Finance Committee on April 22nd, 2010

[Carlos Achadinha]

The intent is that this particular stamp will be applied to all tobacco products over time. The primary target initially is the cigarette package itself. The intent is to have this stamp apply to all manufactured products--roll your own, the tobacco sticks, all those products.

[Mike Wallace, Conservative, Burlington, ON]

My final question in this area is this. Let's assume the budget passes and we're not into an election, what is the timeframe in which you hope to have this implemented? Are you giving the manufacturers some sort of notice of the change and how much time they have to comply?

[Carlos Achadinha]

There is a specific transitional rule in these provisions. The intent is that once this legislation is passed there is a bit of a delay. That provides time for new regulations because there are complementary regulations that will be needed for this particular new regime. That provides some time for the CRA to announce those, to distribute, and to get those regulations passed. The intent is to provide until April 2011 for the full implementation of this new stamping regime, so to provide the transitional period.

[Mike Wallace, Conservative, Burlington, ON]

Those are my questions.

Thank you.

[The Chair, Conservative, James Rajotte]

Thank you, Mr. Wallace.

I have Mr. Martin and then Monsieur Carrier.

[Pat Martin, NDP, Winnipeg Centre, MB]

Thank you.

Not being a regular member of the committee, I'm just taken by what a vast document this is and how complicated it is. I assume it's going to take many, many meetings to plow your way through the various parts. I certainly hope it's not going to be in any rush or any hurry--

[Mike Wallace, Conservative, Burlington, ON]

I'm ready to vote right now, Pat.

[Pat Martin, NDP, Winnipeg Centre, MB]

Yes, I can imagine you are.

I didn't realize we were limiting ourselves to parts 1, 2, and 3. As it's Earth Day, I want to talk about clauses 18, 19, and 20. I hope maybe I can come back and substitute when we finally get there, which may be months from now, I presume, at the rate we're going.

The question I have in the relevant section we're talking about, though, deals with the goods and services tax as it might pertain to financial services. This has been in the news a little bit lately, and I don't pretend to know a lot about it.

Could you tell me, as a layperson, whether the enactment of part 2 will result in the application of GST/HST to any previously exempt services?

[Pierre Mercille, Senior Legislative Chief, Sales Tax Division, GST Legislation, Department of Finance]

I'm going to answer that question.

I'll give you a little background for the answer. The general rule under the GST is that if it's applied in the course of commercial activity, it is taxable unless it's specifically exempt or zero-rated.

Financial services are part of the services that are treated as exempt. It was at the state before...there were a series of court cases that broadened that exemption. On December 14, 2009, the minister issued a news release, the goal of which was basically to address the court cases that had broadened the exemption in the tax base at that point. Following that, there has been a release by CRA trying to explain the change, but only based on what was released at that time, which was a backgrounder.

In March, when the budget was tabled, in annex 5, in the notice of ways and means motion, was the text of the proposed amendments. It's true that there have been a lot of comments on the amendments, but following the tabling of the proposed amendments as included in this bill, Canada Revenue Agency posted something in the memo they issue, saying that based on the wording that was released in the budget, they were going to review their policy and consult with anyone who wanted to share his or her view with CRA on what should be addressed by those amendments.

Furthermore, the Minister of Finance, on March 26, issued a news release again to confirm that the policy intent was to bring back the exemption to the point it was at before there were those court cases that expanded the tax base.

So the policy intent is for the tax base to be what it was before those court cases expanded the base of exemption. We want to go back to the situation that existed before those court cases increased the exemption and reduced the base.

[Pat Martin, NDP, Winnipeg Centre, MB]

Will this result in a lot more revenue for the government?

[Pierre Mercille]

The goal here is not to increase revenue to the government; it's to protect the tax base that existed before those court cases.

[Pat Martin, NDP, Winnipeg Centre, MB]

Along the same line, how would that affect the ordinary Canadian, never mind high finance? Why are there exemptions for financial services? I presume those are things such as tax consulting, etc.

Are those exempt? If a corporation hires a consulting company to give them advice on tax avoidance, is that tax exempt?

[Pierre Mercille]

Consulting in itself is not usually a financial service, because you can consult on all sorts of things.

You talk about tax advice. That is not a financial service. For it to be a financial service it needs to be linked to the issuance of a financial instrument.

[Pat Martin, NDP, Winnipeg Centre, MB]

Can you give me an example?

[Pierre Mercille]

An example would be an insurance policy, or the issuance of a bond or any instrument that is there to provide financing of some sort.

[Pat Martin, NDP, Winnipeg Centre, MB]

What if you hire somebody to do your taxes?

[Pierre Mercille]

My understanding is that's taxable.

[Pat Martin, NDP, Winnipeg Centre, MB]

That's taxable?

[Pierre Mercille]

Yes. That's my understanding.

[Pat Martin, NDP, Winnipeg Centre, MB]

I don't pretend to understand the reasoning here.

So there's no net benefit. This isn't a tax grab. The government is not going to get more money, more revenue, as a result of this initiative.

[Pierre Mercille]

The amendment was intended to protect the tax base that existed before those court cases broadened the exemption.

[Pat Martin, NDP, Winnipeg Centre, MB]

So that resulted in less money. Broadening the exemption resulted in less revenue for the government.

[Pierre Mercille]

Yes.

[Pat Martin, NDP, Winnipeg Centre, MB]

This will result in more revenue for the government. So it's a tax increase.

[Pierre Mercille]

Well, it's not a tax increase, because it protects from a tax decrease.