Finance Committee on Nov. 2nd, 2017

[The Chair, Liberal, Wayne Easter]

Okay. Thank you.

I want to say that the standing orders changed, effective September 18, so that parliamentary secretaries are now non-voting members of the committee.

Ms. Khera is next.

[Kamal Khera, Liberal, Brampton West, ON]

Thank you, Mr. Chair, and I appreciate your giving me the opportunity to ask this question.

Could you elaborate on adding the nurse practitioners to the list of medical practitioners who can certify the impacts of impairments for disability tax credit applicants? This is extremely important for many Canadians who don't have access to family doctors or medical doctors. You mentioned that it goes beyond the disability tax credit. Could you elaborate on that?

[Pierre Leblanc]

In budget 2017, there was a measure on the disability tax credit to add nurse practitioners to the list. That was legislated as part of the first Budget Implementation Act. What's being added here is an extension of that. There are certain other provisions in the Income Tax Act whereby specified medical practitioners can certify different things.

Let me give you an example. For the child care expense deduction, normally it's the lower-income spouse who's eligible to claim the deduction, but where the lower-income spouse has a severe impairment, then in that case the higher-income spouse is able to claim the child care expense deduction. It's a question of who can certify that status, so nurse practitioners will be added. It's taking that logic and extending it to some other parts of the income tax system.

[Kamal Khera, Liberal, Brampton West, ON]

That was all.

[The Chair, Liberal, Wayne Easter]

Okay. Thank you.

That's it, that's all, we're all in?

You have one more question, Mr. Albas, or however many you have.

[Dan Albas, Conservative, Central Okanagan—Similkameen—Nicola, BC]

I wanted to talk a little about the charitable giving of land. This is laid out under “Ecological gift—tax payable”, where in subclause 73(1) section 207.31 of the act is replaced in proposed subparagraph 207.31(1)(a)(ii) to read “in the opinion of the Minister of the Environment, or a person designated by that Minister”. Are we basically allowing the Minister of Environment to designate ecologically sensitive lands?

[Pierre Leblanc]

That's how it works now. The program is administered by the Department of the Environment and Climate Change. It's the minister who has responsibility, so she's responsible for designating on a gift-by-gift basis. If it's donated to a registered charity, such as the Nature Conservancy of Canada, she basically certifies that it meets the purposes and goals of the measure. The idea is to apply that same logic to municipalities and similar bodies.

[Dan Albas, Conservative, Central Okanagan—Similkameen—Nicola, BC]

That seems reasonable to me.

In regard to the closing of so-called loopholes, I think you might want to amend your use of language in the future. I think it's “closing advantages surrounding the capital gains exemption on the sale of a principal residence”. I've had a number of people who are quite concerned. For this year's tax, people had to note if they sold their principal residence, and I've had people ask me, “Where's this going?” Can you go over that one particular area again, and the page it's on?

[Pierre Leblanc]

The key is that it's a very important measure, the capital gains exemption for principal residences. It's something that had strong support. The idea is to make sure it's being used by the people for whom it's intended—that is, Canadian residents living in principal residences. The idea is to be better able to screen out non-residents who, through certain provisions, have been able to claim the principal residence exemption when that was not intended. It's an important part of the tax system, and the idea is to make sure that it continues to work well.

[Dan Albas, Conservative, Central Okanagan—Similkameen—Nicola, BC]

Can you give me an example?

[Trevor McGowan]

The principal residence exemption gives you an exemption on the sale of your home, one per family, and it's limited to Canadian residents. If you sell your home partway through the year, you'll most likely buy a new home if you're moving, so you will have had two principal residences in that year. As I said, you can only have one principal residence at a time. To get around that problem, where you don't want to preclude the principal residence exemption just because you moved, the rules give you a plus-one year. They say that we'll take a look at when you own the house and we will give you a year on it to take into account situations where you move.

A technical issue arose when a non-resident engaged in certain planning and bought and sold a Canadian house or real property. There was an argument that they could claim the principal residence exemption for that one year just because of that plus-one year that was given in order to make sure the rules worked for Canadians who moved from Toronto to Ottawa, let's say. That's an example of what might be called a loophole.

[Dan Albas, Conservative, Central Okanagan—Similkameen—Nicola, BC]

Is there any loophole or “advantage”—I am trying to learn the newspeak here—that would apply to a Canadian citizen?

[Trevor McGowan]

I—

[Pierre Leblanc]

No, not to residents of Canada.

[Dan Albas, Conservative, Central Okanagan—Similkameen—Nicola, BC]

This is only for non-residents?

[Pierre Leblanc]

That's the idea. Another example would be non-residents using Canadian resident trusts as a way to access the principal residence exemption in a way that wasn't intended.

[Dan Albas, Conservative, Central Okanagan—Similkameen—Nicola, BC]

Okay. This is again someone who is a non-resident who could use other entities to purchase the property and claim it that way.

[Trevor McGowan]

Citizenship doesn't tend to matter for Canadian income tax purposes. It's residency.

[Dan Albas, Conservative, Central Okanagan—Similkameen—Nicola, BC]

Yes, a resident or—

[Trevor McGowan]

There are changes relating to the use of trusts to claim the capital gains exemption, which essentially restrict it to certain classes of trusts, to spousal trusts and the like, and those, just to be clear, could prevent multiplication of principal residence exemptions as between Canadian residents.

Certainly the measure I discussed with a plus-one year and that loophole is purely.... Also, a lot of the trust planning is targeted at non-residents, at non-residents coming in and buying Canadian property through a Canadian resident trust, but I don't want to say there's no way that some of the trust changes can't affect Canadian residents.

[Dan Albas, Conservative, Central Okanagan—Similkameen—Nicola, BC]

Fair enough.

