Evidence of meeting #33 for Finance in the 41st Parliament, 2nd Session. (The original version is on Parliament’s site, as are the minutes.) The winning word was information.
A video is available from Parliament.
NDP
Executive Director, Canadians for Tax Fairness
Those laws continue to need to be tightened up. There were a few small steps in this implementation bill, which I applaud, but there is much more that needs to be done.
NDP
Nathan Cullen NDP Skeena—Bulkley Valley, BC
Thank you, Chair. I'll wrap with this.
I think in that holistic approach, if the Auditor General comes in and says these are holes within the auditing and Canada Revenue Agency's system to go after what the government claims it wants to go after, I'm sure all of my Conservative colleagues would take the Auditor General's advice as being qualified and being capable to assess this particular system.
The fact that Finance Canada withheld documents from that same Auditor General in the pursuit of this knowledge should raise alarms for all of my colleagues across the way.
Thank you.
Conservative
The Chair Conservative James Rajotte
Thank you, Mr. Cullen.
I'm going to take the next round, and then Mr. Keddy will have the last round.
I wanted to follow up on your presentation, Professor Tedds. I appreciated your remarks very much, especially with respect to the GST/HST credit moving away from the opt-in method towards the assessed method. As you say, this is an important way to get money into the hands of low-income Canadians.
Are there other credits we should look at in terms of changing the way we do it? So moving towards the assessed method, are there other credits you have looked at that we should do the same thing for?
Assistant Professor, University of Victoria, As an Individual
The GST/HST tax credit was an oddity in the way that people qualified for the tax credit. There is no other tax credit out there that required people to say, yes, assess me. Everything else is based off of information that CRA has.
Conservative
The Chair Conservative James Rajotte
Okay. I appreciate that.
Next, I want to move to the mineral exploration tax credit. At the finance committee we hear about this every pre-budget consultation. It won't surprise you. We heard from organizations like the Prospectors and Developers Association of Canada. Obviously they are very supportive of this credit. In fact, they recommend every fall expanding it.
Their arguments—and I want you to respond to their arguments—and what they present to the committee typically, are that the federal government studies that have been done 2000 to 1994 indicate that for every dollar of tax expenditure made, it generates $2.60 in new exploration spending.
Further to that when the committee was I believe in Whitehorse, the junior mining companies were even stronger in saying that if you remove the tax treatment for the junior mining sector, because it is a very risky endeavour.... It's less risky obviously as you move up towards the existing mines, but for actual exploration, if you remove this tax treatment, you will in fact cause serious harm to the amount of exploration going on. The juniors obviously feed into the larger companies in terms of mines.
I want to get the full debate out here so I want to give you an opportunity to respond to the arguments they make before the committee each fall.
Assistant Professor, University of Victoria, As an Individual
I think it's important to separate out the basic flow-through share system versus the additional METC, which is what we call the super flow-through share system.
The federal government studies that have been done—and there have now been two—as well as three academic studies, have all focused on the flow-through share regime. This includes the latest study by the Department of Finance, which was in 2013. There has been no focus on whether the METC tax credit has resulted in any increased exploration.
When you look at the activity since the METC has come in, there does not appear to be any evidence that the METC causes any additional investing behaviour, as opposed to simply subsidizing investing behaviour that already occurs under the flow-through share system.
The METC is, effectively, a grant to investors. All it is doing is putting money into investments that are already occurring.
Conservative
The Chair Conservative James Rajotte
When you separate the two, are you in favour of keeping the basic flow-through share but removing the METC? Is that your position?
Assistant Professor, University of Victoria, As an Individual
This is tricky, because it might get me into a little bit of hot water.
No, I don't have a lot of favourable things to say about the flow-through share system.
I'm not saying that the mining and exploration industry doesn't need some vehicle in which to help encourage people to invest in them, given the nature of the problem. However, I do believe there are better vehicles to use other than the flow-through share and super flow-through share systems.
Conservative
The Chair Conservative James Rajotte
In your statement, you say, “On the investor side, the [METC] subsidizes high-risk investments” and appears to be “predominantly for tax planning purposes". They wouldn't argue with the first part of your sentence. They would say that it does favour high-risk investments, because that's the nature of that industry, especially at the junior exploration level.
If you look at the METC, it's been in effect since 2000, but it was phased out in 2004-2006, I believe. Then it was brought back. Have you done any studies for the years it was not in effect to see if there was a downturn, in fact, in investment in the junior mining sector?
