THE STANDING SENATE COMMITTEE ON NATIONAL FINANCE
EVIDENCE
OTTAWA, Wednesday, December 3, 2025
The Standing Senate Committee on National Finance met this day at 6:47 p.m. [ET] to study the subject matter 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: Good evening, honourable senators. I wish to welcome all senators as well as the viewers across the country who are watching us on sencanada.ca. My name is Claude Carignan, senator from Quebec and chair of the Standing Senate Committee on National Finance.
I would now like to ask my colleagues to introduce themselves.
Senator Forest: Éric Forest, Gulf division, Quebec.
[English]
Senator Pupatello: Good evening. My name is Sandra Pupatello. I am from Windsor, Ontario.
[Translation]
Senator Dalphond: Pierre J. Dalphond from Quebec, De Lorimier division.
Senator Galvez: Rosa Galvez from Quebec, Bedford division.
[English]
Senator Cardozo: Andrew Cardozo, Ontario.
Senator Kingston: Joan Kingston, New Brunswick.
Senator Ross: Krista Ross, New Brunswick.
Senator MacAdam: Jane MacAdam, Prince Edward Island.
Senator Marshall: Elizabeth Marshall, Newfoundland and Labrador.
[Translation]
The Chair: We will now continue our study on the subject matter of Bill C-15, An Act to implement certain provisions of the budget tabled in Parliament on November 4, 2025.
Our first group of witnesses this evening includes the same witnesses present this morning. For the record, I will introduce our Department of Finance witnesses again. They are Pierre Leblanc, Director General, Personal Income Tax; Max Baylor, Director General, Business Income Tax Division; Robert Demeter, Director General, International Tax Division; and Gervais Coulombe, Director General (Legislation), Sales Tax Division.
We are resuming our study, focused primarily on Divisions 1 to 3 of the bill, which are quite lengthy and will likely to take up the entire period.
Since you’ve already delivered your opening presentations, and unless you’d like to make further clarifications, we will proceed directly to the senators’ question period.
[English]
Senator Marshall: Thank you to all of you for being here tonight.
My first question is on Part 1, section (o), on the Carbon Capture, Utilization, and Storage Investment Tax Credit. I couldn’t find an estimate on page 336 of the budget book, so I don’t know if there is an estimate. That’s my first question. I notice it’s refundable, but I’m wondering: Who does it apply to? My understanding is that there’s one commercial application in carbon capture that’s used in the oil fields to increase oil production.
Are we paying for carbon capture and storage for somewhere else that you’re aware of? Also, is the commercial application eligible or are the ones being developed eligible? Can someone explain exactly what the tax credit applies to?
Max Baylor, Director General, Business Income Tax Division, Department of Finance Canada: Certainly. Let me just make one precision. What is in this bill is extending the full rates of the tax credits for the years 2031 to 2035.
Senator Marshall: Are you saying the money is in a previous budget?
Mr. Baylor: Absolutely correct. The measure is already in law. It is already implemented. What we are talking about here is just an extension of the rates for existing credits beyond 2031 to 2035.
Let me be precise here. Currently, there are full rates up to the end of 2030. You get full rates. I can go through those. Then the rates fall by half from 2031 to 2040. What this measure is doing in this bill is bringing those half rates to the full rates for the years 2031 to 2035. That’s why you don’t see an estimate in the budget, because it is beyond the fiscal horizon. I believe I told one of your colleagues yesterday that the cost of that is $3 billion beyond that horizon.
Senator Marshall: Are there many organizations that can claim that tax credit?
Mr. Baylor: Any business that invests in carbon capture, utilization and storage technologies can claim the tax credit to the extent that their provincial environment and climate change ministries have acceptable regulations for storage. Currently, that’s the case in three provinces: Alberta, Saskatchewan and British Columbia.
Senator Marshall: Are those entities actually storing carbon? Where are they storing it — in the ground? It’s actually in operation?
Mr. Baylor: At this point, my understanding is that there are some that are being developed, and there have been applications to Natural Resources Canada, or NRCan, to have the projects validated and then subsequently applying for the credits. Now, at this stage, I can’t —
Senator Marshall: What I’ve read is that there’s only one commercial application, so everything else is in development. That’s what I was wondering. Is the tax credit for all these things that are in development as opposed to it is actually proven and people are actually capturing the carbon?
Mr. Baylor: The credit came into force — it passed into law in June of last year, but it was retroactive to January 2022. To the extent that existing projects incurred expenses after January 2022 and those expenses were eligible, they would be able to claim those. Those that are now currently incurring expenses could do that as well. But I think you are correct that most of the expenses are expected to be on a going-forward basis.
Senator Marshall: Most are in development as opposed to — okay.
Mr. Baylor: That’s correct. There have been some. I can’t really tell you whether those have claimed the credit at this point.
Senator Marshall: Who would know how many commercial applications are actually in effect?
Mr. Baylor: Once they are claimed with the Canada Revenue Agency, then at some point this data will be released through the agency, through their system. Through the public accounts, there will be an accounting.
To be clear, my understanding is that to respect taxpayer confidentiality, you wouldn’t necessarily know the specifics of it, but there would certainly be an accounting of how much has been spent under each credit going forward.
Senator Marshall: It just seems odd that — I’m not aware of a number of organizations that actually do carbon capture, utilization and storage. I know there are a lot of organizations out there experimenting or developing. To me, the impression that is being left is that the tax credits are being given to entities that are almost doing research as opposed to actually capturing carbon. That’s the impression I’m left with.
Mr. Baylor: Perhaps what I can indicate is there’s certainly a substantial cost estimate with this tax credit. Now, that is on the basis of future projects, planned projects going forward and actually incurring expenses.
Senator Marshall: I just wonder how many are going to be successful. We’re funding 1,000 entities and they’re all developing, but how many of those will be successful? Okay.
My time is up, isn’t it?
The Chair: Yes, but we have two hours. I don’t want to cut off a senator when you are on a line of questioning. If you have another question on the same topic, we can make an exception for this meeting and go with seven minutes for each.
Senator Marshall: Thank you, Mr. Chair.
The clean electricity investment tax credit. That’s the same thing, no estimate on page 336. I’m thinking that’s the same explanation. Is that still you, Mr. Baylor?
Mr. Baylor: Yes, it would be me.
Senator Marshall: When I read it, it says it’s a non‑refundable tax credit and it says Crown corporations are eligible. Most of the electricity companies in Canada are Crown corporations, right? I would think they’re all tapping into the refundable tax credit. It would seem to me they’re the principal beneficiaries.
Is there a breakdown between how much of the tax credit is being given to the Crown corporations and how much of the tax credit is going to the private sector?
Mr. Baylor: In this case, this one is different from the carbon capture, utilization and storage, as this bill actually implements the full investment tax credit. It is not in place.
Senator Marshall: This is for clean energy, right?
Mr. Baylor: Correct, for clean electricity. In that respect — this budget doesn’t announce this so the cost isn’t there, but we certainly have that cost. I can give it to you, if you want.
Senator Marshall: Yes, that would be good because this is like the group of tax credits that was announced several years ago, and now there’s a chart in the budget book that shows how it’s being implemented.
Mr. Baylor: Yes, exactly. It was first announced in Budget 2023, and then there were consultations. The details were announced in Budget 2024. Legislation came out, there were further consultations and now it is in the bill.
Over the next five years — starting next year because we don’t anticipate any expenses before — 2026-27 to 2029-30, over those four years, the cost estimate is $9.1 billion.
Senator Marshall: Is it broken down between the private sector and the public sector?
Mr. Baylor: We have those numbers, but I don’t have that number with me. I could certainly provide it to the committee as a follow-up, to be sure.
Senator Marshall: That would be helpful. I do have more questions, but I want to give somebody else a chance. Thank you, Mr. Baylor. That was helpful.
The Chair: It’s the Christmas spirit. We are in December.
[Translation]
Senator Forest: Thank you for your generosity, Senator Marshall, I appreciate it a lot.
