Evidence of meeting #10 for Finance in the 40th Parliament, 3rd Session. (The original version is on Parliament’s site, as are the minutes.) The winning word was interest.
A recording is available from Parliament.
12:10 p.m.
NDP
Pat Martin NDP Winnipeg Centre, MB
That might be splitting hairs a little.
How does this work, Mr. Chair? Do I just keep asking until I'm finished asking questions on part 2, or is it someone else's turn?
12:10 p.m.
Conservative
The Chair Conservative James Rajotte
We have Mr. Carrier, Mr. Paillé, and Mr. Wallace. We can come back to you if you like.
12:15 p.m.
Bloc
Robert Carrier Bloc Alfred-Pellan, QC
Thank you.
I would like to come back to the issue of the more sophisticated excise stamp. I am pleased that the government is trying to fight the contraband of cigarettes, which is a real plague. However, I would like it to be more effective.
I was reading in the documents that the stamp would be issued by National Revenue but I also saw that the minister would be able to authorize stamp producers to provide them to some persons. Does that not entail a loss of control on who will be able to use the stamps? If the Minister can authorize stamp producers to distribute them to some people, is that enough control and will that be really effective? Would it not be better that the stamps be issued only by the Department of National Revenue?
12:15 p.m.
Legislative Chief, Sales Tax Division, Public Sector Bodies, Department of Finance
The minister, as you can appreciate, doesn't have the capacity to print these particular stamps. He is going out to a specific specialized printer. The printer in this case is one of these specialized printers who also deals with the currency. He is a very sophisticated, very directed, targeted sort of printer. The stamps themselves would look very much like something you would see on some currency. There are those sorts of measures. It's a very sophisticated stamp.
The minister has entered into a contract with this particular stamp provider. It is a sole-source contract. There is only one particular company that will be producing those stamps. The process envisioned here is that the request will be made to the minister himself by the industry for these stamps. It will be the minister who goes through, receives, and reviews the particular requests. Again, the request for stamps can only be made by and stamps can only be issued to those people who are licensed, legitimate, prescribed, and authorized under the act to receive them. So that request will be made directly to the minister. The minister will approve it, then he will send an order to that provider. That provider will then distribute those stamps directly to that particular licensed producer or manufacturer.
12:15 p.m.
Legislative Chief, Sales Tax Division, Public Sector Bodies, Department of Finance
Also, as I mentioned earlier, there are controls in terms of who can possess that particular stamp, and there are penalties and offences for illegitimate possession of this particular stamp. So it will very much be a new, controlled product. There are significant penalties in here for improper possession.
12:15 p.m.
Conservative
12:15 p.m.
Bloc
Daniel Paillé Bloc Hochelaga, QC
Relating to how difficult it is to understand the subtleties of financial institutions, I believe the issue is whether a service is financial or not. Yesterday afternoon, in this room, Mr. Martin made some excellent comments about that.
Let us look at the definition of asset management services. If I am not mistaken, when I ask an accountant to prepare my tax report, he will charge GST, QST or HST, but that may be a matter of interpretation. An accountant is an accountant and there is something called the Chartered Accountants of Canada. A doctor is a doctor and there is something called the College of Physicians. However, when we talk of asset management, I suppose that when he was in business, Vincent Lacroix--I see you raise an eyelid--he used to collect sales taxes since he was well known and had an official business. He was supposed to operate legally. When Earl Jones was doing business in his basement, did he collect GST and QST from his clients for the services he supposedly provided?
How far can we go with this kind of subtleties?
12:15 p.m.
Senior Legislative Chief, Sales Tax Division, GST Legislation, Department of Finance
I am sure you will understand that I am not able to make any comment on those two cases.
12:15 p.m.
Senior Legislative Chief, Sales Tax Division, GST Legislation, Department of Finance
Very well.
Financial services are a rather complex area. There are financial services and there are also associated services which are more of an administrative nature. There was and there still is in the Excise Tax Act a rule stating that one should always verify what is exactly provided in the transaction since we are dealing with a tax on transactions. According to the rule, if more than 50% of the value of the components of the transaction represent financial services provided individually, everything is considered as financial services and is therefore tax-exempt.
I have no idea what your two advisers did exactly.
12:20 p.m.
