Evidence of meeting #58 for Finance in the 41st Parliament, 1st Session. (The original version is on Parliament’s site, as are the minutes.) The winning word was tax.

A recording is available from Parliament.

On the agenda

MPs speaking

Also speaking

  • Ted Cook  Senior Legislative Chief, Tax Legislation Division, Tax Policy Branch, Department of Finance
  • Sean Keenan  Director, Personal Income Tax Division, Tax Policy Branch, Department of Finance
  • Brian McCauley  Assistant Commissioner, Legislative Policy and Regulatory Affairs Branch, Canada Revenue Agency

4:35 p.m.

Ted Cook Senior Legislative Chief, Tax Legislation Division, Tax Policy Branch, Department of Finance

It depends on how the chair would like to proceed. I could either do that or provide a brief overview of all the measures in part 1. That would probably take about two or three minutes.

4:35 p.m.

Conservative

The Chair James Rajotte

I think a brief overview would be helpful.

As chair, my suggestion is that we proceed part by part, so we would start with part 1.

If you could give us an overview of part 1, then, if any members have questions, we'll go to members' questions.

4:35 p.m.

Senior Legislative Chief, Tax Legislation Division, Tax Policy Branch, Department of Finance

Ted Cook

Thank you.

Part 1 contains the income tax measures in Bill C-38. What I would propose to do is to essentially follow the summary at the start of Bill C-38, which provides a list of all the measures.

The first measure that is listed is to expand the list of medical expenses eligible for the medical expense tax credit to include blood coagulation monitors and associated peripherals. This measure parallels a GST/HST, which is in part 2 of this bill.

The second measure was referred to in the discussion with the minister. This will allow qualifying family members, that is, parents, spouses, and common-law partners, to open a registered disability savings plan for an adult in situations where the contractual competence of the individual to do so is in doubt. In situations where it is determined that the individual does have contractual competency, they will be able to then replace the qualifying family member as holder of the RDSP, if they choose to do so. This measure will apply to RDSPs that are opened before 2017. However, those RDSPs will continue on as long as necessary.

The next measure relates to the mineral exploration tax credit. It extends the tax credit available to flow-through share investors by one year, as has been done in the last several budgets. What this measure does is to support grassroots mineral exploration. It will apply to flow-through share agreements entered into after March 2012 and before April 2013.

The next measure has to do with eligible dividend designations. Under the Income Tax Act, individuals—

4:35 p.m.

Conservative

The Chair James Rajotte

Point of order, Mr. Jean.

4:35 p.m.

Conservative

Brian Jean Fort McMurray—Athabasca, AB

Chair, is it my understanding that we're going to go through each part and then ask questions, or ask questions as we go to the parts we might have questions on? I just wanted to—

4:35 p.m.

Conservative

The Chair James Rajotte

My sense would be that we get an overview of part 1 and then have questions on part 1, and then an overview on part 2 and questions on part 2.

I don't know how far we'll get today, but that's the process I was going to follow.

4:35 p.m.

Conservative

Brian Jean Fort McMurray—Athabasca, AB

Excellent. Thank you, Mr. Chair.

4:35 p.m.

Conservative

The Chair James Rajotte

Okay.

Mr. Cook, please continue.

4:35 p.m.

Senior Legislative Chief, Tax Legislation Division, Tax Policy Branch, Department of Finance

Ted Cook

No trouble.

The measure I was discussing was the eligible dividend designation. When dividends are paid to an individual from a corporation, they may be eligible for a dividend tax credit. There are two types of dividend tax credits—enhanced dividend tax credit and a regular dividend tax credit. The dividend tax credit is meant to recognize the fact that tax is paid at the corporate level before it's distributed to an individual by way of shares.

What this measure does is fairly technical. It allows a corporation paying a dividend to identify the portion of the dividend that relates to income that was taxed at the higher corporate level. It will also allow the recipient of the dividend to claim an enhanced dividend tax credit as opposed to the regular dividend tax credit. It deals with a technical problem where, in prior years, a corporation had to designate the entire dividend as either being eligible or ineligible.

The next measure has to do with the Governor General's salary. Currently under the Income Tax Act, all income related to the office of the Governor General is exempt from tax. This part will remove that exemption for salary paid under the Governor General's Act. As well, this part will adjust the Governor General's salary, starting in 2013, to $270,602, which will then be adjusted annually.

The next measure has to do with partnership waivers. It's a fairly technical measure that allows a single designated partner of a partnership to extend, on behalf of the partnership, the time that the CRA has to complete an audit and make a determination in respect of the partnership. Currently under the Income Tax Act the CRA must obtain a waiver from all the members of the partnership, which may be difficult for both the partnership and the CRA.

Then there are three measures related to tax shelters. The first measure has to do with an amendment to a penalty under existing rules where a person sells an interest in a tax shelter that is not registered, or the person files false information in applying for a tax shelter. Currently where the penalty applies, the penalty is the greater of $500 and 25% of the amount that the tax shelter promoter receives as consideration for the tax shelter investment.