Item (k) of Part 1 amends the Income Tax Act by enhancing scientific research and experimental development tax incentives. Could you describe for us the main enhancements to this program? For one thing, there’s been a rather large increase in the tax credit.
Mr. Baylor: I didn’t hear the last part of the question. I’m sorry.
Senator Forest: Could you talk to us about the main program enhancements that increased the tax credit to 35%, if I understand correctly?
Mr. Baylor: What is in the bill?
Senator Forest: Yes.
Mr. Baylor: Absolutely. The bill essentially contains four key items for enhancing the Scientific Research and Experimental Development tax incentives program.
The first item proposes to increase the maximum threshold of expenditures that qualify for the 35% tax credit from $3 million to $6 million.
The second item concerns the taxable capital threshold applied to this maximum expenditure threshold. The current gradual reduction in taxable capital is between $10 million and $50 million. Essentially, it has increased by 50%, to between $15 million and $75 million.
Right now, the enhancement is available to Canadian-controlled private corporations only. It’s being extended to include public corporations, but only those with less than $75 million in earnings. That’s the third change.
Finally, the fourth change aims to restore the eligibility of capital expenditures under the program. This will enlarge the qualified expenditure base.
These are the four measures included in the bill.
Senator Forest: Thank you.
Have you assessed how much this program enhancement could cost?
Mr. Baylor: Do you mean how much this measure costs?
Senator Forest: Yes.
Mr. Baylor: Absolutely. I have those figures with me, if you’ll give me a moment.
Over the five-year fiscal horizon, so from 2025-26 to 2029-30, we are talking about $2.1 billion. Essentially, you can find these figures in the 2024 economic update and in this year’s budget.
Senator Forest: The next five years; very well.
I have a second question. Item (x) of Part 1 seeks to improve information-sharing to fight employee misclassification. I understand that this is how to fight the phenomenon whereby companies wrongly and wilfully classify their drivers as independent contractors rather than employees. At the same time, we need investigators and highway traffic controllers to enforce legislation like this. Does the CRA have the financial resources to conduct these investigations?
Lindsay Gwyer, Director General, Legislation, Tax Legislation Division, Department of Finance Canada: Thank you for the question.
[English]
I’m not sure I heard the question as I was walking over here, but I think you’re asking about the —
The Chair: The question was if you have the budget to collect the —
[Translation]
Senator Forest: Measures are being introduced to fight employee misclassification, especially in the case of trucking companies that classify drivers as independent contractors when they’re actually company employees. At the moment, accidents are increasing significantly, a phenomenon that’s affecting the trucking industry and others. There’s a willingness to take action, and that’s a good thing. Does the Canada Revenue Agency have the necessary human and financial resources to enforce these measures?
Ms. Gwyer: Thank you for the question.
[English]
In the budget, it was announced that the Canada Revenue Agency would be provided with about $19 million of funding per year on an ongoing basis to allow them to administer and to investigate these situations where there’s a potential misclassification of employees, particularly in the trucking industry.
What this bill does is it provides the ability for the CRA to share information with Employment and Social Development Canada, and that’s because ESDC is responsible for administering the Canada Labour Code. The idea is that the information that the CRA shares would allow ESDC to better investigate these situations.
[Translation]
Senator Forest: For example, Quebec has a highway inspection system equipped with vehicles and staff. Have any agreements been reached with provincial and territorial organizations to achieve this goal?
[English]
Ms. Gwyer: I am not sure of the answer to that. I think that’s a question that ESDC would need to answer. They’re responsible for regulating the trucking industry. I can see if there is information we can provide.
[Translation]
Senator Forest: It’s a praiseworthy goal, but I’m not sure that the agency has the capacity to enforce these rules.
Part 2 repeals the Digital Services Tax Act. This tax targeted large multinationals, including Amazon, Meta, Uber, Airbnb and Google, which operate online commercial or social media platforms and profit from Canadians’ online activity. The tax was expected to generate about $7.2 billion over five years. I understand the need to revive trade negotiations with the United States. However, the reasons for this tax were highly relevant and still exist. Digital companies aren’t paying their fair share of taxes in Canada. If I understand correctly, the budget contains no new support measures for our media and our culture industry to offset the removal of the digital services tax?
Robert Demeter, Director General, International Tax Division, Department of Finance Canada: I’d like to clarify that we’re here to discuss tax measures. To my knowledge, however, there are no other tax measures that serve that purpose.
Senator Forest: The tax was repealed, but there’s no offsetting measure? Does that mean that we won’t see a cent of the anticipated $7.2 billion?
Mr. Demeter: There are no new measures. But these taxpayers are still bound by other tax rules, like income tax and sales tax.
Despite the decision to repeal the digital services tax, some existing coverage remains. I can confirm that other tax rules that apply to all taxpayers are still in place.
[English]
Senator Cardozo: The unemployment rate is high for Canadians in general, and it is twice as high for youth. I don’t know if this is within your bailiwick of what you are covering. I want to ask about other youth employment programs besides the Canada Summer Jobs. Are you dealing with that aspect of the budget?
Pierre Leblanc, Director General, Personal Income Tax, Department of Finance Canada: I’d like to thank the senator for his question. As my colleague just mentioned, we’re here to talk about the measures in Parts 1 through 3 of Bill C-15. We’re not even in a good position to talk about it, because it’s Part 5 of the bill that has the non-tax measures. But these are important topics that you can raise, so I think what we can do is bring that question back to our colleagues, because within Finance, we have different people looking at different areas, and we can ask them to provide the information that you’re looking for.
Senator Cardozo: In general in the past, have we used tax credits to encourage employment of either particular groups or employment in general? Are tax credits a useful tool?
Essentially this is a range of tax credits that you’re trying to encourage or facilitate certain kinds of behaviour. Have we used them for employment? Are you in a position to comment on that?
Mr. Leblanc: Thank you for that question as well. That’s one where it would be good to bring back as well. Whether you’re looking at more of the labour supply side of the equation or the labour demand side, as both are important. On the labour supply side, we have measures like the Canada Workers Benefit that increases disposable income for low- and modest-income workers on the tax side. That would be an example of a refundable credit on the personal income tax side. There’s no change to that on Bill C-15, so I’ll stop there on that measure.
Yes, that’s one where it would be best to come back to you as well.
Senator Cardozo: And what does the Canada Workers Benefit do?
Mr. Leblanc: The Canada Workers Benefit is a refundable tax credit, and it’s essentially to those low- and modest-income workers. It supplements their income. By doing so, it increases incentives to work for several groups, including individuals on social assistance who often face high, effective marginal tax rates. It’s the sort of measure that phases in with earnings starting at $3,000, and so the more you earn, up to the maximum. So that’s a measure, and that’s been enhanced on a few occasions in recent years.
But, again, I think that’s one that we can bring back as well.
Senator Cardozo: Can I ask about the disability supports deduction? I want to get a sense. There will be a deduction for certain supports. How do you go about deciding which supports that covers, and how is it different from the medical expense tax credit?
Mr. Leblanc: Thank you for that question as well.
The policy objective of the disability supports deduction is to support persons with disabilities who face additional costs not incurred by other taxpayers when they’re working, running a business, going to school, doing research. It’s to provide tax recognition of those costs.
What you have here before you — it’s a measure that was initially proposed in Budget 2024 — is to expand the list of expenses eligible for that credit. Examples of additions include cost for a service animal, ergonomic work chairs and navigation devices for low vision.
You asked a good question about the thinking behind these additions. It comes partly from our analysis. Another source is the Canada Revenue Agency has a Disability Advisory Committee of different stakeholders and members of the community. They’ve produced several reports on different aspects of the tax system affecting persons with disabilities. This is one of them. Among these expenses are some that were recommended by that committee.
It’s not in the bill, per se, but a commitment the government made in Budget 2024 when it announced its expansion was to conduct on a regular basis — every four years — a look at expansions of the list. So just to ensure, as technology has developed and as more supports become available, for us to support persons with disabilities in work or in running their own business or going to school, to provide recognition of those.
