Bill C-59

Fall Economic Statement Implementation Act, 2023

An Act to implement certain provisions of the fall economic statement tabled in Parliament on November 21, 2023 and certain provisions of the budget tabled in Parliament on March 28, 2023

Part 1 implements certain measures in respect of the Income Tax Act and the Income Tax Regulations by
(a) limiting the deductibility of net interest and financing expenses by certain corporations and trusts, consistent with certain Organisation for Economic Co-operation and Development and the Group of Twenty Base Erosion and Profit Shifting project recommendations;
(b) implementing hybrid mismatch rules consistent with the Organisation for Economic Co-operation and Development and the Group of Twenty Base Erosion and Profit Shifting project recommendations regarding cross-border tax avoidance structures that exploit differences in the income tax laws of two or more countries to produce “deduction/non-inclusion mismatches”;
(c) allowing expenditures incurred in the exploration and development of all lithium to qualify as Canadian exploration expenses and Canadian development expenses;
(d) ensuring that only genuine intergenerational business transfers are excluded from the anti-surplus stripping rule in section 84.1 of the Income Tax Act ;
(e) denying the dividend received deduction for dividends received by Canadian financial institutions on certain shares that are held as mark-to-market property;
(f) increasing the rate of the rural supplement for Climate Action Incentive payments (CAIP) from 10% to 20% for the 2023 and subsequent taxation years as well as referencing the 2016 census data for the purposes of the CAIP rural supplement eligibility for the 2023 and 2024 taxation years;
(g) providing a refundable investment tax credit to qualifying businesses for eligible carbon capture, utilization and storage equipment;
(h) providing a refundable investment tax credit to qualifying businesses for eligible clean technology equipment;
(i) introducing, under certain circumstances, labour requirements in relation to the new refundable investment tax credits for eligible carbon capture, utilization and storage equipment as well as eligible clean technology equipment;
(j) removing the requirement that credit unions derive no more than 10% of their revenue from sources other than certain specified sources;
(k) permitting a qualifying family member to acquire rights as successor of a holder of a Registered Disability Savings Plan following the death of that plan’s last remaining holder who was also a qualifying family member;
(l) implementing consequential changes of a technical nature to facilitate the operation of the existing rules for First Home Savings Accounts;
(m) introducing a tax of 2% on the net value of equity repurchases by certain Canadian corporations, trusts and partnerships whose equity is listed on a designated stock exchange;
(n) exempting certain fees from the refundable tax applicable to contributions under retirement compensation arrangements;
(o) introducing a technical amendment to the provision that authorizes the sharing of taxpayer information for the purposes of the Canadian Dental Care Plan;
(p) implementing a number of amendments to the general anti-avoidance rule (GAAR) as well as introducing a new penalty applicable to transactions subject to the GAAR and extending the normal reassessment period for the GAAR by three years in certain circumstances;
(q) facilitating the creation of employee ownership trusts;
(r) introducing specific anti-avoidance rules in relation to corporations referred to as substantive CCPCs; and
(s) extending the phase-out by three years, and expanding the eligible activities, in relation to the reduced tax rates for certain zero-emission technology manufacturers.
It also makes related and consequential amendments to the Excise Tax Act and the Excise Act, 2001 .
Part 2 enacts the Digital Services Tax Act and its regulations. That Act provides for the implementation of an annual tax of 3% on certain types of digital services revenue earned by businesses that meet certain revenue thresholds. It sets out rules for the purposes of establishing liability for the tax and also sets out applicable reporting and filing requirements. To promote compliance with its provisions, that Act includes modern administration and enforcement provisions generally aligned with those found in other taxation statutes. Finally, this Part also makes related and consequential amendments to other texts to ensure proper implementation of the tax and cohesive and efficient administration by the Canada Revenue Agency.
Part 3 implements certain Goods and Services Tax/Harmonized Sales Tax (GST/HST) measures by
(a) ensuring that an interest in a corporation that does not have its capital divided into shares is treated as a financial instrument for GST/HST purposes;
(b) ensuring that interest and dividend income from a closely related partnership is not included in the determination of whether a person is a de minimis financial institution for GST/HST purposes;
(c) ensuring that an election related to supplies made within a closely related group of persons that includes a financial institution may not be revoked on a retroactive basis without the permission of the Minister of National Revenue;
(d) making technical amendments to an election that allows electing members of a closely related group to treat certain supplies made between them as having been made for nil consideration;
(e) ensuring that certain supplies between the members of a closely related group are not inadvertently taxed under the imported taxable supply rules that apply to financial institutions;
(f) raising the income threshold for the requirement to file an information return by certain financial institutions;
(g) allowing up to seven years to assess the net tax adjustments owing by certain financial institutions in respect of the imported taxable supply rules;
(h) expanding the GST/HST exemption for services rendered to individuals by certain health care practitioners to include professional services rendered by psychotherapists and counselling therapists;
(i) providing relief in relation to the GST/HST treatment of payment card clearing services;
(j) allowing the joint venture election to be made in respect of the operation of a pipeline, rail terminal or truck terminal that is used for the transportation of oil, natural gas or related products;
(k) raising the input tax credit (ITC) documentation thresholds from $30 to $100 and from $150 to $500 and allowing billing agents to be treated as intermediaries for the purposes of the ITC information rules; and
(l) extending the 100% GST rebate in respect of new purpose-built rental housing to certain cooperative housing corporations.
It also implements an excise tax measure by creating a joint election mechanism to specify who is eligible to claim a rebate of excise tax for goods purchased by provinces for their own use.
Part 4 implements certain excise measures by
(a) allowing vaping product licensees to import packaged vaping products for stamping by the licensee and entry into the Canadian duty-paid market as of January 1, 2024;
(b) permitting all cannabis licensees to elect to remit excise duties on a quarterly rather than a monthly basis, starting from the quarter that began on April 1, 2023;
(c) amending the marking requirements for vaping products to ensure that the volume of the vaping substance is marked on the package;
(d) requiring that a person importing vaping products must be at least 18 years old; and
(e) introducing administrative penalties for certain infractions related to the vaping taxation framework.
Part 5 enacts and amends several Acts in order to implement various measures.
Subdivision A of Division 1 of Part 5 amends Subdivision A of Division 16 of Part 6 of the Budget Implementation Act, 2018, No. 1 to clarify the scope of certain non-financial activities in which federal ‚financial institutions may engage and to remove certain discrepancies between the English and French versions of that Act.