This penalty does not work appropriately in the context of a charitable donation tax shelter, because the benefit of the tax shelter is predicated on the charitable donation receipt that the person who participates in the tax shelter could receive from making a donation to a qualified donee. As a result, this penalty is amended so that where there's a charitable donation tax shelter, the penalty will be the higher of the amount under the existing rules and 25% of the amount that the individual, usually the tax shelter promoter, asserts could be donated to the qualified donee.

This bill also introduces a new penalty with respect to tax shelter promoters where, in an annual information return, all the purchasers of interest in the tax shelter, or amounts paid by individuals in respect of the tax shelter, are not reported, or the promoter of the tax shelter or the person who has to file the return does not respond to a demand to file a return by the CRA.

This penalty will function much like the one I discussed. The penalty will be the greater of 25% of the amount that is consideration received by the tax shelter promoter, or in the case of a charitable donation tax shelter, 25% of the amount that's asserted by the promoter that could be donated to a qualified donee.

As well, this part introduces a measure that would limit the validity of tax shelter identification numbers to one year. Currently, tax shelter identification numbers are valid in perpetuity. As an audit matter, it's difficult for the CRA to know whether a particular tax shelter has not filed a return because they've done no sales and have no requirement to file a return, or they're just failing to file.

The next measure has to do with foreign charitable organizations. Currently, a foreign charitable organization can be registered as a qualified donee if it receives a gift from the Government of Canada and demonstrates to, and registers with, the CRA that in fact it is a charitable organization. What the amendment would do is keep the requirement that there be a gift from the Government of Canada, but also require that the foreign charitable organization is undertaking activities either in response to a disaster in providing urgent humanitarian aid or in doing activities in the national interest of Canada.

The next measure in part 1 has to do with political activities. What this measure would do is provide essentially a look-through rule, so that if a registered charity or registered Canadian amateur athletic association makes a gift to another qualified donee, and the purpose of that gift—or a purpose of that gift—is to have the qualified donee engage in political activities, the amount of that gift will be considered a political activity for the registered charity or RCAAA making the gift.

As well, part 1 implements two measures with respect to intermediate sanctions. One is to allow the CRA to suspend a charity's tax-receipting privileges for one year if the charity exceeds its limitations on political activities. Secondly, it allows the CRA to suspend the tax-receipting privileges of a charity if it provides inaccurate or incomplete information in its annual information return. The suspension will remain in effect until such time as the charity provides the required information.

There are just three more measures in part 1 that I'll mention quickly. The first one is a consequential amendment that removes certain references to the Canadian Wheat Board from the Income Tax Act.

There's also a measure that.... Currently under the Income Tax Act, when the Canada Revenue Agency issues a demand to file a return, it must either be served personally or by registered mail. The amendment would allow those demands to be sent by online notice or regular mail.

Finally, there's a new provision relating to commercial tax preparers. Commercial “tax preparer” is defined. This provision requires that a commercial tax preparer must file any returns they prepare for consideration electronically, except that in each year they may file up to 10 returns of individuals' personal income tax returns or corporate tax returns “other than by way of electronic filing”. This applies in respect of corporate and personal income tax returns. There's also a penalty where the commercial tax preparer does not do this.

Those are all the measures that are included in part 1.

4:45 p.m.

Conservative

The Chair James Rajotte

Thank you, Mr. Cook, for that overview of part 1.

Colleagues, just for your information, we will be using the same list as for normal witnesses in terms of members' questions, so we'll be starting with the NDP.

I'll start with Monsieur Mai for five minutes.

4:45 p.m.

NDP

Hoang Mai Brossard—La Prairie, QC

Thank you, Mr. Chair.

I have a question about the Governor General's salary. Have calculations been done relating to the net after-tax salary of the Governor General of Canada?

May 15th, 2012 / 4:45 p.m.

Sean Keenan Director, Personal Income Tax Division, Tax Policy Branch, Department of Finance

The after-tax salary of the Governor General would certainly be determined by his own personal situation. The calculation of the salary for 2013 was based on the assumption that he has other income upon which he pays taxes. Therefore, his salary adds to his taxable income and is taxed at the top marginal rate for a person living in Ontario. The level of $270,602 is set so his estimated salary in 2013 will be the same on a net basis...so his pre-tax salary of $270,602 will be the same as it would be if it were not taxed.

In terms of his personal situation....

4:45 p.m.

NDP

Hoang Mai Brossard—La Prairie, QC

Is there a way to have regulations that would have the after tax...? Let's say his salary would be such and such after tax. Is it possible to have such a regulation, or such legislation?

4:50 p.m.

Director, Personal Income Tax Division, Tax Policy Branch, Department of Finance

Sean Keenan

I don't know from a technical point of view. Someone's individual tax circumstances, the amount of credits they claim, the deductions, and other sources of income and how they affect your personal income tax are very individual. We wouldn't have access to that information from someone's individual tax files.

4:50 p.m.

NDP

Hoang Mai Brossard—La Prairie, QC

Depending on the situation of the person, say this is their salary after tax, so you calculate their salary and their income tax, and at the end of the day that's how much would be given to them. Is that possible or feasible?