A final aspect of your question related to the difference between this measure and the medical expense tax credit. With the medical expense tax credit, it’s not tied to work or running a business or school. It’s basically for any itemizable, medical expenses, and so here you have a deduction for disability supports. The medical expense tax credit is a non-refundable tax credit, and it recognizes above average, itemizable medical expenses, but a broad range beyond those that can be incurred. Millions of people claim the medical expense tax credit. If their expenses are above average, then they’re able to claim the credit. It’s a broader nature, if you will.
I hope that covers your question.
Senator Cardozo: The disability support deduction is more tied to work; is that right?
Mr. Leblanc: That’s exactly right, work and school.
Senator Cardozo: School and work. Thank you.
Senator Ross: I’m interested in a question on Part 1 (y), which is the transfer pricing rules. New requirements demand documentation within 30 days, and it was previously three months. The penalty thresholds are rising to $10 million, and both of these measures will increase export and compliance pressure for cross-border businesses at a time when they’re already facing pressure in export situations.
Given the tariff situation that we are facing, many businesses are seeking to diversify their exports to open new markets outside of the U.S. Was this due to the consultations done since 2021, or what precipitated these changes? Are there any measures that are set to lessen the impact of these measures on small businesses engaged in exporting?
Mr. Demeter: Thank you for the questions.
The first question about the documentation requirements and the reduction in the timeframe to provide that information to the Canada Revenue Agency, yes, these changes both resulted following the consultation.
I would say that the documentation requirements, although it’s a tightening to a degree, there’s a broader expectation that in the context of the documentation that is required for transfer pricing, there is a concurrence that’s expected on the documentation, and that 30-day requirement is a requirement that is more commonly found internationally. So whereas Canada previously requested a 90-day period, the 30-day period now is more in line with the similar requirements that would be imposed by other countries requesting the same type of documentation from the members of the multinational groups that are in those jurisdictions.
We’re much in line with the international standards and consensus in that regard now. As I say, there’s an overarching expectation that the maintenance of documentation in support of transfer pricing positions and the analyses are expected to be maintained on a concurrent basis, so the documentation should be readily available at all times. That’s in relation.
The impact on businesses, we’re largely feeding into expectations that are consistent and already existing throughout the world.
In terms of the penalty threshold, the change to the penalty threshold should actually be relieving in certain circumstances for smaller businesses. Among the measures, that is a relieving provision that is provided.
Senator Ross: Given that these changes are made at one time and without a sliding scale or anything like that, do you think it will be difficult for some businesses? Regardless of whether it’s the same in other countries or other jurisdictions, do you think it will be difficult for businesses to meet some of these new guidelines?
Mr. Demeter: As I say, certainly the documentation requirements. Although it’s a change, there has been no change to the overarching expectation that the documentation requirements are maintained on a concurrent basis with the activities and the transactions to which they relate.
It’s not something like a tax return, for example, that the tax return follows generally within six months following a year end, as tax returns generally do.
The types of analyses that go into the transfer pricing agreements that underpin these reportings, there’s an expectation that those analyses are maintained and available more or less in real time. Although Canada may have requested it within 90 days in the past, many other countries have been requesting it on a 30‑day basis anyway. These same multinational entities would have been subject to those similar rules anyway in other jurisdictions. They should have been already prepared to give the same types of analyses on the other side of these transactions in those other jurisdictions.
Senator Ross: Companies are also going to be required to document actual conditions versus arm’s length conditions in cross-border transactions. It seems that it would increase the need for detailed analysis, documentation. Is this another change precipitated by the consultation?
Mr. Demeter: Yes. It’s a change precipitated by the consultation. Overall, these changes are largely to align the Canadian rules with the international consensus that is provided through the OECD Transfer Pricing Guidelines. As I say, it’s the international consensus in the transfer pricing realm among countries, so it should provide for more consistency for these entities in their tax reporting throughout the world.
Senator Ross: Companies that are probably on both ends of the equation or both sides of the equation are large multinationals. What about smaller companies that might not have the same type of sophistication or experience in these other markets?
Mr. Demeter: While updating and clarifying the transfer pricing documentation requirements there is an intention to include further simplified documentation requirements for certain low-risk transactions, low-risk situations. Those prescribed situations or types of transactions are still to come.
Following from the consultation, work is continuing with the Canada Revenue Agency. There is room for further guidance, and the intention is to provide further guidance for, as I say, low‑risk transactions.
I would suggest the simpler type of cross-border transactions in a small- to medium-sized business context could benefit from those guidelines that are still coming.
Senator Ross: Do you think it might possibly discourage growth in export markets for people entering export to see a lot of changes and, basically, a total rewrite of 247? How do you think that will impact businesses looking to get into exporting?
Mr. Demeter: The broad intention of the measure is to bring Canada’s rules in line with what is already recognized as the international consensus on transfer pricing rules, which comes from the OECD’s transfer pricing guidelines.
Because Canada’s transfer pricing rules, as they currently stand, were first introduced in 1997 and have remained largely unchanged since that time, these proposals have been brought forward with a view toward modernizing the rules in order to recognize the evolution of transfer pricing internationally and to bring that in alignment with what is already recognized as the international consensus.
If anything, the intention here is to bring clarification and more tax certainty for businesses of all types that are subject to these rules.
Senator Ross: Do you think businesses would welcome these changes?
Mr. Demeter: I think there are some that will recognize the merits and benefits from the clarity that comes from the alignment with the international consensus. Otherwise, you might face the opposite position in the other jurisdiction. This should bring us in alignment between the jurisdictions looking to apply what should be similar rules in similar contexts.
Of course, there are some taxpayers who might be negatively impacted by the change. There might be some that may have benefited from that. As I say, any taxpayer who might be negatively impacted by a change, it might be less welcome.
[Translation]
Senator Dalphond: To continue on the matter of transfer pricing, you must have seen the newsletter published by PricewaterhouseCoopers, or PwC, analyzing the provision. PwC acknowledges that it’s a Canadian variation on Organisation for Economic Co-operation and Development rules, but says that the legislation doesn’t account for the fact that it will be applied on an exceptional basis. Although it’s written in the budget, it’s not written in Bill C-5.
Will there be any guidelines specifying that, if the agreement is implemented, challenges will be the exception?
Mr. Demeter: I think that’s a good question for the CRA. However, we might be able to come back with an answer.
Senator Dalphond: I’m going to jump ahead to another topic, specifically, osteopaths. Why is an amendment being made for osteopaths? Was it because of abuses committed, or because a Tax Court of Canada decision expanded the scope of the case? What was the rationale for this amendment?
Gervais Coulombe, Director General (Legislation), Department of Finance Canada: When it comes to the GST and HST, some osteopathic care provided to individuals by doctors, dentists and other practitioners is exempt. Essentially, these health care service suppliers do not request payment of the GST and HST on their final invoice, but they don’t receive input tax credits on all these purchases either. The tax stops with health care providers.
When the GST was introduced in the 1990s, there was some uncertainty for a number of years about whether osteopaths could practise.
It wasn’t long before osteopaths practising in Canada and regulated by the provinces were doctors. Over these years, the act therefore included what I consider an outdated provision. In June 2025, the government of New Brunswick passed legislation making it the first Canadian province to introduce specific regulations for osteopathic manual practitioners, professionals who aren’t doctors.
The government believes that this clashes with long-established osteopathy tax policy requiring that osteopaths be practising physicians.
The amendment reinstates the situation that prevailed before June 6, 2025. However, for certain services provided by manual osteopaths between June 6, 2025 and the date of the budget, June 4, grandfathering rules were put in place.
This is really a clarification measure designed to restore the original fiscal intention.
Senator Dalphond: This concerns an infinitely small group of people. These would be people in New Brunswick who belong to this new professional association.
Mr. Coulombe: If the government had not responded, it could potentially have applied more broadly, because other people in other provinces could have been regulated by this new entity in New Brunswick and could have started having this previously unavailable treatment.
