Finance Committee on Nov. 1st, 2011

[Gérard Lalonde]

These measures were designed consistent with the other non-refundable personal income tax credits in the act to be non-refundable. It would be a departure from the general tax treatment of the various personal income tax measures. For example, the medical expense tax credit is not refundable either. The idea behind it is that the purpose of these credits is to reduce the tax burden on the amounts expended.

[Joyce Murray, Liberal, Vancouver Quadra, BC]

I appreciate that. I have to say I disagree that it wouldn't be normal to have refundable tax credits, because the HST/GST tax credit, the Canada child tax benefit, the working income tax benefit, Quebec's caregiver tax credit, and Nova Scotia's volunteer firefighter tax credit are all refundable. So there are provincial and federal examples and precedents to that. But since the answer was that there isn't that information, I accept that. Thank you.

I have another question.

In part 1 there's a mineral exploration tax credit and help for clean technology. I'm supportive of mineral exploration and clean technology development, of course, but to pick and choose specific activities, is there a rationale, based on how many jobs would be created by that, versus a small business tax reduction?

I'm thinking of the fact that in six years the small business tax rate has only gone down by 1%, from 12% to 11%. That's less than a 10% decrease. Is there an analysis of the job creation impacts of the choices that are made here for businesses versus small businesses?

[The Chair, Conservative, James Rajotte]

Okay, let's get a brief response to that.

[Gérard Lalonde]

The mineral exploration tax credit was an extension of an existing tax credit. So in that context it was looked at more in terms of whether the existing provisions were working and if it was reasonable to extend them for one more year at this time of recovery. The government determined that it was, so they did.

[The Chair, Conservative, James Rajotte]

Thank you.

We'll go to Mrs. Glover, please.

[Shelly Glover, Conservative, Saint Boniface, MB]

Thank you very much for being here.

I have some clarification questions that won't take long. I'm even going to give you the page--page 12, in A. I've read it several times. I know this book fairly well, but I'm having a hard time understanding the adjusted stub period accrual. Perhaps you could explain it again so that everybody understands it.

[Ted Cook]

Sure.

The adjusted stub period accrual relates to our corporate partnership deferral provision. It is an estimation of the income from a partnership earned in a corporation's taxation year that, without this provision, would not be included in the corporation's taxable income for the year.

Under the Income Tax Act, partnerships are allowed to have a different fiscal period end than the end of the taxation year. As a result, by staggering the end of a partnership's fiscal period with the end of a corporate's taxation year, there's an ability to defer income. This adjusted stub period accrual is trying to get at the amount of income that is deferred.

[Shelly Glover, Conservative, Saint Boniface, MB]

I see that you have three formulas. It's appreciated that you went into some detail to try to provide them. It makes it a little bit easier to do. The same thing applies when you use examples. You went to a lot of work to make sure we could understand them, and I appreciate that.

My next question is about the ability of this BIA to extend the tax on split income to capital gains. Can you explain how we are broadening the tax on the split income regime?

[Ted Cook]

Certainly.

The measure you're referring to is an extension of section 120.4 of the act, or what's commonly know as the kiddie tax. It is a tax to get at situations where individuals, rather than receiving income themselves, channel it to be received by a minor child, who would most likely be taxed at a lower rate.

The kiddie tax was originally aimed at income from trust distributions and dividends. But as often happens, planning has arisen to try to get around the kiddie tax as designed and use capital gains and the sale of shares to non-arm's-length parties.

So section 120.4 is just being amended to stay within the basic policy parameter that informed it in the first place, and to ensure that certain capital gains, rather than being taxed as capital gains in the hands of a child, are instead taxed at an appropriate rate in the hands of the parent.

[Shelly Glover, Conservative, Saint Boniface, MB]

Some people have actually asked me whether or not this will affect people who are outside of a relationship with those minor children. But my understanding is that it's really geared towards parents and relatives.

[Ted Cook]

That's correct. The transactions that are caught by this measure are simply dispositions of shares to related corporations. So where there's a true disposition to an arm's-length party, that disposition won't be subject to the measure.

[Shelly Glover, Conservative, Saint Boniface, MB]

I just wanted to make sure I understood it right.

Thank you.

[The Chair, Conservative, James Rajotte]

Thank you.

I'm going to suspend the meeting. We will be back as soon as possible after the vote. We'll begin with Monsieur Giguère's round.

