raise the debt ceiling from $2.1 trillion to $2.5 trillion, which is quite a significant amount of money, especially since they raised the ceiling just maybe 18 months ago.
Have you looked at that? I’m curious as to whether you have a continuity that shows how they arrived from $2.1 trillion up to $2.5 trillion and if there’s a buffer in there, how much that is. Do you have any information on that, the composition of the increase?
Mr. Jacques: We haven’t prepared a complete reconciliation. At the same time, we also noticed the proposed increase, so we did look at it to determine — based upon our medium-term forecast of the government’s deficit and their borrowing requirements — whether the proposed increase would be adequate to accommodate that. From our perspective, based upon our first review, it seems to be reasonable.
Senator Marshall: So that’s for the next three years. Do you have the continuity, that is, how they got from the $2.1 trillion? In previous years, they indicated how they got from the old ceiling to the new ceiling. Do you have that information?
Mr. Jacques: We do not have that information, but we can certainly go back and find it for you.
Senator Marshall: Yes. If you have that, I’d be interested in that.
My other question involves some of the divisions under Part 5. The Canada Development Investment Corporation act — are you able to give us any insight into that? What’s the government doing there, because there’s already the Canada Development Investment Corporation, and it seems like they’re making some changes. I’m wondering if you’re able to give us any insight into what the purpose of those amendments is from your perspective.
Mr. Jacques: No, we haven’t looked into that in specific detail.
Senator Marshall: There are two others, the high-speed rail network act, the Build Canada Homes and, oh, yes, there’s the Building Canada Act. Have you looked at any of those?
Mr. Jacques: On high-speed rail, the answer would be no. On Build Canada Homes, the answer is yes.
Senator Marshall: For Build Canada Homes, have you looked at the aspect of accountability to Parliament and whether there’s sufficient information going to Parliament on the programs that are going to be administered by Build Canada Homes?
Mr. Jacques: We did, and it’s certainly something in terms of the legislative structure and the way it was being established. Because it is slightly different from a government department, we had questions around that.
Based upon the report that we published this morning, we were able to obtain, I would say, more than adequate information to have a good sense directly from the department and the organization regarding what they plan to spend on through our standard powers of information request. I think, certainly, as an interim agent of Parliament, we’re in a good position to support the committee in terms of their understanding of what’s going on within that organization.
Senator Marshall: Did you come to any conclusion as to whether there’s an adequate reporting structure to Parliament? Because I’m finding is that with some of these organizations that are, sort of, off to the side, the reporting structure and the accountability to Parliament are not that strong.
Mr. Jacques: It’s different, and I would say it’s a good question.
My perspective is certainly informed by whether we are able to obtain the information necessary to produce analyses for parliamentarians. In the case of Build Canada Homes, the answer would be yes.
To take another example of the new Defence Investment Agency, in that situation, the answer is no. About a month ago, we asked for basic tombstone information, such as what the budget is, how many staff they plan to have this year and what some basic characteristics are around standard object spending, and it has been crickets for the past four weeks. In that situation, I would say that our ability to obtain information to provide to Parliament is definitely limited.
[Translation]
Senator Forest: Thank you for being with us this morning.
My first question is on the personal support workers tax credit. What’s the policy objective of the proposed tax credit for personal support services? What type of worker would benefit from this program?
[English]
Mark Mahabir, Director General, Costing and Budgetary Analysis, and General Counsel, Office of the Parliamentary Budget Officer: Thank you for the question.
According to the legislation, it will be workers working in an institution or a facility but not including nurses, so everyone other than nurses.
[Translation]
Senator Forest: Why would this measure be funded in part by the sums announced in 2023 to increase the salaries of orderlies? Why does a large portion of these funds remain unused?
[English]
Mr. Mahabir: That’s a good question. I think that question would best be answered by the Department of Finance Canada. We don’t have an answer for that one.
[Translation]
Senator Forest: Mr. Jacques, based on your analysis of Bill C-15, what measures should we focus on in terms of risk management with regard to cost assessments?
Mr. Jacques: I believe there’s a well-established framework within the Government of Canada for assessing risks and managing costs for any given program. The first step, in my view, is to develop a sound cost estimate, followed by some modelling with reasonable proposals, so that we and the government can publish all the data in a transparent and clear manner and share it with the public and outside experts.
Then there needs to be an effort to evaluate the current data and monthly results compiled for the Government of Canada. The impact of these programs also needs to be evaluated, and a comparison made between the forecasts and the actual results. Finally, the Auditor General can always evaluate the program management audit framework.
Senator Forest: According to your initial analysis, are there any specific measures where you believe, for example, that the risks of cost overruns or the risks of the more specific measure that should be given special attention among all the cost-benefit analyses are roughly equivalent?
Mr. Jacques: As far as I’m concerned, with Bill C-15 specifically, we haven’t identified any particular concerns with the risk management of this plan. We’re not experts in risk management for the Government of Canada as a whole. However, specifically with regard to cost estimates, changes to the tax system, and new transfers to the public, I think the current situation is working.
We have seen major mistakes in the past. In the case of an innovative program, such as dental care programs, when something is brought to the Government of Canada with imperfect data, that makes it difficult to accurately predict the results.
Senator Forest: Thank you.
[English]
Senator Cardozo: I would like to come back to the personal support workers tax credit that my colleague just raised. This tax credit applies, as noted in proposed subsection 122.93(1), to an eligible health care establishment, which means a hospital, a nursing care facility, a residential care facility, et cetera — essentially, institutions. I may be wrong, but my sense is that a good number if not the majority of personal support workers, or PSWs, work outside institutions, so they work in people’s homes, either individually or through private sector agencies or governmental agencies.
Are none of them covered by this, as you understand it?
Mr. Mahabir: As we understand it, no, but for our calculations, we actually included the universe of individuals who are personal support workers. Our numbers actually include those individuals as well.
Senator Cardozo: So it includes individual PSWs who are just doing it themselves, between themselves and the client?
Mr. Mahabir: Yes.
Senator Cardozo: And that is $1.4 billion per year?
Mr. Mahabir: No, for the next five years.
Senator Cardozo: I don’t want this to sound rude, but why would you do it that way when it doesn’t include people who are not in institutions?
Mr. Mahabir: Thank you for the question.
We did it that way because of the way the data was collected.
Senator Cardozo: So the data doesn’t break out whether they work in an institution or not?
Mr. Mahabir: No.
Mr. Jacques: I would also add that one of the other considerations in the preparation of the cost estimate was that there is only one other cost estimate out there, and that is from the Government of Canada in Budget 2025. Our numbers are slightly higher — about 10% higher — but they’re not tremendously higher.
For us, in a situation where there wasn’t data to be able to partition who of the skilled population of PSWs is working in institutions versus who is working outside, and as opposed to making an assumption regarding, of the total population, who is working in institutions and realizing that if we incorporated everyone, we’d come to a number that’s about 10% higher, we thought that 10% in our line of business for a brand-new tax credit that we haven’t seen before — it means that it’s pretty much the same number as that of the Department of Finance, without having to make an additional assumption regarding who precisely would be eligible.
Senator Cardozo: If it is only a 10% difference, is it your sense that the number of people working outside institutions is only 10%?
Mr. Mahabir: We’re not sure exactly on the numbers working outside the institutions, because the survey only looks at people in that sector and not exactly at the location where they’re working.
Senator Cardozo: Many of us were lobbied this week by the Canadian Labour Congress, and among them were PSWs. They were really concerned about this. One of the concerns they had was that this doesn’t kick in until next year.