Senator Dalphond: If I understand correctly, people belonging to that professional association who are not physicians are able to perform certain procedures that are identical to procedures performed by osteopathic physicians, but they have to add the GST and HST to their services, while doctors don’t.
Mr. Coulombe: I’m not an expert on New Brunswick’s new osteopathy system. However, osteopathic services provided by a member of the College of Physicians are still exempt; none of the changes proposed by the legislation affects them. The only ones really affected are manual osteopaths who were not covered by specific GST rules prior to this unilateral change by New Brunswick.
Senator Dalphond: I’m going to jump to a different topic again. This time, we are going to talk about charitable donations that can be deemed to have been made in 2024, even though they were actually made in 2025. Practically speaking, how will that work? Considering that 2024 tax returns had to be filed no later than April 30, 2024, it seems that these donations would have been made between January 1 and April 30, 2025.
Mr. Leblanc: Thank you for the question. The government made this announcement after the Canada Post strike at the end of 2024, and the CRA administered the measure in the 2024 fiscal year. I can tell you what happened in my own case as an example. When I completed my 2024 tax return, I claimed donations that I’d made in 2024 and others made in the first two months of 2025. That was my choice.
Individuals are given the choice. In other words, I could have decided not to claim them on my 2024 return and instead, this spring, for the 2025 tax year, I could have claimed all of my donations for 2025 and for January and February. However, I couldn’t do both, because donations can only be claimed once.
Senator Dalphond: Is there a mechanism of some kind to easily verify that a donation isn’t claimed more than once? We’re not talking about $2 million dollars here; these are amounts of a few hundred dollars.
Mr. Leblanc: Although that’s more a question for the CRA, as an individual, I can say that two years ago, the CRA asked me to provide my receipts for a certain fiscal year for audit purposes, specifying that the audit could cover two fiscal years to check that donations made in January or February 2025 were only claimed once.
Senator Dalphond: May I ask one more question?
The Chair: Yes.
Senator Dalphond: My last question concerns agricultural cooperatives that can pay a patronage dividend in the form of shares to their members until the end of 2030. What was the rationale for this decision? What does it aim to accomplish?
Mr. Baylor: This measure was initially created in 2005. Before 2005, the dividends that agricultural cooperatives paid to their members were taxable. Obviously, given that funds were not necessarily available, the agricultural cooperative also ended up paying a portion of the dividend in cash so that the person receiving it could pay the income tax owing on the dividend, except that it meant dipping into the agricultural cooperative’s capital. At that point, recognizing the value of the agricultural cooperative model and considering the situation in 2005, the government decided to grant a deferral.
Senator Dalphond: Until the day that the shares are redeemed.
Mr. Baylor: That’s right. When the shares are redeemed, then the taxes become payable. This was to apply for five years, and it’s been renewed a few times since then. The measure was nearing its expiry, and a decision was made to keep renewing it. Once again, I think that the reasons deemed valid in 2005, and afterward, were deemed valid again, so the government decided to renew the measure.
[English]
Senator MacAdam: I’m going to follow-up on some of the questions I asked yesterday regarding the Clean Economy Investment Tax Credits. I would like to know more about these tax credits.
Do I understand correctly that there are labour requirements, including apprenticeship requirements, attached to three of those previously implemented tax credits if claimants wish to avail at the regular tax credit rate. Am I understanding that correctly?
Mr. Baylor: Yes.
Senator MacAdam: Can you provide how many claimants opted to meet the labour requirements to avail of the regular tax rate? Would you have any idea how many claimants?
Mr. Baylor: Maybe one point, to start off, is that there is nothing in this bill about the labour requirements. Those have been implemented. They’re already in law.
The clean electricity investment tax credit will be subject to the labour requirements.
Senator MacAdam: That was my next question.
Mr. Baylor: There, the rate is reduced by 10%, as with the others. The same thing for the clean technology enhancement to waste biomass, the labour requirements will apply as well.
As you indicate, the nature of those requirements are twofold. There is the prevailing wage requirement, so the wages that are paid for the people who are employed, and putting in place these investments — that capital — has to meet those prevailing wages, and then the apprenticeship requirements as well.
Senator MacAdam: What is the apprenticeship requirement?
Mr. Baylor: Again, this is not in this bill, so I’m going from memory here.
There is a percentage of apprenticeship that has to be met as part of those requirements.
I’m going to turn to my colleague. I’m trying to remember the percentage — 10%, and I stand to be corrected — that needs to be met. That is easy to find. Like I say, I’m going from memory here. It’s not in this bill.
Senator MacAdam: What is your projected benefit in terms of the labour market? Did you do a cost-benefit analysis on the benefits of this measure versus the costs in turning that into the credit?
Mr. Baylor: For the labour?
Senator MacAdam: For the labour component, yes.
Mr. Baylor: Again, we’re talking about a measure that’s not specifically in this bill.
As it applies to those two measures in this bill, what the government was trying to achieve — was, essentially, to ensure that the prevailing wages, as we discussed, were met, and that the level of apprenticeship was there as well.
Perhaps to add, these are similar to some of the measures that were put in place in the United States for similar tax credits. There was a parallel there.
Senator MacAdam: I’m asking this, because I’ve heard from numerous stakeholders, including students that I met with, about the importance of creating opportunities for employment, including incentivizing apprenticeship opportunities. It’s mainly the apprenticeship that’s come to my attention quite a few times from stakeholders.
The budget indicates that the government will consult on the possibility of introducing a domestic content requirement under the clean technology and clean electricity investment tax credits. Can you talk about that? Is there a projected timeline for these consultations? Do you expect them to happen?
Mr. Baylor: What I can say at this point is you are absolutely right. That was announced in the budget. Obviously, it’s not in this bill. There’s nothing related to that here at this point, but the intent is to launch those consultations as soon as possible.
Senator MacAdam: Switching gears, regarding the personal support workers tax credit, could you provide some clarity on what the occupations are that qualify under this tax credit? We found out yesterday, for instance, that nurses are not included. Do you have a list of the occupations that would fall under that tax credit?
Mr. Leblanc: Thank you for the question.
The way the legislation is written is that there would be three elements, if you will, to determine eligibility. One is what a definition of an eligible personal support worker is, and it’s more a question of the types of work that person does.
Individuals who provide one-on-one care and essential support to optimize and maintain another individual’s health, well-being, safety, autonomy and comfort, consistent with health care needs as directed by a regulated health care professional or a provincial community health organization, whose main employment duties include helping patients with activities of daily living and mobilization, that’s number one. That’s your definition of “eligible personal support worker.”
Number two is working for an “eligible health care establishment,” and we touched on this a bit yesterday. There is a list, and I think yesterday we talked about home health care establishments, but there’s a list of the types of establishments, such as hospitals, nursing care facilities, residential care facilities and a couple of others.
Then there are eligible earnings. The main aspect of that is its earnings doing those sorts of duties, working for that employer, and, as we discussed yesterday, since there are already agreements reached with British Columbia, Newfoundland and Labrador and the Northwest Territories, the credit wouldn’t apply to earnings in those jurisdictions. It would apply elsewhere.
Another way we think of it is what the legislation does is it sets out those criteria. Probably the one closest to your question is what’s the definition of an “eligible personal support worker”?
Then the next step will be for the CRA to administer the measure, to develop guidance, to put it into practice in tax forms and working with software providers. That’s what I can tell you about what the legislation is.
The focus on personal support workers — the idea to focus on the types of workers in those three jurisdictions where the agreements were reached, the workers that have been the focus of support in those and to provide support in the other jurisdictions through this tax credit.
Senator MacAdam: Are you saying that the CRA would produce some kind of an interpretation bulletin or guideline?
Mr. Leblanc: They will decide exactly what they’ll put out, but you can expect them to look at doing that, to help individuals know if they’re eligible for the credit and able to claim it on their tax forms.
