Finance Committee on May 1st, 2014

[Ted Cook]

For every measure, there's a decision that's taken as to whether or not to continue to do it, to not do it, or to change it in some fashion. I can only speak to the fact that the government has decided to continue this credit on an annual basis.

I'm not aware of any study to look at the specific kind of impact that you're talking about. In terms of evaluating the utility of credits, the department also relies on input from stakeholders and certainly there's been enough of that.

[Nathan Cullen, NDP, Skeena—Bulkley Valley, BC]

To be explicit then, do you study the effectiveness of other tax programs, industrial-focused tax programs like this? Does the department ever take on the assessment whether from stakeholders or internal data or Stats Canada data? Do you do this? Or is it something that you don't do? Do you leave it to the AG or the PBO or other groups to analyze effectiveness?

[Ted Cook]

The department conducts a whole host of studies. I think I would be getting out of my depth as the senior legislative chief here to explain these particular tax measures to start talking generally about the kind of economic analysis the department undertakes.

[Nathan Cullen, NDP, Skeena—Bulkley Valley, BC]

It's a curiosity for me. As the last piece, and I'll leave off on this, you've mentioned several factors that go into this particular assessment as the department decides whether to renew, end the program, or even contemplate making it permanent. You mentioned pricing of metals and the recent depression in metals. Are there any other factors that you consider within the department when the renewal of this tax credit is being debated?

[Ted Cook]

In terms of how this credit is assessed, there are the relevant commodity prices and there's the global strength of the industry and the levels of investment that are being undertaken by firms in the industry, which we would think of as the general economic conditions applicable.

[Nathan Cullen, NDP, Skeena—Bulkley Valley, BC]

Thank you, Chair.

[The Chair, Conservative, James Rajotte]

Thank you.

Thank you, Mr. Cullen.

Part 1, Mr. Allen....

[Mike Allen, Conservative, Tobique—Mactaquac, NB]

Thank you very much, Mr. Chair.

I'd like to ask a few questions with respect to unlegislated tax measures. The first question is this. Does Finance keep a running record of these measures, and if so, and I'm assuming you do, how many unlegislated measures are still out there given there was about a 983-page catch-up bill after 10 years that was done about a year or so ago. Can you answer that?

[Ted Cook]

In terms of the unlegislated tax measures, just to explain.... When we talk about specific legislated proposals, certainly the Department of Finance keeps a public listing on its website of draft legislation that has been released for comment or provided to the public. So there is a listing on the website of all our proposals. You're quite right, there was a bill of close to 1,000 pages that was enacted just last year. Certainly we've done a lot in terms of dealing with what you would consider the legislative backlog.

I guess the one figure I would note that we've looked at recently is this. When they audited the Department of Finance back in 2009, the Office of the Auditor General indicated that there were approximately.... It identified 400 technical amendments of which 250 were outstanding comfort letters. In terms of those comfort letters, there's I believe less than 10 that have not been either enacted or otherwise dealt with or released in draft.

In terms of legislation that we currently have outstanding, there are a couple of budget measures from 2012 that we've been doing consultation on—bank base erosion, life insurance policy exemption. But certainly we've been working, as I'm sure this committee knows, very hard to get up to date.

[Mike Allen, Conservative, Tobique—Mactaquac, NB]

My next question is with respect to the way the legislation is worded. It would contemplate a first report that would be tabled in the House of Commons in 2014, this fall, and then given there will be an election in 2015 in October, that means obviously the reporting period wouldn't be in line with the next reporting period.

So would the next report of this come immediately when the House is brought back into session after the 2015 election? This is going to be a two-part question. The second one would be, given that it will be a different mandate of a government at that point in time, does that mean the next report would be in 2017 or 2018?

[Ted Cook]

Without a chart in front of me, I always get sort of lost in the years, but to give a kind of overview, the proposed amendments to the Financial Administration Act that you're talking about essentially would require legislative proposals to be tabled that have been made more than 18 months prior to that October. There would be no obligation to table if there were no legislative proposals meeting that criteria, which would likely be the case in the first year of a new government.

What the measure would do is require legislative proposals that had been announced but not enacted during that period to be listed in Parliament. Again, that's just to give greater transparency as to the progress of tax legislation. Obviously, a tax is kind of special in the sense that usually it has an effective date as of announcement, as opposed to when it's finally enacted.