Are there examples where tax credits start retroactively for the year we’re currently in? Can government do that without it being too disruptive?
Mr. Mahabir: I can answer that one. The effective date is usually from the announcement made by the minister.
Senator Cardozo: Okay.
Mr. Mahabir: For this one, the effective date is January 1, 2026, the first day of the 2026 taxation year. For tax credits, usually it’s the taxation year, and because this is a personal tax credit, it begins on the start of the calendar year, January 1.
Senator Cardozo: I want to state for the record that I think PSWs are an important part of our health care system, both for keeping people in place in their homes and in institutions, and they’re generally overlooked. Having this tax credit is a good move. I hope it ends up covering people who are not in institutions, as well.
Thank you for your answers.
Senator Pupatello: Chair, we had clarification from the minister on who is eligible, because they did provide that information, so it extends beyond hospitals, for example.
The Chair: When it’s your turn —
Senator Pupatello: I beg your pardon?
[Translation]
The Chair: When it’s your turn, you can return to the subject, because interrupting the witness may not be the best way to proceed.
Thank you.
[English]
Senator Ross: My question is for the Parliamentary Budget Officer. Not that long ago, you said we were “. . . looking out over the cliff . . .,” but in your report on the budget, you state, “. . . based on Finance Canada projections, current fiscal policy in Budget 2025 would be deemed sustainable over the long term.”
With your own office’s report, I’m wondering what caused those initial comments and what has changed your opinion.
Mr. Jacques: Sure. Thanks for the question. The initial comments were based upon the numbers we were looking at in September. In particular, in September, the medium-term forecast of an increasing debt-to-GDP ratio — which is something that, as defined by the government at the time, was one of the best medium-term indicators of financial sustainability, and also important for securing or maintaining Canada’s Triple-A credit rating — so looking at the medium‑term forecast in September, we saw the debt-to-GDP ratio was increasing over the next five years.
In addition to that, we didn’t include about $100 billion of spending per annum, because it wasn’t fully clarified at that point. That included about $20 billion of election commitments as well as the NATO 5% commitment, which the government has publicly committed to, but we’re still in a position where we don’t have sufficient detail on that.
At that point, looking at the government’s definition of sustainability, looking at the numbers, looking at the numbers in terms of the net spending that we couldn’t include, it definitely raised concerns regarding sustainability for one of the government’s key fiscal anchors.
What’s changed since then is Budget 2025. As we see in Budget 2025, over the medium term — so over the next five years — the debt-to-GDP ratio is, in fact, going up. That said, the government has produced a longer-term forecast over the next 30 years which indicates that the debt-to-GDP ratio is pretty much stable; it is flat over a 30-year period of time, which indicates — by, again, the traditional measures that one would look at — things look fiscally sustainable.
I would say it’s fiscally sustainable. A chart that we have in our Budget 2025: Issues for Parliamentarians note, when you look at the previous 30-year forecasts, you can see that all of the additional room or space that was there previously in anticipation of the debt-to-GDP ratio declining over a 30-year period of time and creating additional room to manœuvre, that is gone. We’re now in a very different situation where the next time there’s an economic shock or something happens, instead of being in a situation where there is additional fiscal space or wiggle room, the government will likely need to go out and borrow additional money, which, in turn, will increase debt levels and the debt-to-GDP ratio, which might stabilize at a higher level.
It’s a very different situation than we’ve seen over the past 30 years. I would say it’s definitely a change in fiscal anchors. I would say it’s a change in fiscal policy, which wasn’t discussed meaningfully on Parliament Hill between the Prime Minister’s statement in the third week of September in the House of Commons, indicating that there was a debt-to-GDP anchor that was part of the government’s fiscal policy, to the first week of November, when the fiscal anchor, that debt-to-GDP anchor, was cut.
Senator Ross: If you were to give advice to us as to what we should be focusing on in these meetings that we’re having with government officials, what would you suggest might be an area of focus that would be the most helpful to our deliberations?
Mr. Jacques: The raison d’être of our office is transparency and fiscal transparency. I would go back to a comment made by your colleague with respect to the debt ceiling or the borrowing authorities. I think that’s a mechanism that works very well, where the government needs to come to Parliament; they need to ask for legislative authority to increase the debt ceiling. There can be a discussion around it. Senators and parliamentarians can look at it in detail.
There’s nothing similar around fiscal anchors. I think in a situation where — certainly for ourselves and for a lot of other people — we naturally assumed that the fiscal anchor that we’ve seen over the past 30 years, that’s used widely in other countries would always be here, and now it’s no longer here, and it happened without any discussion, I think that’s the type of thing where having the Senate put additional guardrails in place to ensure that if there are additional changes happening, there’s a default mechanism where Parliament and the Senate are going to discuss it, similar to the issue with respect to the definition around capital budgeting.
The government is in charge. They need to obviously propose, and then, once approved by Parliament, they need to actually implement the budget. At the same time, around these very primordial definitions of how the budget is going to be managed, ensuring that there’s clarity around that and ensuring that there’s informed consent by parliamentarians, I think that would certainly be helpful.
[Translation]
Senator Dalphond: I am looking at the first study you submitted this morning regarding credits for people working in the health sector. If I understand correctly, workers themselves receive a credit, rather than employers receiving a credit to create jobs. These workers must be employed in recognized institutions. I don’t know what constitutes a recognized institution. Is there a risk that this will lead to a shift of personnel from non-recognized institutions to recognized institutions? I am thinking in particular of those who provide home care services. These people don’t work for recognized employers, but for families, who often pay to have daily support at home. Isn’t there a risk that these people will once again move to an institution and opt for more regular employment with a more attractive salary because of the tax incentive?
[English]
Mr. Mahabir: Yes, that is a possibility. In our costing, we don’t have any sort of behaviour impact by employees switching employment. But because of the data we used — it’s StatCan data — there is no differentiation between the person working in an institution or working for an individual. So it could be the reason why our numbers are a bit higher than those of the Department of Finance.
[Translation]
Senator Dalphond: In the second study you released this morning on Build Canada Homes, you state that the analysis suggests that the program’s overall contribution will be rather modest. You say that it will add just a few thousand more subsidized apartments over a period of four or five years. In your estimation, how many low-income housing units will this generate in 2026, for example?
Govindadeva Bernier, Director, Budgetary Analysis, Office of the Parliamentary Budget Officer: I can’t give you precise figures for 2026 because of the delay between the allocation of funds, construction, and completion of the work. However, off the top of my head, I’d say that the program will have less of an impact in 2026 than in subsequent years. The number of affordable units over the next five years is estimated to be around 13,000. Assuming that the same number of units are built each year, we could have 2,000 or 3,000 units per year.
Senator Dalphond: Across Canada?
Mr. Bernier: Correct.
Senator Dalphond: The needs are greater than that in Montreal alone. So despite all the fanfare and hype around this program, we’re not seeing much in the way of results.
Mr. Bernier: Indeed, at this point, our conclusion is that this won’t have a significant impact on the housing supply. It will fill about 3.7% of the shortfall identified in a previous report, which stated that 690,000 new units would be needed by 2030 to make housing affordable again.
Senator Dalphond: You point out in your report that this is a five-year program. After that, the government intends to cut its budget starting in 2027. Should we expect Build Canada Homes to disappear in five years? Assets will have been built that will require ongoing management.