Senator MacAdam: There have been calls for a comprehensive review of the tax system for many years, and a comprehensive review has not happened in decades. Budget 2025 does not include a commitment to a more comprehensive review. I know you’re talking about the Budget 2025 Implementation Act, but I just wanted to ask: Has the government considered undertaking a comprehensive review of the tax system? Is that anything you’re aware of?
Mr. Leblanc: The government reviews the tax system on an ongoing basis to make sure it’s fair, efficient, competitive and easy to comply with. It would be a minister or a representative of the government who could answer that question on whether they’re contemplating a formal tax review of that nature.
Senator Kingston: I’m going to follow up on some of the things that other senators have asked — something I would like to know. The first one has to do with the disability supports deduction. When you came up with an amount of revenue that you wouldn’t receive, can you say how much the average savings would be for this new disability support deduction?
Mr. Leblanc: Thank you for the question.
I don’t have that with me. My colleague has referred a few times that you have a table at the beginning of the annex in the budget, and this actually would have been in Budget 2024. We’re looking at an estimated cost of $1 million a year.
In terms of how many individuals, you’d want to know how many individuals would be expected to make use of these new technologies. That’s something I can look at following up on. While I have the aggregate cost estimate, I don’t have an average with me.
Senator Kingston: You must have done some figuring to decide on the million dollars, for instance.
Mr. Leblanc: Yes.
Senator Kingston: Okay, so if you could provide that, that would be great.
I’m going to jump around a little bit, because I’m wondering about adding biomass. Why was the generation of electricity and heat from biomass not originally included in activities that could lead to a Clean Technology Investment Tax Credit, and how was it determined to be a breach of the current legislation? I ask because biomass has been used to produce electricity in New Brunswick for a long time — since the 1990s. The Fraser lumber mill is a good example.
Can you tell me how you came to those decisions?
Mr. Baylor: Absolutely.
The government looks at proposals and ideas, and puts forward those proposals in the context of the Clean Technology Investment Tax Credit. There was a wide array of technologies and investments that were eligible initially. The government, and certainly the Department of Finance, is always open to engaging on that. Exactly as you indicated, people came forward and said, “Wait. Where’s biomass? That should also be a part of that. It can play a role in the transition to a clean economy.” Looking at that and taking it into consideration, the government agreed and decided to include it under the tax credit. It’s now in the bill in front of Parliament.
Senator Kingston: I acknowledge your application is just so old that I wonder how it was overlooked at the beginning. It has several offshoots. You get rid of piles of sawdust and chips — I don’t know if you’ve seen them.
But you’re not aware why it was originally overlooked?
Mr. Baylor: Like I say, it’s an ongoing process, and we adjust as things go. I think that’s what was done here.
Senator Kingston: What do you expect in terms of the impacts on greenhouse gas for the addition of another entity? Was the greenhouse-gas-emission reductions also overlooked in the beginning, or has that been taken into account all along?
Mr. Baylor: In terms of the overall impact on greenhouse gas that is something that falls under the responsibility of Environment and Climate Change Canada. They look at the overall tools, policies and everything that is out there. I suspect that has been taken into account as it gets implemented.
Senator Kingston: Now I’m wondering about how certain credits interact with each other.
Under ensuring the expense claimed, under the medical expense tax credit cannot be claimed under the Home Accessibility Tax Credit. Then, of course, you have the disability supports. They all work together, I would think.
The end question is: How will CRA verify that a given expense has not been claimed and that they’re both credits? Does the department expect that there will be an administrative burden on taxpayers or on the agency?
Also, what would be the average financial impact on seniors and people with disabilities who currently rely on both those credits?
Mr. Leblanc: Thank you for the questions, senator.
What you have an example of here is the government certainly recognizing the importance of these two forms of tax relief but also deciding that one credit for a given expense is what is appropriate and not two. When we’re talking about charitable donations, the CRA is going to decide exactly how it’s going to verify. I would say, generally, the CRA has the ability — to take the example of someone claiming both the medical expense tax credit and the Home Accessibility Tax Credit — to seek the underlying receipts for both. That would be an option they have.
In terms of the compliance burden for taxpayers, now you will be able to claim these expenses under one credit. In certain cases, it might be advantageous to claim it under the Home Accessibility Tax Credit; in other cases, it might be more advantageous to claim it under the medical expense tax credit. That will basically depend on the situation of a particular taxpayer.
In many cases, there’s advisor software that can help people with these decisions, and the choice will be left up to the taxpayer on what they think is in their best interest.
Senator Kingston: There are ways, then, that you’ve provided to help the taxpayer find the most advantageous combination of these credits.
Mr. Leblanc: Basically, we’ll want to be very clear about what the rules are and how the calculation of each credit works. Different taxpayers file their taxes in different ways, using different sources of advice — sometimes external and sometimes software. They will be able to make these decisions for themselves.
Senator Kingston: It begs the question to me that there are people who will be helped to file their taxes, actually. How does this all match with a myriad of tax credits that might apply to somebody in those situations?
Mr. Leblanc: Are you talking about the announcement of automatic federal benefits? Okay. The thing is that I’ll talk about that generally, because it’s an important initiative; it’s not in the bill. The focus there will be on individuals with low incomes and individuals who don’t pay tax. Whether they claim these amounts or not does not affect their bottom line.
Senator Kingston: This is for —
Mr. Leblanc: This is an example of something where the CRA doesn’t have this information themselves. They don’t know what you’re spending or what’s an eligible medical expense. They don’t know what an eligible home accessibility expense is.
The focus of automatic benefits will be on what information the CRA does have, because that’s what they can use to try to both simplify tax filing and, ultimately, if people are missing benefits right now, help them get benefits.
Senator Kingston: Thank you.
[Translation]
Senator Hébert: My first question concerns the accelerated capital cost allowance for rental housing projects. I’m not sure if I understand correctly, and I just want to check that with you. For a building to qualify, all or almost all of its rental units would have to be rented out or for rent over a continuous period of at least 28 consecutive days. Twenty-eight consecutive days doesn’t see very long. Am I to understand that if I have a building that I rent out by the month on the Airbnb platform, I’d qualify for the accelerated capital cost allowance deduction? Am I mistaken?
Mr. Baylor: I have a colleague who can answer your question better than I can.
Senator Hébert: Would you like me to repeat the question?
Mr. Baylor: Excuse me. We’re going to pick the right person to answer your question.
[English]
Ms. Gwyer: I can answer, and then my colleague may want to add.
Senator Hébert: Why the 28 days, and how was it determined, and does it mean that if I rent Airbnb by month, that I’m eligible to this deduction?
Ms. Gwyer: The 28 days, it could have been a longer amount. It’s an amount that is determined to be longer than a short-term rental, but the expectation would be that it could be longer periods than that. It’s set at the lowest amount, but I don’t know if you want to —
Shane Baddeley, Director, Economic Development, Business Income Tax Division, Department of Finance Canada: No, I think that’s right. When you’re talking about Airbnbs, generally, it is for a shorter amount than 28 days. I think it would be rare for someone to stay over 28 days for multiple periods at once, so this is sort of trying to find the right balance between a legitimate renter and short-term rentals.
Senator Hébert: But it’s not stated that it’s to the same person. It only says that it is 28 consecutive days. I could have a lease with someone for 30 days and then with another one for another 30 days or 60 days or whatever. So this means technically — I might be mistaken, but from my understanding, if I do that, I’m eligible. It’s not saying for more than 28 days for the same person over periods.
Mr. Baddeley: It’s true. We’re trying to find the right balance here. You could have a rental agreement where, okay, you have a lease for a year, but then that individual is month to month. So, again, there is no perfect way to find it here, but in general, Airbnbs, you’re looking at stays for less than 30 days, you would think. I know that people do stay longer, but then you’re getting into more of what we consider, in this policy, longer-term rentals. If you’re staying for months at a time, whether it be at different places, then — you would have common arrangements where you would have a one-year lease, and then after that, you’re month to month. That’s still — you’re in that place for a prolonged period of time.