Subdivision B of Division 1 of Part 5 amends the Trust and Loan Companies Act , the Bank Act and the Insurance Companies Act to, among other things, permit federal financial institutions governed by those Acts to hold certain meetings by virtual means without having to obtain a court order and to permit voting during those meetings by virtual means.
Division 2 of Part 5 amends the Canada Labour Code to, among other things, provide a leave of absence of three days in the event of a pregnancy loss and modify certain provisions related to bereavement leave.
Division 3 of Part 5 enacts the Canada Water Agency Act . That Act establishes the Canada Water Agency, whose role is to assist the Minister of the Environment in exercising or performing that Minister’s powers, duties and functions in relation to fresh water. The Division also makes consequential amendments to other Acts.
Division 4 of Part 5 amends the Tobacco and Vaping Products Act to, among other things,
(a) authorize the making of regulations respecting fees or charges to be paid by tobacco and vaping product manufacturers for the purpose of recovering the costs incurred by His Majesty in right of Canada in relation to the carrying out of the purpose of that Act;
(b) provide for related administration and enforcement measures; and
(c) require information relating to the fees or charges to be made available to the public.
Division 5 of Part 5 amends the Canadian Payments Act to, among other things, provide that additional persons are entitled to be members of the Canadian Payments Association and clarify the composition of that Association’s Stakeholder Advisory Council.
Division 6 of Part 5 amends the Competition Act to, among other things,
(a) modernize the merger review regime, including by modifying certain notification rules, clarifying that Act’s application to labour markets, allowing the Competition Tribunal to consider the effect of changes in market share and the likelihood of coordination between competitors following a merger, extending the limitation period for mergers that were not the subject of a notification to the Commissioner of Competition and placing a temporary restraint on the completion of certain mergers until the Tribunal has disposed of any application for an interim order;
(b) improve the effectiveness of the provisions that address anti-competitive conduct, including by allowing the Commissioner to review the effects of past agreements and arrangements, ensuring that an order related to a refusal to deal may address a refusal to supply a means of diagnosis or repair and ensuring that representations of a product’s benefits for protecting or restoring the environment must be supported by adequate and proper tests and that representations of a business or business activity for protecting or restoring the environment must be supported by adequate and proper substantiation;
(c) strengthen the enforcement framework, including by creating new remedial orders, such as administrative monetary penalties, with respect to those collaborations that harm competition, by creating a civilly enforceable procedure to address non-compliance with certain provisions of that Act and by broadening the classes of persons who may bring private cases before the Tribunal and providing for the availability of monetary payments as a remedy in those cases; and
(d) provide for new procedures, such as the certification of agreements or arrangements related to protecting the environment and a remedial process for reprisal actions.
The Division also amends the Competition Tribunal Act to prevent the Competition Tribunal from awarding costs against His Majesty in right of Canada, except in specified circumstances.
Finally, the Division makes a consequential amendment to one other Act.
Division 7 of Part 5 amends the Bankruptcy and Insolvency Act and the Companies’ Creditors Arrangement Act to exclude from their application prescribed public post-secondary educational institutions.
Subdivision A of Division 8 of Part 5 amends the Proceeds of Crime (Money Laundering) and Terrorist Financing Act to, among other things,
(a) provide that, if a person or entity referred to in section 5 of that Act has reasonable grounds to suspect possible sanctions evasion, the relevant information is reported to the Financial Transactions and Reports Analysis Centre of Canada;
(b) add reporting requirements for persons and entities providing certain services in respect of private automatic banking machines;
(c) require declarations respecting money laundering, the financing of terrorist activities and sanctions evasion to be made in relation to the importation and exportation of goods; and
(d) authorize the Financial Transactions and Reports Analysis Centre of Canada to disclose designated information to the Department of the Environment and the Department of Fisheries and Oceans, subject to certain conditions.
It also amends the Budget Implementation Act, 2023, No. 1 in relation to the Proceeds of Crime (Money Laundering) and Terrorist Financing Act and makes consequential amendments to other Acts and a regulation.
Subdivision B of Division 8 of Part 5 amends the Criminal Code to, among other things,
(a) in certain circumstances, provide that a court may infer the knowledge or belief or recklessness required in relation to the offence of laundering proceeds of crime and specify that it is not necessary for the prosecutor to prove that the accused knew, believed they knew or was reckless as to the specific nature of the designated offence;
(b) remove, in the context of the special warrants and restraint order in relation to proceeds of crime, the requirement for the Attorney General to give an undertaking, as well as permit a judge to attach conditions to a special warrant for search and seizure of property that is proceeds of crime; and
(c) modify certain provisions relating to the production order for financial data to include elements specific to accounts associated with digital assets.
It also makes consequential amendments to the Seized Property Management Act and the Forfeited Property Sharing Regulations .
Division 9 of Part 5 retroactively amends section 42 of the Federal-Provincial Fiscal Arrangements Act to specify the payments about which information must be published on a Government of Canada website, as well as the information that must be published.
Division 10 of Part 5 amends the Public Sector Pension Investment Board Act to increase the number of directors in the Public Sector Pension Investment Board, as well as to provide for consultation with the portion of the National Joint Council of the Public Service of Canada that represents employees when certain candidates are included on the list for proposed appointment as directors.
Division 11 of Part 5 enacts the Department of Housing, Infrastructure and Communities Act , which establishes the Department of Housing, Infrastructure and Communities, confers on the Minister of Infrastructure and Communities various responsibilities relating to public infrastructure and confers on the Minister of Housing various responsibilities relating to housing and the reduction and prevention of homelessness. The Division also makes consequential amendments to other Acts and repeals the Canada Strategic Infrastructure Fund Act .
Division 12 of Part 5 amends the Employment Insurance Act to, among other things, create a benefit of 15 weeks for claimants who are carrying out responsibilities related to
(a) the placement with the claimant of one or more children for the purpose of adoption; or
(b) the arrival of one or more new-born children of the claimant into the claimant’s care, in the case where the person who will be giving or gave birth to the child or children is not, or is not intended to be, a parent of the child or children.
The Division also amends the Canada Labour Code to create a leave of absence of up to 16 weeks for an employee to carry out such responsibilities.

