Evidence of meeting #121 for Finance in the 41st Parliament, 1st Session. (The original version is on Parliament’s site, as are the minutes.) The winning word was unions.
A video is available from Parliament.
NDP
Guy Caron NDP Rimouski-Neigette—Témiscouata—Les Basques, QC
It's $350 million. Anyway, it was over five years.
Director, Business Income Tax Division, Tax Policy Branch, Department of Finance
Oh, looking at the five-year total. Sorry. The fully phased-in cost in the final year is $75 million, Again, as noted, given that the primary benefit of the additional deduction falls to large and growing credit unions, the flip side is that money would come from those credit unions with the removal of the additional deduction. Smaller credit unions of the type you're referring to would be very unlikely to see a change in their tax bill.
Conservative
Randy Hoback Conservative Prince Albert, SK
Thank you, Chair, and thank you, witnesses, for being here this morning.
I'll go back to the question raised by my Liberal colleague on the tax relief for Canadian Forces members and police officers deployed abroad. I understand that in the current system, for a soldier to be classified as a level 2, the Minister of National Defence has to go through a process of justifying why this mission should be a level 2 classification; he has to go through a whole process of making sure that Finance is happy with the classification before he receives that classification for soldiers.
Can you explain how that process will now change, and how it will become easier to get the classification for the exemption brought forward?
Director, Personal Income Tax Division, Tax Policy Branch, Department of Finance
Currently, for the level-two missions that can be prescribed under the income tax regulations for income tax relief, the prescription process requires the passing of regulations.
There is an interdepartmental committee that assesses the risk of all international missions. There's a task force commander, and he or she assesses the risk on the ground, at the site where the mission will be undertaken. They come back to the committee and then the committee assesses the risk of the mission. Based on that risk assessment, the mission is given a certain risk level.
Then the Minister of National Defence, or the Minister of Public Safety, in the case of police officers, brings forward, essentially, a decision for the cabinet to prescribe these missions. Once that decision is made that those missions can be prescribed, the Minister of Finance goes through the process of prescribing the missions in the income tax regulations, which involves another submission and the regulatory process.
That process has been criticized for taking a considerable amount of time. Because the missions are small and oftentimes involve very few soldiers or police officers, it takes a long time, and it takes a while for the Canadian Forces members to get their relief.
The new process being proposed is that the Minister of National Defence, or, in the case of police officers, the Minister of Public Safety, would write to the Minister of Finance. There would essentially be an exchange of correspondence between the ministers such that there would be satisfaction that the process had been followed properly for assessing the risk, that the process hadn't changed, and that the intention of the provision was still applied. Then the Minister of Finance would designate the missions under the designation process and that information would be posted on the website, which would be a much more expedited process allowing soldiers or police officers, when they're on a mission, to know with greater certainty that they would indeed be eligible for the tax exemption.
Conservative
Randy Hoback Conservative Prince Albert, SK
Would these amendments in any way change the way the missions are classified? Will it still remain a separate process?
Director, Personal Income Tax Division, Tax Policy Branch, Department of Finance
The determination of the risk level of a mission is done, as I mentioned, by this interdepartmental committee. That wouldn't change under this process at all.
Conservative
Randy Hoback Conservative Prince Albert, SK
As far as the tax relief is concerned, just how much will this represent for the average CF member or police officer overseas? Will it change?
Director, Personal Income Tax Division, Tax Policy Branch, Department of Finance
This change in the process won't change the tax relief. The tax relief is eligible on the pay the member receives while they're on the mission, up to the maximum pay that a top-level, non-commissioned soldier could receive. I don't have the pay scales here with me.
Conservative
Randy Hoback Conservative Prince Albert, SK
That's fine. Basically what we're doing is making it simpler and easier for the soldiers or police officers, whichever the case may be, to understand whether or not they qualify for this tax exemption quicker so that they know where they stand.
Director, Personal Income Tax Division, Tax Policy Branch, Department of Finance
Exactly.
Conservative
The Chair Conservative James Rajotte
Thank you, Mr. Hoback.
A couple of members have approached me to say they're concerned that we won't get through all three parts today in our two-hour meeting.
I have indications that there are no more questions from either the Conservatives or the NDP. Is that correct? Okay.
I understand the Liberals have two very brief questions. Is that correct?
Conservative
The Chair Conservative James Rajotte
Okay, Mr. Hsu, we'll get those on the record and then we'll go to part 2.
Liberal
Ted Hsu Liberal Kingston and the Islands, ON
You can either say yes or no, or give me numbers.
With regard to phasing out the additional deduction for credit unions, are there credit unions in Canada that have grown too large to benefit from this additional deduction? If so, how many credit unions are now too large to qualify?
Director, Business Income Tax Division, Tax Policy Branch, Department of Finance
I'll have to give you a little more than a yes or no—sorry—because we talk about growing credit unions and large credit unions.
Eligibility for the additional deduction is not linked to the size of a credit union. The income that is eligible for the additional deduction for any credit union in a year is equal to the difference between 6.7% of its members' deposits and shares and its cumulative income over time.
As a credit union grows over time, and deposits and shares increase, the amount of income eligible for the additional deduction will increase over time. It may be the case that a credit union that is not growing, for example, will hit its cumulative limit sooner than another credit union. That ability to access the additional deduction can be restored in a subsequent year when there is growth in member shares and deposits for a credit union.
We had a look at the data just to verify, and the vast majority of the large credit unions are able to access the additional deduction. As an example, in one year we saw a large credit union hit its cumulative limit. In the following tax year, there had been sufficient growth in their base of deposits and shares that they had restored access to the additional deduction. So it's not linked to size; it's linked to how the test actually works.
Director, Business Income Tax Division, Tax Policy Branch, Department of Finance
It would change from year to year, as the tax situation and parameters change for any given credit union or co-op. Among large credit unions, it's fair to say that most do not hit their limit in any given year. The credit unions that would be more likely to hit their limit may be the small credit unions that are not growing, but they would have access to the small business deduction, so the additional deduction is not relevant to them.
Liberal
Ted Hsu Liberal Kingston and the Islands, ON
Finally, regarding amending the rules of the Tax Court and the monetary thresholds below which a taxpayer can choose an informal procedure for their appeal—I understand these numbers have just been changed—when was the last time these monetary thresholds were changed, and what was the change at the time?
Senior Legislative Chief, Tax Legislation Division, Tax Policy Branch, Department of Finance
Just to respond quickly to that, the last time we went for a change was in 1993, and the informal limit was changed from $7,000 to $12,000.
Conservative
The Chair Conservative James Rajotte
Thank you.
We will move to part 2. I believe some of the officials are staying, and there will be some changes. We want to thank those officials who will be departing from the table and then welcome part 2 officials.
Colleagues, as you know, part 2 deals with implementation of certain goods and services tax and harmonized sales tax measures proposed in the budget. It also amends the Excise Tax Act and the Excise Act 2001.
I'll again look to colleagues, just in the interest of time, to indicate to me who has questions. We'll allow our officials to get settled.
Perhaps we'll have our officials just introduce themselves, and instead of an overview I think we'll go right to questions.
Monsieur Mercille, do you want to introduce yourself and your colleagues?
Pierre Mercille Senior Legislative Chief, Sales Tax Division, GST Legislation, Tax Policy Branch, Department of Finance
Good morning. I am Pierre Mercille, Senior Legislative Chief, Sales Tax Division, GST Legislation.
I am joined today by Lucia Di Primio, Chief, Excise Policy, Sales Tax Division; and Carlos Achadinha, Legislative Chief, Sales Tax Division, Public Sector Bodies.