Mr. Bernier: I don’t think anyone expects Build Canada Homes to disappear in five years. Rather, it’s a matter of several current programs that were managed by CMHC having expiration dates scheduled within the next four or five years. At this point, there’s no word from the government on whether these programs will be renewed or renewed under the purview of Build Canada Homes. Based on the announcements, it appears that Build Canada Homes will primarily be responsible for affordable housing, while CMHC will continue to handle market-rate housing. So there may be other announcements or new programs, because the National Housing Strategy, originally planned for 10 years, expires in 2027. We don’t have any information at this time. Will some of these programs be renewed under the auspices of Build Canada Homes, or will new programs be announced? We don’t have any information on that yet.
Senator Dalphond: Thank you.
[English]
Senator MacAdam: You touched on this briefly earlier, but I wanted to expand a bit. In your report Budget 2025: Issues for Parliamentarians, you indicated:
Based on the long-term baseline projection in Budget 2025, there is limited fiscal room for the Government to reduce revenues or increase program spending while ensuring the federal debt-to-GDP ratio in 2055-56 is at or below its initial (2024-25) level. . . .
Did you look at other indicators or trends that might address fiscal room besides the debt-to-GDP ratio? Did you look at a suite of indicators, for example, accumulated deficit to GDP or debt charges as a percentage of revenue or net debt per capita — those kinds of indicators that would all point to trends in flexibility to address shocks that might occur in the system?
Mr. Jacques: Yes. Based on what you said, the short answer is “All of the above.” It’s not a single indicator that one wants to look at when assessing the overall fiscal sustainability or the fiscal health of an organization. You want to look at a basket of indicators both on the liquidity side and on the solvency side.
Something that we track on a regular basis are the debt‑servicing ratios for the government and the direction those are going in, as well as — based upon the outstanding stock of debt — what the average yield to maturity is, so what the turnover looks like. So having a sense of when the government needs to turn over the existing stock of debt, how much they are turning over in any given year, because it gives you a sense of how much the market is going to have to absorb and, again, the flexibility that they’ll have in terms of if the market is having a bad or cranky day, whether they can defer that type of effort.
I would say for the debt-to-GDP ratio, it’s something that we focused on and we continue to focus on because it’s something that the government focused on. I know it has been almost a year now, but going back to the 2024 Fall Economic Statement from the Government of Canada, the government said the debt‑to‑GDP ratio is one of the best indicators of fiscal sustainability and a declining debt-to-GDP ratio is important for sustaining Canada’s Triple-A credit rating. As an accountant, I would look at a wide range of things. I also have to respect my counterparts in the Department of Finance who put that indicator front and centre.
Senator MacAdam: Thank you. I know some of these are in the public accounts under the management discussion and analysis section of the Volume I, but in terms of the fact that you look at these, do you regularly put them in any of your reports, these other indicators that you analyze?
Mr. Jacques: Every six months, as part of our Economic and Fiscal Outlook, we are publishing debt-servicing costs and the debt-servicing ratio, deficit to GDP, debt to GDP as well. Periodically, depending on the interest from parliamentarians, we’ll also provide additional detail in our reports with respect to the stock of debt and the anticipated turnover of debt as well. As you indicated and I agreed with you, there are a lot of indicators you can look at, and it’s very much based upon the interest from parliamentarians which ones we put front and centre in reports.
Senator MacAdam: Thank you.
Senator Kingston: My question is for maybe all three of you; I’m not sure. I’m trying to knit some things together, so please bear with me.
In your highlights of Build Canada Homes and the Outlook for Housing Programs under Budget 2025, the last highlight is:
Build Canada Homes should be expected to make a modest contribution toward housing supply and affordability within the broader context of a large decline in support for housing affordability.
And this is not a new concern of mine, but, yes, infrastructure is absolutely needed, but in the case of deeply affordable housing and the people who need it, there is certainly a portion — and they may be a small portion — but it’s very significant to our systems that require support for their housing. So can you say any more just for the first part in terms of the decline in support for housing affordability? What do you mean by that?
Mr. Bernier: What we mean is that, as I mentioned earlier, there was a National Housing Strategy, which was a 10-year plan. Many of its subcomponents are going to sunset in the next three, four, five years, one of which is the Canada Housing Benefit, which was a direct contribution to modest-income households to help them pay the rent.
Right now, it seems like this program is scheduled to sunset. There has been no announcement on whether it will be reconducted or not. That program was under the responsibility of the Canada Mortgage and Housing Corporation, or CMHC. Now it seems like social housing is going to be transferred under the responsibility of Build Canada Homes. But their focus right now seems not to subsidize renters but rather to try to increase the supply of affordable housing.
So in that sense, given the number we’ve seen so far, it doesn’t appear like it’s going to make a very important contribution, at least in the short term, in terms of increasing the supply sufficiently so that it would actually reduce market prices in general. But also in terms of affordable housing for very‑low‑income households, we see they’re only going to increase it by 6,300 units over the next five years. That’s our estimate at least.
Senator Kingston: Just to follow up on that, in some of the briefing documents we received it says:
Build Canada Homes will deploy $1 billion to build transitional and supportive housing for people who are homeless or at risk of homelessness. It will collaborate with key provincial, territorial, municipal, and Indigenous partners to pair these federal investments with employment and health care supports.
I’m wondering what the thinking is around how to do that, because in some ways it speaks to federal transfers, and in some cases — I’ll take health, for instance — when these things are negotiated with provinces, there are caveats put in; we agree to spend money on this as a priority because it’s a gap in our system right now.
When I read that, I think, okay, so some responsibility will maybe devolve to the provinces, but how much support are they going to get in order to make sure that across Canada there are equitable supports for the types of individuals and, unfortunately, small families that I’m concerned about in terms of needing help to maintain their housing or even achieve housing. Could you comment on that?
Mr. Jacques: I think based upon the information that we have right now, we’re not in a good position to comment on that.
Once Build Canada Homes publishes more information and shares it with us, we’ll definitely incorporate it in subsequent reports for the committee.
Senator Kingston: You have said, however, that you see a decrease — here it is:
For the grants, contributions and loan concessions, HICC intends to prioritize projects with deeper affordability commitments if other factors are equal . . . .
And then you say that there would be a decrease in the supportive spending at the same time.
Mr. Jacques: Again, going back to my colleague’s point, it’s within the broader context of Budget 2025. So there’s the announcement for Build Canada Homes, and within the broader context of what Build Canada Homes is trying to achieve in terms of increasing housing supply and addressing housing affordability, there are the Budget 2025 cuts, for which we’ve requested details with respect to what’s being cut and what the status of sunsetting programs is.
At this point, the government — we kind of agreed to disagree. The government has declined to share any immediate information with us based upon what is in the public domain at this point. So looking at the corporate plans from CMHC, the Departmental Plans from other government departments and the annex in the budget which provides a qualitative assessment of the spending reductions for CMHC, it’s evident that, if not addressed, the current public data indicates that we’re on track for a substantial decrease in federal spending in this area.
[Translation]
Senator Gignac: Welcome to our panel.
Let’s keep talking about Build Canada Homes. I find it to be an intellectually stimulating topic.
If I understand correctly, the budgetary impact of Build Canada Homes is $7.3 billion over five years for only 26,000 new homes. According to your study, the number of homes completed will be 2% higher than it would have been if nothing had been done. My calculations show a cost of $253,000 per unit. Am I mistaken? Is that really $253,000 per unit in government spending using public funds? That seems rather high to me.
