Evidence of meeting #31 for Finance in the 41st Parliament, 2nd Session. (The original version is on Parliament’s site, as are the minutes.) The winning word was question.
A video is available from Parliament.
Conservative
The Chair Conservative James Rajotte
I call this meeting to order. This is meeting number 31 of the Standing Committee on Finance. Orders of the day, pursuant to the order of reference of Tuesday, April 8, 2014, are the study of Bill C-31, an act to implement certain provisions of the budget tabled in Parliament on February 11, 2014 and other measures.
We have with us, I believe, half the public service in Ottawa here in the room.
Conservative
The Chair Conservative James Rajotte
We want to welcome all the officials, and thank them so much for spending this afternoon with us, and obviously the rest of the sessions on the budget bill.
Right now at committee, seated before us, we have Mr. Ted Cook from the Department of Finance who's been here many times. Welcome back to the committee, Mr. Cook. Also, we have Mr. Miodrag Jovanovic. Welcome to the finance committee.
Colleagues, we obviously have a very comprehensive bill to get through over this day and Tuesday with the minister as well. We have six parts to this bill, so I'm proposing to start with, obviously, part 1, moving through to part 6. As well, I'm proposing that we follow our normal question rotation, so we'll start with the NDP and move to the Conservatives, then Liberal, Conservative, and successively through the rest of the rotation, proposing seven-minute rounds, at least for the first round. We can move to five-minute rounds later.
I'm asking that you focus in particular on the items you want to highlight and get officials on the record. You and your staff have all had a briefing on the bill prior to this. You also have the full document from the Department of Finance, which has been provided, as well as the document from the Library of Parliament.
I'm proposing to start with the NDP on their round, and if members wish to have an overview of a certain section, they can point to that. But I'll just highlight for members, if they ask for an overview of part 1, it will likely take a 30-minute overview, so that will likely take up an awful lot of question time.
We will start with the NDP, and Mr. Cullen first, please.
NDP
Nathan Cullen NDP Skeena—Bulkley Valley, BC
Thank you, Chair.
I have a brief comment. Mr. Caron will be taking most of our time on part 1 through part 4, where we will hopefully spend less of our time, with a significant amount of our interest. I say this for our officials, as it is good to have half the civil service with us here today, and we appreciate your being here. The sections on FATCA, certainly a large treaty with our largest trading partner, the Americans, preoccupies us a great deal, as well as the rather extensive sections in part 6 that encompass....
The challenge we have, Chair, as we've spoken about, is that with such a massive omnibus bill, is being able to have the committee properly understand all the implications. As we've seen, there have been problems with previous omnibus legislation whereby unintended consequences seem to be part of the day, and future omnibus bills fix mistakes in previous omnibus bills. So we're looking to help the government here a little. They've thrown everything but the kitchen sink in this one, and we'll get right through it with Mr. Caron, and I'll come in on a section in part 2.
Thank you, Chair.
Conservative
NDP
NDP
Guy Caron NDP Rimouski-Neigette—Témiscouata—Les Basques, QC
Thank you very much, Mr. Chair. Do I have five or seven minutes?
NDP
Guy Caron NDP Rimouski-Neigette—Témiscouata—Les Basques, QC
Thank you.
Mr. Cook, I, too, want to welcome you to the committee.
I have a few questions for you on part 1. If I run out of time, I may be able to come back to those.
My first question is about offshore taxes, which, if I am not mistaken, involve parts 1, 2, 3 and 4. I am referring to the informant program.
Another similar program is in place, the informant leads program. Budget 2014 and the budget bill introduced the offshore tax informant program.
What's the difference between the offshore tax informant program and the informant leads program? Why would an informant use one program over the other?
Ted Cook Senior Legislative Chief, Tax Legislation Division, Tax Policy Branch, Department of Finance
Sorry, I'm not familiar with the other program. Is there one that's not in part 1, 2, 3, or 4?
NDP
Guy Caron NDP Rimouski-Neigette—Témiscouata—Les Basques, QC
The budget bill establishes the offshore tax informant program. According to the Canada Revenue Agency, however, a similar program already exists; it's called the informant leads program. The name of the program in English is the informant leads program.
What's the difference between the two programs? Why would an informant use one over the other?