[Joan DiFruscia, Chair, Otonabee-South Monaghan Food Cupboard]

Good afternoon, Mr. Chairman and members of the Standing Committee on Finance.

I am honoured to be here to speak to you on the issue of affordability from the perspective of people who are living in poverty, such as the families served by the Otonabee-South Monaghan Food Cupboard, also known as the OSM Food Cupboard.

The OSM Food Cupboard is a rural food bank located in Keene, Ontario, in the riding of Northumberland—Peterborough South. The OSM Food Cupboard opened over 10 years ago as an outreach project of Keene United Church, and it supports residents of the township and Hiawatha First Nation.

Please consider this: When you leave this meeting today, I assume that you have a safe place to go, where you will be sleeping tonight, the next night and so on. Tomorrow you will make choices for breakfast, lunch and dinner. But what if you are food-insecure? For example, with Ontario Works, the basic social assistance program in Ontario, you receive just over $700 a month, the same as in 2018. After you pay rent, if you can find a place for, say, $700—please don’t laugh at that comment—and pay for utilities, for gas, as your friend drives you to a training program, for a cellphone, for receiving calls for potential jobs.... Whoa. You ran out of money long ago. And then what about food?

The reality is that there just isn’t enough money to cover the costs of even the essential items. With all the stress, what is a person’s health like, physically and mentally?

At the OSM Food Cupboard, between November 2023 and February of this year, the number of families with children doubled. Children now make up one-third of the individuals supported by our food bank. Keep in mind that whether it's one member or six members, families come to our food bank only when they need to, and select the foods they need.

The volunteer staff and committee members are dedicated and compassionate in working to support the families. The Food Cupboard is a reliable and consistent source of food, and also offers a listening ear. A family can pay their electricity bill knowing that there is help with food needs. Over time, special relationships have developed between the staff and the families, along with respect for each other. Please know that people do want to improve their lives. The fact is that when one lives in deep poverty, it is, like a deep hole, extremely difficult to climb out of.

In this amazing country of Canada, what solutions are there for dealing with the root cause of poverty, which is low income? One solution is a guaranteed livable income.

A second solution is governments of all levels and stripes collaborating with the shared goal of lifting people out of poverty. Mechanisms need to be in place to prevent clawbacks, such as during the rollout of the Canada disability benefit, thus improving the lives of people living on disability.

A third is that supports to cover benefits during a transition period from social assistance to even a part-time minimum-wage precarious job would encourage people to leave the social safety net.

Four, affordable housing, such as Otonabee Court in Keene, allows long-time residents of the area to continue to live in the community, paying either market rent or geared-to-income rates, depending on their income.

Financially, there are costs to all of society when people live in poverty. The already stressed health care system responds as best it can, as adults living in poverty are more likely to need treatment for such chronic conditions as heart disease and diabetes, plus mental health conditions. There are also costs to the justice and education systems. There is a tremendous cost to not making changes, which also prevents people from living up to their full potential.

I have been involved with food banks for over 40 years. The system is broken. Food banks are not helping people get ahead. Recently, food insecurity has grown substantially, partly due to inflation, but it's a global phenomenon and not something unique to Canada. For our food cupboard, which distributes food once a month, I have heard this comment: “I live for two weeks and then I exist for two weeks—until the next food distribution day.” That is not acceptable in this country.

Members of the Standing Committee on Finance, you have a responsibility to ensure that government investment responds to the needs of Canadians.

Bill C-59 aims to implement elements of the 2023 fall economic statement, but shortly you will also likely have a role to play in implementing elements of budget 2024.

I am here today to tell you that we are facing a food insecurity crisis that needs to be urgently addressed. As you consider Bill C-59 and eventually budget 2024, I urge you to consider prioritizing the needs of low-income Canadians.

I just want to thank MP Lawrence for the opportunity to speak today.

Thank you.

[Konstadin Kantzavelos, President, Canadian Fabricare Association]

Honourable Chair and respected members of the Standing Committee on Finance, good afternoon. My name is Konstadin Kantzavelos. I have been operating my business, TSC Wetclean, in the city of Mississauga since 1988.

I am a proud member and president of the Canadian Fabricare Association, where I have sat on the board since 2013. It's an honour to represent and lead an organization rooted in our industry since 1949 that currently represents over 10,000 jobs across Canada.

The CFA is the governing body of professional dry cleaners, wet cleaners, launderers and allied trades dedicated to providing fabric and textile care services and solutions from coast to coast by establishing good management, ethical conduct and proper operating procedures. Today is our association's most important opportunity to represent our interests. Please allow me to shed light on our industry's contribution to the Canadian economy and the challenges we have faced. More importantly, please allow me to illustrate how the Canadian government and the CFA can work together to revitalize and reinvigorate business across Canada.

No industry suffered more than the fabric care industry during COVID-19. We saw up to a 90% drop in revenue across the country for over two years. Over 50% of our fabric care locations closed nationwide. Working from home was the key element in these declining numbers. For many Canadians, suits, shirts, ties, skirts and dresses are the uniforms worn for work, similar to everyone in this room today.

I am here today to celebrate the major contribution of the small business owners of the Canadian Fabricare Association across Canada. We are members of a small business community that constitutes 98% of all businesses in Canada—small companies. Small businesses employ over 10 million Canadians and are responsible for 50% of Canada’s GDP.

According to Statistics Canada, the average person spends approximately 10 hours weekly on unpaid work. The primary work we're talking about here is laundry. An Ipsos Reid poll conducted on behalf of GE Appliances revealed that 30% of Canadians find they only get around to it when they've run out of clean underwear, 25% of Canadians confessed that they've left their clothes in the washer or dryer for days before tending to them and 41% said they simply guess at methods of stain removal.

