Finance Committee on Nov. 26th, 2014

[Miodrag Jovanovic]

There are about 1.4 million families benefiting from the program. We've assessed that roughly 850,000 families will be able to have additional benefits—and these could be the same families, you understand—from the enhancements that are proposed.

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

That's the net? I'm just trying to understand if we have a profile of who those families are in terms of earnings, diversity, size of family, and those types of questions.

[Miodrag Jovanovic]

Yes, we do look at the distribution, at how it's distributed. I don't have these numbers in front of me, but this is part of the ongoing analysis.

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

Yes, we're at the eleventh hour. This has been an inquiry, and if you have that distribution and that knowledge, would it be possible at a future date to provide it to this committee for the benefit of all members around this tax assessment?

[Miodrag Jovanovic]

Yes.

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

That's great. Thank you.

[The Chair, Conservative, James Rajotte]

If you provide that to the clerk, we'll ensure that all members get it.

Thank you, Mr. Cullen.

Mr. Caron, you have the floor.

[Guy Caron, NDP, Rimouski-Neigette—Témiscouata—Les Basques, QC]

Mr. Jovanovic, could you elaborate on the trouble you are currently having obtaining the data needed for program analysis?

[Miodrag Jovanovic]

We are talking about a behavioural shift that can only be observed in the long run, one that is influenced by a host of socioeconomic factors that are often very difficult to capture in the analysis.

[Guy Caron, NDP, Rimouski-Neigette—Témiscouata—Les Basques, QC]

Thank you.

Lindsay Tedds, an associate professor at the University of Victoria, who appeared before the committee, told us about some studies that focused precisely on those changes in behaviour following the introduction of the tax credit as it was initially applied.

Did the department consult those studies or analyze the research currently available?

[Miodrag Jovanovic]

I cannot speak to that specific study. But, generally speaking, we do stay abreast of research that is published on the tax system. We do review it, but I cannot tell you what our findings were as to the merits of that specific study.

I want to reiterate the objectives of the measure. The main objective is to encourage changes in behaviour. But it goes further than that. It recognizes a specific expense in relation to a preferred behaviour. The government really wants to stress the importance of children's health and physical fitness. So the measure has several objectives.

[Guy Caron, NDP, Rimouski-Neigette—Témiscouata—Les Basques, QC]

The studies cited by Professor Tedds focus specifically on those objectives. The studies showed that the objectives of the measure were not achieved; in other words, it did not end up encouraging the desired changes in behaviour. According to the information she provided, they were academic studies on users of the program.

I understand what you are saying, but the department should take studies into account, at least in the beginning, as it endeavours to determine the effectiveness of the tax credit.

[Miodrag Jovanovic]

As previously mentioned, the department regularly reviews the various measures in light of the information available to it.

[The Chair, Conservative, James Rajotte]

Thank you, Mr. Caron.

We'll then move to the vote on clause 32. Shall clause 32 carry?

(Clause 32 agreed to on division)

(Clause 33 agreed to on division)

(Clauses 34 to 38 inclusive agreed to)

(Clause 39 agreed to on division)

(Clause 40 agreed to)

(Clause 41 agreed to on division)

(Clauses 42 to 54 inclusive agreed to)

(Clause 55 agreed to on division)

(Clauses 56 to 58 inclusive agreed to)

(Clause 59 agreed to on division)

(Clauses 60 to 69 inclusive agreed to)

(Clause 70 agreed to on division)

(On clause 71)

We have our first amendment, Liberal-1, and it's in the name of Mr. Brison.

I will ask Mr. Brison to speak.

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

Thank you, Mr. Chair.

Bill C-43 explicitly excludes cable laying from the preferential tax treatment that applies to international shipping activities. The committee heard from Canada's only international cable laying company, International Telecom. They told us that this provision in Bill C-43 is inconsistent with how other developed countries tax cable laying and would put Canadian jobs at risk.

The government, in our view, failed to make a compelling case on why cable laying should be excluded from the definition of, in this case, “international shipping”. As such, we are proposing an amendment that supports the status quo and opposes this change. This amendment both removes cable laying from the list of exceptions to international shipping, and for greater clarity explicitly includes cable laying as part of international shipping.

We prefer our amendment to the NDP amendment, as our amendment provides greater clarity that cable laying is, in fact, a recognized activity that is connected to international shipping.

[The Chair, Conservative, James Rajotte]

Thank you very much, Mr. Brison.

I will indicate to the committee that the vote on Liberal-1 will apply to NDP-1, as they are the same; the second part of Liberal-1 is the same as NDP-1.

I will now move to Mr. Cullen for debate.

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

Thank you, Chair.

Yes, we constructed an amendment, and I'm surprised that Mr. Brison thought one was more clear than the other. There may be some differences, but they're essentially the same idea.

Upon hearing the testimony...and I would perhaps turn to officials, because we didn't hear much of any explanation on the other side in favour of this change. From what the committee heard, there was only one company affected by this change, and affected negatively. Cable laying may not be top of mind in the news every day, but it's certainly an essential thing that we all rely upon if one seeks to communicate.

