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.
Liberal
Ted Hsu Liberal Kingston and the Islands, ON
Thank you very much.
I have a number of questions with quick answers. I understand you've received the questions we sent you beforehand, so I'll just go very quickly.
First of all, on the tax changes for safety deposit boxes, can you tell me how many Canadians are expected to be directly affected by this tax change?
Senior Legislative Chief, Tax Legislation Division, Tax Policy Branch, Department of Finance
With respect to that, I can't respond directly to the number of Canadians. I can explain our analysis and the general impact.
The safety deposit boxes are not recorded on the T1. How much is paid by Canadians for safety deposit boxes is buried in investment and carrying charges.
In terms of the number of Canadians involved, we do know that the market for safety deposit boxes is roughly $200 million per year. We understand that it is split between individuals and corporations, roughly equally, so $100 million each. Beyond that, the cost of an individual's safety deposit box can vary widely, between $40 to $450 per safety deposit box. Of course, an individual or a corporation may have one or more safety deposit boxes.
Those are the parameters we work with, but in terms of the actual number of individuals, I can't respond to that.
Liberal
Ted Hsu Liberal Kingston and the Islands, ON
Thanks, and that's the best you can do.
In terms of the dividend tax credits for other than eligible dividends, how many Canadians will be affected by that tax change?
Director, Personal Income Tax Division, Tax Policy Branch, Department of Finance
Our estimate is that in the first year, when the measure takes effect in 2014, 750,000 Canadians will be affected.
Liberal
Ted Hsu Liberal Kingston and the Islands, ON
With regard to the tax exemption for Canadian Forces personnel or police, briefly, what was the policy rationale for removing any ability to give this tax-free status to missions with a risk score between 1.5 and 2.0?
Director, Personal Income Tax Division, Tax Policy Branch, Department of Finance
Essentially the Income Tax Act provides that for missions that are considered to be high-risk, where Canadian Forces members or police officers are on missions that are considered high-risk, the income they earn on those missions is exempt from tax.
The exemption automatically applies to level 3 and level 4 missions. There was a recognition that certain types of level 2 missions are very similar in characteristic to lower level 3 missions, so they have a high-risk score and should be eligible for some tax relief.
The way the process worked was that level 2 types of missions could be prescribed. That process took quite some time and involved a significant delay, often, in the time between when a Canadian Forces member was on a mission and when they actually received the tax relief. The proposal in the bill is to expedite that process, but also to more closely reflect the fact that missions that are close to high-risk—essentially those missions that are 2.0 to 2.5—are eligible for the tax relief, and that the lower-level risk missions are not eligible.
Liberal
Ted Hsu Liberal Kingston and the Islands, ON
Which missions in the last decade have at any time had a risk score between 1.5 and 2.0? Have any of the prescribed missions under these income tax regulations at any time had a risk score lower than 2.0?
Director, Personal Income Tax Division, Tax Policy Branch, Department of Finance
I did receive that question. We've asked the Department of National Defence for the information.
Liberal
Ted Hsu Liberal Kingston and the Islands, ON
Will the government still publish a list of missions with a risk score below 2.5 that receive the tax-free status, and if so, where will it be published?
Director, Personal Income Tax Division, Tax Policy Branch, Department of Finance
The list of designated missions will be published, similar to the process we have for designated stock exchanges. That information will be provided on the Department of Finance's website, unless the missions are classified.
Liberal
Ted Hsu Liberal Kingston and the Islands, ON
With regard to the mineral exploration tax credit, I believe this measure has been in place for about a decade. When was it first introduced exactly, and has it always been in place since then?
Director, Business Income Tax Division, Tax Policy Branch, Department of Finance
The mineral exploration tax credit was first introduced in 2000. There was a brief period when it expired on December 31, 2005, and it was reintroduced on May 2, 2006. Other than that roughly four- to five-month period, it's been in continuous effect since 2000.
Liberal
Liberal
Ted Hsu Liberal Kingston and the Islands, ON
The budget says that this measure to phase out the additional deductions will cost $75 million a year in taxes, but in 2012 the government said this particular tax credit only cost $47 million. Why is getting rid of it going to cost so much more?
Director, Business Income Tax Division, Tax Policy Branch, Department of Finance
You'll see when you look at those budget numbers that as the additional deduction is phased out, there's an increasing revenue impact. It reflects two things over that period.
It reflects the forecast growth in the base of corporate taxable income, as well as forecast growth in member shares and deposits in credit unions, which is what gives them access to that additional deduction over time.
Conservative
The Chair Conservative James Rajotte
Thank you.
Thank you, Mr. Hsu.
We'll go to Mr. Van Kesteren, please.
Conservative
Dave Van Kesteren Conservative Chatham-Kent—Essex, ON
Thank you, Chair.
Thanks to all of you for being here again this morning.
I think we need to clear up some of this, in that I think there's a little bit of a misunderstanding on the credit unions. I want to maybe just go through a run....
I understand it was introduced in the 1970s, because at that time credit unions weren't available for a preferential tax rate, which small businesses were. Is that correct?
Director, Business Income Tax Division, Tax Policy Branch, Department of Finance
At the time it was introduced there was a cumulative taxable income limit that applied to all businesses, so you were able to shelter income at the preferential tax rate up until you had reached a certain level of taxable income. You could regenerate access to that by paying dividends. As a business paid out dividends, it would restore its cumulative taxable income limit.
At the time, credit unions argued they had a lesser ability to pay out those dividends due to provincial regulatory requirements, so the cumulative limit put in for them was based on members' shares and deposits as a means of providing an equitable or equivalent access to the tax rate as it was structured at that time.
Conservative
Dave Van Kesteren Conservative Chatham-Kent—Essex, ON
Okay. Small credit unions can now access the small business rate. As a matter of fact, wasn't this changed because credit unions are now eligible to qualify for the preferential rate? As a result of that, credit unions can now access the small business rate, so credit unions will not be affected by the change. Do I have that right?
Director, Business Income Tax Division, Tax Policy Branch, Department of Finance
Essentially, credit unions have the ability, like any other business, to access the small business deduction on the first $500,000 of income, and with a taxable capital limit of up to $15 million. That will not change.
A small credit union will, in the vast majority of cases, not have any change in its tax bill at the end of the year. Credit unions that are small will qualify for the small business deduction. These are the credit unions that traditionally have not used the additional deduction because they don't need it. The additional deduction primarily benefits large and growing credit unions, and that is who the phase-out will affect.
Conservative
Dave Van Kesteren Conservative Chatham-Kent—Essex, ON
Would it be safe to say that the overall cost of this additional deduction was for larger credit unions, then?
Director, Business Income Tax Division, Tax Policy Branch, Department of Finance
It's certainly fair to say that the vast majority of the costs associated with the additional deduction would accrue as a result of the largest credit unions. That's correct.
Conservative
Dave Van Kesteren Conservative Chatham-Kent—Essex, ON
Outside of the Big Six banks, how do these large credit unions compare to banks in Canada?