Most recently, as read in the Financial Post this past March, the Bank of Canada's senior deputy governor, Carolyn Rogers, spoke on the declining state of Canadian productivity. According to Rogers, Canada must tackle weak productivity to inoculate the economy against factors driving future inflation.

The Organisation for Economic Co-operation and Development revealed that Canada ranks 29th among 38 OECD countries for labour productivity. To put this in layman’s terms, in the time a Canadian worker produces one dollar's worth of goods and services, an American worker produces $1.30. That's a 30% advantage.

These statistics are important because despite most industries having raised their prices on consumers, the members of the CFA have kept their prices relatively unchanged because of our investment in the proper technology and advanced productivity.

In February 2021, during the height of the pandemic, Swedish consumers who turned their laundry, dry cleaning and clothing alterations over to professional cleaners received a tax deduction of 25% of the cost. The Swedish association put forward a plan to educate its government on how that incentive could work.

The CFA is no different. It looks at our diversity as a strength and at our employees as our greatest asset. We are a green circular industry. We focus on proper textile care, which extends the life of fabrics and removes uncertainty from the consumer. Our members are certified through the CFA, which means they meet the required environmental, economic and social standards. Committee members may be interested to know that all our industry members continually deliver towards the preservation of our environment and our ecosystem by adhering to all federal government guidelines on waste management.

By implementing a tax incentive, the Canadian government will demonstrate its commitment to a greener economy. Considering that we live in times of viruses and harmful diseases, what better way to promote cleanliness to every Canadian household than with a tax incentive to have their fabrics and garments cleaned professionally?

As the president of the CFA, it is my job to inform you of the importance of what our industry stands for in our communities—the preservation of our environment and our economy. What we are proposing is a tax credit of 25% to incentivize using the services of professional fabric care in every Canadian household. This is where Bill C-59 can assist. Just as in Sweden, the CFA can be a resource for the Government of Canada in paving the way for maintaining the stability and economic growth of the Canadian fabric and textile care industry.

We request that this committee make a focused choice to work with the Canadian Fabricare Association and ensure that our proposal for a tax incentive can become a reality and prevent our small businesses from disappearing.

Here are some suggestions for requirements for this tax incentive. You must be at least 18 years old, live in Canada and pay taxes on at least 90% of your total income. The maximum amount of annual cleaning expense to use the tax incentive would be $5,000 per household. The professional garment care provider must be registered with the Canadian Fabricare Association, and you do not need to own your property to receive the incentive.

Which services are covered for this deduction? They include dry cleaning, wet cleaning, laundry wash and fold, clothing repairs and alterations, area rug cleaning and upholstery cleaning.

Thank you very much for the time today.

[David Robinson, Executive Director, Canadian Association of University Teachers]

Great. Thank you, Chair.

I'm very grateful for the invitation to be here today on behalf of the Canadian Association of University Teachers. We represent 72,000 faculty, librarians and professional staff at more than 120 post-secondary institutions in all provinces across the country.

I want to focus my remarks today on Bill C-59's proposed exclusion of public post-secondary institutions from the Companies' Creditors Arrangement Act and the Bankruptcy and Insolvency Act.

The CAUT fully supports these important changes. Corporate insolvency and bankruptcy processes are inappropriate and unnecessary for publicly funded universities and colleges and are counter to the fundamental values and principles of those institutions, including collegial decision-making and academic freedom.

We learned this lesson the hard way. As we heard earlier, in February 2021, Laurentian University in Sudbury was the first-ever publicly funded university to apply for and receive CCAA protection. As the Auditor General eventually concluded in her report on the matter, invoking the CCAA was unnecessary, inappropriate, costly and a destructive decision by the university's administration. It was unnecessary because mechanisms to deal with the institution's financial challenges already existed.

First, the university did not follow the normal, broader public-sector precedent and refused financial assistance that was offered by the provincial government.

Second, it deliberately ignored contractual obligations with the Laurentian University Faculty Association that provides for a process to deal with instances of bona fide financial shortfalls. Virtually every faculty association in Canada has negotiated so-called financial exigency provisions in their collective agreements that specify how the academic community as a whole can manage financial crises, while protecting core educational values. Instead, the administration of Laurentian used the CCAA to ignore the collective agreement and withhold financial information, and turned to an expensive, combative and unnecessary process.

In pursuing protection under the CCAA, the administration also betrayed the fundamental values of the university. Historically, financial exigency clauses arose in collective agreements to protect the principles of collegial academic decision-making and academic freedom. Financial exigency processes ensure that decisions about academic restructuring and program closures are made not by administrative diktat, but with the active participation of the academic community, those who have the expertise on educational matters.

Financial exigency language also protects the foundational value of all universities. That's academic freedom. It grants academic staff the right to teach, research and express views without institutional censorship or reprisal. Academic freedom, as the Supreme Court of Canada has noted, is necessary to “allow free and fearless search for knowledge and the propagation of ideas” and is “essential to our continuance as a lively democracy”. Financial exigency language ensures that administrations do not use a financial crisis as a cover to violate academic freedom by targeting academics they find controversial, difficult or unpopular.

Finally, the CCAA process was also extremely and needlessly costly. Laurentian University spent tens of millions of dollars on lawyers and consultants while nearly 200 faculty and staff positions were lost and 69 programs were cancelled, many of which were unique French-language and indigenous programming, including the only indigenous bilingual midwifery program serving northern Ontario.

In the wake of what happened at Laurentian, CAUT commissioned a report by lawyer Simon Archer and Virginia Torrie, a former professor of law at the University of Manitoba. They concluded:

The policy objectives of public institutions, such as universities, are inconsistent with the core rationale of insolvency law to promote commercial risk-taking. Applying the CCAA to such institutions changes the ground rules on which they operate. This...undermines university governance, internal decision-making, and transparency.

The report concludes by emphasizing the pressing need to amend the CCAA and Bankruptcy and Insolvency Act to preclude its use by public universities and colleges.