Mr. Bernier: The amount is in that range. We based our calculations on previous CMHC programs that also financed the construction of similar housing. We based our calculations on the cost of those programs. If I remember correctly, data was available on all projects completed and in progress as of September 30, 2023. Based on the cost of existing projects funded by other government programs, we took the average and arrived at these approximate figures. The notes at the end show the exact amount we used. The cost per unit under CMHC’s Rapid Housing Initiative Phase 2 was $272,000. That’s the type of data we used.
Senator Gignac: In Budget 2024, the capital cost allowance rate for rental housing was increased from 4% to 10%, representing a cumulative $1.8 billion over five years. I believe you even conducted a study on this. I don’t remember what your estimates were for the number of additional homes that would be built as a result of this increase in the accelerated capital cost allowance from 4% to 10%. In any case, it was significantly less expensive than with Build Canada Homes.
Mr. Bernier: I don’t remember the exact number, but yes, we did do a cost estimate. I don’t remember how much it added to the housing supply.
Senator Gignac: Could you send us the estimated number of additional homes that this tax measure would contribute to the Canadian economy, according to your calculations? We will be asking the minister why he chose to replace CMHC with Build Canada Homes, given that the cost is still around $250,000 to $270,000 per unit, while the other approach seemed to involve less paperwork and fewer civil servants working with the private sector. It seems to me that if the approach worked in the past, it should work now. I don’t understand. Could you shed some light on this for us?
The Chair: This capital cost allowance applied to all newly constructed housing, not just affordable housing.
Senator Gignac: It was an accelerated capital cost allowance applicable to all new eligible housing intended for the rental market. It went from 4%.
The Chair: So it applied to all rental units and not just affordable housing units.
Senator Gignac: It wasn’t just for affordable housing, no. In any case, they’re talking about 13,000 new affordable units and another 13,000 regular units. I’m trying to understand why they chose this approach, given that last year they just increased the rate. We tried it in the early 1970s and it worked in terms of accelerating housing construction.
With regard to the luxury tax, you produced a report at the time on aircraft and expressed concerns — as did some of us — about this measure, which had never worked in other countries before. Those countries eventually abolished it. Were you given any figures on how much it had generated? Senator Forest was quite vocal on this subject, saying that the revenue may not have been as high as the government believed. There hasn’t been any recent follow-up on this, has there?
Mr. Jacques: No. I know the data exist in the public accounts, but I don’t believe we have them with us here today.
Senator Gignac: Okay. I may have another question for you in the second round if we have the time.
[English]
Senator Pupatello: I will just use this time to clarify from materials that were sent by the finance minister around the personal support workers tax credit.
Its purpose was to help raise the floor of the wages, and the only means that the federal government would have is through the taxation system because these are typically programs that are run by provinces. So the only way they could get in to help lift the wage level is through a tax credit.
As they described it:
Eligible personal support workers would need to work for eligible health care establishments, which would include hospitals, nursing care facilities, residential care facilities, community care facilities for the elderly, home health care establishments —
— so that would be like the VON, Saint Elizabeth, et cetera —
— and any other similar health care facility or establishment.
As per your question earlier, Senator Dalphond, there would probably have to be a T4 related to an establishment that would have hired personal support workers in order for that tax credit to be eligible.
So for the homes — and my understanding is it does exist in some instances where they use family members, and I know they do that in Newfoundland, for example, but I wouldn’t know that it would be a provincial program that’s run there. I don’t think there’s a federal program that does that, but this wouldn’t be pertaining to that circumstance.
[Translation]
Senator Hébert: My question pertains to the controversial 1% tax on underused housing, which has been withdrawn. Some have stated that, given the current shortage, this isn’t really the right time to withdraw this tax, which, according to studies, mainly affects foreign property owners. I know that you had already estimated that this tax would bring in between $130 million and $150 million annually. In the budget, I believe the figure mentioned was closer to $30 million. What explains the difference between the two? Who is right? Who are we to believe?
Mr. Jacques: I think there are several explanations.
First, there was a shift among provinces and municipalities in the types of initiatives they decided to implement to rectify perceptions of these types of problems. I don’t think our assessment took these changes into account. We only looked at the tax proposal for the federal government, a few examples of what happened in British Columbia and Vancouver, but not other initiatives within Canada. I think that’s the first example or explanation for the discrepancy.
Another explanation for this discrepancy simply comes down to data. As I mentioned with the new dental care program, this is the same type of situation where there’s a completely new, innovative initiative and there isn’t much data available. So we’re in the dark. Sometimes there are bigger discrepancies between our estimates and the results.
Senator Hébert: Thank you.
That is one of the examples given in the budget. One of the arguments put forward was that it would reduce paperwork for business owners. Some estimates say that there are about 3,000 regulations at the federal level, many of which are prescriptive and already outdated. Has your office done any studies on the cost to the government of administering all these regulations and the savings that could be achieved if we really set out to ease this burden?
Mr. Jacques: Generally speaking, no. The rationale for this is that, in our view, the Government of Canada does a good job of assessing administrative costs in general. We don’t feel that providing an estimate in addition to that of the Government of Canada would increase transparency for senators.
Senator Hébert: Are you talking about the assessment of the administrative costs of managing these regulations for the government or for businesses?
Mr. Jacques: For both.
Senator Hébert: For both, okay.
Mr. Jacques: It’s because the internal administration of the Government of Canada allows the possibility of a new tax proposal. It depends on the type of tax, the beneficiaries and who has to pay it. There could be a big discrepancy as far as administration costs are concerned. That’s something we can estimate. Practically speaking, however, the Government of Canada is in a better position than we are in this kind of situation. At the end of the day, if you saw a big discrepancy in the past and you suspected some lack of transparency, and if your committee showed an interest, part of our mandate would be to provide you with more data and analyses.
Senator Hébert: Of course, I’m not making any assumptions.
Thank you.
The Chair: I have a question about the early retirement program for public servants. The budget says it will cost $1.5 billion, to be drawn from the pension fund — which I assume has a surplus — and that it will save Canada’s budget $82 million annually. That seems odd to me, considering that people will be retiring about five years early. Five years at $82 million a year amounts to $410 million. It’s going to cost the pension fund $1.5 billion to save $410 million. That seemed a bit odd to me. That comes from the pension fund. Have you looked into that at all? Do you know if the $1.5 billion is just the employer’s contribution, or is it also the combined employer and employee contributions? Where does the $1.5 billion in pension funds come from? Were the unions consulted? The Public Sector Pension Investment Board is the manager, but has this been negotiated? It all seems vague. I think that the cost compared to the benefit is extremely high.
Mr. Jacques: Thank you for the questions.
We didn’t ask the federal government about this proposal directly. However, we are aware of it. We released a report last year on the public service pension fund surplus. We noted the large and growing surplus. A legislative obligation exists to fix that.
The $1.5 billion comes from surplus contributions by public servants and by the Government of Canada. It’s a benefit for public servants, but also an obligation for the Government of Canada. A plan like this requires covering the Government of Canada’s administrative and operational management costs. Although the word “surplus” is used, the money ultimately belongs to the people of Canada.
As for savings, we looked at that briefly. After making a comparative assessment based on a similar program in operation back in the 1990s, we determined that the savings are entirely reasonable. The amount is practically the same.
As we mentioned before, with this type of proposal, the public service cuts put forward by the Government of Canada would be much more effective if the government tried to identify non‑priority programs or programs that are no longer effective. This would be better than implementing more wholesale changes. Take today, for example. Here I am with two employees over the age of 50. They’re incredibly competent people. I wouldn’t want to lose competent people like them by simply telling them to retire and waving them goodbye. I imagine the same situation exists everywhere in the Government of Canada, where older people have lots of experience. It would be best to hold on to human resources like them.
