Finance Committee on April 22nd, 2010

[The Chair, Conservative, James Rajotte]

I call to order meeting number 10 of the Standing Committee on Finance.

Our orders today are Bill C-9, an act to implement certain provisions of the budget tabled in Parliament on March 4, 2010, and other measures.

We have with us a number of witnesses from the Department of Finance and other departments to answer any questions members may have on any parts of Bill C-9.

Colleagues, I'm proposing we go through part by part, and I will ask if any colleagues have any questions related to the part, and then those officials who deal with that certain section will come to the table and answer any questions we may have.

We've started the meeting late, obviously. Another committee is here at 1 p.m., so we cannot go past that time. We'll try to proceed as quickly as possible.

So we have part 1 with respect to amendments to the Income Tax Act and related acts and regulations.

Do any members have any questions related to that part?

Mr. McKay.

[John McKay, Liberal, Scarborough—Guildwood, ON]

With respect to “modifies the definition 'taxable Canadian property' to exclude certain shares and other interests that do not derive their value principally from real or immovable property situated in Canada, Canadian resource property, or timber resource property”, can someone give me the quick and dirty of what that means?

[Tim Wach, Director of Legislative Development, Tax Policy Branch, Department of Finance]

Certainly.

Historically, “taxable Canadian property” has included items such as real property located in Canada, timber limits, and resource properties in Canada. It has also included things like shares of private companies, so shares of a privately owned corporation would be considered to be taxable Canadian property. That gave rise to a number of administrative issues for non-residents selling taxable Canadian property even where they weren't subject to Canadian taxation, because, for example, they had protection under a bilateral tax treaty. The change that is being made is to narrow the definition of “taxable Canadian property” so it will be applicable only in respect of real property, timber limits, resource property, and shares of corporations that derive their value from that type of property.

[John McKay, Liberal, Scarborough—Guildwood, ON]

Can you give me an example of what that means in the real world?

[Tim Wach]

Let's say, for example, that a U.S. multinational has a Canadian subsidiary and seeks to sell that subsidiary to a purchaser. Prior to this change those shares would have been taxable Canadian property. The U.S. multinational likely would not have been taxable on that sale because it would have been protected from Canadian tax under the treaty with the U.S., but it still would have been required to go to Revenue Canada to get a clearance certificate in advance of the sale of those shares. So one of the effects of this change is this compliance will no longer be required.

[John McKay, Liberal, Scarborough—Guildwood, ON]

Is there any reciprocity we get for this change?

[Tim Wach]

The Americans are already in that kind of a position, and most of our treaty partners are in that sort of a position, so what we're really doing is catching up with many other countries.

[John McKay, Liberal, Scarborough—Guildwood, ON]

Okay. Thank you.

Can I carry on in this section?

[The Chair, Conservative, James Rajotte]

I have Mr. Pacetti.

[John McKay, Liberal, Scarborough—Guildwood, ON]

Let me carry on because I've got a few other questions dealing with that.

[Massimo Pacetti, Liberal, Saint-Léonard—Saint-Michel, QC]

It's on this one, though.

How about a non-resident who holds shares in a Canadian-held company on the stock market? Would it be pertinent to that?

[Tim Wach]

Likely not. Historically, shares of publicly traded companies were not taxable Canadian property. The exception was a circumstance whereby the non-resident held 25% or more of the shares of a class of that company. But typically for the retail-level investor, for most investors in publicly listed shares, they were not taxable Canadian property even before these changes.

[Massimo Pacetti, Liberal, Saint-Léonard—Saint-Michel, QC]

And how about real estate?

[Tim Wach]

Real estate is taxable Canadian property and will continue to be.

[Massimo Pacetti, Liberal, Saint-Léonard—Saint-Michel, QC]

Okay.

And for private Canadian companies, you were saying if it's just a small business...is that going to be relevant?

[Tim Wach]

It'll be relevant for most small businesses because for the vast majority the shares of those companies would be taxable Canadian property under the current rules and will not be under the new rules. The exception is where the company derives its value principally from real property or has done so within the previous 60 months.

[Massimo Pacetti, Liberal, Saint-Léonard—Saint-Michel, QC]

Okay. Thank you.

Go ahead, Chair.

[The Chair, Conservative, James Rajotte]

Mr. McKay.

[John McKay, Liberal, Scarborough—Guildwood, ON]

On the point immediately above that, you're changing the interest rate, so it's on overdue moneys, to the yield of three-month Government of Canada treasury bills. I'm a little lost as to the equivalency. If the corporation owes the government money versus the government owing the corporation money, can you tell me what rates apply, and is there a differential in the rates?

[Tim Wach]

There is a differential on the rates, yes. There has been a differential in the past. That differential will now be greater. It was 2% prior to this change; it will be 4% difference now.

[John McKay, Liberal, Scarborough—Guildwood, ON]

So if a corporation owes the government money, versus the government owing the corporation money, we're actually exaggerating the difference between the two?

[Tim Wach]

Yes.

[John McKay, Liberal, Scarborough—Guildwood, ON]

Money is money.

[Tim Wach]

Yes, some would argue that the risk profile of the two debtors is different.

[John McKay, Liberal, Scarborough—Guildwood, ON]

It doesn't strike one as the basis for fairness.