I therefore urge the committee to support those amendments.

Thank you.

[Gabriel Ste-Marie, Bloc, Joliette, QC]

Thank you, Mr. Chair.

First, I would like to thank the mayor and all the witnesses for being here and for their testimony. There has been a lot of very poignant testimony today. Time is limited, but we are taking notes, and we'll try to improve Bill C‑59.

My questions are for the representatives of the Union des municipalités du Québec.

Mr. Damphousse, hello again. My colleague Xavier Barsalou‑Duval also sends his regards.

I'll first talk about the gas tax program and Quebec's contribution. Since I was elected in 2015, this is the first time we've received so many copies of municipal resolutions sent to the government to say, as you mentioned, that the funds must be released and that an agreement must be reached quickly. Can you explain to us again the importance of taking action, and of doing so now?

[Joanne Thompson, Liberal, St. John's East, NL]

Thank you. I will share my time.

I'd like to begin with the Laurentian University Faculty Association. I'm not sure which one of you would like to answer, or if you'll both want to come in on this.

Certainly, changes in the bill have been a long time coming, and you know this from your difficult experiences in 2021. Ontario's Auditor General said there was a strong argument that the CCAA is an inappropriate and perhaps damaging remedy for public entities. Bill C-59 moves in the same vein.

How do you see the provisions in the bill protecting institutions like yours in the future and promoting alternative ways of dealing with financial challenges?

[Linda St-Pierre, Executive Director and Chief Steward, Laurentian University Faculty Association]

The CCAA is designed as a remedy for commercial companies, not for our public universities. The public good that universities offer is undermined by an insolvency law designed for private companies that put the interest of big creditors ahead of the mission of our universities.

When Laurentian University filed for protection under the CCAA, it meant that decisions on what happened at a public university supported by taxpayer dollars were made based on a balance sheet and not what is best for students or public education and research.

Post-secondary institutions have commercial elements, but they are not governed by the market interest alone—or even primarily. They meet a variety of socio-economic considerations, such as linguistic and cultural diversity, and regional and equity development. Unless public post-secondary education institutions are removed from being under the CCAA, they are at risk of being defined solely by commercial interests, which is the opposite of what they should be.

In the case of Laurentian University, the use of the CCAA also meant additional costs for a public institution. The process is needlessly expensive compared to the normal financial exigency option, where universities work collaboratively with the provincial government and the faculty association in times of true financial stress.

The Auditor General's report highlighted that Laurentian University administration spent tens of millions of dollars on lawyers and consultants to work through the CCAA process. Instead of using university funds—which come largely from government grants and student tuition fees—to save education programs and mitigate the damage of their financial situation, they went to lawyers and consultants.

Division 7 of Bill C-59 changes the definition of “corporation” and “company” in the CCAA and the Bankruptcy and Insolvency Act to exclude post-secondary education institutions. We were happy to see this included in Bill C-59. This is an essential step to making sure that what happened at Laurentian doesn't happen at another public institution. It creates a more secure future for post-secondary education.

I urge the committee to support this section of the legislation, particularly in light of the harsh lessons learned from Laurentian University.

Marsi. Meegwetch. Thank you.

[Nicholas Schiavo, Director, Federal Affairs, Council of Canadian Innovators]

Thank you.

Good afternoon to the chair, the vice-chairs and members of the Standing Committee on Finance. Thank you for the opportunity to present today on Bill C-59 and the efforts to implement budget 2023 and the corresponding fall economic statement.

My name is Nick Schiavo, and I am the director of federal affairs for the Council of Canadian Innovators, or CCI. I am joined by my colleague Laurent Carbonneau, director of policy and research.

CCI is a national business council representing 150 of Canada's fastest-growing companies. Our member companies are headquartered here in Canada, employ north of 52,000 employees across Canada and are market leaders in the sectors of health, clean and financial technologies; cybersecurity; AI; and more.

There is no denying the tough economic position Canada finds itself in today. For years we've heard about this precarious position, often referred to as the great Canadian slump, as the lost decade or even most recently, by the senior deputy governor of the Bank of Canada, as a productivity “emergency”. Regardless of the choice of words, the warnings are clear: Canada is facing a rising cost of living, stagnating growth and declining productivity. Taken together, these factors are having a negative impact on our GDP per capita and, by extension, the quality of life that Canadians expect.

Currently this stagnation is predicted to make Canada the worst-performing economy in the OECD from 2030 to 2060. Taken together with a variety of structural challenges facing our country, such as climate change, war and cyberwarfare, health care issues and a lack of competition, the status quo is simply not working. Canada needs to chart a new path forward for sustained growth and prosperity rooted in a strong innovation economy.

Looking back to budget 2023 and the fall economic statement and, more importantly, looking ahead to budget 2024 and beyond, Canada must develop and implement a smart industrial strategy that builds wealth, enhances productivity and aligns with our other strategic priorities. At the heart of this strategic lens must be industry-led reforms to Canada's research and development frameworks and procurement mechanisms at all levels of government, alongside other important innovation levers, including a patent box regime.

In the spirit of the government's central theme of budget 2023 to build a stronger, more sustainable and more secure Canadian economy for everyone, today I'd like to speak to two opportunities to do exactly that.

First is enhancing the scientific research and experimental development tax credit to maximize the full benefits of R and D performed in our country, and second is reforming Canada's outdated procurement processes to spur economic growth and better service delivery for Canadians.

CCI has spent months engaging with Canadian innovators and the tech ecosystem to develop comprehensive research reports to enhance both SR and ED and procurement in Canada. These timely reports are tabled for the committee alongside these opening remarks.

Canada's scientific research and experimental development tax credit, or SR and ED, is the single largest science and innovation policy lever in the federal government's tool kit. For over five years, CCI has called on the government to update this critical innovation program, and we are pleased to see the ongoing consultation at this time. With an expected budget of nearly $4 billion in 2024, it is 10 times larger than any other science and innovation policy tool. Now more than ever, in a constrained fiscal environment, the government should be seeking to maximize the long-term benefits of SR and ED for the national economy.