[The Chair, Liberal, Wayne Easter]

Thank you, gentlemen, for spending an hour and 20 minutes with us, or longer than that. It was an hour and 50 minutes.

We'll call up the witnesses on part 2 and see if we can at least get the summary done. Maybe we can get it all done.

Thank you, Mr. McGowan and Mr. Freda. It was quality time.

Now we are looking at part 2 in terms of amendments to the Excise Tax Act and to related legislation, the GST and HST measures.

With us are Mr. Mercille, who is the senior legislative chief, sales tax division, Finance Canada, and Mr. Achadinha—I might not have pronounced that correctly—who is the legislative chief, sales tax division, tax policy branch.

Welcome. The floor is yours. Thank you for your endurance.

[Pierre Mercille, Senior Legislative Chief, Sales Tax Division, Tax Policy Branch, Department of Finance]

Good afternoon.

Part 2 of the bill makes changes to the GST and HST. The amendments appear in clauses 106 to 164.

I'm going to describe the measures in the order they appear in the summary, with only one exception, given that two of the measures are more closely linked.

I want first to say that all the amendments in part 2 of the bill are technical in nature and generally correct small deficiencies to ensure that the rule applies as intended. All of the measures in part 2 of the bill, except the PSB rebate measure, were released for consultation for the first time in the summer of 2016. These measures have also been confirmed in budget 2017, and they were re-released for consultation in the summer of 2017 with a small number of improvements. No request for amendment was received from stakeholders during the second consultation.

The first measure makes technical amendments to the GST/HST pension plan rules. Existing GST/HST rules ensure that pension plans receive the same GST/HST treatment whether pension expenses are incurred by an employer participating in a pension plan or directly by a pension trust or a pension entity of the pension plan.

These rules also generally provide a 33% GST rebate to pension trusts and pension corporations in respect of their expenses and their expenses that are deemed to have been incurred. These rules are fairly sophisticated and came into force relatively recently, in 2009. Certain small deficiencies and mistakes had been identified over the years by stakeholders and internally by the government. The proposed measure makes technical amendments to these GST/HST rules to clarify certain points, correct technical deficiencies or errors, and simplify compliance.

The second measure I'm going to talk about deals with GST/HST treatment of master trusts and master corporations. What master trusts and master corporations do is hold and invest funds of individual pension plans, and planned pension plan corporations too. They do that in order to diversify the risk and reduce the costs. These amendments ensure that the same GST/HST treatments apply to pension plans and related expenses whether the funds of the pension plan are invested directly in a trust or a corporation of a single pension plan, or whether the money is being invested in a master corporation or a master trust.

The third measure that I'm going to talk about, and it's part of the first item in the summary, is a measure to make technical amendments to the GST/HST rule for financial institutions.

Financial institutions are subject to special GST/HST rules, and this is due to the complexity of the financial service industry. Because financial services are exempt under the GST/HST, financial institutions are generally not allowed to recover, through input tax credit, the tax they pay on expenses they incur to provide those financial services. This is contrary to general commercial activity businesses, where they charge tax on their output but they claim an input tax credit on their inputs.

These rules are fairly sophisticated in certain cases, and technical anomalies are identified from time to time. The measure here makes technical amendments to these rules to clarify certain points and reflect amendments to the Income Tax Act. Concepts of the Income Tax Act are referred to in the Excise Tax Act, and sometimes there's a modification in the Income Tax Act and the Excise Tax Act has to catch up. Also, there are rules to simplify compliance.

The fourth measure, which is the third item on the summary, makes a technical amendment to the GST/HST drop shipment rules. The drop shipment rules help Canadian businesses that sell to non-residents by ensuring that non-resident businesses do not incur unrecoverable GST/HST when they acquire goods in Canada.

The amendments that are made to those rules provide a new tax relief mechanism, and this is in a situation where an existing tax relief mechanism was not functioning for technical reasons. The amendments also extend the application of the drop shipment rules in respect of certain leased goods and generally make technical improvements to those rules.

The next measure relates to municipal transit. Municipal transit services are exempt under the GST/HST. This measure clarifies that the GST/HST exemption for municipal transit service also applies to supply of tickets, passes, and other similar rights entitling individuals to receive municipal transit services. The amendment is proposed to reflect the modern way in which transit services are supplied and paid for, which can often be better characterized as supplies of rights as opposed to supply of service.

In practice, these amendments do not change anything, because they simply codify the ways the CRA has been interpreting relief over the years.

The next amendment would improve the manner in which public service bodies can claim public service body rebates. For the purpose of the GST/HST, public service bodies are entities such as municipalities, schools, public colleges, public hospitals, charities, and substantially government-funded non-profit organizations.

The amendment would provide these public service bodies with an improved flexibility in claiming their rebate of the GST/HST. It would generally allow public service bodies to claim, in a subsequent claim period, a rebate of GST/HST that has been paid in a previous claim period, for a period of up to two years. This is a simplification measure, because it's less burdensome to claim in a subsequent period a rebate that you may have forgotten in a previous period than it is to use the current process, which is to make an amended rebate claim.

The last measure in part 2 is a housekeeping amendment to make the legislative provisions governing GST and HST more precise and consistent. The measure does not amend the application of the GST or HST. Essentially, it is meant to make the English and French versions of the act consistent, update references to certain tax-related terms, make changes related to bijuralism, and correct errors, references and other items of that nature.

That concludes my explanation of the measures in part 2 of the bill.

[The Chair, Liberal, Wayne Easter]

Go ahead, Mr. Fergus.

[Greg Fergus, Liberal, Hull—Aylmer, QC]

Thank you for explaining part 2, Mr. Mercille. I don't think any of it was too controversial.

I would like you to reassure me on one point, though. Did the Quebec stakeholders you consulted have any concerns about the GST on services and supplies provided by transit authorities, for example?