[The Chair, Conservative, James Rajotte]

I call this meeting back to order. Again, I thank our officials for patiently waiting for us through the three votes.

Before we suspended, we were going to go to

Mr. Giguère, you have five minutes.

[Alain Giguère, NDP, Marc-Aurèle-Fortin, QC]

Mr. Chair, thank you very much. My questions are about part 1.

I want to raise a few issues related to volunteer firefighters and the relationship between subsection 81(4) and section 118.06. According to what I have read, volunteer firefighters would be better served if we kept the old legislation because they would lose benefits under section 118.06. Being a volunteer firefighter prior to the Conservative reform is better than being one after it. Basically, section 118.06 excludes most volunteer firefighters and provides others with fewer benefits than what they had under subsection 81(4). That's on page 52 in the French.

[Ted Cook]

Thank you for the question.

What the honourable member is referring to is that prior to the introduction of this volunteer firefighters tax credit, there was an exemption under subsection 81(4) of the act for honorariums of up to $1,000 per year. The effect of the exemption was that if a municipality paid $1,000 to the volunteer firefighter, the person would be able to exclude that in computing income.

Under the volunteer firefighter tax credit, volunteer firefighters, if they so choose, are able to get a credit for the amount of $3,000.

Now, what we've done in terms of drafting the law is to make a consequential amendment to subsection 81(4) of the act, which says that the person takes “the lesser of $1,000 and the total of those amounts, other than, if the individual makes a claim under section 118.06 for the year, amounts received in respect of duties as a firefighter”. Where it is advantageous for the volunteer firefighters to claim the exemption instead of the credit, they would be able to do so. The intent of the--

[Alain Giguère, NDP, Marc-Aurèle-Fortin, QC]

I beg your pardon, but section 118.06 is fairly clear. Most firefighters are excluded under that provision. Basically, you are asking firefighters to work for 200 hours and under no circumstances be paid by the municipality. A good example is that of a firefighter who is on night duty at the fire hall instead a lieutenant or a captain. That firefighter is excluded.

Section 118.06 is fairly clear. It is very exclusive. In addition, you say that it will cost you a maximum of $15 million. If we divide that $15 million by 85,000 firefighters, it comes out to $170 per firefighter. However, under subsection 81(4), it seems to me they can receive up to $270. They are losing $100. One does not get much out of becoming a volunteer firefighter.

[Shelly Glover, Conservative, Saint Boniface, MB]

I have a point of order.

I just want to ask a question of you, Mr. Chair, with regard to the process here. The political decisions are not what the officials are here to address. They're here to address technical questions in the BIA. I would just like your ruling here, Mr. Chair, on that. Otherwise, we're going to be here all night. The minister was here ahead of time, and--

[Alain Giguère, NDP, Marc-Aurèle-Fortin, QC]

I want to answer Mrs. Glover, please.

[The Chair, Conservative, James Rajotte]

Go ahead.

[Alain Giguère, NDP, Marc-Aurèle-Fortin, QC]

Introducing a legislative provision that benefits volunteer firefighters is a political decision. Yet, when we look at how the section is worded, we see that it is actually hurting them. It's your choice, as it's your piece of legislation.

[The Chair, Conservative, James Rajotte]

Merci.

Ms. Glover is correct in the sense that the officials are here to add clarification to specific questions and technical questions. A political decision as to whether a firefighter tax credit is implemented and in what form, or whether a tax credit is refundable, is ultimately made by the government as a political matter. That is a decision we as parliamentarians direct to the minister of the government.

The officials are here for technical questions, so I'd ask you, Mr. Giguère, to keep your comments to technical questions.

[Alain Giguère, NDP, Marc-Aurèle-Fortin, QC]

Very well.

Section 118.06 sets out some exclusions. Could you tell us whether it's true that a volunteer firefighter who works under 200 hours is excluded and that any volunteer firefighter who is paid in any way, even by municipalities, is also excluded? Basically, the $1,000 tax exemption helped people who were somewhere around the limit to avoid changing income brackets.

[The Chair, Conservative, James Rajotte]

Okay, we'll have the response.

Mr. Cook, please.

[Ted Cook]

The honourable member is correct. If a volunteer firefighter does not spend 200 hours per year performing volunteer firefighting services, which are defined within this section as responding to calls, attending training, those types of things, the individual will not be eligible for the volunteer firefighter tax credit.