Unfortunately, despite the long history of SR and ED dating back to the 1940s and other research tax incentives, gross expenditure on research and development and business enterprise R and D, also known as BERD, is low in Canada by the standards of other advanced economies. In 2020, Canada's BERD was the second lowest in the G7 after Italy, despite having more generous tax support for business R and D than all but the U.K. and France. Canadian firms also make less use of intangible assets compared to global firms. For context, intangible assets like intellectual property make up 70% of the value of firms listed on the TSX and over 90% on the S&P 500.

As such, Canada should incentivize early investment in IP development and protection so that firms maintain the ability to export into large markets. This is referred to as the freedom to operate, and it is critical for companies looking to scale, export, compete globally and ensure strong economic growth for the Canadian economy.

Additionally, SR and ED needs more transparency. The net benefits of the program to Canada should be made public on an ongoing basis so that Canadians understand what SR and ED is doing for their economy. Wherever possible, more of the benefits should flow directly to firms performing innovative activities and less to intermediaries such as tax preparation consultants by simplifying administration.

Similarly, the current culture of government procurement, both federally and provincially, is not serving the Canadian economy and is not serving government's own purposes. In fact, in 2021, procurement amounted to 14.6% of Canada's GDP, translating into billions of dollars and a meaningful force that shapes our economy. Canadian governments especially struggle to buy innovative, novel products and services, which does little to help Canada’s other innovation problems.

There is no single solution to improving our performance in government technology procurement. However, the government should begin by tackling the big problems—excessive risk aversion, processes that don’t allow for iterative innovation, low capacity and expertise and a lack of pathways from procurement to the market—and use a variety of tools to address them in tandem.

Ultimately, governments across Canada need to build a culture where an empowered public service can find novel solutions to the problems they face, where innovators are confident that selling innovative products and services to government will be worth their time and will help grow their business and where the public ultimately benefits from more agile, solutions-oriented government.

Thank you. I look forward to your questions.

[The Chair, Liberal, Peter Fonseca]

I call this meeting to order.

Welcome to meeting number 137 of the House of Commons Standing Committee on Finance. Pursuant to the order of reference of Monday, March 18, 2024, and the motion adopted on Monday, December 11, 2023, the committee is meeting to discuss Bill C-59, an act to implement certain provisions of the fall economic statement tabled in Parliament on November 21, 2023, and certain provisions of the budget tabled in Parliament on March 28, 2023.

Today's meeting is taking place in a hybrid format, pursuant to Standing Order 15.1. Members are attending in person in the room and remotely using the Zoom application.

I'd like to make a few comments for the benefit of members and witnesses.

Although this room is equipped with a powerful audio system, feedback events can occur. These can be extremely harmful to interpreters and cause serious injuries. The most common cause of sound feedback is an earpiece worn too close to a microphone. We therefore ask all participants to exercise a high degree of caution when handling the earpieces, especially when your microphone or your neighbour's microphone is turned on, to prevent incidents and safeguard the hearing health of the interpreters. I invite participants to ensure that they speak into the microphone into which their headset is plugged and to avoid manipulating the earbuds by placing them on the table away from the microphone when they are not in use.

As a reminder, all comments should be addressed through the chair. For members in the room, if you wish to speak, please raise your hand. For members on Zoom, please use the “raise hand” function. The clerk and I will manage the speaking order as best we can. We appreciate your patience and understanding in this regard.

All virtual witnesses for this meeting have been tested, and everybody is ready to go.

With us today, as we start our afternoon panels, from the Council of Canadian Innovators, we have Laurent Carbonneau, director of policy and research, and Nicholas Schiavo, director of federal affairs.

From the Daily Bread Food Bank, we have Neil Hetherington, chief executive officer.

From the Laurentian University Faculty Association, we have Fabrice Colin, president, and Linda St-Pierre, executive director and chief steward.

From the Union des municipalités du Québec, we have Martin Damphousse, president and mayor of Varennes, and Samuel Roy, strategic policy adviser. They are with us via video conference.

Welcome to all.

With that, we are going to start with opening remarks of up to five minutes.

We will start with the Council of Canadian Innovators.

Go ahead, Mr. Schiavo.

[The Chair, Liberal, Peter Fonseca]

Thank you.

Members, the meeting this afternoon will be in room 320 of the Wellington Building.

As well, members, with regard to the deadline for amendments, the clerk's email from March 19 explains the process for the amendments. The clerk has indicated that the legislative clerks need a certain amount of time. We're asking that amendments on Bill C-59 be set for 5 p.m. on Monday, April 22, if everybody is good with that.

[Don Davies, NDP, Vancouver Kingsway, BC]

Thank you.

I want to give my last time to you, Ms. MacEwen. We're debating Bill C-59 now. We have a budget coming Tuesday. What advice would you give the federal government in terms of something you'd like to see done to help spur our economy?

[Fanny Labelle, Administrator, Board of directors, Mouvement autonome et solidaire des sans-emploi]

Good afternoon.

I am appearing before you on behalf of the Mouvement autonome et solidaire des sans-emploi, or MASSE, which represents 17 groups advocating for the rights of the unemployed workers of Quebec and New Brunswick. We will celebrate our 25th anniversary this year. The organization acts as a kind of collective memory in the unemployment field.

First of all, MASSE truly applauds the addition of 15 weeks of benefits in the case of adoptions because that was lacking. We believe that this measure helps in recognizing many valid parenting models and that it will have a positive effect on the rights of LGBTQ+ persons.

However, since I'm not here just to make compliments, allow me to put these benefits in the specific context of Canadian parents and to discuss the actual role of the employment insurance fund.

Did you know that, when a person—it's usually a woman—loses her job during, or too infrequently after, her maternity leave and parental benefits period, she winds up without an income? We have been requesting a change to this situation for a very long time. It would be easy to do by amending the act to rescind the rule, provided in subsection 12(6), regarding the combining of weeks of benefits to a maximum of 50 and by including, as a ground for extending the benefit period, the fact that the claimant has received maternity, parental or adoption benefits.