Senior Legislative Chief, Sales Tax Division, GST Legislation, Department of Finance
You seemed to know them.
We always deal with facts. One has to look at the exact nature of the services. That is why one has to be careful when making general comments, especially in the field of financial services. One has to look in detail at what is provided.
12:20 p.m.
Bloc
Daniel Paillé Bloc Hochelaga, QC
I want to underline that it is difficult to define things so clearly. You have just stated that the rule is based on 50% but one is not going to check every day if the advisor has worked four hours or four hours and a half on a given issue. In other cases, there is a rule of 20% to be registered. In brief, it depends on a number of things.
Let us go back to the sales tax. I see that they are several issues relating to the harmonized sales tax. You have given us some explanations recently on the HST legislations of British Columbia and Ontario. I wonder what you are waiting for to include in such an interesting Bill the famous Quebec harmonized sales tax.
12:20 p.m.
Senior Legislative Chief, Sales Tax Division, GST Legislation, Department of Finance
I am sure you will understand that I did not decide personally what would be included in this Bill. That is decided by the Minister and that is whom you should put the question to.
12:20 p.m.
Bloc
Daniel Paillé Bloc Hochelaga, QC
Since he is not here, I am asking you. Unless Mr. Menzies, who is outrageously delaying our work, is good enough to put the question to him.
I have no other questions for the time being, Mr. Chair.
12:20 p.m.
Conservative
Mike Wallace Conservative Burlington, ON
Thank you, Mr. Chair.
For clarification, for Mr. Martin's and everyone's knowledge, I want to go back to paragraph (c) and “reaffirm the policy”. I just want to be clear.
I do appreciate you coming to the pre-meeting we had. I know I was a little bit hard on you, and I apologize for that. I still haven't had the answer, but you did a great job. I just want to tell you that. That's what happens when you have it at 7 o'clock at night.
What happened was we had a policy on the definition of financial services and how it was working. An organization or organizations decided it was too ambiguous or they thought there was a loophole. They took it to court, they won, and what we're doing here is changing the wording back or fixing the wording so that the loophole does not exist in the future for those who are trying to find a way to get out of paying tax. Is that basically what's happening here?
12:20 p.m.
Senior Legislative Chief, Sales Tax Division, GST Legislation, Department of Finance
I don't want to qualify it as a “loophole”, but I would say “uncertainties” existed following those court decisions, and basically the goal of this amendment is to remove the uncertainty and bring the situation back to what it was before those court cases.
12:20 p.m.
Conservative
Mike Wallace Conservative Burlington, ON
Okay.
In regard to the timeframe between the court case and this, have a lot of financial institutions taken advantage of the uncertainty that the court case decision has caused in terms of not paying their taxes? Or would you say they're mostly assuming that we're going to fix this little issue and are either paying or holding on to money knowing that they're going to have to pay this money eventually, in the future? Has there been a big uptake of this court case's decision?
12:25 p.m.
Senior Legislative Chief, Sales Tax Division, GST Legislation, Department of Finance
Yes, there has been. It's important to understand that when you're a provider of a taxable service, you're entitled to an input tax credit. If you're a provider of an exempt service, you're usually not entitled to an input tax credit. So if the provider to you charges you tax because he argues that what he's doing is taxable based on the longstanding policy, the person who receives the service, if he pays, may not be entitled to recover it through input tax credits. If there is a court decision that says this guy tried to say this service is not taxable, the other guy next door, even if he paid tax on those transactions, will try to argue the same thing. There is something in the legislation called a tax paid in error rebate, and he can try to claim back tax and argue that he paid in error for the last two years.
In a situation like this, if there is no fix, it affects the supplier and it affects the recipient in this case. The way it affects the supplier is he charges tax because he thought he would recover his input tax credit. If a court suddenly says no, this is exempt, the recipient, which is usually a financial institution, gets what we could even call a windfall of this decision, but it penalizes the supplier because all the input tax credit he claimed, he would have to give back.
To ensure that there is not too much of that game playing going on, when the announcement was made, it said these amendments are proposed to apply as of that date, which is December 14. To make sure people don't claim all those taxes paid in error, it also says that if you paid tax on those transactions and you complied with the longstanding policy, this will apply to you, so you cannot try to claim those taxes paid in error.