Evidence of meeting #55 for Finance in the 39th Parliament, 1st Session. (The original version is on Parliament’s site, as are the minutes.) The winning word was amendment.
A recording is available from Parliament.
Conservative
The Chair Conservative Brian Pallister
Good morning, committee members. Welcome back.
Officials, thank you for being here.
Pursuant to the order of reference of Monday, October 30, 2006, we will proceed with clause-by-clause consideration of Bill C-28, a second act to implement certain provisions of the budget tabled in Parliament on May 2, 2006.
Consideration of clause 1 is postponed.
I call clause 2. You have your package of amendments in front of you. There are no amendments to clause 2.
Yes, Mr. McKay.
(On clause 2)
Liberal
John McKay Liberal Scarborough—Guildwood, ON
I'll ask the officials a couple of questions so that I know what I'm voting on.
Under clause 2, with respect to tools, is there already an existing definition of tools in the regulations with respect to this particular amendment regarding the tools?
Gérard Lalonde Director, Tax Legislation Division, Tax Policy Branch, Department of Finance
In the regulations there's a previously existing provision for tools that cost less than $200. That will be changed to tools that cost less than $500 as a regulation change, and be clarified pursuant to the budget provisions to indicate that it doesn't include electronic devices like—
Liberal
John McKay Liberal Scarborough—Guildwood, ON
You're jumping your schedule from $200 to $500, but there's no definitional change of what constitutes a tool for the purposes of this deduction. Is that right?
Director, Tax Legislation Division, Tax Policy Branch, Department of Finance
The definition is expanded a little bit to ensure that it doesn't include things like BlackBerries and cellphones.
Liberal
John McKay Liberal Scarborough—Guildwood, ON
That's exactly what I wanted to get at, whether it included computers and things of that nature.
Thank you.
Conservative
Liberal
John McKay Liberal Scarborough—Guildwood, ON
I was looking at the way they calculate this. I was going to ask officials for the dummies version of how you calculated subclause 2.(2), but I think if I ask that we'll be here all day trying to get it through.
On page 5, are we still on clause 2, or is that moved to clauses 6, 7, and 8? No, I'm sorry. That's it for clause 2 for me, because it starts clause 3 as the next one there. I do have a question about clause 3.
Conservative
The Chair Conservative Brian Pallister
Well, proceed with your question about clause 3, unless another committee member has a question about clause 2.
We'll continue with questions here. On clause 3, you had a question, Mr. McKay.
Liberal
John McKay Liberal Scarborough—Guildwood, ON
On the issue regarding the election of a capital gain, can you give me a quick summary of what that actually means? I understand election of a capital gain, but I want to understand what it means to you.
Director, Tax Legislation Division, Tax Policy Branch, Department of Finance
Sure. This is a provision that deals with eligible capital property. Usually, eligible capital properties don't generate capital gains. They generate something that's taxed similar to capital gains, but technically it's not a capital gain. Eligible capital property is included in an eligible capital property pool and is subject to depreciation deductions, unlike most capital properties.
For the most part, the eligible capital property pool is intended to include intangibles, things that you would buy for your business--for example, goodwill, some licences of indeterminate duration; they would go into your pool and they would be depreciated. In many cases, for example, with goodwill, if you were to buy goodwill, continue to carry on your business and then sell your goodwill, you wouldn't know whether you're selling some new goodwill that's been generated, selling the goodwill that you bought--it's sort of an amorphous asset--and the “eligible capital property” rules work well for that.
There are other cases where you might buy a licence of an indeterminate period--for example, a taxi licence. You know what it is. You know what you paid for it. When it comes time to sell it, you know what it is and you know what you'll get for it. As a result, if it were a capital property you would have been in a position to figure out quite clearly what your capital gain was. In those circumstances, this provision allows you to elect, basically to ignore the whole thing, take it out of your eligible capital property pool and treat it as a capital property that will generate a capital gain for you at the end.
Liberal
John McKay Liberal Scarborough—Guildwood, ON
I'm have trouble thinking my way through. Let's take, for example, the case of a taxi licence. What is the relevance of the election there? Can you take the taxi licence out of the deemed disposition?
Director, Tax Legislation Division, Tax Policy Branch, Department of Finance
No. What happens is that instead of calculating a recapture of your eligible capital property pool, you just remove the cost of that taxi licence from the amounts that you've included in calculating the pool. That will adjust your pool. It may give rise to a recapture; it may not. But it ensures, with this election, that the gain on that licence is treated as a capital gain, and not as a recapture of eligible capital property amounts in the pool.
Liberal
John McKay Liberal Scarborough—Guildwood, ON
So you're effectively moving it from a recovery of income stream to a capital recovery.
Director, Tax Legislation Division, Tax Policy Branch, Department of Finance
It's strictly a capital gain.
Liberal
December 5th, 2006 / 10:10 a.m.
Director, Tax Legislation Division, Tax Policy Branch, Department of Finance
That's right.
Liberal
John McKay Liberal Scarborough—Guildwood, ON
Okay, I follow that. Thank you.
If I still have the floor, Mr. Chair, you have a deemed capital gain over on page 8 here, and that triggered in my mind a related question with respect to income trust, which may or may not fit within this budget.
Conservative
Liberal
John McKay Liberal Scarborough—Guildwood, ON
I'm on page 8, proposed subsection 5(1.2), to which this may have only tangential relevance, but I would like to get an answer to the question.
Am I correct in assuming that on December 31, those who converted from a corporation to a trust during the taxation year 2006 will have a deemed disposition and a taxable consequence?
Director, Tax Legislation Division, Tax Policy Branch, Department of Finance
No, that's not quite right. They may have an actual disposition if they disposed of their shares in the corporation in order to acquire an interest in an income trust. This bill doesn't have anything to do with that. The provision on page 8 deals with a recapture through the eligible capital property rules, but that recapture is generated in the context of a farming or fishing business. The portion of that recapture that represents the capital gain is deemed to be eligible for the farmers' or fishers' capital gains exemption. That's what this amendment is about.
Liberal
John McKay Liberal Scarborough—Guildwood, ON
I appreciate that there was only tangential relevance there. I'll come back on that and on a section that's possibly a bit more relevant.
Thank you, Mr. Chair.
Conservative
The Chair Conservative Brian Pallister
Committee members, I would propose to use the same approach we have in the past, whereby if there are no amendments to clauses, I'll ask for your views on those clauses, absent the amendments, as a block. Unless there are further questions on clauses 2 to 9, do clauses 2 to 9 carry?
Conservative
The Chair Conservative Brian Pallister
(Clauses 2 to 9 inclusive agreed to on division)
(On clause 10)