The Chair: However, we don’t know if the $1.5 billion is the employer’s share or if it includes the union’s share as well. Do we have that breakdown?
Mr. Jacques: According to the study that we conducted last year, it’s a combination of both. The surplus is not defined.
The Chair: They could have saved billions by decreasing the employer and employee contributions. Rather than creating a program like this one, they could have let people go when their time came to retire and they would have saved more money. That is, unless it costs something more to keep a public servant than his or her salary, although I imagine there’s some input involved if the employee is productive?
Mr. Jacques: They did that in Budget 2005 too. The same proposals were made to reduce employer and employee contributions. They announced that they were going to implement them in coming years. It’s a way for the Government of Canada to save more on operating funds, comply with budget surpluses, and balance the budget in three years.
The $1.5 billion surplus allows another option: Instead of this program, the Government of Canada could allocate that money and reduce the payments it has to make every year for benefits.
[English]
Senator Marshall: In the report that you released this morning talking about the personal support workers, you’re saying that the workers in Newfoundland and Labrador are “. . . ineligible due to existing bilateral agreements.” Can you explain that and tell us what the bilateral agreements are?
Mr. Mahabir: Thank you for the question. Yes, we did say that. We’ll have to get back to you on that.
Senator Marshall: That’s fine. Just send it to the clerk. I would be interested because I know people are going to ask me. Thank you.
[Translation]
The Chair: Thank you very much.
We are pleased to welcome our second panel of witnesses representing the Department of Finance Canada, namely, Pierre LeBlanc, Director General, Personal Income Tax; Max Baylor, Director General, Business Income Tax Division; Ingrid de Freitas, Director, International Inbound Investment; and Gervais Coulombe, Director General (Legislation), Sales Tax Division.
Welcome and thank you for accepting our invitation to appear today.
We understand that you have no introductory remarks. The minister made some introductory remarks in his speech and they were fairly comprehensive.
I’d like to remind the honourable senators that the witnesses are here to answer questions about Parts 1, 2 and 3. Part 1 deals with amendments to the Income Tax Act and related legislation, Part 2 deals with the Digital Services Tax Act, approvals and other measures, and Part 3 concerns amendments to the Excise Tax Act, the Underused Housing Tax Act and the Select Luxury Items Tax Act.
It’s a good framework and we have good witnesses.
Thank you very much.
[English]
Senator Marshall: Thank you. You’re not going to have any briefing, so I have several questions.
Exempting the Canada Disability Benefit from income — how many people will that impact?
Pierre LeBlanc, Director General, Personal Income Tax, Department of Finance Canada: Thank you for your question, senator.
By making sure that the Canada Disability Benefit doesn’t affect any income-tested benefits at the federal level, first, you’re looking at several hundred thousand people, up to 600,000, who will be eligible for the Canada Disability Benefit. Now, our estimates, if you look at those, it’s about 90,000 who will receive more in federal income-tested benefits, be it the Canada Child Benefit, the GST credit or the Canada Workers Benefit, because of this measure — because Canada Disability Benefit amounts won’t be taken into account in that income.
Senator Marshall: Let’s keep the number pure. How many people would be exempt from the Canada Disability Benefit — from income, just that component?
Mr. LeBlanc: Up to 600,000.
Senator Marshall: Up to 600,000. You don’t have a better number than that?
Mr. LeBlanc: That’s what I can give you right now.
Senator Marshall: Okay. If you can refine that a bit, that would be appreciated.
For the personal support workers tax credit, we’ve already had a lot of discussions on that with the Parliamentary Budget Officer. I have two questions. Why aren’t nurses included? There’s a shortage of nurses. Why would you discriminate against the nurses?
The other question I have is how people tap into it. Do you have to get some kind of certificate from your employer, or is that administrative procedure not worked out yet?
Mark Maxson, Senior Director, Employment and Education, Department of Finance Canada: On the first question, on the design of the credit and a decision to provide this benefit to personal support workers and not other health professionals, that’s a question that’s better put to the minister. That would be a policy decision for the government.
As to the second question around the employer certification, that ultimately will be a decision for the Canada Revenue Agency in terms of how it’s administered. The most likely outcome, from my understanding at this point, is that employers will be asked to fill in a box on the employee’s T4, which is the tax slip they get at the end of the year. That will be sufficient to certify they are a personal support worker and their earnings.
Senator Marshall: Why is it applicable — it says it would be available for 2026 and subsequent taxation years. Is that because the administrative procedures aren’t worked out yet?
Mr. Maxson: For starters, because it is a refundable tax credit, it can’t be paid until it’s in law, so it does require an outlay from the FISC. So it won’t be able to be paid until or if this legislation is passed by Parliament. We are sort of months, at most, away from the current tax season, so there just isn’t time.
Senator Marshall: Okay. For the section amending the Alternative Minimum Tax to exempt certain trusts for the benefit of Indigenous groups, last year there were a lot of changes made to the Alternative Minimum Tax. There were two consultations held in 2023-24. Is it possible to get a copy of those consultations or the summary? I’d be interested in what the stakeholders have said.
Stefania Bartucci, Director, Strategic Projects, Department of Finance Canada: The department didn’t publish an official report after those two phases of consultation. We can look into seeing if we can put something together to summarize the comments we received. Would you be referring specifically to consultations that were taken on exempting Indigenous trusts, specifically those? Okay.
Senator Marshall: For the second round, I have something on the underused housing tax.
[Translation]
Senator Forest: Thank you for being here.
My first question concerns removal of the tax on luxury items, more specifically, on airplanes. When this measure was introduced, we clearly voiced concerns about its cost versus its benefits, and asked whether an assessment of the impact of possible order cancellations and layoffs had been done. The tax has been in force for two years. Has an assessment been done to determine how much this tax has generated? Why has it been deemed appropriate to remove the tax, as we suggested at the outset? Has the amount of revenue generated by the tax been assessed? How much GST revenues have been lost, and how much income tax revenues have been lost following employee layoffs?
Gervais Coulombe, Director General (Legislation), Sales Tax Division, Department of Finance Canada: Thanks for the question, Senator Forest.
Right now, the measure’s fiscal cost is about $25 million a year. That’s the portion of revenues that would have been generated if aircraft and vessels had still been included in the tax base. The last figures that I had from the Public Accounts of Canada 2023and 2024 reported that the luxury items tax had generated about $390 million a year. The amount attributed to these two means of transportation, which will no longer be subject to the tax, was $25 million out of $390 million. That gives you some idea of the ratio. The government currently sees a need to support the aviation and recreational boating industries. So, in these times of persisting global economic uncertainty, the government decided in Budget 2025 to stop applying the luxury tax to these two items.
Senator Forest: In relation to revenues received by the government, was any comparison done on GST revenue losses from cancelled contracts or layoffs? Was a cost-benefit analysis done?
Mr. Coulombe: I don’t have those kinds of analyses with me at the moment. I doubt that any were done.
Senator Forest: You doubt that this was done?
Mr. Coulombe: I doubt in the sense that I don’t believe so.
It’s very difficult to isolate transactions and make GST calculations of what appears to have been paid. In any case, the question is only hypothetical, since we have data provided in the relevant declarations submitted to the Canada Revenue Agency for airplanes and boats that were taxed.
If any transaction didn’t take place, then no transaction would have been reported and so we have no basic information on that. I’m aware that the private sector conducted some economic studies. All of them tended to tell the government that a luxury tax may not be the best tax measure for vessels and aircraft.