Assistant Professor, University of Victoria, As an Individual
When you look at the data at hand, there was absolutely no decrease. In fact, there were increases over those years the METC was not in play. That's because mining prices were increasing predominantly. That's what drives investing behaviour—the prices.
Conservative
The Chair Conservative James Rajotte
So the price drives it for both the larger and the junior mining companies?
Assistant Professor, University of Victoria, As an Individual
When it comes to tax planning purposes, we know there is a tax planning element. In face, 90% of the investments happened at year end, which is an indication it was being done for tax planning purposes. This isn't something that people do over the year.
Conservative
The Chair Conservative James Rajotte
We may have you back in the fall. As this committee gets presented, very strongly, with arguments in favour of it, we may have you back just to have a more fulsome debate at the committee when we do our pre-budget consultations. But I appreciate that very much.
I'm going to go to the final round for Mr. Keddy, please.
Conservative
Gerald Keddy Conservative South Shore—St. Margaret's, NS
Thank you, Mr. Chairman.
I'll try to ask what I was not able to ask in the 30 seconds of my question. Those of us from Atlantic Canada just take longer to say things, that's all.
Conservative
Gerald Keddy Conservative South Shore—St. Margaret's, NS
But Mr. Allen is in that New Brunswick end now. It's a different thing altogether.
Honestly, Mr. Howlett, offshore tax evasion and non-compliance has an extremely high level of sophistication. There's an underground economy. It's hidden. Wealthy individuals pay a lot of money for people who are very good at hiding tax dollars to hide it. So by the very nature of the beast, it's difficult to deal with. That's what I was trying to say, unsuccessfully, in my 30 seconds.
The offshore tax informant program looks as if it's going to be one tool in our tool basket to actually help combat this, and I realize the results are still to be seen.
But I have to take exception with your statement that we have fewer auditors. The reality is that since 2006, when we formed the government, we have 400 more auditors today than we did have. If you can tell me where that information is coming from, maybe we could work positively on our side to correct that. We do have more physical auditors on the ground than what we had.
Executive Director, Canadians for Tax Fairness
That's not the information I've seen in government answers to order paper questions about this. It may depend on what year you take as the comparison point. But the information I've seen in order paper question answers are that there is a slight—not a huge, but a slight—decrease in the number of auditors working in the international and aggressive tax auditing sections of CRA.
If I might make one additional comment on the offshore tax informant program, I want to commend the government that they set the Canadian case threshold at $100,000 where an informant might get a reward, which is a lot less than the $2 million threshold in the United States. So that could help to encourage more informants to come forward. Even though the Canadian rewards are lower, at 5% to 15%, as compared with 15% to 30% in the U.S., that measure is one that will probably make the Canadian program a bit better than the U.S.—
Conservative
Gerald Keddy Conservative South Shore—St. Margaret's, NS
Thank you for that, but I just want to continue on. I'm going to check the questions on the order sheet because the reality is that we have 400 more auditors than we did. Maybe it's an interpretation of what exactly the question was, or how it's been answered. So I'll check that.
You made a statement on the money collected in the U.S. from their offshore tax avoidance accounts. I'm not sure if I caught the number. Was it $3.67 billion?
Conservative
Gerald Keddy Conservative South Shore—St. Margaret's, NS
Okay, that's correct.
Again, you know, we've gone through 8,195 international tax cases. We've identified and are collecting an additional $5.15 billion in taxes from those offshore accounts. So even with a new program on the tax informant, we have a better record compared to population than the U.S. does. That's with the old system. I find it a bit surprising, but I think that it's not a bad thing at all.
One final comment, Mr. Chairman, from Mr. Rankin's discussion on the Auditor General. I think it is worth repeating that the Auditor General's report—and it's there for everyone to read—confirmed that, to quote the Auditor General, the CRA's aggressive tax planning program “has tools to detect, correct, and deter non-compliance”.
Now it doesn't mean we can't do a better job. It doesn't mean we shouldn't try to a better job. I think our record, compared to the U.S., is something to be applauded, and, of course, improved on.
My final comment. Thank you.
Conservative
The Chair Conservative James Rajotte
Okay, thank you very much, Mr. Keddy.
I want to thank all of our witnesses for being here, both here in Ottawa and Victoria. Thank you so much for your contributions to our study of this piece of legislation.
Colleagues, I hope you have a good weekend, and we will see you back here in Ottawa on Monday.
Thank you so much.
The meeting is adjourned.