I think a very compelling case was made particularly with respect to development in the Arctic and the cable laying that will be required to connect some of our more northern and remote communities. One would hope that a Canadian firm would still be around in order to bid on those projects.

I think this is perhaps an opportunity, through you, Chair, to the government officials or to the government members across the way. I don't recall them necessarily intervening much, or having a contrary opinion to the witness, the one witness that we heard.

So unless there's some compelling reason, the New Democrats will be supporting this motion providing some fairness for a homegrown company looking to be involved in the 21st century economy.

[The Chair, Conservative, James Rajotte]

Thank you.

I'll move to Mr. Keddy, who's next on my list.

[Gerald Keddy, Conservative, South Shore—St. Margaret's, NS]

Thank you, Mr. Chair.

I have a couple of points here. The change that Mr. Brison is suggesting really would be an expansion of the current rules and not a clarification of them, as he's suggesting. The example used by the witness was European countries. In reality, only a couple of European countries—the U.K., the Netherlands, Cyprus, and Denmark—extend their preferential tonnage tax regimes to cable laying activities, but they do so in addition to shipping activities. They do not treat cable laying as shipping. The U.S., which is the other example, specifically excludes cable laying from its tonnage or shipping tax regime.

So the European countries don't provide a perfect comparison for the example. They include cable laying activities from their income tax regimes and instead apply a tonnage tax. Conversely, allowing cable laying to qualify under Canada's international shipping regime would effectively exempt cable laying from Canadian tax.

[The Chair, Conservative, James Rajotte]

Thank you, Mr. Keddy.

We'll go back to Mr. Cullen.

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

Not to dispute what Mr. Keddy is saying, but it's good to seek some clarification. It's unfortunate that we didn't have this to engage with the witness at the time. This is somebody whose livelihood depends in some measure, I think, at least according to the witness, on whether this tax measure is imposed. We seek to do no harm here.

I don't know if it's appropriate, Chair, or if our witnesses, our government officials, can add any clarity to what Mr. Keddy said.

To committee members, to be clear, what we heard from the witness who's involved in the industry is that there would be an unfair and disadvantageous position for the one sole Canadian firm who operates in laying cable on the sea floor. If that's the case, certainly I would imagine it's not in the interest of the government. Mr. Keddy's made another case.

I'm wondering if it's appropriate, Chair, to hear from our officials first before we vote on this.

[The Chair, Conservative, James Rajotte]

We'll hear from our officials, and then we'll hear from Mr. Brison.

Who would like to address this?

Mr. McGowan, go ahead, please.

[Trevor McGowan, Senior Chief, International Inbound Investments, Department of Finance]

As was noted, there were two purposes for the international shipping amendments. The first was to modernize the regime and provide more flexibility for what we would consider international shipping companies to utilize modern business structures and to fulfill the purpose of the rules, which related to what were classed as international shipping activities in the current legislation. That was expressed as the transportation of people or goods in international waters.

That has been interpreted. I think the plain meaning of that, and our interpretation at the Department of Finance, is taking, in this case, goods from point A to point B when either point A or point B is international.

When looking at the specific cases of what to exclude for the purpose of clarification, we looked at all the different things that are listed, including cable laying, which, based upon our analysis—and we confirmed with the Canada Revenue Agency that this was its view as well—had more to do with the installation and perhaps maintenance of cables at sea than with transporting them from point A in Canada to a place offshore, as you would classically do shipping.

As I said, that view was held by the Canada Revenue Agency as well, and I believe that the company that testified, I think it's International Telecom, mentioned a dispute that it was having with the Canada Revenue Agency. That was on the record from its earlier presentation. I would not want to be sharing taxpayer data, of course, but they did mention that.

Then, as was noted as well, we looked to international comparisons. We mentioned the four European countries: the U.K., the Netherlands, Denmark, and Cyprus. They apply the preferential tonnage tax regimes to shipping companies, but they do not treat them as shipping per se.

Based upon their understanding of what cable laying and shipping mean, it would seem that they are not the same thing. They were an addition, and other countries do not follow that course. That is why, when we did our analysis of the existing law, we concluded that cable laying would not apply or would not qualify. As I said, because this was intended to be a clarification of what was previously the case, it was made more explicit in the bill before us.

[The Chair, Conservative, James Rajotte]

Thank you for that explanation.

Ms. MacLean, did you want to add to that?

[Alexandra MacLean]

Could I just add a couple of things from a policy perspective? The international shipping rules, as they exist, are quite long-standing and conform to international norms in relation to shipping. They do provide effectively an exemption from Canadian income tax on this activity.

I would suggest that it's significant to expand the types of activities that are included or thought to be encompassed by the concept of shipping, and there are other activities at sea that we would expect to come forward if there is any expansion that's contemplated today.

I just wanted to make it clear that this potentially could have further ramifications and would be a bit of a departure from normal neutrality principles of taxation.