Senator Forest: I believe that the conclusion you just mentioned met with a fairly strong consensus.
As for carbon storage, I see on page 336 of Budget 2025 that the government hasn’t tried to quantify this credit’s cost to the public purse, which is rather unusual, considering that the cost of every other measure except carbon storage has been quantified. You didn’t have the storage costs?
Max Baylor, Director General, Business Income Tax Division (Department of Finance Canada): It’s intended to clarify the measure. It’s an extension of all the rates starting in 2020 and continuing beyond 2030.
First come the full rates up to the end of 2030. After that, the rates fall by half. So the cost only starts after the fiscal horizon provided in the budget, in 2031, and extends to 2035-36.
In these five years of the cost increases, the cost of the measure is $3 billion. That number was given. You won’t find it in the budget because it’s beyond the fiscal horizon, but I’m giving it to you.
[English]
Senator Cardozo: I’ve got a couple of questions. Let me start with the PSW issues. First, I want to draw to your attention what I think is a discrepancy between the English and French, and you can correct me if I’m wrong. In the proposed section 122.93(1), there are definitions there. To start with, the English has two definitions and the French has three definitions. The French has “déclaration de revenu,” and “a declaration of income” isn’t in the English version. I’m just wondering if I’ve got the wrong version here or if it’s somewhere else.
Mr. Maxson: The English translation that’s relevant to that would be “return of income,” which is at the bottom of the list on the first page. It’s the third definition down in English.
Senator Cardozo: After the A, B and C. It’s placed differently in the English. Okay. Thanks for that.
Then with regard to PSWs, the question I was asking in the previous session was about this covering PSWs in various institutions and home health care establishments; perhaps you can clarify for me what that is. Would that be for-profit or non‑profit agencies that enlist and provide the services of PSWs?
Mr. Maxson: That’s correct.
Senator Cardozo: The part that’s missing is the PSWs who do not work through an agency or do not work for an institution. I have some familiarity with the field. Most of them are paid very low, sometimes just a little bit above the minimum wage, which is the purpose of this tax credit — to try and assist them in that regard. There are many who work more than one job, so they may get a position in an establishment or with an agency but have a limited number of hours or want to do more hours than the agency is giving them, so they will take on other jobs.
From this, can they claim the tax credit for those other hours that they’re doing on their own, where there’s just a contract between themselves and the individual?
Mr. Maxson: Thank you for the question. In order for the earnings to count towards this credit, it would have to be with one or more eligible employers. To the extent that they’re working for more than one eligible employer, those earnings would stack. But if there’s not an eligible employer relationship available to certify the duties and the tasks and the status as a personal support worker, they’re not in scope of this credit, or those earnings are not in scope of this credit.
Senator Cardozo: I’m not asking about amending this, but is there a way that you could have had the ability for that kind of work to be included? Is there wording that would work, inasmuch as there are a lot of people who do independent contract work in a million different fields?
Mr. Maxson: Ultimately, it’s a policy decision. There are two points that I can make. One is that this is consistent with the approach taken with the agreements with Newfoundland, B.C. and the Northwest Territories in terms of employed personal support workers, not necessarily the self-employed. The crux of the matter is it becomes very difficult administratively when you’ve got these many one-to-one private relationships between a personal support worker and a household that might be their only employer. The CRA isn’t really in a position to go into each household and determine whether, in fact, this is that type of relationship, that type of employment contract. Ultimately, it’s an administrative challenge, I would say.
Senator Cardozo: But I would argue that, as I said, there are a million other contracts that people do in all sorts of fields; there’s a certain amount of trust that’s involved, and the CRA accepts those.
Mr. Maxson: They certainly accept the earnings that are reported. It’s more difficult the deeper you go into that contract.
Senator Cardozo: On the digital services tax, how much are we forgoing? Are there any other taxes that exist on digital service providers that are in place?
Ingrid De Freitas, Director, International Inbound Investment, Department of Finance Canada: The tax that we’re forgoing, the estimate was $2.3 billion in 2024-25. That year reflects revenues from three years. It was sort of a catch-up year due to the history of the measure. The estimate was $900 million in each of the following years. However, since the tax was not actually collected, it remains an estimate.
As for what other taxes apply to digital services, all the other taxes that apply still apply the way they do. For example, if there was a Canadian company, a CanCo, earning revenue from providing digital services, that would still be part of their taxable income in Canada, and sales taxes, other taxes would still apply as well.
Essentially, the digital services tax is an additional layer of taxation on top of all the existing taxes that apply that was brought in because of a perceived lack of taxation on certain revenue from certain business models.
Senator Cardozo: So they’re not operating tax-free?
Ms. De Freitas: No, they get taxed the same way everyone else gets taxed. It was just a perception that an additional layer of tax was needed on certain revenues.
Senator MacAdam: In his report released a few days after the budget entitled Implementing the Canadian Net-Zero Emissions Accountability Act — Financial Measures, the Commissioner of the Environment and Sustainable Development highlighted concerns that there was a lower-than-projected initial uptake of the existing Clean Economy Investment Tax Credits. The commissioner also recommended that:
. . . the Department of Finance Canada, working with other federal organizations, should evaluate the social, environmental, and economic outcomes of the Clean Economy investment tax credits and publish the results. . . .
Your department agreed and mentioned it would publish its findings in a future edition of the Report on Federal Tax Expenditures. Can you provide clarity on a timeline of when you will publish this information?
Mr. Baylor: As you indicate, the department agreed with the recommendation, and it is definitely our intention to publish such a study in a future edition of the Report on Federal Tax Expenditures. In terms of the exact timing, I think it will be subject to data availability and when we feel that we have enough data to be able to report on that. But hopefully, it should be forthcoming.
Senator MacAdam: Okay. The commissioner indicated:
To ensure the level of tax support provided aligns with the government’s environmental objectives, the effectiveness and uptake of these investment tax credits will need to be monitored.
Can you clarify how you are monitoring their effectiveness and uptake right now?
Mr. Baylor: We work on an ongoing basis with the Canada Revenue Agency, which files the claims, as well as Natural Resources Canada, who are responsible for administering the tax credits. Through that, we can monitor the claims that are coming in, the claims that are being paid out, and that allows us to see how things are evolving. We’re starting to see that ramp up and continue to follow that, and that’s what we intend to report on in due course.
Senator MacAdam: Why do you think there is not the uptake that was expected with these credits?
Mr. Baylor: Well, I think it’s important to take a step back. The department published costs projections that were based on the information available at the time that the respective investment tax credits were announced. Now, some of these go back to Budget 2022. Since then, there have been shifts in the global economic environment, particularly in terms of developments in the U.S. — obviously, trade tensions and also a shift in the environmental policies that we see in the U.S. I think that has affected the outlook and some of the uptake initially.
On top of that, I guess it’s more to point out that the first four Clean Economy Investment Tax Credits that have been implemented received Royal Assent in June 2024. So obviously, before that, nothing could be claimed or could be administered. Following Royal Assent, the Canada Revenue Agency and Natural Resources Canada put in place the administrative systems and processes needed for businesses to be able to claim these tax credits. So with these processes now in place, we expect claims to come in and increase quite significantly going forward. You can see the updated projections in the budget.
The other thing to point out is, obviously, some are still not in place, like the clean electricity investment tax credit, which is actually in this bill. Obviously, that needs to be implemented before the administration can be fully put in place and claims can be taken.
[Translation]
Senator Gignac: Welcome to all our witnesses. Thank you for your dedicated service. We know that you work evenings and weekends on preparing the budget at the Department of Finance. It seems it will be more during the fall cycle than the spring from now on.