Senator Hébert: I understand, but I’m still not convinced that this will support the purpose of what it was supposed to support, fully, with the kind of answer that I’m having now.
Technically, many municipalities have regulated Airbnb, and the period of 30 days is common in Airbnb. Many people are renting for one month. I think it could be a problem here if we don’t add more criteria to be eligible for this deduction.
[Translation]
The Chair: I don’t want to play the devil’s advocate, but that could even include transitional apartments and accommodation for unhoused persons.
[English]
Senator Hébert: I was getting to that. Unless we are having what we call “des maisons de chambre” or things like that, but — that I wouldn’t understand, but it should have been included as an exception and not as a rule for — that could also include Airbnbs.
[Translation]
It concerns the 1% tax on underused housing, which has been withdrawn. I don’t remember if I asked the question before, and please let me know if that’s the case. This tax primarily applies to property owners who spend a lot of time abroad. I understand that this tax didn’t generate much tax revenue directly. However, it does entail costs to Canadian taxpayers, considering the housing crisis. How many units did this tax apply to across Canada? Our figures indicate 30 million and a bit. Do you know how many rental market units were affected at the time in question?
Mr. Coulombe: If memory serves me, we did in fact answer that there was an overall amount. I don’t have the number of units in question on hand. Once again, the tax on underused housing generally applies to non-residents and non-Canadians. We’re talking about people who were outside the country and who had a residence here that wasn’t being used for rental or housing purposes. I have no information other than what we gave the committee yesterday.
However, a question was asked about this particular matter, and the department is working on a follow-up response. We’ll need a little more than 24 hours, so I’m sorry, but we are working on it.
Senator Hébert: Thank you. I wasn’t sure whether I’d asked for a follow-up. I am happy to know something is coming. Thank you.
[English]
Senator Galvez: I’m sorry I couldn’t be there yesterday, and I’m thinking a lot about this exercise. Globally, we used to have some measures given by the previous Liberal government on how to attain net-zero emissions by 2050. We have the carbon tax, the electric vehicle regulation, the oil-and-gas emission cap and the clean electricity — all these things we had. Now this government says, “No, nothing of that is going to work, but we’re still going to meet the net zero 2050 target.” So here we are with the budget, and here we are with these tax credits that I will divide in two.
I want to focus on the tax credits for critical mineral exploration, and the tax credit, as my colleague was asking, for the carbon capture, utilization and storage. For the critical minerals, what metrics or benchmark will be used to assess whether the tax credit leads to what the purpose is — to find additional investment in domestic critical mineral exploration and structures — versus merely reducing the cost of projects that would have proceeded anyways. I know there were 500 projects already cooking, and now we have stopped that and saying we’re going to go by tranches of five projects, five projects, five projects.
So what are the metrics? What are we going to use to know that this is better than what we had before?
Mr. Baylor: To the question about the Critical Mineral Exploration Tax Credit, and, again, to clarify, what is being proposed is to extend the credit to 12 additional critical minerals. So the credit already applies.
Senator Galvez: What are you going to use in order to know that this is better?
Mr. Baylor: The purpose of this is to provide additional funding to the companies for exploration. Essentially, that is done through another measure that is associated with this, which is the flow-through shares. With that, what the mining companies can do is to sell these shares that allow them to flow through their deductions and then the individual that receives those deductions — that the firm can’t use because it’s still an exploration phase, so it can’t deduct them from the income — can deduct them. To incentivize that even more, there’s then this 30% tax credit on those deductions that are flows.
What that means is those individuals are willing to pay the premium on the shares, which allows the company to increase its financing.
To your question, what we look at ultimately is the number of firms that issue this, and the number of individuals that purchase these shares and the amounts that have flown through. In 2023, this was a new credit, and actually, the cost of it that we’re seeing actually exceeded our projection. So in that sense, it was successful, and it supported mining companies to raise equity by issuing eligible flow-through shares to more than 9,000 investors in 2023. So those are the kinds of statistics —
Senator Galvez: That is the number.
Mr. Baylor: That’s correct.
Senator Galvez: What are the safeguards to ensure that these tax credits do not disproportionately benefit large, profitable corporations over smaller or junior mining companies that may struggle to access the same level of financial support?
Mr. Baylor: The flow-through shares is to flow through the deductions, the expenses that the company can’t use. Those are disproportionately the junior mining companies. The reason is the larger companies can use those deductions, so they don’t make use of the flow-through shares. You’re right, technically they can, but in practice, that’s not what we see.
At the end of the day, in practice, this program does end up to be targeted very much toward the junior companies that cannot use these losses, and then indirectly benefit from the tax credit, because then the investors are incentivized.
Senator Galvez: What about the critical minerals? We know the number of critical minerals have increased. Before there used to be only a few critical minerals, but now they have extended this list of critical minerals to include tungsten, molybdenum and other things that were not there initially.
The reason China has and controls 95% of the market on critical minerals is because they look for critical minerals in their residues. This is done because they had a lot of years of research and development that showed them that any big mine on typical minerals — lead, zinc, nickel, copper — in the residue, they’ll find these critical minerals. Are we doing the same here?
Mr. Baylor: With the Critical Mineral Exploration Tax Credit, what we’re doing here is extending it. Before the focus was on critical minerals that were used basically in production of batteries, permanent magnets or necessary for production and processing of advanced materials, clean technology or semiconductors. That’s now being expanded to critical minerals that are relevant to defence, semiconductors, energy and other clean technologies, so that was the lens that we took. With this list, we’re very close to covering the range of critical minerals.
If you look at the total here, you’ve got 28. I’m forgetting the exact number, but that has 30-some critical minerals that are identified in Canada.
I guess the point I’m trying to make is that this covers a very large swath that I think would include some of the residuals that you’re alluding to, because we’re pretty much covering the waterfront with this. But obviously there are still some exceptions.
Senator Galvez: Thank you, I want to shift to the carbon capture and storage. There are only four projects of carbon capture and storage and utilization in Canada. Four of them are at the pilot level, one in Saskatchewan and three in Alberta. The one in Saskatchewan even imports CO2 from the United States for oil recovery in fracking.
My first question is what’s the difference between tax credit and subsidy? In my eyes, 40 years developing carbon capture and storage, and you have given billions of dollars to develop these, these tax credits for me is still a subsidy. For you, what is the difference, if we are not going to recuperate the investment?
Mr. Baylor: I apologize if I’m not 100% sure that I understand the question. Clearly, the intent here is that the government does essentially provide —
Senator Galvez: Assistance, money again to incentivize.
Mr. Baylor: The rate of the credit. In the case of capture equipment, up to 50% of the cost of the investment to incentivize that investment.
What is in front of you, you mentioned enhanced oil recovery, I think. That’s not part of this. Again, as I’ve explained before, we’re just extending in 2031 to 2035 the full rates for the existing measure, which in law currently does not include enhanced oil recovery.
Now in terms of the subsidy that you mentioned, the intent is to provide that assistance because the CO2 is then stored underground, and that takes out of the atmosphere. And this is what the government wants to ensure.
Senator Galvez: In this budget now we’re presenting the investment in operational costs, and these tax credits are in the investment. Am I right? They are included in the investment curve?
Mr. Baylor: You mean the capital budgeting framework?
Senator Galvez: Yes, the budget that we received.
Mr. Baylor: Is that what you’re referring to? The capital budgeting framework, so these investment tax credits are considered investments as part of that framework.
Senator Galvez: Because we have agreed, we have been pouring billions into this carbon capture and storage, and we are very far from a commercial, large-scale operation, and so this is actually subsidies.
Mr. Baylor: At this point, as I think we’ve discussed previously, the claims are just starting. When these investments will be made, that’s when the claims will be paid out. When corporations make those eligible investments, it’s at that point that they will receive a tax credit on those expenditures that they have incurred.
Senator Pupatello: I have two questions for you, one is on the SR&ED enhancements. I don’t know what the section is. At least ten years ago, Canadian SR&ED was far and away the best foreign investments in Canada compared to most western countries. Then there was an election in the U.S. in 2016, and they wildly improved their status, so the competition was on. They really enhanced their SR&ED to exceed ours. I was pleased to see these measures because it will now put ours at least equal to, or almost equal to, what the Americans are offering in this area.
