Evidence of meeting #130 for Finance in the 44th Parliament, 1st Session. (The original version is on Parliament’s site, as are the minutes.) The winning word was certain.
A recording is available from Parliament.
11:05 a.m.
Liberal
The Chair Liberal Peter Fonseca
The bells are ringing, yes.
We will ask for unanimous consent as we've done in the past to see if members are open to that so that we can continue with our witnesses.
11:05 a.m.
Conservative
Philip Lawrence Conservative Northumberland—Peterborough South, ON
I apologize to our witnesses, but there's no UC.
11:50 a.m.
Liberal
The Chair Liberal Peter Fonseca
We are back.
From the top, Mr. James Greene, please proceed on part 2.
11:50 a.m.
Senior Executive Advisor, Tax Policy Branch, Department of Finance
Thank you, Chair. Good morning, again.
Part 2 of the bill would enact the digital services tax act.
Canada prefers a multilateral approach to digital taxation and has been involved in discussions at the OECD since 2017. The government announced the digital services tax, or DST, in November 2020 as an interim measure pending a common approach. In October 2021, countries without DSTs, such as Canada, agreed not to impose new DSTs during the negotiations until the end of 2023. Countries with DSTs before 2022, such as France, the United Kingdom and Italy, continued to collect their DSTs.
The government announced in 2021 that if a multilateral treaty were not in force by the end of 2023, the DST would be imposed for 2024. Today, negotiations to finalize a treaty continue. Therefore, the government is proposing this legislation. It was released in draft in December 2021, and again in August 2023, so businesses have known what to expect.
The DST is a 3% annual tax on revenue from certain digital services. It would apply to large firms with global revenue of at least €750 million, and digital services revenue linked to Canadian users of at least $20 million.
The tax would focus on digital services in which data and content from Canadian users are a key input and value driver, specifically, online marketplaces, online targeted advertising and social media. It would apply equally to Canadian and foreign-owned businesses.
It would come into effect on a day set by order in council on or after January 1, 2024. As announced in 2021, the first year would cover revenues back to January 1, 2022. Meanwhile, the government continues to engage with our international partners.
Thank you.
11:50 a.m.
Liberal
February 29th, 2024 / 11:50 a.m.
Amanda Riddell Director, Real Property and Financial Institutions, Sales Tax Division, Tax Policy Branch, Department of Finance
Thank you, Chair.
My name is Amanda Riddell. I am the director of the real property and financial institutions section in the sales tax division of Finance Canada. I will briefly describe some of the measures in parts 3 and 4 of the bill, just to give you a flavour of the sales tax measures that are in there.
Part 3 includes amendments to the Excise Tax Act, and Part 4 includes amendments to the Excise Act, 2001. The amendments in parts 3 and 4 are technical amendments that affect limited stakeholders in very particular situations.
I would note that the Department of Finance also consults publicly on most amendments before including them in the bill. To give an example of a technical amendment, part 3 includes an excise tax measure that clarifies who is eligible to claim a rebate of excise tax for goods purchased by provinces for their own use.
There are also a few simplification measures in parts 3 and 4 to ease tax compliance for businesses. For example, part 3 includes a measure that would raise the income threshold above which financial institutions would be required to file a special information return. This measure is intended to simplify the compliance for smaller financial institutions.
Finally, there are a few relieving amendments in parts 3 and 4 of the bill. For example, the bill would expand the GST/HST exemption for certain health care services to include professional services rendered by a psychotherapist and counselling therapist. It would extend the 100% GST rebate in respect of new purpose-built rental housing to certain co-operative housing corporations.
This concludes a brief description of the type of measures included in parts 3 and 4 of the bill. There are a number of officials here who specialize in each of the areas affected by these measures who will be able to explain in more detail if you have any questions.
Thank you.
11:55 a.m.
Liberal
The Chair Liberal Peter Fonseca
Thank you, Ms. Riddell.
We are now going to move to questions by members. In the first round, each party will have up to six minutes to ask questions.
We'll start with MP Lawrence, please.
11:55 a.m.
Conservative
Philip Lawrence Conservative Northumberland—Peterborough South, ON
Thank you.
Mr. Chair, I just want to confirm, pursuant to my earlier point of order, that we have not received notice as to which date the Minister of Finance will be appearing in front of our committee. Is that correct?
11:55 a.m.
Liberal
The Chair Liberal Peter Fonseca
MP Lawrence, I did get some clarification.