We had a discussion with the witnesses during the previous panel about the housing measures. One of these measures is the accelerated capital cost allowance for the construction of rental housing, which is increasing from 4% to 10%. This measure appeared in budget 2024 and is included in Bill C-15. Has the Department of Finance conducted an analysis? If I am not mistaken, the cost is $1.8 billion over five years. How many additional housing units are we talking about? We know that there are approximately 240,000 eligible housing units per year. Rental housing units are built every year. An estimated 240,000 units per year are eligible for the 4% rate, which will increase to 10%. How many additional housing units does that represent? You introduced this measure to stimulate construction and make housing more affordable, in the hope that these savings would be passed on to tenants and reflected in rent prices, among other things. How many additional units over five years should this measure provide?
Mr. Baylor: That was a good summary of the cost of the measure. As you said, all businesses and individuals who invest in this type of housing will have access to the accelerated deduction.
As far as the precise number of housing units is concerned, we do not have a specific breakdown for this measure.
Senator Gignac: If you do not have the number on hand, could you perhaps send it to the committee in the next few days? I was wondering if an economic analysis had been done given the fiscal measure of $1.8 billion in costs over five years. I may be aging myself by saying this, but this type of measure was tried in the early 1980s and then abandoned six years later because it was not working. Now the government is reintroducing it. Perhaps the government has conducted an economic analysis and concluded that it would stimulate housing construction. If such a study exists, could you send us your calculations?
Mr. Baylor: We can look at what we have. If memory serves me correctly, we had looked at the government’s strategy and its impact as a whole, but we will look specifically at this measure.
Senator Gignac: It was studied in conjunction with Build Canada Homes and the amount is $6.7 billion over five years for 26,000 additional homes. So we are trying to compare the government’s approach.
The Chair: I would like some clarification. Is it expected that the 10% depreciation will also result in losses, or will it generate profits in the first year? First, this will make a big difference. Second, not much profit is made on a building in the first year.
Senator Gignac: It is a deduction.
The Chair: I know it is a deduction, but if there’s no profit and going below zero is not allowed—
Senator Gignac: It can be deferred.
The Chair: You can defer it beyond the first year? So it is applicable the first year and deferrable for three years, I believe?
Mr. Baylor: At some point, there is a catch-up.
The Chair: The 10% can be applied in year 2 and year 3 until profits are made?
Mr. Baylor: That’s right. Obviously, since it’s an acceleration, there’s a catch-up effect and it loses some of its relevance. However, since the normal deductions come in subsequent years, there’s still an advantage.
The Chair: The year 1 was confusing.
Senator Gignac: Your intervention has taken up some of my speaking time, Chair, and I do not blame you for that, but would you be so kind as to allow me one more question?
The Chair: You have 48 seconds.
Senator Gignac: Let’s change the subject completely. Could one of the witnesses tell us about Canada’s transfer pricing rules? Could you explain to me and my colleagues what this is all about? Is this an important issue? I believe it has to do with large multinational corporations, their subsidiaries, and cost prices, but I’m not sure.
Robert Demeter, Director General, International Tax Division, Department of Finance Canada: Could you repeat the question?
Senator Gignac: There is talk of reforming Canada’s transfer pricing rules. If it’s in the budget, it must be important. Do companies that play around with these rules pay less tax? What exactly is this? What are we talking about?
Mr. Demeter: The transfer pricing rules are used to distribute profits among the various entities of a multinational group. Canadian rules have been specifically in place since 1997. This measure is a way of modernizing the rules that have existed since then. These are the operational rules that protect profit sharing between countries. Otherwise, without these rules, it would be possible to simply choose—
Senator Gignac: We have to harmonize with other OECD practices to prevent tax evasion.
Mr. Demeter: Yes.
Senator Gignac: Perfect. Thank you.
[English]
Senator Pupatello: I have just a quick question, and if you don’t have the material now, I’m happy to take it in writing. Could you clarify the amount that came in each year with the underused housing tax, or UHT, and the cost of the program each year? Could you send me that information?
I would also like to know, regarding the remissions that were made, both applications and funding that was taken in, what percentage or number came from the public — corporations, for example — versus individuals. How many individuals would have remitted an application and/or paid the tax, and how many businesses would have made a remission of the application, and how many may have also paid the tax?
My second question is the same for the luxury tax, the one that was eliminated. How much was returned each year in revenue, and what was the cost of that program each year?
Thank you.
Mr. Coulombe: I can provide the beginning of an answer.
If you look in the budget book on page 336, there is the fiscal profile for each tax measure, and you see there the forgone revenues resulting from the elimination of the Underused Housing Tax. It was estimated to be $30 million per year, so over five years, it was $150 million.
We could follow up in writing with the exact figures from the Public Accounts of Canada in terms of the revenues that were collected for the calendar years 2022, 2023 and 2024, when the tax applied. In terms of the administrative cost, this is a question for the CRA. We will see if we are in a position to provide that to you in writing.
For the revenues generated by the luxury tax, that detail is also available in the Public Accounts of Canada.
Senator Pupatello: If you could provide that information, particularly the breakdown between individuals and businesses, that would be very helpful.
Mr. Coulombe: Yes. For that, we will have to look with the experts. I’m not certain that such level of specificity is available in part of the data we have from the Canada Revenue Agency, but we’ll inquire and get back to you.
Senator Pupatello: Thank you.
[Translation]
Senator Hébert: Following on what my colleague Senator Pupatello just asked you, do we have an estimate of the number of units that would be subject to the infamous 1% tax on underutilized housing?
Mr. Coulombe: I do not have that information with me. That being said, the tax was 1%, so we can extrapolate the underlying value to revenues of $30 million based on the number of units. I don’t have that information on me.
Senator Hébert: In line with what my colleague Senator Gignac asked you earlier, we know that we can assess the effectiveness of a measure such as this by looking at the collection costs compared to what it brings in for the government. We can also assess it through a more in-depth economic analysis, especially in the context of a housing shortage that is costing Canadian taxpayers money. Was a more systemic economic analysis conducted on the effectiveness of this tax? For example, was the rate of underuse measured before and after, for example before the measure was withdrawn, or was it simply decided that the tax brought in this amount, it cost that amount, it’s not profitable, so we’re abolishing it?
Mr. Coulombe: It was a relatively recent tax measure, all things being equal. The first calendar year in which it applied was 2022. So there is still very little data available. The consensus seems to be that it generated less revenue than expected. There were also significant administrative costs. Here, the government is effectively announcing the elimination of the tax altogether. No further economic studies were done.
The federal government has also been implementing a number of measures for several years to alleviate the housing crisis, notably in Bill C-4, which is currently before Parliament. There is a rebate for first-time home buyers. My colleagues in taxation also have several measures that are moving in this direction. With so many new measures to integrate, it is difficult to isolate one and conduct an economic analysis for that measure alone.
Senator Hébert: Thank you.
Senator Dalphond: I have several short questions.
Earlier, we were talking about the Canada Disability Benefit. You mentioned that 600,000 people are eligible. This measure targets only the 90,000 who will receive a child tax credit or a sales tax credit. The measure targets only the 90,000 who benefit from another program for which eligibility also included the Canada Disability Benefit.
Ariane Brûlé, Director, Social Tax Policy, Department of Finance Canada: Is your question about what that number means?
Senator Dalphond: Why does the measure target only 90,000 people and not 600,000?