Nowhere in Bill C‑59 is any attempt made to achieve the fundamental objective of providing protection in the event of unemployment, which is the purpose of the employment insurance. Parents who take leave to care for their children shouldn't have to worry about whether they'll have an income once their leave is over. These people will often lose their jobs as a result of restructuring or because positions have been cut.

Nearly 3,000 women a year are denied employment insurance because they haven't accumulated enough insurable hours as a result of maternity leave. Our elected representatives are aware of this situation, which is unjust and discriminatory toward women. Press conferences have been held and testimony given in the House of Commons. MASSE condemns the government's refusal to act as long as the constitutional appeal of six women represented by the Mouvement action-chômage de Montréal is before the courts. In our view, this shows a clear lack of political will on the government's part.

We nevertheless wish to note that the employment insurance fund was established to compensate workers who have lost their jobs, not for the purpose of introducing social measures. The government stopped contributing to the fund in 1990. It has denied its responsibility for unemployment and special measures and for special benefits, which are part of the present program. Payments of special benefits continue to increase. In 1999, they represented barely 17% of total benefits paid by the program but have since increased by 36% in 2023‑2324.

It would be impossible for me to complete my remarks without claiming better protection in the event of loss of employment. For us, better protection would mean broader eligibility for the plan. We believe that applicants should be eligible for benefits once they have accumulated 350 hours for 13 weeks of work.

Better protection should also include a 70% benefit rate. A period of unemployment currently triggers a descent into poverty and indebtedness. The 55% benefit rate makes no sense in the current context of inflation and housing crisis.

We also believe that the government would solve the seasonal industry's black hole problem by providing a minimum of 35 weeks of benefits for everyone rather than add pilot project after pilot project, as was announced in the fall economic statement.

I will conclude by saying that we applaud the new measure providing 15 weeks of benefits in case of adoption, but we lament the fact that, for many years now, there have been interminable consultation phases and no genuine employment insurance reform.

Thank you

[Alexander Vronces, Executive Director, Fintechs Canada]

Thank you so much for having us here today. It's always an honour.

Fintechs Canada is an industry association of Canada's most innovative financial technology companies. Our mission is to make Canada's financial sector more responsive to the needs of Canadians.

A few years ago, the White House issued an executive order that would get the whole of the U.S. government to promote more competition in the American economy. Not long afterward, the American financial consumer protection regulator put out a draft rule to jump-start competition in American banking.

“Making banks work harder for you”—that's literally what the government of the United Kingdom said it would do in 2016. The United Kingdom had already set the foundation for a more competitive banking system by modernizing its payment system. In 2016 the U.K. said it would do more—it would implement open banking. It delivered on that promise just a couple of years later.

Canada has yet to do what our peers have done to make banks work harder for Canadians.

In competitive markets, two things are supposed to happen: Prices are supposed to go down, and the quality of services is supposed to go up. In Canadian banking, we're not seeing that. Prices are going up. Our banks are making more money from non-interest income—in other words, the fees they charge Canadians, the service fees on bank accounts, investment management fees, payment processing fees and administrative fees on mortgages and other loans.

We can see, based on public data, that the fee-based income banks are making per Canadian account holder has increased by 8% over the past five years to just under $3,000 in 2023. That's per year, and banking has largely stayed the same. My banking—how I save my money and how I pay my bills—hasn't changed for years. There are Canadians who wonder why they're paying more but not getting more.

High fees aren't the only cost of a banking sector closed off from competition. The lack of competition also hinders Canada's productivity growth. Banks aren't just vaults for our money; they are also intermediaries investing in other sectors to make them more productive—at least, that is what's supposed to happen,. However, a C.D. Howe Institute report from 2019 says that our financial sector's contribution to productivity growth has been underwhelming. To be more productive, we need our businesses to grow. It has been said that Canada is good at getting businesses started but not good at getting businesses growing.

One of the reasons is that small businesses in this country aren't getting what they need from banks to fuel their growth. According to OECD data, loans are more costly for small businesses in Canada than they are in other advanced economies.

According to the CFIB, 15% to 25% of loan applications end up being rejected by the big five banks. In fact, from 2012 to 2022, the total number of loan applications approved for small businesses decreased by almost 30%. The lack of competition in banking costs us not just as customers of banks but as Canadians.

Fintechs Canada believes in whole-of-government approaches to complex issues. Promoting more competition in the financial sector is one part of the broader solution to make Canada a more affordable and productive place to live. That's why we're glad to see Bill C-59 contain amendments to the Canadian Payments Act. These changes will promote competition in banking by giving fintech companies and credit unions access to the new payment system being built by Payments Canada. Industry insiders call this new payment system Real-Time Rail.

These changes are good for competition because you can't operate in the financial sector if you can't access a payment system. Outdated laws give only Canada's biggest banks access to the system right now. These biggest banks in turn resell their privileged access to everyone else. This puts the competition in an untenable position. They have to do business with their competitors in order to compete with them.

Access to Real-Time Rail will level the playing field as it is right now. For that to happen, though, we need Payments Canada to actually launch Real-Time Rail, with no more delays. According to the World Bank, Canada is one of the few countries in the world without Real-Time Rail. We support the amendments to the Canadian Payments Act in Bill C-59, but by themselves they're not enough. Our G7 counterparts have done so much more. If we want to make Canada a more affordable and productive place to live, it's time that we also do more.

Thanks again for having us. It's been an honour to share our perspective with all of you.

[William Robson, Chief Executive Officer, C.D. Howe Institute]

Thank you very much for having me. It's an honour to be invited to present to this group. I apologize for doing it online.

I accepted right away when invited to appear in front of the committee. It's part of my job and, as I said, an honour, but I have to admit that after accepting, I had doubts. You know this already, but I'll stress that Bill C-59 is 524 pages long. The summary at the front alone is six pages. I counted very quickly about 60 bullet points, or bullet-like points, about provisions that are explicitly identified as affecting 20 pieces of legislation. I don't know how many more are not explicitly identified.