I don’t need it now, but can you find for me how exactly are we comparing now with the Americans on the SR&ED tax credit? Unless you know that now.
Mr. Baylor: That’s something we can certainly follow up on.
Senator Pupatello: Okay. The other is Part 1 (z), and it’s related to the productivity super-deduction. No one has admitted that they came up with that line, but I really like it. I don’t know who thought that up.
Before I forget, I want to say I’m pleased that Mr. Leblanc also gets calls from the CRA like the rest of us. I don’t know if I thought that finance executives would be exempt from getting calls from the CRA, but I’m heartened to hear that you also suffer like the rest of us on those calls and demands for verification. Apparently, you did have all the documentation, so I’m pleased to hear that.
Back to Part 1 (z) on this super-deduction, I understand it to be 100% accelerated depreciation, but it’s referring to multiple parts. Can you describe all the pieces that are part of this productivity super-deduction? I think there are several parts, and I just want to be clear.
Mr. Baylor: Absolutely. I will get a copy of the budget.
I can do that, and I will also clarify what is in this bill and what is not because I think that’s helpful.
Basically, the productivity super-deduction, as you indicate, is sort of a package of accelerated depreciation allowances. The first component is, essentially, the reinstatement of the accelerated investment incentive that was put in place initially in 2018, and it had started to phase out in 2024 and is now in its four-year phaseout. That’s being fully reinstated as of January 1, 2025.
Senator Pupatello: Is that 100% in one year?
Mr. Baylor: No. That’s three times the first-year depreciation rate. All of these assets are put into asset classes. Each asset class has a depreciation rate associated with it, generally based on the useful life of that asset.
In the first year, there’s what we call a half-year rule, where you only get half the rate because the idea is we don’t know exactly when you bought it during the year, so we make a general rule-of-thumb assumption that it’s in the middle, so you get half the rate. What the accelerated investment incentive does is it triples that rate. That’s component one.
Senator Pupatello: It triples the rate in each class, right?
Mr. Baylor: Yes, and that is very broad-based.
In terms of manufacturing or processing equipment under Class 53 — essentially, manufacturing and processing multinational enterprises — that gets immediate expensing. That’s essentially 100% in the first year. There’s no half-year rule that applies there. You are essentially entitled to deduct the whole value of your investment in that first year.
That treatment also applies to clean energy generation and energy conservation equipment, which is Class 43.1, and zero‑emission vehicles, which are Classes 54, 55 and 56.
Senator Pupatello: Is there a condition that those be Canadian-made, by any chance?
Mr. Baylor: No. It’s the investments that you purchase and it applies broadly.
Senator Pupatello: Okay.
Mr. Baylor: That is essentially reinstating policies that, as I described earlier, were expiring starting in 2024.
Senator Pupatello: Can I get one more quick question in?
Back to the SR&ED, the expansion that is now including public companies within a certain threshold — I think you said $75 million — there was some talk among companies that the SR&ED department had their foot on the brake and were really not making much of their expenses eligible for the SR&ED. They were making it difficult for companies to get their tax credits in this area. They felt, with the language that was in the budget this time, that maybe it means they’re taking the foot off the brake.
I’m wondering if there’s an amount set aside in the budget — whatever that amount is, $2 billion — once people are claiming to that level, does it stop or do you keep going?
Mr. Baylor: Sorry, I’m not sure I follow.
Senator Pupatello: Let’s say you set aside $5 billion for companies to obtain this SR&ED tax credit. Once you see that submission in total across many companies reaching the $5 billion mark, does it stop or is it open-ended?
Mr. Baylor: If I understand the question correctly, there’s no envelope for tax credits.
Senator Pupatello: That’s my question. So why would so many companies think they suddenly, over the last two years, were not able to get a lot of their expenses eligible for the tax credit? Why would that have happened?
Mr. Baylor: I’m missing the context. I’m not in a position to speculate.
Senator Pupatello: They were denied, essentially.
Mr. Baylor: Perhaps that’s more of an administrative question. Obviously, the Canada Revenue Agency administers the tax credits, and the applications go to them. I’m sure you saw — this is not part of this bill — there were changes to the administrative process that were announced in the budget. I don’t want to suggest that’s what this is about.
Senator Pupatello: I look forward to the answers on the unused housing tax that I had asked the other evening. It was about the private companies versus individuals, how many applied and how many were taxed.
Mr. Baylor: I believe that was to one of my colleagues.
Senator Pupatello: Right. Thanks.
Mr. Baylor: I hadn’t finished on the productivity super-deduction, so if you wanted me to keep going, I’m happy to do that.
Senator Pupatello: I thought there was a whole panoply of items included in this productivity super-deduction.
Mr. Baylor: Yes. I think I gave you part of them. In fact, I gave you the ones that are mostly in this bill, but if you wanted me to complete that —
Senator Pupatello: Are there more?
Mr. Baylor: Yes. I’ll go quickly. There are the ones that I’ve discussed in this bill. After that, there is immediate expensing for productivity-enhancing assets, which is also in this bill.
Finally, as you were mentioning, as part of the SR&ED, there’s immediate expensing of capital expenditures under the SR&ED program. Those are all in this bill and all part of the productivity super-deduction.
What is also in the budget, but not in this bill, are two other measures. One is immediate expensing for manufacturing or processing buildings, and the final is the accelerated capital cost allowance for LNG equipment and related buildings, but only for low-carbon LNG facilities.
All of those measures, taken together, form what the government calls the productivity super-deduction, the lion’s share of which is in this bill but not all of them. Hopefully, that clarifies.
Senator Pupatello: Thank you.
[Translation]
The Chair: You spoke about an enhanced deduction, but sometimes, it’s the full deduction in the first year. Is that when 100% of it’s taken.
Mr. Baylor: Yes, expensing occurs in the first year and it’s 100%.
[English]
There’s no half-year rule anymore at this point. It’s 100%.
[Translation]
The Chair: There are no more [technical difficulties] after; everything was used.
Mr. Baylor: Exactly, no half-year rule applies at that point. It’s 100%.
The Chair: When they say that zero-emission vehicles are covered by this charge, are they talking about electric transport and delivery trucks or rolling stock inside factories, like forklifts?
Mr. Baylor: I have that information, if you’ll give me one minute. It’s your first example.
The Chair: If I am a trucking, transport or delivery company for the Amazons of this world, is that the one?
Mr. Baylor: That’s the idea, yes.
The Chair: So there is nothing for a company like Kenworth, which manufactures tractors and trucks for big transport companies. If it is not electric, the transport company doesn’t get to deduct 100% of the cost of buying a vehicle from Paccar in Sainte-Thérèse.
Mr. Baylor: We have to be careful. If the vehicle isn’t —
The Chair: A good diesel truck that’s strong, that pulls.
Mr. Baylor: The buyer would qualify for an accelerated investment incentive. If the machine’s manufacturer qualifies for expensing —
The Chair: In equipment manufacturing.
Mr. Baylor: Exactly. It depends on whether it comes under category 53; that’s manufacturing and processing.
The Chair: I am thinking of Paccar, in Sainte-Thérèse, just 10 minutes from my home. That’s a company hard hit by tariffs. The staff cuts are unbelievable. There’s just a small group of employees left, and they’re trying to hang on. They could improve their assembly line with equipment and get some kind of deduction, but for the finished products they sell, unless they’re hydrogen or electric, buyers wouldn’t qualify for 100% of the super-deduction. It’s a shame, because that would have given them a helping hand, but diesel isn’t zero carbon.
Mr. Baylor: It would have, potentially. It wouldn’t be through expensing, but through the accelerated investment incentive.
The Chair: I’m going to look into what we can do for our local businesses. Your answers concerning the osteopath matter weren’t clear to me. If I go to see an osteopath in Quebec, it’s not a doctor I’m seeing, Royal Assent, is that taxable or not?