As the programming motion clearly reads, “that the Officials appear within the first week of the pre-study and Minister of Finance appear the following meeting for not less than 2 hours”.
That is what is in the motion.
11:55 a.m.
Conservative
Philip Lawrence Conservative Northumberland—Peterborough South, ON
That is what is in the motion.
Would anyone from the government be able to confirm that the Minister of Finance will be appearing at the next sitting week?
11:55 a.m.
Conservative
Philip Lawrence Conservative Northumberland—Peterborough South, ON
I would give notice of the following motion. Out of respect, I'm not going to bring the motion today, but I am going to give notice, out of respect to our witnesses, who we do greatly appreciate being here. The motion will read as follows:
That the committee not continue any further study of Bill C-59 until the committee has received confirmation of the date of the Minister of Finance’s appearance, for no less that two hours.
I have copies of it.
11:55 a.m.
Liberal
11:55 a.m.
Conservative
Philip Lawrence Conservative Northumberland—Peterborough South, ON
Thank you.
I'll just leave it up to the officials whom they believe is best to answer. My questions will start by talking about EIFEL, the restriction of interest allowance.
Since the release of the details on these restrictions, we have received from a number of stakeholders, not the least of which is Electricity Canada, information about the potential impact of these restrictions on their ability to expand and invest in the electrical grid, which will be incredibly important if we are to fight climate change; and secondly that it will produce greater and higher costs for consumers at a time when many Canadians are currently experiencing energy poverty.
Could you please address that, and explain to what extent you have studied the cost on the end-user and the economy?
11:55 a.m.
Director General, Legislation, Tax Legislation Division, Tax Policy Branch, Department of Finance
I can say that we've consulted extensively with stakeholders in order to understand the implications of the legislation on specific stakeholders.
There are a number of exceptions in the legislation that are intended to deal with more general situations, so we don't have sector-specific exemptions, but we do have an exemption for public-private partnerships that may be relevant in the situation that you're describing.
There is an exception in that situation where there is a project that is owned by a public authority, and the cost of interest is through the arrangement borne by the public authority. That's typical in a public-private partnership. That's something that was done in response to stakeholder comments.
11:55 a.m.
Conservative
Philip Lawrence Conservative Northumberland—Peterborough South, ON
Would you be able to provide the committee with any type of studies, documents or materials that would indicate what would be the impact on the economy and on the cost of living for Canadians through the implementation of EIFEL?
Noon
Director General, Legislation, Tax Legislation Division, Tax Policy Branch, Department of Finance
I can see what we have.
Noon
Conservative
Philip Lawrence Conservative Northumberland—Peterborough South, ON
Okay, I appreciate that.
The next area I'm going to talk about is the digital services tax.
Mr. Greene, you talked a little bit about the initial plan, which was to go with the rest of the countries in a multilateral approach. Canada has now taken a unilateral approach and decided to put in the DST, not waiting for our allies.
Some commentators have said that this will have negative impacts, both on Canada and the rest of the world, as now, some of the digital giants otherwise will be able to avoid taxation with countries not having their tax codes in lockstep with each other.
Could you comment on that, please?
Noon
Senior Executive Advisor, Tax Policy Branch, Department of Finance
Thank you, Chair. I appreciate the question.
It has very much been the government's preference to proceed in this area multilaterally, and we have been engaged in these discussions, looking for a common approach since 2017.
However, the reality is that it has proven to be very elusive. It would certainly be the government's preference to move in that direction, but the government has indicated that it doesn't feel it can continue to wait indefinitely.
With respect to the U.S., obviously we pay close attention to the U.S. reaction in this area. We've been engaged in discussions with the United States. It is important to note that the U.S. has been explicitly tolerating the digital services taxes of seven countries, including the three I mentioned, since the autumn of 2021. They've recently extended that understanding for another six months.
The Deputy Prime Minister has noted that Canada has been engaged in discussion with the U.S., with a view to finding a common understanding in this area.
Noon
Conservative
Philip Lawrence Conservative Northumberland—Peterborough South, ON
So far, the Minister of Finance and others have been unable to negotiate that.
What type of decision—
Noon
Liberal
The Chair Liberal Peter Fonseca
We're well past the six minutes.
I need a very short answer from you, Mr. Greene, if you have an answer to that, and then we're moving on to MP Weiler.
Noon
Conservative