Evidence of meeting #7 for Finance in the 39th Parliament, 1st Session. (The original version is on Parliament’s site, as are the minutes.) The winning word was gst.
General Director, Tax Policy Branch, Department of Finance
I remember seeing the approach you were suggesting. It was different from the approach the government decided to take. However, several provinces made a commitment not to reduce benefits based on...
Bloc
Yvan Loubier Bloc Saint-Hyacinthe—Bagot, QC
Yes, but with a tax credit, Mr. Nadeau, no province would be able to take anything whatsoever.
General Director, Tax Policy Branch, Department of Finance
There would have to be some agreement between all the provinces. Or the provinces would have been tied to the Canadian Child Tax Benefit, and in this case, we would have had to add numerous parameters so that they could have been part of the program, or else a benefit would have been paid to the provinces and we would have had to, at any rate, reach agreements with each of them in order for them not to include this income in their—
Bloc
Yvan Loubier Bloc Saint-Hyacinthe—Bagot, QC
In the case of a refundable federal tax credit, are arrangements with the provinces required?
General Director, Tax Policy Branch, Department of Finance
That would not have been a refundable tax credit, but a benefit such as the benefit for children.
Bloc
Yvan Loubier Bloc Saint-Hyacinthe—Bagot, QC
No, unless I have been harbouring a misconception for the past 13 years. When you are talking about a tax credit, be it refundable or not, or some type of exemption or reduction, according to the federal Income Tax Act, an agreement with the provinces is not required. There is some harmonization, for example, between the provinces and the federal government when measures are implemented in an effort to facilitate fiscal management. However, in the case of a refundable tax credit decreed by the federal government, no arrangement is necessary.
General Director, Tax Policy Branch, Department of Finance
It is considered income in the case of social assistance. You may call that a refundable tax credit, but, in the final analysis, it is a benefit. For example, the Canadian Revenue Agency views the Canada Child Tax Benefit as a refundable tax credit, but it is a benefit. The provinces made a commitment not to use it, for example, in the case of social assistance, etc. So we would still have had to... Even if we had changed the name, if it were in principle a benefit, we would have had the same difficulties.
Ultimately, one of the advantages of the approach that was retained is that the income, as we say in English,
add to the ability of the taxpayers to pay and therefore should be taxed.
That complies with the approach that the government decided to follow.
Bloc
Yvan Loubier Bloc Saint-Hyacinthe—Bagot, QC
You have not convinced me as far as the refundable tax credit is concerned, because such a measure comes under federal jurisdiction. According to the Income Tax Act, the refundable tax credit is a federal measure. I do not see how the provinces could have picked up any benefits whatsoever if a refundable tax credit had been offered. Currently, it is clear that the provinces have not made any commitment to not tax or not reduce the benefits of a program such as social assistance, for example. The provinces will go and pick the money out of the pockets of the people.
General Director, Tax Policy Branch, Department of Finance
No province has said that it will do so, and many provinces have made a commitment not to do so.
Bloc
Yvan Loubier Bloc Saint-Hyacinthe—Bagot, QC
At any rate, the parents will have to put this money aside, because they will have a bad surprise next April when they fill out their income tax forms. They will have to pay tax on this amount.
General Director, Tax Policy Branch, Department of Finance
It will be taxed.
Bloc
Yvan Loubier Bloc Saint-Hyacinthe—Bagot, QC
Yes, but they think that this is a gift from the federal government. They won't imagine that, in the end, they will have to pay both federal and provincial tax. You are not giving them any gift. With a refundable tax credit, they would not have been taxed on this amount.
General Director, Tax Policy Branch, Department of Finance
The provinces always have a choice as to whether to tax or not tax this benefit. New Brunswick decided that it would not be taxing it. It is up to the provinces to decide.
Bloc
Yvan Loubier Bloc Saint-Hyacinthe—Bagot, QC
In the end, parents are going to be victimized by the discretionary power of provincial governments. They're the ones who will be paying. If we want to adopt a federal measure targeting those families that really need it, and not those with a family income of $300,000, but who may all the same benefit from receiving a payment of $100 per month, it seems to me that we can offer some protection by choosing a refundable tax credit. That would have been quite logical, especially when one considers that it will cost the same. A refundable tax credit costs no more than any other measure and results in far fewer problems. I still do not see where it says that an agreement with the provinces is required, but you will have to explain that to me, because this is the first time that I have heard that.
It seems to me that this would have been more logical, but I can see that sending a cheque is a political decision. This could have been done with a refundable tax credit. We could have sent a monthly cheque to the parents, exactly as we do for GST refunds.
Conservative
Conservative
Garth Turner Conservative Halton, ON
Thank you.
I have a question regarding GST on new homes. I've had correspondence from a lot of Canadians who simply don't believe the GST reduction from 7% to 6% will be passed on to home buyers; they believe the GST cut will somehow be absorbed by the home builders and the industry. I'm wondering what assurances you can send to new home buyers that they will actually see a 1% reduction in the price. Of course, with the average price of a new home in the Toronto area running around $500,000, there should be a reduction somewhere in the neighbourhood of $5,000 on the price of a new home.
What assurance can you give these folks that that's going to happen?
Pierre Mercille Chief, Sales Tax Division / Tax Policy Branch / Legislation Policy, Department of Finance
The budget implementation act includes transitional rules for the sale of new homes, and the main rule is that if ownership and possession of the new house occur on or after July 1, 2006, the rate of 6% will apply.
Conservative
Garth Turner Conservative Halton, ON
Yes, I understand that, but people don't believe it's going to happen. Actually, it's in effect now, right? If you go and buy a new home today, you're not going to move in by July 1; you're going to move in by October, if you're lucky. So right now when people are going into the sales trailer to buy a house, can they demand that the sales tax be visible and that the reduction be shown?
Chief, Sales Tax Division / Tax Policy Branch / Legislation Policy, Department of Finance
Well, usually the sale of a house is made on a written agreement. It's a very long agreement usually, but the tax will be written in there, so if they know that the house is not even built, or something like that, and they know that ownership and possession will be after July 1, the rate should be 6%.
Conservative
Garth Turner Conservative Halton, ON
All right. What advice can you give to home buyers? There are a lot of home buyers I'm hearing from who are saying, “My lawyer tells me that when I buy the home, the builder is just going to absorb that extra 1%? How do I, as a purchaser, know that it's going to happen?”
Do you have any advice for new home buyers?
Chief, Sales Tax Division / Tax Policy Branch / Legislation Policy, Department of Finance
Well, they should look at their agreement to see that the tax rate is actually 6%.
I'm not sure if you're referring to people who may have signed an agreement before—
Chief, Sales Tax Division / Tax Policy Branch / Legislation Policy, Department of Finance
Okay. Well, the best advice we can give is to look at your agreement to see if the rate of tax is 6% and not 7%.
Conservative
Garth Turner Conservative Halton, ON
Right, but there's the rebate that comes into this. So it's not as simple as that. You never see 6% written in the agreement—right?—because of the new home rebate.
Chief, Sales Tax Division / Tax Policy Branch / Legislation Policy, Department of Finance
A lot of time the new housing rebate is taken into account in the price of the home. It's a fixed price for a home that takes into account the fact that if the ownership and possession is on or after July 1, the agreement may take into account the fact that the tax is at 6% and that the purchaser is entitled to a rebate, which will be based on a 6% tax.