Mr. Coulombe: It’s taxable. That is how it was and it stayed the same.
The Chair: I understand that it’s because New Brunswick imposed another system. I understand what changed for osteopaths. In Quebec, services weren’t taxable in the past.
Mr. Coulombe: So, an osteopath physician —
The Chair: No, an osteopath is not a physician, because a lot of them aren’t doctors.
Mr. Coulombe: It’s taxable.
The Chair: But was it taxable before?
Mr. Coulombe: It was taxable.
The Chair: It was already taxable before. OK, it was not clear to me. It is not a type of alternative medicine I know well. I had not noticed the issue of taxes.
With respect to the digital services tax, $4 billion will be given back to businesses. That tax is cancelled. Why is the money given back with interest? The tax was valid and was collected legally. Why are we returning these amounts with interest?
We can make a comparison: as a taxpayer, if I had overpaid and you sent me a refund with interest, I would understand. However, for a company that paid a tax that legally existed, it is not an overpayment in the way it would be for a normal taxpayer. Why would we pay interest? We are giving them an incredible gift by cancelling the tax, so why would we give them interest on top of that?
Mr. Demeter: Thank you for the question. I would just like to confirm that the measure dealing with the repeal of the Digital Services Tax Act would retroactively repeal the Digital Services Tax Act as of June 20, 2024; that is the initial date. So, technically, there is no amount payable, because the Act will be repealed before there is any obligation under the Act.
The Chair: It has already been paid; some money has already been paid.
Mr. Demeter: Yes.
The Chair: If we take capital gains... You say that we are going to cancel the capital gains tax, that we are going to repeal it, that it will no longer exist. If someone said to me, “Mr. Carignan, we are going to refund the tax you have paid over the last few years,” I would be so happy that I would not even dare ask you for interest.
Mr. Demeter: The payment of interest in the context of reimbursement related to the repeal of the act, this act in particular, is a matter of fairness. Interest on overpayment is generally paid to compensate taxpayers.
The Chair: These are things that I have already seen.
Mr. Demeter: Yes.
The Chair: That does not explain why we are giving them a gift while repealing the act; in addition to giving them the butter, we are giving them the money for the butter.
Mr. Demeter: The government has received money before it technically had to be paid, and the act will be cancelled altogether. There is no obligation and no debt, no amount payable. The government has received money.
The Chair: What is the interest rate?
Mr. Demeter: It is the comparable interest rate for any return or reimbursement to a company.
The Chair: Is there immunity from prosecution? If I follow your logic, the company could say that it is not satisfied with the 4% interest rate. They would have invested that money and could have made a 20% profit, so they will sue you. Is there immunity from prosecution in the act?
Mr. Demeter: My understanding is that there is none specifically in the act.
The Chair: Is this not something we should suggest as an amendment? You do not seem to have thought of it.
Mr. Demeter: This is not a specific issue related to this repeal. It is an issue that can be important in the context of any tax refund. So it is an operational issue.
The Chair: They may have the means to pursue legal action. We could perhaps suggest provisions for immunity from prosecution, so that the interest covers all the benefits.
Mr. Demeter: There may be one question: if we were to put safeguards in place, as you mentioned in this context, would that have an impact on every government reimbursement in a similar context?
The Chair: This situation is rare. You explained to me that it was exceptional.
Mr. Demeter: This is exceptional in the context of the complete retroactive repeal of the act.
The Chair: I haven’t seen that too often since I’ve been here.
Mr. Demeter: It’s treated the same as any overpayment return or reimbursement.
The Chair: Thank you.
[English]
Senator Ross: I want to ask about the cancellation of the Canadian Entrepreneurs’ Incentive. It removes a planned tax break. It would have lowered the capital gains inclusion rate to one third for $2 million in eligible business sales. It means that entrepreneurs are losing a tool for succession planning, sales of business and retirement funding.
It was designed to encourage innovation and reward risk-taking and support succession planning.
Why did it get cancelled? Do you think it could weaken our competitiveness compared to jurisdictions that still have entrepreneurial tax incentives that are stronger than ours? Do you agree that it reduces incentives to start and grow businesses?
Mr. Leblanc: Thank you for the question.
What we have before us is Bill C-15. Bill C-15 has a measure to increase incentives for entrepreneurship, and it’s the increase in the limit for the lifetime capital gains exemption to $1.25 million.
Focusing on the law that’s before us, that’s the measure I would underscore. It’s an important measure for the government. It’s going ahead in this bill, even though the context for all of this is that the proposed increase in the capital gains inclusion rate was cancelled by the current government. When you consider incentives for entrepreneurship, it is a very important step that we continue with an inclusion rate of 50%.
In terms of the bill, which is our focus this evening, it does include the increase in the lifetime capital gains exemption limit.
Senator Ross: First the capital inclusion rate was proposed, then it was deferred, then it was cancelled. Do you think that the shifting stance on the capital gains inclusion rate has caused uncertainty for small business owners who are certainly looking forward to the change to the exemption rate? Some people have shelved plans to make changes or made changes in advance but then it never happened, and now they’re trying to fix those changes. What do you think it has done to small businesses in terms of their comfort level or their trust in the system?
Mr. Leblanc: The key takeaway for me is that there’s no increase in the capital gains inclusion rate in this bill, because the government abandoned the measure.
[Translation]
Senator Dalphond: My question pertains to the carbon pricing rebates for small businesses that were entitled to individual reimbursements. Bill C-15 states that the program was terminated on April 1, 2025, when the Prime Minister signed the order that put an end to carbon pricing as a whole. The bill states that it’s tax-free, whereas it was previously considered as income and was therefore taxable. Now, it’s tax-free. How is it logical to say that you can keep the credits you received, which are now tax-free? Is it because Santa Claus is coming soon and this is a gift?
Mr. Baylor: To be clear, this is about the fact that while carbon pricing was in effect, the amounts collected were reimbursed to individuals. Part of the funding was also set aside for SMEs, and there were criteria to determine who was entitled to what.
Essentially, the amounts collected were reimbursed in two stages. A first rebate was sent out last year regarding the amounts collected from 2019-20 to 2023-24. SMEs were reimbursed a total of $2.5 billion. Again, that was the money collected through carbon pricing; an envelope was set aside, and the money was reimbursed. This year, even if carbon pricing was reimbursed, certain amounts were collected during the 2024‑25 fiscal year, and $623 million will be given back to SMEs later this year and throughout next year as well.
This is all part of the larger context of giving back the money that was collected from individuals and businesses.
Going back to your question about the bill, throughout all this, the government committed to making these rebates tax-free for businesses. That’s the commitment the government made a few months ago.
Senator Dalphond: But they were taxable from 2022 to 2024?
Mr. Baylor: No, not at all. At first they were retroactive, that’s all.
Senator Dalphond: The people were reimbursed?
Mr. Baylor: From 2019-20 to today, whoever paid taxes can resubmit their tax return and be reimbursed.
The Chair: With interest?
Mr. Baylor: I will have to verify that.
The Chair: Please do, because if we want to be fair, we have to reimburse Canadian businesses with interest.
Senator Dalphond: It was $2.5 billion plus $620 million this year, for a total of over $3.1 billion that was taxable and will become tax-free. So in terms of costs, we’re looking at $200 million to $300 million?
Mr. Baylor: It’s $250 million.
The Chair: Is it written somewhere if the reimbursements will be with or without interest?
Mr. Baylor: We would have to check in the terms and conditions.
The Chair: We will take for granted that you will make the necessary verification, and if the reimbursement is without interest, then that will be part of the committee’s recommendations.
That brings us to the end of today’s meeting. Thank you to the interpreters and the technicians for staying a few extra minutes. Thank you all for your answers and your generosity. We don’t expect to bring you in again at this point. We would like to receive the additional information that you committed to provide us by December 12.
Thank you very much. We will resume on Tuesday, December 9, at 9 a.m.
(The committee adjourned.)