[Mike Allen, Conservative, Tobique—Mactaquac, NB]

Third, in proposed subsection 162(3), there's an exclusion if there's a general intention to develop a specific legislative proposal. How would you see that kind of general intention, let's call it, actually playing out in fact?

[Ted Cook]

The purpose of the legislation is to assist Parliament, taxpayers, and the CRA with legislative proposals that are usually coalesced enough such that taxpayers will order their affairs based on those legislative proposals, and the CRA will begin administering based on those.

What we didn't want to do was.... I'll give you an example. In economic action plan 2014, there are consultations relating to tax planning by multinational corporations, where there is an intention to develop a proposal but we're at the consultation stage, or the proposal hasn't coalesced enough to be an identifiable legislative proposal that taxpayers might be relying on. The idea was that those would not be appropriately reportable. In fact, it might be less helpful—just the fact that the government is consulting on something—if that were to be included in a list of outstanding tax measures.

[Mike Allen, Conservative, Tobique—Mactaquac, NB]

Thank you, Chair.

[The Chair, Conservative, James Rajotte]

Thank you, Mr. Allen.

Colleagues, the next person I have is Mr. Brison, who has some questions, so unless...?

Okay. I'll go to Mr. Brison.

[Scott Brison, Liberal, Kings—Hants, NS]

I'd like to go to donations of certified cultural property. This measure, I understand, is the result of concerns with tax promoters who are abusing the system. Can you tell us about that and how this measure will fix it or could fix it?

[Ted Cook]

Yes, certainly. The Income Tax Act has a provision that in certain circumstances where property is acquired and then subsequently donated to a charity, the fair market value of the property for purposes of the charitable donation tax credit will be the lesser of the cost of the property and its fair market value. This will apply where the property is acquired as part of a tax shelter, or when the property is given to a charity in a short period, within less than three years, or I believe it's 10 years if it can be reasonably concluded that one of the purposes of the arrangement is to obtain the tax benefit. There's an exception from that rule that currently exists for certified cultural property.

The concern is that certified cultural property could start to be targeted by tax promoters engaging in what are essentially sort of “buy low and donate high” schemes, where you would buy at one price, say $300,000, and then have it as certified cultural property at $100,000—there's the valuation which is certified by the board—and then donate at that value.

[Scott Brison, Liberal, Kings—Hants, NS]

At a Sotheby's or a Christie's or something like that, price would be accredited in terms of being able to provide a price on one of these assets...?

[Ted Cook]

Well, there are two responses to that. For the way it currently works for the review board that certifies the cultural property, at the time they give the certification, they'll actually certify the fair market value of it. Now, to assist the board in doing its certification, there will be an independent appraisal provided by the person who is seeking the certification. Currently, for the majority of the time, the appraisal provided to the board will be accepted by the board. I think the concern, at least partly, is that this puts a lot of pressure on the board with respect to due diligence around the appraisal.

Now, I would note that this amendment only applies to certified cultural property that is donated as part of a gifting arrangement that's a tax shelter, so there are certain requirements around representations and whatnot. It shouldn't affect other gifts of certified cultural property.

[Scott Brison, Liberal, Kings—Hants, NS]

[Inaudible—Editor]...about punishing legitimate donors or reducing their incentive to donate cultural property?

[Ted Cook]

As I just mentioned, this exception to the exception, if you will, that we're putting in only applies to gifting arrangements that are part of a tax shelter. To qualify as a gifting arrangement that is a tax shelter, there have to be statements and representations with respect to the tax benefits that will be given. So in the case of someone who actually has property they've just acquired and at some point they decide they want to donate it, then this measure would not apply to them. So we don't think it will affect the genuine type of donations that you are talking about.

[Scott Brison, Liberal, Kings—Hants, NS]

I'd like to move on to combatting tax non-compliance. This measure expands CRA's ability to share information with FINTRAC. What kind of new information will be shared that doesn't include the personal information of Canadians?

[Ted Cook]

I'll just situate that amendment. Currently FINTRAC can provide information to the CRA for its enforcement purposes, if certain criteria are met. So it has to be relevant for FINTRAC purposes, and it has to be related to certain CRA purposes. What this measure does is allow CRA to provide information back to FINTRAC relating to how useful the information provided was.

[Scott Brison, Liberal, Kings—Hants, NS]

To be clearer, does it include personal information on Canadians?

[Ted Cook]

It could, potentially—for example, if someone was convicted of tax evasion and they wanted to let FINTRAC know that was in fact the result of the information that was provided.