Ms. Brûlé: This does not apply to the 600,000 individuals. It targets only individuals whose benefits under the Canada Child Benefit, GST/HST credit, or Canada Workers Benefit would have been impacted if the benefits they receive under the Canada Disability Benefit had been included in their income. This measure will ensure that these benefits are not reduced at the federal level.
Senator Dalphond: They are not included in the calculation of this additional benefit like the child tax credit?
Ms. Brûlé: They are not taxable because under the current rules, there is a deduction that effectively makes these benefits non-taxable. We are also proposing to ensure that they do not affect other benefits that people may receive based on their individual income.
Senator Dalphond: Can we have some statistics? A medical certificate is required to receive the credit. I am told that many applications are rejected. Can we have some figures to find out who receives it, what percentage of those who apply receive it, and information for those suffering from multiple sclerosis?
Ms. Brûlé: That is a question for the CRA because they are the ones who compile that information.
Senator Dalphond: Could you send that information to the committee?
Ms. Brûlé: Yes, of course.
Senator Dalphond: My next question concerns the lifetime capital gains exemption, which was $1,016,836 as of June 25, 2024. Because the measure was announced in the budget but not included in the 2024 Budget Implementation Act, No. 1, taxpayers had the choice of disposing and claiming or waiting to see what the results of a change in government or the election would be. There are many, but how many chose on June 24, 2024, to liquidate their portfolios to obtain the $1,016,836 capital gains exemption? Do you have any figures? If not, can you send them to the committee?
Mr. LeBlanc: Thank you for the question.
Because this is about the 2024 fiscal year, it’s still too early to have complete data. Even if the deadline is April 30 for everyone, some taxpayers are still filing their tax returns and submitting them to the CRA. It takes some time.
Senator Dalphond: How do you justify the fact that those who acted in accordance with what had been announced in the budget at the time but was never implemented didn’t reap the same benefits as those who didn’t? Someone who waited until July 1, 2024, to sell their portfolio instead of selling on June 25, 2024, would be entitled to $1,250,000 in exemption, which is $233,000 more.
Mr. LeBlanc: That was a political choice. It was the government’s decision to implement that measure.
Senator Dalphond: Those who didn’t comply with what had been announced and chose to wait had an advantage over those who complied. It seems to me that it’s the wrong message to send to taxpayers.
Mr. LeBlanc: That’s the way it went. That was the choice that was made by the government at the time.
Senator Dalphond: Could you commit to sending us the data, when it becomes available, regarding how many people, on June 25, 2024, opted to —
Mr. LeBlanc: First, this might take some time. Second, the data isn’t very specific. It would give some idea of who sold assets, who made some capital gains up to June 24 and again from June 25 on, but in terms of specific days, the data isn’t that precise. There would be two sets of data, before and after that date.
Senator Dalphond: I’m trying to see whether —
Mr. LeBlanc: That’s the form for the 2024 fiscal year. The CRA can only capture what’s on the form. That’s how the form for the 2024 fiscal year is set up. Whatever data we have will be based on the form.
Senator Dalphond: Can we tell whether this had an impact and more people on average made capital gains before July 2024?
Mr. LeBlanc: What I can say at this time is that it’s indeed our assumption when producing our estimates, but we don’t have the full picture yet because the data for this fiscal year isn’t finalized.
The Chair: Have there been lawsuits filed by individual taxpayers claiming that they were or could have been misled by this policy or these changes, whether regarding the capital gains inclusion rate of 66% instead of 50% or the amount of the exemption for businesses?
Mr. LeBlanc: I cannot comment on that.
The Chair: I understand that you cannot comment on lawsuits, but you can say whether there’s been one or not.
Mr. LeBlanc: I’ll have to get back to you on that.
The Chair: Can you inquire as to whether lawsuits have been filed, the nature of these lawsuits and who the claimants are?
Mr. LeBlanc: We can look into it, yes.
The Chair: Thank you.
Regarding the luxury tax, the budget states that it was removed because it was inefficient. We have been told in speeches and press releases that collecting the tax cost more than what the tax brought in. From what you told us today, that doesn’t seem to be the case. Do you have any data on the cost of collecting the tax? It’s probably a bit less for planes, but for boats, we’re talking about tens of millions of dollars. The fact that collecting the tax costs more than the amounts collected is surprising.
Mr. Coulombe: What I can tell you today, Mr. Chair, is that the administrative costs related to a tax are not exactly broken down by asset category, et cetera. There are general costs for the tax as a whole, and the luxury tax still applies to cars, luxury vehicles over $100,000 —
The Chair: Planes? I know that it still applies to cars.
Mr. Coulombe: I said earlier that our annual funding is roughly $390 million for the three items that are subject to the tax. The revenue from planes and boats is estimated at $25 million to $30 million annually.
The Chair: So about the same for boats and planes?
Mr. Coulombe: That’s the total for both.
The Chair: We were told that there was no revenue for planes because no one bought planes anymore. That makes sense.
Mr. Coulombe: The department’s assessment for both items can be found in the cost of tax measures summary table. For the luxury tax on aircraft and vessels, the fiscal cost forecasts are $26 million in 2026-27, $31 million in 2027-28, $31 million in 2028-29 and $36 million in 2029-30.
The Chair: We can assume that the cost of collecting that money was minimal since there’s already a system in place to collect the luxury tax on vehicles, for example.
Mr. Coulombe: There were still some specific rules for aircraft and vessels, but the amounts I just listed show that the income for these two categories is much lower than what is collected for vehicles —
The Chair: Thank you.
I was looking at the numbers for the super-deduction for equipment, rolling stock and manufacturing and processing materials in terms of imports and exports. The vast majority of items in this category are manufacturing assets used in processing machinery factories. A large percentage of these, around 75%, is imported from the U.S. On the short term, this super-deduction will benefit the U.S. and not investor businesses. Have you looked at the economic impact that this super-deduction could have, if it could end up being advantageous for the American side or for exports? Also, have you thought of making a distinction between made-in-Canada products and import products, especially from the U.S., in terms of this super-deduction?
Mr. Baylor: To answer the first part of your question, we did look at the impact on investment and Canada’s GDP. There is data on that in the budget. I can refer you to it. My colleagues in another —
The Chair: It is about improving the equipment, being more efficient, and growth. This is all medium- to long-term. In the short term, however, if I buy equipment made in the U.S. instead of Canada, I contribute to the U.S. GDP and not to Canada’s.
Mr. Baylor: As I said, it has an impact in Canada in terms of investment that brings in economic benefits. We did the math.
The Chair: Regarding equipment procurement, that aspect of productivity, did you calculate it by comparing buying from the U.S. products made in the U.S. and the impact that would have on the U.S. economy versus buying in Canada products made exclusively in Canada?
Mr. Baylor: Again, my colleagues from the macroeconomic and economic projections side of things would be better able to respond. What I’m saying is that we were focused on the direct impact on investment and the details of the tax measure.
Maybe I can answer your second question. Is the deduction specifically targeting Canadian products, like a kind of “Buy Canada”? As you know, there are areas where certain things are being looked at. When it comes to the super-deduction, it is not something that is being considered or proposed at this stage.
Let me just add for clarity that these measures were largely already in place, and we are expanding them. Of course, I acknowledge that the context is different, but, again, we were taking measures that were already in place and extending them by five years. In that context, we didn’t revisit that.
The Chair: Thank you.
That will conclude this morning’s meeting. Exceptionally, we will resume tonight at 6:30 p.m. to continue our study on the budget. Thank you for your participation.
(The committee adjourned.)