Senior Legislative Chief, Tax Legislation Division, Tax Policy Branch, Department of Finance
I think I know the program you are talking about, the existing program with CRA, so I'll explain a little bit about that. Then, I'll explain in more detail the OTIP, which is actually contained in the budget.
The Canada Revenue Agency currently has what they call the leads program, which is voluntary disclosure of tax non-compliance that people do on a voluntary basis. There's no kind of monetary reward or particular system set up around the management of it. Because it is purely voluntary and there's no kind of reward, it has not been extensively utilized. Obviously, the expectation is that if you provide an incentive, you would be more likely to get a greater response. If you would like, I can spend a little bit of time talking about the offshore tax informant program and how it's set up. You'll see that it's different from what is essentially a voluntary line, where people can call in if they have particular instances of non-compliance they want to identify.
With respect to the offshore tax informant program, it's different in a number of ways. First, it only relates to tax non-compliance of federal taxes in excess of $100,000, so instances of non-compliance of that order is what the program relates to. As well, there has to be an international component to the non-compliance that's identified, which can be income earned offshore or assets that are transferred offshore that relate to taxable income earned in Canada.
Under this program, the CRA can enter into a contract with someone who will potentially receive a payment of between 5% and 15% of taxes collected, and they'll only get that amount once all appeal rights have been exhausted.
NDP
Guy Caron NDP Rimouski-Neigette—Témiscouata—Les Basques, QC
Do you have an idea of how the program performed or what benefit it had?
And by creating the new program, does the government intend to get rid of the informant leads program?
Senior Legislative Chief, Tax Legislation Division, Tax Policy Branch, Department of Finance
I'm unaware of any intention by the CRA to eliminate the leads program. As I've indicated, the new program only relates to more significant tax non-compliance and taxes in excess of $100,000 that have an international component. Those are not limitations under the leads program.
Under the leads program, my understanding is that somewhere in the order of around 10% of the leads provided actually result in assessments. The hope is that by having a more rigorous relationship with the informant, it will increase the number of assessments that result.
NDP
Guy Caron NDP Rimouski-Neigette—Témiscouata—Les Basques, QC
I have a couple of other questions about something else, but I will wait until the other committee members have finished.
Conservative
Andrew Saxton Conservative North Vancouver, BC
Thank you, Chair. Thank you to our witnesses for being here today as well.
My first question is regarding the Foreign Account Tax Compliance Act, more commonly known as FATCA.
Conservative
Conservative
Conservative
Andrew Saxton Conservative North Vancouver, BC
Okay, then I will change my question.
I will ask a question regarding the mineral exploration tax credit for flow-through share investors. Coming from the province of British Columbia as I do, the mining industry is a large part of our economy. In fact, mining is extremely important to the Canadian economy as a whole, including the northern and rural communities. In fact, I understand that 80% of global mining companies are listed on the TSX here in Canada.
Underlining how important this sector is to our economy, our government has offered support for these job-creating businesses with the mineral exploration tax credit, which is renewed in economic action plan 2014.
Can you please explain how the mineral exploration tax credit helps businesses in Canada and how this important tax credit works?
Senior Legislative Chief, Tax Legislation Division, Tax Policy Branch, Department of Finance
I'm happy to do that.
With respect to the mineral exploration tax credit, it relates to flow-through share investors. Under a flow-through share investment agreement a person can purchase shares from what's generally a junior mining company. Junior mining companies very often do not have enough revenue to fully offset their expenses, so under a flow-through share agreement those expenses can be renounced by the junior mining company to the flow-through share investor. The expenses that are eligible to be renounced relate essentially to greenfield exploration—prospecting; sampling; geophysical, geothermal, and geochemical analysis; and those sorts of things.
Expenses can be renounced to the investor up to the amount of the share investment, and then the mineral exploration tax credit provides a 15% credit on the amount of expenses that are renounced to the shareholder. To fully take into account the effect of the fact that expenses are renounced and are deductible by the individual investor, as well as having a 15% tax credit, in the year following the year in which the claim is taken, there is an income inclusion in respect of the amount of the credit.
Certainly a number of industry associations have indicated the importance of this credit to their prospecting activities. In particular, I had talked about junior mining companies. It's of particular importance to them. As I indicated, they may have mining exploration expenses that they're not able to take into account in computing income tax.