The Liberal Party's 2015 election platform contained a plank to ban omnibus legislation, and it's unfortunate that it didn't happen. Critics say that omnibus bills prevent parliamentarians from doing their jobs, and I agree. I don't think parliamentarians should acquiesce in things that prevent them from doing their jobs.

Given the size and heterogeneity of Bill C-59, I think it's better to use the rest of my opening time to underline the scale of the challenge facing Canada’s economy and Canadian living standards.

If you had a chance to look at the Bank of Canada’s Monetary Policy Report yesterday, there was an eye-catching figure showing that real GDP per person has been falling since the third quarter of 2022. The bank expects that decline to continue through the first half of this year. We know people are feeling squeezed and having trouble making ends meet. Eight quarters in a row of declining real output per person will do that. The average Canadian has fewer resources for food, clothing, housing and paying taxes, let alone supporting cultural institutions or donating to charities.

Why is that happening? It's because of low investment. Capital investment creates the tools that make people more productive. It makes people able to earn more for every hour they work, but capital in Canada per worker is falling. Nothing like this has happened since the 1930s and the Second World War.

I want to underline that it's also not happening anywhere else in the developed world, and it's certainly not happening in the United States. At the C.D. Howe Institute, we track business investment per member of the workforce in Canada versus the United States, adjusting for purchasing power. We've never quite been on a level, but 15 years ago, for every dollar of new investment that the typical U.S. worker enjoyed every year, the typical Canadian worker got close to 75¢, about three-quarters as much. Ten years ago, for every dollar of new investment per U.S. worker, the Canadian worker got about 66¢, so we were down to two-thirds as much. By the end of last year, in the fourth quarter of 2023, for every dollar of new investment per U.S. worker, her or his Canadian counterpart got 52¢—barely half as much.

That spells trouble for competitiveness and the future earnings of Canadian workers. My friend and former federal finance minister Bill Morneau warns in his book that a steady erosion of Canadian living standards will make Canada less attractive to talent, and this is a vicious circle playing out as we speak.

What could turn this around? We'll be happy to take questions on that.

To conclude, I want to return to the impossibility of scrutinizing long and heterogeneous bills such as this one properly. Other witnesses have commented on specific provisions they thought were poorly drafted or could stand improvement. I note that the bill itself corrects some drafting problems in previous legislation.

One of the discouragements that I hear a lot about, when it comes to people speculating about why investment in Canada is weak—this includes members of the C.D. Howe Institute’s monetary policy council, who think low investments and low productivity growth are making inflation harder to control and thus keeping interest rates up—is policy uncertainty.

That's true on every level. Some of it is the threat of more populist tax measures, and I think we have a couple in this bill. It's also just sheer incompetence in execution. I'll mention in passing the bare trust debacle. You need effective parliamentary scrutiny to avoid confidence-destroying mistakes, and a bill of this length and heterogeneity precludes effective parliamentary scrutiny.

Thank you for having me here, and I'm sorry to conclude on a down note. I look forward to your questions.

[Angella MacEwen, Senior Economist, National Services, Canadian Union of Public Employees]

Thank you for the opportunity to present CUPE's views on Bill C-59.

The Canadian Union of Public Employees is Canada's largest union, with over 750,000 members. CUPE members take great pride in delivering quality services in communities across Canada as they work in a broad cross-section of the economy, including health care, education, municipalities, libraries, universities and colleges, social services, public utilities, emergency services, transportation and airlines.

Bill C-59 has a number of elements related to taxation that we think are important to economic fairness.

Prominent tax economist Gabriel Zucman has estimated that corporations shifted more than $25 billion U.S. in profits out of Canada in 2019 by reporting income that they earned in Canada in a different tax jurisdiction. This cost Canada an estimated $4.5 billion in corporate income tax revenue for 2019 alone.

Implementing a digital services tax is an important part of closing that gap and levelling the playing field for Canadian businesses. CUPE has long advocated in favour of a digital services tax. We followed the negotiations at the OECD on base erosion and profit shifting very closely. We were disappointed when the process on pillar one stalled and when the proposals there were watered down from what's needed.

We think that Canada is smart to move forward with its own digital services tax. Pillar one continues to face roadblocks, and its future remains uncertain. The legislation put forward here in this bill is much more effective than what's currently on the table in the OECD process.

However, the DST as proposed explicitly excludes the sale, licensing and streaming of digital content, as well as the sale of other digital goods and services. This is a giant, glaring hole. It excludes revenues associated with Netflix, Amazon Prime, Apple Music, Spotify and many more services. We believe that a fair tax model is a better approach than other approaches we're taking in that industry.

We're also disappointed to see that the deadline for the implementation has been removed from this bill.

Even if these improvements were made, the digital services tax is not enough to close this gap. We encourage the federal government to go further. Greater transparency of multinationals' tax and financial information is another powerful deterrent to profit-shifting. Australia and the EU are far ahead of us on this.

Requiring multinationals to publicly report country-by-country financial information would give us more insight into how much tax is being paid or avoided. This would assist in the administration of the digital tax.

We also encourage the federal government to welcome the new United Nations process on international tax governance. As part of this process, international labour groups have called for a framework tax convention that would formalize international tax governance at the United Nations under an inclusive, accountable and more effective institutional setting than what we've seen with the OECD.

CUPE is also very interested in the establishment of the proposed department of housing, infrastructure and communities. Much of the preamble located in this bill reflects CUPE's views about the importance of public infrastructure to healthy local communities and our national economy. However, we believe that the clause referring to the use of innovative financial tools to attract investment from the private sector puts all of those benefits at risk. This approach has consistently failed to result in building the type and scale of public infrastructure that is required to foster a healthy, equitable, prosperous economy and society.

Finally, I personally have concerns about employee ownership trusts being used to avoid taxation. However, I was encouraged to see several elements in this legislation that move toward a more democratic involvement of employees in determining the direction of the trust.

Thank you.

[Don Davies, NDP, Vancouver Kingsway, BC]

Thank you. I think that's an astute observation.

Should Bill C-59 be amended to remove cost awards from the Competition Tribunal Act entirely, in your view?